LogoLogo
Return to StockChartsCharts & ToolsArticlesChartSchoolYour Dashboard
  • 📋ChartSchool
  • Table of Contents
    • Overview
      • Why Analyze Securities?
      • Technical Analysis
      • Fundamental Analysis
      • Random Walk vs. Non-Random Walk
      • Asset Allocation and Diversification
      • John Murphy's 10 Laws of Technical Trading
      • John Murphy's "Charting Made Easy" eBook
      • Technical Analysis 101
        • TA 101 – Part 1
        • TA 101 – Part 2
        • TA 101 – Part 3
        • TA 101 – Part 4
        • TA 101 – Part 5
        • TA 101 – Part 6
        • TA 101 – Part 7
        • TA 101 – Part 8
        • TA 101 – Part 9
        • TA 101 – Part 10
        • TA 101 – Part 11
        • TA 101 – Part 12
        • TA 101 – Part 13
        • TA 101 – Part 14
        • TA 101 – Part 15
        • TA 101 – Part 16
        • TA 101 – Part 17
      • Irrational Exuberance
      • Cognitive Biases
      • Arthur Hill on Goals, Style and Strategy
      • Arthur Hill on Moving Average Crossovers
      • Multicollinearity
      • "The Trader's Journal" by Gatis Roze
        • Stage 1: Money Management
        • Stage 2: Business of Investing
        • Stage 3: The Investor Self
        • Stage 4: Market Analysis
        • Stage 5: Routines
        • Stage 6: Stalking Your Trade
        • Stage 7: Buying
        • Stage 8: Monitoring Your Investments
        • Stage 9: Selling
        • Stage 10: Re-Examine, Refine, Re-Enhance
        • Additional Reading
      • Bob Farrell's 10 Rules
      • Richard Rhodes' Trading Rules
      • Donchian Trading Guidelines
      • Why and How To Use Correlation
    • Chart Analysis
      • What Are Charts?
      • Support & Resistance
      • Trend Lines
      • Gaps and Gap Analysis
      • Introduction to Chart Patterns
      • Chart Patterns
        • Broadening Top or Megaphone Top
        • Double Top Reversal
        • Double Bottom Reversal
        • Head and Shoulders Top
        • Head and Shoulders Bottom
        • Falling Wedge
        • Rising Wedge
        • Rounding Bottom
        • Triple Top Reversal
        • Triple Bottom Reversal
        • Bump and Run Reversal
        • Flag, Pennant
        • Symmetrical Triangle
        • Ascending Triangle
        • Descending Triangle
        • Rectangle
        • Price Channel
        • Measured Move—Bullish
        • Measured Move—Bearish
        • Cup With Handle
      • Chart Types
        • Arms CandleVolume
        • CandleVolume
        • Elder Impulse System
        • EquiVolume
        • Heikin-Ashi Candlesticks
        • Kagi Charts
        • Renko Charts
        • Three Line Break Charts
        • MarketCarpets
        • Relative Rotation Graphs (RRG Charts)
        • Seasonality Charts
        • Yield Curve
      • Candlestick Charts
        • Introduction to Candlesticks
        • Candlesticks and Traditional Chart Analysis
        • Candlesticks and Support
        • Candlesticks and Resistance
        • Candlestick Bullish Reversal Patterns
        • Candlestick Bearish Reversal Patterns
        • Candlestick Pattern Dictionary
      • Point and Figure Charts
        • Point and Figure Basics
          • Introduction to Point & Figure Charts
          • Point & Figure Scaling and Timeframes
          • P&F Trend Lines
        • Classic Patterns
          • P&F Bullish Breakouts
          • P&F Bearish Breakdowns
          • P&F Signal Reversed
          • P&F Catapults
          • P&F Triangles
          • P&F Bull & Bear Traps
        • P&F Price Objectives
          • P&F Price Objectives: Breakout and Reversal Method
          • P&F Price Objectives: Horizontal Counts
          • P&F Price Objectives: Vertical Counts
        • Point & Figure Indicators
        • P&F Scans and Alerts
          • P&F Pattern Alerts
      • Chart Annotation Tools
        • Andrews' Pitchfork
        • Stock Market Cycles
        • Fibonacci Retracements
        • Fibonacci Arcs
        • Fibonacci Fans
        • Fibonacci Time Zones
        • Quadrant Lines
        • Raff Regression Channel
        • Speed Resistance Lines
    • Technical Indicators & Overlays
      • Introduction to Technical Indicators and Oscillators
      • Technical Indicators
        • Accumulation/Distribution Line
        • Alligator Indicator
        • Aroon
        • Aroon Oscillator
        • ATR Bands
        • ATR Trailing Stops
        • Average Directional Index (ADX)
        • Average True Range (ATR) and Average True Range Percent (ATRP)
        • Balance of Power (BOP)
        • Bollinger BandWidth
        • %B Indicator
        • Chaikin Money Flow (CMF)
        • Chaikin Oscillator
        • Chande Trend Meter (CTM)
        • CMB Composite Index
        • Commodity Channel Index (CCI)
        • ConnorsRSI
        • Coppock Curve
        • Correlation Coefficient
        • DecisionPoint Price Momentum Oscillator (PMO)
        • Detrended Price Oscillator (DPO)
        • Distance From Highs
        • Distance From Lows
        • Distance To Highs
        • Distance To Lows
        • Distance From Moving Average
        • Ease of Movement (EMV)
        • Force Index
        • Gopalakrishnan Range Index
        • High Low Bands
        • High Minus Low
        • Highest High Value
        • Linear Regression R2
        • Lowest Low Value
        • Mass Index
        • MACD (Moving Average Convergence/Divergence) Oscillator
        • MACD-Histogram
        • MACD-V
        • MACD-V Histogram
        • Median Price
        • Money Flow Index (MFI)
        • Negative Volume Index (NVI)
        • On Balance Volume (OBV)
        • Percentage Price Oscillator (PPO)
        • Percentage Volume Oscillator (PVO)
        • Performance Spread
