RELATED TOPICS --> | Absolute Breadth Index (ABI) Price Momentum Trading Oscillator (PMTO) |
                               | PowerStocks Trading Oscillator (PTO) | TroughFinder-II | SwingTrader-I |

We have many indicators and systems we use to pick out market troughs, that culminated in our highly popular TroughFinder signal system. As we have stated in the past, picking troughs is much easier than picking market tops, as troughs are rapid panic-then-greed driven affairs whereas market tops are gradual drawn-out processes driven by complacency.

The PowerStocks PeakFinder is a purpose-built signal system that attempts to warn subscribers when we are entering risky periods with high probabilities of corrections. PeakFinder is only targeted at large and medium sized tops/peaks, whereas the PowerStocks Trading Oscillator (PTO) used primarily by our SwingTrader product, is targeted at picking out more minor peaks that occur on a much more regular basis. However, whenever SwingTrader sees a PeakFinder signal it ignores all else and SELLS.

Since picking out market tops and peaks is far more complex than troughs, PeakFinder needs to deploy the following arsenal of tools to achieve its task. We tested over 30 breadth and price indicators for the ALSH index going back 12 years to arrive at this list. Each of these indicators has been calibrated by us to allow PeakFinder to guage the relative risk when a signal trips a threshold.

1. The Absolute Breadth Index (ABI)
2. The PowerStocks ALSH Price Momentum Trading Oscillator (PMTO)
3. Bearish Divergences detected in ABI and PMTO
4. Divergences detected in the PowerStocks Disparity Indices
5. The standard, old-as-they-come Relative Strength Index (RSI)
6. Divergence in our buying-demand and selling pressure charts in JBAR
7. Percentage 52-week high Index (in development)
8. Percentage unchanged shares (in development)

Whilst all of the above methods were found to be "the best" at picking out top-forming behaviour, none of them could repeatedly detect ALL peaks. Through the use and calibration of a COMPOSITE signal though, (combining the signal of all of the above into one signal) PeakFinder detected and forewarned of 85% of all major/medium market peaks in the last 12 years which would have allowed an investor to bypass most major corrections and certainly ALL major stock market crashes. We are busy researching additional effective tools for market-topping process identification and these will be added to PeakFinder over time (such as item 7).

All the above indicators used by PeakFinder appear in JBAR and currently PeakFinder alerts are posted to the HeadsUP! alerts system.

It does not matter which investment strategy you are deploying, be it long-term, medium-term or short-term - when PeakFinder gives a signal you need to sit up and take notice, even if other timing models you are following are still showing all-clears.

PEAKFINDER CHART
We have devised a PeakFinder Signal and Intensity chart similar to that we pioneered with TroughFinder. During our feedback sessions with subscribers, they all commented how simple this format was and they requested we use this as the basis through which to represent the PeakFinder signal. PeakFinder naming conventions are adapted and paired with TroughFinder where we take the name of the last Trough detected (such as Dennis) and adopt that name for the next peak we are hunting for.

PeakFinder represents MINOR peaks generated from SwingTraders' STO, M10D and PTO as well as major peaks detected by ABI, RSI, PMTO and other divergences. The chart is displayed below after we had just signalled Peak-Ida and commenced a watch-signal for Trough Joaquin on 28th October 2009.



The minor troughs that will occur in the "normal" course of the market, made up of PTO, STO and M10D will generate signals below the yellow line (they add up to 3 max).

When PeakFinder goes above the yellow line, some more serious things are in play. In the above chart you can see that on the day the JSE peaked with Ida we had two minor trough signals showing, namely STO and M10D plus we had more serious top-forming signals showing such as  the RSI exceeding 70% (overbought), ABI hitting the major peak line (a serious signal in our backtests) and PMTO hitting the overbought threshold (another serious signal). Incidentally on that day we issued a warning to subscribers through HeadsUP!

You can go and view our 11 year calibrations of ABI and PMTO to see for yourself how infrequent they are but how high-confidence they can be in signalling a topping event. We have done the same for RSI (just havent documented it on the website yet.)

To see some of the PeakFinder logic and how it used all the indicators to derive a signal for Ida, we have posted a free JBAR report on the day Peak-Ida concluded together with some commentary  : "Peak Spotting : how PeakFinder used JBAR reports to determine peak Ida"

We will obviously continue to calibrate PeakFinder over time and as the market evolves through its various cycles, the thresholds we need to be concerned about and shown by the yellow orange and red lines may adjust, but if ever a signal gets over 7 you can conclude that its time to get the hell out the market.

On 20th May 2008, the day before the great 2008 crash commenced, PeakFinder was reading a NINE! We are busy cataloguing the state of the PeakFinder chart in the last 5 major stock market peaks and will post them in our JSE "Moments in Time" archives for viewing shortly.


RELATED TOPICS --> | Absolute Breadth Index (ABI) Price Momentum Trading Oscillator (PMTO) |
                               | TroughFinder-II |
 
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