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).
- The Haurlan Index is a technical analysis indicator that is based on market breadth.
- The Haurlan Index was developed by P.N. "Pete" Haurlan, a rocket scientist at the Jet Propulsion Lab.
- 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.
- The long-term EMA tells traders the general trend, the intermediate-term EMA signals potential large changes, and the short-term EMA is for short-term trades.
- Each of these three elements is used to assess and confirm predictions made with the other two indicators.
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:
- Short-term, which takes a 3-day EMA of the A/D line of the NYSE. This EMA is for ordinary short-term trades.
- Intermediate-term, which takes a 20-day EMA of the same A/D line of the NYSE. This EMA measures support or resistance.
- 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.
Most technical indicators require confirmation from other signals. However, the presence of multiple components within the Haurlan Index allows for internal confirmation.
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.
What Are the Primary Methods of Technical Analysis?
Technical analysis forecasts price changes based on observed market trends, such as the number of buyers or sellers for a particular asset. This is based on the assumption that all relevant information is already factored into a security's price, and can be inferred from changes in the supply and demand for that asset.
What Is the Moving Average Convergence Divergence?
The Moving Average Convergence Divergence (MACD) is a momentum indicator that compares short- and medium-term trends to forecast future price movements. By comparing a short-term moving average with a longer-term moving average, analysts can make predictions about future market behaviors.
What Is the Relative Strength Index?
The relative strength index (RSI) is a momentum indicator that is used to determine when an asset is in oversold or overbought conditions. The RSI is calculated by comparing an asset's average recent price gains with its current price gains, through a formula that expresses relative strength as a percentage. An RSI above 70% is considered to be overbought, and an RSI below 30% is considered oversold.
Why Is a Moving Average Used in Technical Analysis?
Technical analysis uses moving averages because to assess price movements without capturing the random noise of daily price fluctuations. This allows analysts to compare short- and long-term trends and make inferences about market sentiment.