Haurlan Index

What Is the Haurlan Index?

The Haurlan Index is a technical analysis indicator, developed by rocket scientist P.N. "Pete" Haurlan, that is based on market breadth. The Haurlan Index measures breadth over the short term, intermediate term, and long term with a set of moving averages derived from the number of advancing and declining stocks on the New York Stock Exchange (NYSE).

Understanding the Haurlan Index

The Haurlan Index contains three components that are exponential moving averages (EMAs) of the accumulation/distribution line (A/D line) of the New York Stock Exchange.

Calculating the A/D line begins with subtracting the number of stocks that declined on the NYSE from the number that advanced on a given day to get net advances. On the next day, add the new figure for net advances to the previous total. The A/D line is formed by continuing to add new net advances in this fashion.

The three components of the Haurlan Index are:

1. Short-term, which takes a 3-day EMA of the A/D line of the NYSE. This EMA is for ordinary short-term trades.
2. Intermediate-term, which takes a 20-day EMA of the same A/D line of the NYSE. This EMA measures support or resistance.
3. Long-term, which takes a 200-day EMA of the same A/D line of the NYSE. This EMA measures the general trend.

Exponential moving averages sound complicated, but computers can easily calculate them for you. Conceptually, EMAs are very similar to ordinary moving averages (MAs), which are far easier to understand.

The exponential aspect of the EMA could exaggerate blips or bumps in the A/D line, especially for the short-term calculation. In order to compensate for that, Haurlan added a smoothing factor to avoid anomalies and gain a real average for the time period. The smoothing factor is 50% for the short-term EMA, 10% for the intermediate-term EMA, and just 1% for the long-term EMA.

What Does the Haurlan Index Tell You?

The components of the Haurlan Index convey information about different aspects of the market. The long-term EMA tells investors the overall trend of the market. As a general rule, most traders usually prefer to trade with the trend to avoid false signals.

The intermediate-term EMA is for support or resistance. When an indicator hits support or resistance, it may be a sign that a significant change is underway in the market. That is the time to make major trades and, depending on the circumstances, possibly bet against the long-term trend.

The short-term EMA is for ordinary short-term trading in and out of the market. A short-term Haurlan Index greater than +100 is considered a short-term buy signal. These types of trades should be in accord with the long-term EMA. These short-term trades often have less profit potential, but they also typically have less risk.

History of the Haurlan Index

The Haurlan Index is named after its creator, P.N. "Pete" Haurlan. He was a technical manager for the Jet Propulsion Lab in Pasadena, CA. During his downtime, Haurlan analyzed the stock market. He modeled the exponential moving averages of his Haurlan Index after the EMAs he used to calculate rocket tracking circuitry.

Pete Haurlan started an investment newsletter in the 1960s called Trade Levels. The newsletter was different from other investment newsletters of the time in that it had charts and graphs generated by computers. Before the proliferation of personal computers, Haurlan used the computers at the Jet Propulsion Lab to perform investment chart calculations. That was revolutionary at the time, and the calculating capacity of the computer allowed him to develop his Haurlan Index, with its multiple A/D line calculations and exponential moving averages.

The newsletter brought his ideas and the Haurlan Index to fame. It also inspired other analysts to develop technical indicators of their own using the same concepts as Haurlan.