        • Price Relative/Relative Strength
        • Pring's Know Sure Thing (KST)
        • Pring's Special K
        • Rate of Change (ROC)
        • Relative Strength Index (RSI)
        • Relative Volume (RVOL)
        • RRG Relative Strength
        • StockCharts Technical Rank
        • Slope
        • Standard Deviation (Volatility)
        • Stochastic Oscillator (Fast, Slow, and Full)
        • StochRSI
        • Traffic Light
        • TRIX
        • True Range
        • True Strength Index
        • TTM Squeeze
        • Typical Price
        • Ulcer Index
        • Ultimate Oscillator
        • Vortex Indicator
        • Weighted Close
        • Williams %R
      • Technical Overlays
        • Anchored VWAP
        • Bollinger Bands
        • Chandelier Exit
        • Double Exponential Moving Average (DEMA)
        • Hull Moving Average (HMA)
        • Ichimoku Cloud
        • Kaufman's Adaptive Moving Average (KAMA)
        • Keltner Channels
        • Linear Regression Forecast
        • Linear Regression Intercept
        • Moving Averages—Simple and Exponential
        • Moving Average Ribbon
        • Moving Average Envelopes
        • Parabolic SAR
        • Pivot Points
        • Price Channels
        • Triple Exponential Moving Average (TEMA)
        • Volume-by-Price
        • Volume-Weighted Average Price (VWAP)
        • ZigZag
    • Market Indicators
      • Introduction to Market Indicators
        • Market Indicator Dictionary
      • Advance-Decline Line
      • Advance-Decline Percent
      • Advance-Decline Volume Line
      • Advance-Decline Volume Percent
      • Arms Index (TRIN)
      • Bullish Percent Index (BPI)
      • DecisionPoint Intermediate-Term Breadth Momentum Oscillator (ITBM)
      • DecisionPoint Intermediate-Term Volume Momentum Oscillator (ITVM)
      • DecisionPoint Swenlin Trading Oscillator (STO)
      • High-Low Index
      • High-Low Percent
      • McClellan Oscillator
      • McClellan Summation Index
      • Net New 52-Week Highs
      • Percent Above Moving Average
      • Pring's Bottom Fisher
      • Pring's Diffusion Indicators
      • Pring's Inflation and Deflation Indexes
      • Pring's Net New High Indicators
      • Put/Call Ratio
      • Record High Percent
      • Volatility Indices
    • Market Analysis
      • Dow Theory
      • Sector Rotation Analysis
      • Intermarket Analysis
      • The DecisionPoint Chart Gallery
      • DecisionPoint Rydex Asset Analysis
      • Wyckoff Analysis Articles
        • Wyckoff Market Analysis
        • Wyckoff Stock Analysis
        • The Wyckoff Method: A Tutorial
      • Elliott Wave Analysis Articles
        • Introduction to Elliott Wave Theory
        • Identifying Elliott Wave Patterns
        • Guidelines for Applying Elliott Wave Theory
    • Trading Strategies & Models
      • DecisionPoint Trend Model
      • Trading Strategies
        • Bollinger Band Squeeze
        • CCI Correction
        • CVR3 VIX Market Timing
        • Faber's Sector Rotation Trading Strategy
        • Gap Trading Strategies
        • Harmonic Patterns
        • Hindenburg Omen
        • Ichimoku Cloud Trading Strategies
        • The 'Last' Stochastic Technique
        • MACD Zero-Line Crosses With Swing Points
        • Moving Average Trading Strategies
          • Finding Support and Resistance in Moving Averages
          • Guppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s Hand
          • How To Trade Price-to-Moving Average Crossovers
          • Trading the Bounce: Finding Support and Resistance in Moving Averages
          • Trading the Death Cross
          • Trading Using the Golden Cross
          • Using the 5-8-13 EMA Crossover for Short-Term Trades
        • Moving Momentum
        • Narrow Range Day NR7
        • Percent Above 50-day SMA
        • Percent B Money Flow
        • The Pre-Holiday Effect
        • RSI(2)
        • Six-Month Cycle MACD
        • Slope Performance Trend
        • Stochastic Pop and Drop
        • Swing Charting
        • Trend Quantification and Asset Allocation
    • Index & Market Indicator Catalog
      • Advance-Decline Indicators
      • Cboe Indices and Indicators
      • CME Futures and Spot Prices
      • DecisionPoint Sentiment Indicators
      • Dow Jones Breadth Indicators
      • Dow Jones Global Indices
      • Dow Jones Select Indices
      • Dow Jones Titans Indices
      • Dow Jones US Indices
      • Economic Indicators
      • ICE Futures and Spot Prices
      • Intellidex Indices
      • MSCI Indices
      • New 52-week Highs and Lows for Exchanges
      • NYSE Arca Equity Indices
      • NYSE Equity Indices
      • Philadelphia Indices
      • S&P 500 Sector and Industry Groups
      • S&P GSCI Indices
      • StockCharts AD Percent
      • StockCharts AD Volume Percent
      • StockCharts Bullish Percent Index
      • StockCharts High-Low Index
      • StockCharts High-Low Percent
      • StockCharts Percent Above Moving Average
      • StockCharts Pseudo Symbols
      • StockCharts Record High Percent
      • StockCharts Theoretical Indices
      • US Treasury Yields
    • 📖Glossary
      • 📖Glossary - A
      • 📖Glossary - B
      • 📖Glossary - C
      • 📖Glossary - D
      • 📖Glossary - E
      • 📖Glossary - F
      • 📖Glossary - G
      • 📖Glossary - H
      • 📖Glossary - I
      • 📖Glossary - J
      • 📖Glossary - K
      • 📖Glossary - L
      • 📖Glossary - M
      • 📖Glossary - N
      • 📖Glossary - O
      • 📖Glossary - P
      • 📖Glossary - Q
      • 📖Glossary - R
      • 📖Glossary - S
      • 📖Glossary - T
      • 📖Glossary - U
      • 📖Glossary - V
      • 📖Glossary - W
      • 📖Glossary - X, Y, Z
    • Options Glossary
    • Educational Resources
Powered by GitBook
LogoLogo

