The market has entered a phase of some type of correction. How deep will this go and how long will it last? Obviously I do not know, but that has not stopped me from looking for some Tea Leaves that may provide me with some insight. A Tea Leaf that stood me in some good stead in the recent past has been the New High/New Low Ratio as presented by Telechart.
Essentially the process is as follows;
1. Look at the depth and duration of correction in the New High/New Low Ratio
2. If the ratio bounces back with a 1-3 days, the correction in the market (SP-500) is usually shallow and of a shorter duration.
3. If the ratio stays below 10 for a prolonged time, the correction is usually deeper and prolonged.
4. Below I am posting some examples:
(All charts created with Telechart TC2007 and none of this investement or trading advice of any sort. These are just my opinions and observations).
I will watching this ratio closely over the next few days. If it bounces back to above 20-30 in the next 1-3 days, IMHO this correction will be shallow. The longer this ratio stays below 10 -20, IMHO the longer and deeper will this correction go.