Chart of the Week – April 11, 2004
Brett N. Steenbarger, Ph.D.
The Institutional Composite that I follow on the Weblog is a weighted cumulative total of buying transactions by large market participants minus selling transactions. In a strong market, this total will slope upward as price rises; in a weak market, the total will follow price lower. When prices move higher or lower, but the Composite fails to confirm these moves, very often the market move will be reversed. Below is a chart of the Institutional Composite. Note how the recent market rise has displayed far less net buying by large participants than previous rises.
When we break the Composite into Buying and Selling components and create cumulative totals of each, we can see whether any given market move is attributable to changes in the buying behavior of the large participants, their selling behavior, or both. Below is a chart for the Buying of the large players. Notice that Buying held up very well during the March decline, but now has made little headway during the recent move upward.
When we take a look at the cumulative line for selling, shown below, we can see that large market participants were aggressive sellers during the March decline. The selling line has bounced nicely since the market lows, but is nowhere near previous peaks.
All told, what we can see is that Buying held up well during the March decline, which helped keep that decline from becoming a full-fledged bear move. More recently, Buying has been tepid during the market rise, which I believe will keep the market from launching a new bull leg.
In general, we want to see Buying and Selling in sync—and a nicely trending Composite—during an intermediate market trend. When the components are not in sync, there is an enhanced likelihood that the market moves will be reversed.
Can this unique market measure be applied to short-term (intraday) trading? Might we validate intraday moves by the relative behavior of Buying and Selling components of the Composite? These are interesting questions that I’ll tackle next week.
Brett N. Steenbarger, Ph.D. is Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and writes occasional feature articles on market psychology for MSN’s Money site (). The author of The Psychology of Trading (Wiley; January, 2003), Dr. Steenbarger has published over 50 peer-reviewed articles and book chapters on short-term approaches to behavioral change. His new, co-edited book The Art and Science of Brief Therapy (American Psychiatric Press) is due for publication during the first half of 2004. Many of Dr. Steenbarger’s articles and trading strategies are archived on his website, .