No. of Recommendations: 20
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.PNGAs 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.
