MARCON – MARket CONdition
The purpose of MARCON is to offer a broad based indicator of the US equity market.
What is it based upon?
MARCON makes use of the monthly, weekly, and daily charts of the sp'500 index. For specific details on the MARCON criteria, see relevant page!
Why the sp'500 ?
I don't have the time to regularly cover more than one index. The transports and Rus'2000 small cap are both market leaders, and thus more bullish/bearish than the headline (Dow, SP'500, Nasdaq) indexes. Dow'30 is too narrow an index in my view, and is not very 'industrial' these days, I think picking the sp'500 is the best compromise to cover the broader equity market.
MARCON will be assessed at the end of each trading day, although if a major market move is under-way, I will endeavour to update intra-day if a change has occurred.
Like all indicators, MARCON is laggy!
Since part of the criteria include monthly charts, MARCON will be especially laggy when moving from 7/6 to 5.
First of the month 'jumps'
At the start of each new month, for simple statistical reasons, there is often a significant jump in the moving averages, and so MARCON should especially be checked at the first trading day of each month.
MARCON – will likely not warn of a brief snap lower, as in May 2010, or August'2015.
If the monthly charts are broadly positive, then MARCON could still be at status 7, whilst the indexes are getting smashed. This was indeed the case in May 2010 when MARCON would have remained at 7 the entire time.
In the collapse wave of July-Oct'2011, MARCON held at 7 until the end of August. It opened September at 4, and eventually dropped to 1 at the end of Sept/early October – ironically marking the low.
MARCON works for short term trading once under 6
Since the monthly charts (if still bullish), will negate ANY weekly or daily bearish signals, MARCON by definition is NO good as a short/mid term trading indicator until it is under 6.
Once under 6, the daily and weekly indicators become more relevant, and will then see MARCON flip between 5-1 on a very regular basis.
How often will MARCON change?
MARCON will usually remain at 7/6 regardless of any short equity weakness, even during a 5-10 multi-week down cycle – such as the pull back of Sept-Nov 2012. Monthly cycles (when positive/bullish) will always out-gun the weekly/daily charts!
Once the monthly charts have broken down to a negative cycle, MARCON will generally change every few weeks. Even during high volatility – such as Sept/Oct 2011, MARCON will usually only change once a week.
MARCON – does not necessarily drop sequentially.
In theory, MARCON could drop from 7 to 1, literally overnight.
For instance, say the weekly and daily charts are already negative MACD cycle, yet..the monthly charts are still positive. The next day, market drops..and the monthly charts finally turn negative cycle. MARCON then drops from 7/6 straight to 2 or even 1.
In particular, see MARCON, in relation to how it worked in the multi-month decline of summer/autumn 2011.
'MARCON, kinda reminds me of DEFCON'
Yes, I will note that MARCON is a play on the US military 'DEFCON – DEFense CONdition' alert criteria. I was a 'cold war era' child of the 70/80s, and the movie 'wargames' remains an old childhood favourite. I'm sure a fair few over the age of 30 will get the reference!
|...with 6 & 7 tacked on status levels|
Why not just use a 5-1 scale?
I wanted to have two parameters each for the monthly, weekly, and daily charts, and thus I had to add a 6 and 7 to the scale.
I will note, I even considered a 9 or 11 scale – which would have included the 60/15 min cycles. Yet, MARCON would be changing so frequently (during a bear market collapse wave) I would end up spending all my time updating the status! Were a software script able to do the updates/assessment automatically, I'd actually consider having a 11-1 scale.
MARCON – has its limitations, but could be very useful in the next major bear cycle.
If you look at MARCON in terms of the 2007-09 collapse wave (see relevant page) I think you will be able to see how it would have had its uses. MARCON gave the first warning in Dec'2007 - sp'1400s, and it was not until Aug'2009 – sp'1000s, when MARCON went back to 7.
MARCON will become particularly useful once the monthly charts have turned negative, with MARCON never going back above 5. At that point, MARCON will be regularly flipping from 5-1 for many months, if not at least a year.
I think MARCON will offer something to the wider chartists community, not least when the next bear market begins – whether that is this year...or further out. At the very least, I hope it will get more people to consider the importance of the bigger monthly cycles. When the bigger cycles break lower (or higher) it is usually a very important signal to listen to.
Page last updated – 23/5/2016