The Pep Indicator and Major Buy signal | Moon Run

The Pep Indicator and Major Buy signal

When determining when to re-enter the market after a major selloff, I came up with the idea based on price and up/down volume. This was not an easy task, and I had looked around for quite some time. My first two concepts were to construct indicators based on Nasdaq New Lows and New Highs. The first was All Clear, the second was Intermediate Buy.

All Clear signal concept is based on finding out if the market has been crushed to oblivion with the number of New Lows is at least twice greater than the number of New Highs on the buy signal date. The back-test looks great starting in 1987, but live testing revealed that this alone was not sufficient. The reason is that false buy signals can be generated when the market has bounced but the force of the internal readings is weak.

Next, the Intermediate Buy signal initially was to find quick trades where the investor can get in after a sharp bounce and get out after a short period of time. The problem with this is in 2016 and 2019, it lead to a sustainable rally. Exiting early after this reading would have missed sizeable returns.

So the last effort is the Pep Indicator. This generates validated readings by a sharp move up determined by the IWM price and Nasdaq Up/Down Volume data. This was invented in 2017, and has held up through the years. The only time period from the back-test from 1987 that lost money according to the IWM readings is from 7/23/2008 to 9/5/2008, where it lost 0.40%. This is really impressive.

Determining valid buy signals based on the Pep Indicator was the final key to the problem of timing the market, and the formula can be found in my book, Before the Bear Strikes.

Bryan Johnson
Moon Run Report