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As to the originator of the Nasdaq NH-NL Bear Catcher, and the Bear Catcher term itself, let me take a few moments to educate the few that remain following Mechanical Investing. I've created a chart to illustrate how this indicator works. It is important to understand its strengths, and also, its weaknesses.

It is calculated by subtracting today's components in the Nasdaq Exchange that are hitting new 52-Week Lows from the same that are hitting new 52-Week Highs. You then apply a nine market day weighted moving average of these values. If your values are in column D of Excel you can use this formula starting at cell E17: =(D9*1+D10*2+D11*3+D12*4+D13*5+D14*6+D15*7+D16*8+D17*9)/45 There are other simpler ways to accomplish this but this method works easily for those not proficient at Excel.

Bullish signals: The value rises from below -9 to above that value.
Bearish signals: The values falls below zero after being above zero.

I'll put the spreadsheet on my blog for those who would like to obtain it.

https://www.zeelotes.org/Nasdaq_NH-NL.PNG

As you can see, this method got you out very near to the peak in November 2021 and pretty much kept you out all the way down to the bottom in late 2022. Actually, it turned bullish on 1/10/2023. This illustrates the first weakness of the indicator. It cannot pinpoint a market bottom. Other indicators must be used for that purpose, some of which I've shared with the Mechanical Investing community over the years. The other weakness is that it typically does not pinpoint the peaks in the market either. For example, the market turned negative on 2/2/2023. This indicator turned bearish on 2/21/2023. Consequently, it clearly works best confirming a change in the market trend, and not at alerting one quickly to that change.

Note how it doesn't turn back to bullish until after the market has already risen a considerable amount from the bottom on March 13th, 2023. If you are holding inverse or short positions during the time it is saying to be bearish you are by definition getting slaughtered.

Therefore, in summary, this indicator is great for confirming, and also great during a bear market from getting you whipsawed in and out of the market. As the chart illustrates, it remains bearish through all of 2022. So it has its uses, but you have to understand it well before using it for your investing.

Thank you, zeelotes, excellent explanation.

If I were to test how the BCCs have done post-discovery, what start year should I use? I believe 2010 was the first full year that all 3 BCCs could be used for market timing. Would appreciate if you could confirm.


Thanks,
mechinv

I'm not sure, but 7/22/2008 is the first time I mentioned my Nasdaq NH-NL.

http://www.datahelper.com/mi/search.phtml?nofool=y...

On 10/24/2008 is the first time I mention Catcher:

http://www.datahelper.com/mi/search.phtml?nofool=y...

So I would guess that 2010 is safe.

BUT - if you are going to use these in combination or alone to create a trading system you've completely missed the point of my post.

if you are going to use these in combination or alone to create a trading system you've completely missed the point of my post.

Agreed. If I understood your post correctly, you said that although NH-NL did help avoid the 2022 bear market, it stayed bearish too long, and did not get you back in early enough to capture all the bull market gains of 2023. And your main point was that "it has its uses, but you have to understand it well before using it for your investing." Which, of course, I agree with.

Also, as a practical matter, most investors don't sell completely out of stocks and go 100% to cash, due to the hefty taxes they would incur in taxable accounts.

Mechinv wrote: Also, as a practical matter, most investors don't sell completely out of stocks and go 100% to cash, due to the hefty taxes they would incur in taxable accounts.

I threw this together based on one of my holdings - META. This is based on using my actual signals and comparing a LTBH approach to actually selling the position completely and moving to cash and then back into the position at the next signal.

Based on a 15% LT Capital Gains Tax you end up with $776,633 based on buying at the March 23rd, 2020 signal, and selling at the 11/18/2021 signal to exit using my overall model perspective and the Nasdaq NH-NL Bear Catcher.

In contrast, holding from the start and not selling you'd end up with $307,036. There is a pretty significant difference if my calculations are correct. Please go ahead and offer corrections if/where needed.

Trade META Using Timing Signals  Date        META Close  % ROI            Cum ROI   Pay Tax   Tax Paid  
BUY                              3/23/2020   $148.10                      $100,000  $100,000            
SELL                             11/18/2021  $338.69     128.69%          $228,690  $209,387  $19,304   15%
BUY                              10/12/2022  $127.50     4%               $237,838  $217,762            
SELL                             2/6/2024    $454.72     256.64%          $848,232  $776,633            
                                                         Cost of Trading            $71,598             
                                                                                                        
Trade META Using Timing Signals  Date        META Close  % ROI            Cum ROI   Pay Tax   Tax Paid  
BUY                              3/23/2020   $148.10                      $100,000  $100,000            
SELL                             11/18/2021  $338.69     128.69%          $228,690  $202,952  $25,738   20%
BUY                              10/12/2022  $127.50     4%               $237,838  $211,070            
SELL                             2/6/2024    $454.72     256.64%          $848,232  $752,767            
                                                         Cost of Trading            $95,465             
                                                                                                        
LTBH                             Date        META Close  % ROI                                          
BUY                              3/23/2020   $148.10                      $100,000                      
SELL                             2/6/2024    $454.72     207.04%          $307,036                      

using my overall model perspective

Yeah, but what is that exactly?

Philly asked: using my overall model perspective -- Yeah, but what is that exactly?

It is a combination of Long, Intermediate, and Short Term Indicators to create a score that is either bullish or bearish. I believe some here have compiled archives of all my posts over the years detailing many of the indicators that go into these composite scores. If you are genuinely interested I'd begin by perusing my past posts and creating a composite yourself. This is what I call my Model Perspective.

Here is a snapshot of these scores combined to guide my investing.

https://www.zeelotes.org/Combined_Bearish_Scores_2...

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