The Force Index: Developed by Dr Alexander Elder, the Force index combines price movements and volume to measure the strength of bulls and bears in the market. The raw index is rather erratic and better results are achieved by smoothing with a 2-day or 13-day exponential moving average (EMA).
- The higher the positive reading on the Force index, the stronger is the bulls' power.
- Deep negative values signal that the bears are very strong.
- If Force index flattens out it indicates that either (a) volumes are falling or (b) large volumes have failed to significantly move prices. Both are likely to precede a reversal.
My point on these charts is to look at the brown color for the Force index as it relates to the market movements over several months. As that brown graph gets weaker with each rally, it means the bulls have less and less power and volume and money pushing the market higher. Most recently, this last market rally has been the weakest in months according to The Force Index indicator, and again, helps to provide me with clues that a C wave down is still due.
This may help you all understand my apprehension near term on the broader markets and why we have positioned or recommended positioning in the EDZ and/or the TZA ETFs. The market may bounce a bit higher early in the week to complete the zigzag bounce from the Feb lows, but I expect a re-test of the Jan/Feb lows to commence. If I'm wrong, it won't be the first time nor the last. . .
SP 500 Weekly Chart
NYSE Composite ChartóDaily Chart
David Banister is the Chief Investment Strategist for ActiveTradingPartners.com and for the soon to launch TheMarketTrendForecast.com. You can review all of our offerings at www.TheTechnicalTraders.com.