CBI Reaches 10 for 1st Time Since July 2010 – Signals a Bounce

Despite the market move higher on Thursday the Quantifiable Edges Capitulative Breadth Indicator (CBI) rose up to 10.  The CBI is basically a measure of the number of capitulative selling triggers that are active among S&P 100 stocks at any one time.  Ten is a level I have discussed numerous times in the past.  Readings this high often lead to short-term rallies.  Below is a strrategy I’ve shown before that utiilizes the CBI.  It looks at entering the SPX when it reaches 10 or higher and then exiting when it returns to 3 or lower.

As you can see, results here are very good.  It isn’t an exact timing tool, though.  The average, runup and average drawdown are both about 3.5%.  So there is has been quite a bit of volatility associated with these setups.  The average trade takes 8 days to complete.

A detailed description of the CBI may be found here.

Numerous studies and posts associated with the CBI may be found here.

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