SP Extreme Indicator

One of special indicators offered exclusively by Sunshine Profits. This indicator is dedicated to precious metals markets and based on the use of unique properties of the market. Thanks to this approach SP Gold Bottom Indicator is able to spot divergences, clues and sign that many standard indicators overlook.

SP Extreme Indicator Chart

Indicator's move above or below the dashed line means that an extreme was likely reached or is that one is just around the corner. Most of the extremes are short-term bottoms.

Calculations

This information will introduce you to the matter of indicators' construction and show you that an indicator is often reflection of some economic or psychological processes. Not every detail will be given, so that the formula itself remains unknown. If everyone knew how it works, it would be used widely and in the end it would stop working at all. Our Subscribers and we would certainly not want that to happen.The mechanism that we profit on in this indicator is how the institutional investors often act. First of all, institutional investors own a large share of a particular company's shares. It is obvious that they purchase shares that they like, and they don't purchase stocks that they don't like. Institutional investors, contrary to most individual investors, usually have research teams behind them and they must take their opinions into account. These 'teams' or individuals making quantitative valuation of companies would surely (very high probability) take into account several of statistics that we also use while evaluating companies. This implies that companies that top our rankings in terms of particular statistics (R-square for instance) are most likely also the companies most often chosen by institutional investors. So - we can calculate the average performance of several 'institutional' precious metals stocks.

All of the above would be useless if we did not know (expected) something else about how institutional investors react to various market situations. These investors are generally professionals and on average act less emotionally. The key word here is average. On the other hand, institutions usually have loss limits that they need to obey, and also their performance is being compared to other institutions. This means that if they suffer losses, it is not that bad for them, as long as their competitors (benchmark) also suffer these losses. This puts a great pressure on people in charge of the investment institutions to act like their colleagues. If they did the opposite and were correct, they would outperform for a while and perhaps get a bonus at the end of the year. On the other hand, if they are not correct, they may even lose their jobs or worse. Even if the chances are 50/50, the result of being wrong is much more painful, than what they could win, if they were correct. In other words - the expected value of the decision of acting against their colleagues is negative. This makes big money act together, when they finally do begin to sell or buy. These investors are professionals, so they control their emotions most of the time. Most of the time, but not always. If not always, then when? Under the most difficult conditions, which are exactly at the top or at the bottom of the market!

It is no secret that big money sells and buys ahead of the masses, but not everyone realizes how dynamic the process becomes when emotions are mixed with the institutional domino effect. Summing up, institutional investors are rather unemotional most of the time, but at critical times, they act very specifically. They act as if they were very emotional for a very limited period of time.

If the abovementioned assumptions are mostly true, then the ratio between 'top' PM stocks and the rest should behave specifically around bottoms and tops. Having investigated this matter, we found that it does indeed take place, but it is more likely to signal a short term weakness, than strength. All that is left to do is to choose the stocks, build a ratio and check its specifics and dynamics. After that, we check at which levels it is most profitable to enter trades and what the average effect will be. Once the testing process is complete we have another indicator for our subscribers.