Last updated May 9 2023
The candle breadth indicator is generated based on assessing the dispersion of intraday moves across the 1,000 largest US stocks.
Using machine learning, we look at how the shift in these candle patterns, specifically the change in their statistical momentums, and how that can predict price action in the overall market.
The indicator can be used to indicate potential market peaks and troughs. A value greater than or equal to 95 shows the high probability that we could be at a peak, versus a value less than or equal to 5 might suggest a market trough.
The indicator has worked best for bullish episodes with a short horizon (~5 trading days) and bearish episodes have shown the most success with a 12 day trading horizon. For the bullish case, we could see returns start to rise 20 days forward too.