The chart below illustrates my Breadth-Volume Oscillator from the summer of 1995 to the present, charted along the S&P 500 for the same period. I cannot think of a more vivid depiction of an oscillator perfectly tracking the index. As you follow along with the enlargements below, you will see some short-term failures too, but they were pretty insignificant.

Let's try to understand in broad terms what it is measuring. Most of the indicators I use are very simple. The simpler the better, in my opinion. For example, the VIX indicator is simply the 20-day moving average of the daily VIX, as reported by the CBOE each evening. The Breadth-Volume Oscillator, on the other hand, is related to the ARMS indicator, which is complex. While the two indicators are related, in my opinion the Breadth-Volume Oscillator presents the data in a much more vivid way.

The ARMS indicator is complex because it uses four measurements; advances, declines, up-volume and down-volume. The formula is (advances/declines)/(up-volume/down-volume). The Breadth-Volume Oscillator is based on the cumulative difference between the advances and declines in relationship to the cumulative difference between the up-volume and the down-volume. You can see that the Breadth-Volume Oscillator is similar to the ARMS, but it manipulates the data differently. The following three charts offer a close-up of the Breadth-Volume Oscillator. Each one covers a different section of the chart below. Below, buy signals are indicated with green arrows, and sell signals with green.

Breadth-Volume Oscillator Long Term Chart Through Tuesday, August 20 2002

The chart below covers the period from 8/2/95 through 3/31/98. The green arrows mark buy points and the red arrows signify sells. The first green arrow in June 1996 points to a new high by the Breath Oscillator, above the previous high in November 1995. There followed a brief sell signal, which was reversed just two months later. There were two more buy signals and then a whipsaw sell signal in late 1997. As you see, there were very few signals given by the indicator, just two cycles in 2 years.

Breadth-Volume Oscillator Through April 1, 1998

The next period, from 4/1/98 until 2/2/2000, contained just two more signals. The first one in November 1998 just reiterated the buy signal from the previous chart, in January of that year. Then there was a whipsaw in the summer of 2000, followed by two sell signals in December 2000. Now keep in mind that this is long term indicator. Don't expect it to micro-time the market. As a long term indictor, though, it would have kept us out of trouble for 5 years and in the market when it was wise to be in.

Breadth-Volume Oscillator Through February 1, 2001

Finally, the chart below shows the present time. Notice that after the sell signals in November and December 2000 you were kept out of the market for a year and a half, and we have just today gotten the first buy signal. The vicious decline in the indicator ended just a month ago, in July, and made a new low on August 6, just last Tuesday. It is now rising, and has climbed above its recent high. That's how it gives a buy signal, the first in two years and the second since the buy signal just after the "Asian Contagion." It is abundantly clear that the 9/11 reaction did not even make a ripple in the indicator. Nor did the big March 2001 rally.

I have been watching this indicator for the last 2 years. Through that entire period I have excluded it from my Summary Index, because it wasn't saying anything. It was only in the last three months, as it accelerated to the downside, that I could make any sense out of it. This was not a case of trying to fit the data to the situation. The math has been the same since the beginning.

Breadth-Volume Oscillator Through Tuesday, August 20 2002