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Market Bottom Detection with Diffusion Indicators

David Aronson has developed a diffusion indicator based on rates of change to detect market bottoms in the NDX 100 universe. The indicator averages the percentage of stocks rising or falling over the prior 63 days. A reading below -0.80, which occurs in only the 1st-2nd percentiles, has correctly identified market bottoms in the past. Based on the current reading near -0.89 in December 2018, Aronson believes an intermediate scale rally in the NDX100 is imminent or has already begun. He provides charts comparing the indicator to the NDX100 price index to demonstrate its effectiveness in bottom detection.

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276 views6 pages

Market Bottom Detection with Diffusion Indicators

David Aronson has developed a diffusion indicator based on rates of change to detect market bottoms in the NDX 100 universe. The indicator averages the percentage of stocks rising or falling over the prior 63 days. A reading below -0.80, which occurs in only the 1st-2nd percentiles, has correctly identified market bottoms in the past. Based on the current reading near -0.89 in December 2018, Aronson believes an intermediate scale rally in the NDX100 is imminent or has already begun. He provides charts comparing the indicator to the NDX100 price index to demonstrate its effectiveness in bottom detection.

Uploaded by

fredtag4393
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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  • Introduction and Indicator Description
  • Footer Information

David Aronson Picking Bottoms

Hi All

I have been looking into diffusion indicators to find signs of market bottoms and
tops. My initial efforts were summarized in a booklet Technical Indicator
Engineering for Machine Learning – now hailed as one of the worst selling
books ever to appear on Amazon.

Bottoms are much easier to detect than tops….much much easier, but we all
know that.

Below is a diffusion indicator based on Rates of Change that has some value for
bottom detection. Just a simple point to point difference. I applied it to every
stock in the NDX 100 universe. Each stock as graded as positive (1), Negative (-
1) or unchanged (0) over the prior 63 days (about a quarter). Then I averaged
all the stocks to get an average reading. So it’s a net fraction of stocks rising or
falling over the prior 63 days. It its recent negative extreme (about 12/24/18) it
was -0.89.

Bottom line: if we are not at the bottom in the NDX100, we should be close to
at least an intermediate scale rally.

Best
david a

The indicator for its complete history plotted against the NDX 100 price index.

Next a set of conditional color plots of the NDX100, colored GREEN if the
indictor is < -0.80, a value that lies between the 1st and 2nd percentile of all
readings. Because some of them are hard to see I have circled them.
Next a set of conditional color plots of the NDX100, colored GREEN if the
indictor is < -0.80, a value that lies between the 1st and 2nd percentile of all
readings. Because some of them are hard to see I have circled them.
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