Diagnosing market tops
by Thomas Aspray
In the June 1988 issue of Stocks & Commodities, I discussed a few of the more than 250 indicators that I
use for stock market timing. I applied these indicators to some of the recent stock market bottoms. In this
article, I would like to show you how these indicators reacted at several market tops, including charts of
the current market. The formulas for these indicators were given in the previous article. Unfortunately,
the formula for the McClellan Oscillator was incorrect. The correct formula for the McClellan Oscillator
is the difference between a 19-day exponential moving average of the net advance-decline and a 39-day
exponential moving average of the net advance-decline.
1986 stock market
The charts in Figure 1 end on October 1,1986. There are two significant tops on this NYSE Composite
Index chart. The first occurs in early July 1986 (just after point 3) as the Dow Jones Industrial Average
(DJIA) and NYSE declined 10% in about six weeks. The NYSE Composite had made a third higher high
at point 3, in the 146 area. As the market was moving higher, the A/D line made three lower peaks at
points 1,2 and 3. This bearish divergence was indicated by the slope of lines A on the NYSE Composite
and NYSEA/D Line charts.
Just prior to the highs at point 3, the A/D line violated an important support at line B, a very negative
indication. The rebound in the A/D line was very weak as it fell well short of the highs at point 2. On the
first sharp down day, this key support was violated with a vengeance.