$$ Today's Advance Decline Oscillator Breakout & Its Impact on the Forecast

Today I received a couple of excellent questions in the "comments" section of my post about T12:

do you have any comments on the breakout in your oscilator today? is this a new T? or will it form a bearish T?

Here is what the reader is asking about:

As you can see, there was a breakout today in my Advance Decline Momentum Oscillator, interrupting the divergence pattern that was in progress since September 13.  This is not unusual.  Something very similar happened in March of this year:

If you'll notice, there was divergence from March 5 to late March, but price kept powering up.  The oscillator breakout we saw today is similar to the oscillator breakout on April 14.

Now, in April we got some divergence off that April 14 oscillator peak into the final price top on April 26.  But then, the Money Flow T (see this morning's video) was projecting an April 26 top.  Here, the Money Flow T is projecting an October 13 top.  So we may not get any further divergence - we'll have to see.

If we do get some more divergence here based off today's oscillator peak, what is likely happening is that we are forming a major top where October 20 will be at the middle of that divergence.  So, instead of a cycle low on October 20, it will turn out to be a cycle peak.  As you can see, the next date on that cycle is December 13 which is approximately where the nulled echo low should fall.  

If it plays out this way, the late August low to the October 20 peak to the December 13 low pattern will look very similar to the pattern on the second chart above - early February low to the mid April peak to the early July low.

To summarize, I am currently expecting one of two scenarios to unfold: 

1.  October 13 marks an interim top; we correct into October ~20 then push higher into the second week of November before declining rapidly into the nulled echo low.

2.  October 13 starts a fresh divergence topping process where October 20 will be the middle of the divergence, suggesting a final price top for T13 on or about ~October 27.  From there, there is a short term correction and then a rally into November 12 that falls short of the October high and fails, leading to a steep decline into the nulled echo low.  Basically, a fractal of what happened in April-May.

We should know one way or the other very soon.

$$ A Unique Momentum Oscillator

The Advance Decline line has been around forever, as has the CBOE Put-Call ratio.  I divide the AD line by the Put-Call ratio to get a momentum oscillator that provides excellent bullish and bearish divergence signals (for when trends are about the change) as well as positive and negative reversal signals (for when trends are about to continue).

As an example of the latter, compare how the higher momentum peak in the mid-June rally vs. the mid-May rally was unable to produce a higher high in price in June, thus signifying the downtrend was strong and about to continue.

Edit - Terry Laundry published my Advance-Decline momentum oscillator in his September 15, 2010 post at the T Theory Foundation site.  He had some nice things to say about my oscillator in his audio comments as well.