The Use of Index-Specific Market Breadth and Index-Over-Moving-Average Indicators in Stock Trading Strategies

We examine the return predictive power of two popular types of technical indicators: Market Breadth ratios and Index-Over-Moving-Average (IOMA) percentages. The first type includes the Market Breadth and TRIN ratios (calculated based on several different indexes) and the second type includes IOMAs (calculated in three different period lengths: 20, 50, and 200 days). Both the Market Breadth ratios and IOMAs can be calculated on the same index or on another broader market index or portfolio. We test whether these indicators, when based on a broader market index or portfolio, provide greater return predictive power than when calculated from the same index or portfolio in question. We also seek to determine whether these indicators are more likely to reflect momentum or reversal. To build on the findings from the regression results, we test monthly market timing schemes. Our results suggest that some technical strategies may be effective in predicting future market movements.