Market Impulsivity Index

Neurlasys's Market Impulsivity Index is an innovative way of measuring the mass psychology of market participants which has some predictive qualities.

How this indcator works: the Impulsivity Index looks at the directional rate of change of a non-weighted average which is multiplied by the percentage of companies that are moving in the same direction.

It tends to spike when the market makes a larger move which sucks in all companies. This typically indicates that the market is being very impulsive or emotional based on an external or broad sentiment factor which is causing both good and bad stocks to be sold off indiscriminately. Likewise, an upward impulsive move can indicate very positive sentiment which is causing capital to flow into even speculative or lower quality companies. We produce this measure for the overall market and each sector and industry.

The measure will normally spike downward right before or at the very bottom of a downward move. But interestingly, it spikes upward around 50% - 75% of an upward movement but typically not at the very top. The market often has maximum negative anxiety at the very bottom of a down move. But during an up move it typically spikes when the market realizes that the price is coming off the bottom and that it is now safe to buy the dip.

This measure successfully predicted the bottom of the March, 2020 drop. It's predictive qualities are based on the directional spread of companies increasing or the correlation between companies widening. As high or low quality companies become oversold or overbought the market begins to treat them uniquely and they deviate from the broader trend even if that broader trend hasn't reversed yet. So it's the change in the internal market correlation in combination with a slowing rate of change that becomes predictive.