I am interested in what combination of indicators would be most effective for sensing large "out of the ordinary" market downturns. Eg, 7/22/11-8/8/11 SP500 =-21.85%, 4/23/10-5/7/10 SP500=-10.96%, 9/30/08-10/10/08 SP500 = -22.4%.

I have looked at CumDown Days, and Bolinger Bands. Any thoughts ???

Divergences often occur at market peaks. For example, if the market continues rising while momentum indicators (take your pick) like RSI turns down or a breadth indicator like the number of stocks over their 20-day moving average also turns down, then it might be a good idea to go "risk off".

On the other hand, context is the key: in bull markets you'll see divergences occur, but prices continue higher anyway, resetting the divergences. It's never easy!

There is a "Dow Theory" divergence in the market occurring right now... although the Dow Industrials have exceeded their 2011 highs, the Transports have not and remain at least 8% below their respective peak. There are a lot of eyes on that divergence right now, so it's important.

For an example of a trading divergences, see RSI Divergence trading system (Long & Short, Timed Exit), which you can download conveniently from the "Download.." button in the Strategy Explorer (Ctrl+O).

Thank you Cone. It is amazing how fast the market moves when it tanks, like in August 2011.

QUOTE:
...the Transports have not and remain at least 8% below...

...and as for that Baltic Dry Index... ^#$(|")U$())^

djnavari, you used the term "Bailout". At first I thought you were talking about Larry Williams "Bailout" (basically exit at next open - but usually with some qualifier like 'on first profitable open'). Could be confusing to many.

... and very interesting in terms of Wealthlab due to it requiring knowledge of the next bars open. All fun and games for legally (?) peeking - hmmm - like the MF Global meltdown and their "legalised fraud", but not the place to post ay!

Good point Streak. I did not know their was a "Bailout" Indicator. I am interested in trying to profit from the inevitable "market blow-ups" 20% or 50% down that wall street produces because of the "legalized fraud" that is allowed to go on. I have made very very good money investing in the Leveraged ETFs (MVV and UMDD) after huge market collapses. I was trying to figure out if there was some way to jump out of the market when it is collapsing, but I don't think it is possible to predict. A full one half of the move down is completed before the indicators are meaningful and that is to late if you are in the leveraged funds. Therefor I am going to jump out of this casino and wait for the next collapse at which point I will invest in the leveraged ETFs which will easily move up 100% within a year of a melt down. That is my latest idea.