I’m beginning to see some indicators hit truly extreme readings – most of them breadth indicators. One indicator I track that finally spiked up to an extreme reading Monday is the Capitulative Breadth Indicator (CBI). It now stands at 12 and could spike quite a bit higher on Tuesday if the market fails to rally. I’ve discussed in the past that there is a strong bullish edge when the CBI moves over 10. A “system” I’ve discussed in the past is buying the S&P when the CBI reaches 10 or above and then selling when it returns to 3 or lower. This system was perfect from 1995 until July 2008. In July it suffered its 1st loss and in October it suffered its 2nd loss. November spike above 10 nailed the bottom and turned into the a 19% gain – the biggest ever for the system. Some detailed statistics are below ($100k/trade, 1995-present):
The CBI is one indicator suggesting a bounce is near.