Each day after market close the database is updated and scanned to determine how many of the stocks are above their 50 day simple moving average. Each day's answer is used to recalculate a 20 day simple moving average for the tally of stocks closing above their 50 day simple moving average. That is the red line you see on the chart. When that red line drops below a reading of 9 and starts up again, I use it as a low risk intermediate term entry point into gold stocks that I like. When the red line gets over 26, I become cautious and start thinking whether to sell out, sell calls, or do nothing.
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The theory is that it takes a lot of selling to put at least 26 stocks of a 36 stock database from the same sector under their 50 day simple moving average and keep them there long enough for a 20 day simple moving average to drop below 9 and a lot of buying for it then to rise up to 26 on the same 20 day basis It's purely sentiment, a measure of fear and greed. Strangely, the most difficult thing to do is buy when the sentiment is low, even though history shows time and again that the selling will stop soon. For me the key is: be sure the sector is in a bull market and wait for that 20 day simple moving average to start back up. That means that many of the stocks have stopped falling.
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No indicator is foolproof. This one is no different and should be used in conjunction with other indicators like MACD, RSI, and Stochs combined with some common sense.