What's this "reaction score" we're always talking about?

It's how we statistically measure how significant an earnings reaction was.

We've tried many different methods, but this is the best way. Trust us, we've done the work...

In this post, we want to teach you how to calculate the reaction score on TradingView.

You can save this as a template in TradingView, so you only need to set it up once.

First, add the rate of change indicator with the length set to 1 and base it on the closing price.

Next, right-click on the ROC indicator (we use the default TradingView indicator) and select Add Indicator/Strategy on ROC.

From there, search for the Z-Score script (we use the script from jwammo12), make the length 252 periods, and calculate based on 1 standard deviation.

Here's what it should look like:

Now that we have the template, we can calculate the reaction score for any stock.

Here's how we do it...

In a spreadsheet, we take the z-score from the S&P 500 and subtract the stock...

There is a constant conversation among market participants about which indexes are the better representation of the stock market, particularly in the United States.

While the media often quotes the Dow Jones Industrial Average daily changes, professionals tend to steer towards the S&P500.

The argument normally revolves around the price-weighted nature of the Dow Jones Industrial Average vs the market-cap driven S&P500.

The diversity of 500 stocks in the S&P is also a key point when compared to just 30 stocks for the Dow.

Today, I just wanted to remind everyone why I think the Dow Jones Industrial Average is underrated and why I think it is still one of the most useful indexes for any stock market participant.

First of all, the Dow Jones Industrial Average and the S&P500 have a very high positive correlation to one another.

This is probably as good of a time as ever to get back to basics.

Let's try to remember what this is all about.

What the hell are we doing here anyway?

I won't speak on your behalf, but I'll tell you the way I look at it.

The reason Technical Analysis works is because we're identifying trends.

And Prices trend.

The best lessons are learned the hard way.

That's just the way life goes.

One of the most important things I've come to understand about markets, and life, is that you have to worry about yourself first, you have to take care of your family first, and then you can go out and help others.

If your own house isn't in order, not only are you not able to help other people, but you may actually do more harm to them than good.

Depending on where you are in your life, that perspective may change. But in the market, as an investor, there are no exceptions!

You're only in it for numero uno.

Just to be clear, if you're in the market for ANY other reason other than to make a profit for yourself, then you are unbelievably confused.

This is one I get asked about all the time.

"JC, are there any books you recommend for someone trying to learn more about Technical Analysis?"

The answer is yes. Of course.

The thing is, back in the day when I was studying for my CMT exams, there wasn't a well-defined curriculum like there is today. This was back in 2006. They would just give us a list of books to read and wish us the best of luck!

I really enjoyed that, actually. To this day I still tell people to go through the curriculum like they ask you to, but then go back and read the books too!

Now, if I had to do it all over again today, this is what I would do:

We analyze a lot of data here at Allstarcharts.

Stocks in the U.S. and around the world, Interest Rates both domestic and global, Commodities, Currencies and an infinite amount of Intermarket Relationships that help us identify trends across assets.

Price is what pays. Not just around here, but also for you reading this, as well as every other investor on the planet.

Nothing else is going to pay you.

So when it comes to "What is the best Technical Indicator?"

The answer is Price.

Now, in order to supplement our price analysis, we include things like Momentum and Breadth studies, Relative Strength, Sentiment, Seasonality, Volatility and a bunch of new tools and strategies that we continue to develop as markets evolve over time.

Sentiment can be a tricky one.

I think anyone who has been in markets for a while would agree.

The short answer is that there is NO single sentiment indicator that will tell you when to buy or sell stocks, or any other asset class for that matter.

Where Sentiment really stands out to me is when it is at a historic extreme, which by definition, is not very often....

"Technician" vs "Chartist"

These are two terms that are often used interchangeably: Technician and Chartist. But many times it’s wrong to do so. You see, all chartists are technicians by definition, but not all technicians are chartists.

What is a chart?

For me, a chart is just a visual representation of the changes in equilibrium between supply and demand.

That's all it is.

We don't have to pretend it's something that it's not.

How the chartist interprets the data on the charts is where the skill and experience comes in. The chart alone won't do much for you, in the same way that a carpenter is way better at using his tools than I could ever be.

What is Technical Analysis?

One of the most telling and obvious risk-on indicators would be the Nifty Small Cap 100 index. Why is that so?

Because when you look at a market rally, the longevity of that particular rally can be gauged by market participation. This is something that should be viewed closely. If a particular index is making new highs, how many stocks are contributing to that move?

Is it a handful? Is it a majority of the stocks? These are data points that will hint at the inherent sentiment of the move.

So let's take a look at what the Small Cap-100 new highs are telling us.

Breadth indicators are important to see the internal structure of a market move. We get valuable insights from what we see that can help us determine the strength of the trend.

First up let's take a look at the most immediate tactical view. Let's take a look at the % of stocks making new highs//lows over a 10-day period. What we find is that as the Small cap 100 index clocked new highs, the % of stocks making 10-day highs contracted. On the other hand, we got a minor expansion in the % of stocks making 10-day lows.

That is certainly not the trend you'd like to see. You'd want...