Can you believe it?  When I ran this study today, I blindly assumed that more advancing than declining stock issues, and also volume, would be a bullish indicator.  Imagine my surprise when I discovered that it was a rather strong bearish indicator.  The chart below shows the situation regarding NYSE declining issues minus advancing issues, since January 1, 1997: 

As usual, the top graph is the S&P futures contract.  The red and green dots are buy and sell signals.  The center oscillator shows declining issues minus advancing issues, normalized between 1 and -1.  And, the red chart at the bottom shows the equity or profit you would gain from trading a single S&P contract.  That's $382,600.  Not bad for such a simple system. 

The way the trades are set up is to enter a trade on the close of the following day.  That's quite important, because the relationship does not hold up if we place the trade immediately.  From a psychological perspective, it would seem that it takes until the next day for the market movers to digest this information.  Then, it they typically decide to trade against the trend of the day before. 

If we plot NYSE declining volume minus advancing volume, the picture is very similar: 

Even though Nasdaq and NYSE stocks often move in different directions, the same relationship seems to hold for Nasdaq stocks.  The graph below show trades based on the Nasdaq declining minus advancing issues.  I chose January 1, 2002, as the starting point for this graph to emphasize how strong the relationship has been since that time: 

And finally, the graph below shows a similar relationship based on Nasdaq declining volume minus advancing volume.  Here I started the graph on January 1, 1997.  You can see how suddenly the relationship seemed to kick in sometime in late 1999 -- just before the bear market began in earnest: 

I am going to share with you the out-of-sample results, since January 1, 2002, of the most successful neural network system in my stable.  This system was actually generated with input data provided to me by Ingvar Engelbrecht, a Swedish programmer who likes to collect old, American automobiles.  He has created a special website that features his systems for BioComp Profit.  Here's a photo of Ingvar in his 1969 Chevy Nova: 

In my stable of BioComp Profit neural network systems that I process each day are about a dozen that are derived from Ingvar's years of systematic research.  He has developed his approach in true, scientific fashion -- testing one input variable at a time.  Below are the statistics on my best system.  I call it Gift4 -- since it was, in effect, a gift from Ingvar: 

This system consists of 200 individual, neural network models.  The system signal is created by a voteamong the models.  Notice, however, the bottom line in the image above.  None of the models are currently voting.  This is because I have set a threshold such that only systems that have been profitable over the last five trading days are allowed to vote at all.  In this case, all 200 systems have been confounded by the market's recent movements.  That's why the current signal is 0 (which, in my system, is taken to mean a continuation of the previous signal).  This way, the system is always in the market -- either long or short.  Of course, all of these parameters can be modified. 

A graph of the profitability of this neural network system, since January 1, 2002, is shown below: 

An important feature in the systems that Ingvar has designed is that he has endeavored to reduce drawdown.  He is less interested in maximizing his profit than in creating systems that show steady gains in equity.  If you would like to examine each trade, you may do so by clicking here. 

BioComp Profit Neural Network S&P 500 Futures Contract "MegaSystem" Forecast: 
Monday's close: down from Friday's close 
Tuesday's close: down from Monday's close 

Nirvana OmniTrader Composite Technical Forecast for the S&P 500 Futures Contract: 
Short-term, aggresssive strategy: down 

Volatility Breakout System, Daily, for S&P Futures Contract:  
Buy stop order filled Thursday at 877.00 
Sell limit order for Friday set at 888.50, filled. 

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