Bottom Fisher
A market momentum indicator designed to help identify market bottoms.
Introduction
It should go without saying that a market’s greatest potential emerges immediately following its lowest point. This happens when the momentum of all the constituents in a market average or any series with many components shifts from a downward trend below zero to a downward trend below zero. The change from the “winter” to the “spring” posture in Figure 1 symbolizes this. In this instance, momentum could be shown by a ROC or an RSI. However, a smooth momentum series, like a MACD or stochastics, is ideal since we are looking for a series that provides a somewhat intentional shift of direction. The Bottom Fisher actually makes use of the KST.
Figure 1
The difference between the number of Dow stocks with short-term (daily) KSTs in the winter and spring positions, respectively, is used to compute the Bottom Fisher.The indicator decreases when more and more groups encounter winter as opposed to spring.The indicator bottoms and a purchase signal is produced when this divergence begins to reverse upward. To ensure that fluctuations in the indicator match those of the Dow, S&P, or any other market average to which it is being compared, the real data is shown inversely.
The indicator must drop to one of the oversold levels shown in Chart 1 and then reverse for a reversal to be considered. As demonstrated by the May 2012 signal in the chart below, these indications are typically dependable but far from flawless. Waiting for a positive MA crossing of the!PRBFISH is therefore a more cautious strategy. In this instance, a 10-day SMA is the MA in use. Nevertheless, reversals that form at or below the 11 oversold level are typically slow and intentional, with minimal false upside reversals.
Chart 1
Chart 2 compares the Bottom Fisher to the S&P Composite ETF, the SPY, where the results are pretty similar to those for the DJIA.
Chart 2
It’s crucial to remember that the Bottom Fisher’s sole purpose in life is to call bottoms, even counter-cyclical ones, and it does so fairly well. Because the indicator was created especially to spot short-term buying opportunities, there are far too many exceptions to utilize this strategy, although occasionally it can signal a top with a timely reversal from an extended position.
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