ON STOCKCHARTS

  • Charts & Tools
  • Articles
  • StockCharts TV
  • ChartSchool

MEMBERS

  • Your Dashboard
  • Your ChartLists
  • Advanced Scans
  • Technical Alerts

HELP

  • Support Center
  • FAQs
  • Contact Us
  • Pricing

COMPANY

  • About Us
  • What's New
  • Careers
  • StockCharts Store

© StockCharts.com, Inc. All Rights Reserved.

On this page
  • The Dow Diffusion Indicator
  • The European Diffusion Indicator
  • The Emerging Market Diffusion Indicator
  • ​The Global Diffusion Indicator
  • The Dollar (Currency) Diffusion Indicator

Was this helpful?

Export as PDF
  1. Table of Contents
  2. Market Indicators

Pring's Diffusion Indicators

A family of breadth oscillators for various collections of securities including major indexes, commodities and currencies.

PreviousPring's Bottom FisherNextPring's Inflation and Deflation Indexes

Last updated 11 months ago

Was this helpful?

Created by Martin Pring, Diffusion Indicators take a basket of securities and create an oscillator that shows how many of those securities are in a positive trend - typically the percent of symbols that are above a given moving average. The shorter the period of the moving average used, the more volatile the resulting oscillator becomes.

The objective is to ascertain how many securities in a basket are acting positively. The more that are, the greater the overbought condition and the higher the probability that the prevailing trend is about to reverse. Conversely, a small number of securities in a positive trend is a bullish factor.

Given the broad definition above, there are many market indicators available on StockCharts.com that could be called Diffusion Indicators, including the Bullish Percent Indexes and the “Stocks Above 50-, 150- and 200-day SMA” indicators. However, the rest of this article is about the different Diffusion Indicators Martin Pring has defined:

  • The Dow Diffusion Indicator (!PRDIFDOW)

  • The Emerging Markets Diffusion Indicator (!PRDIFEM)

  • The European Diffusion Indicator (!PRDIFEUR)

  • The Global Diffusion Indicator (!PRDIFGLO)

  • The Dollar (Currency) Diffusion Indicator (!PRDIFCUR)

In general, a Diffusion Indicator is calculated by taking a basket of stocks/ETFs that are related in a particular way and counting the number of those stocks that are currently trading above their 40-day simple moving average. The Pring Diffusion Indicator is the 10-period moving average of that number. Some of the indicators use slightly different MA periods, however (see below).

Generally speaking, reversals of these indicators from extreme readings will offer valid signals. Nevertheless, as with any indicator, there are times when they fail. Fortunately, this is mostly limited to two situations. First, contra-trend signals rarely work; in other words, buy signals in bear markets and sell signals in bull markets. Second, contra-trend signals that develop at the beginning of a primary trend, whether up or down, usually experience unusually strong momentum and are even more likely to fail or result in a very truncated corrective move.

The Dow Diffusion Indicator

The Dow Diffusion Indicator monitors how many of the 30 Dow stocks are above their 50-period SMA. It then smooths that raw information in order to create the final indicator - . On the chart below, the solid arrows show that, for the most part, reversals from beyond the overbought/oversold areas work reasonably effectively. The dashed arrows, by contrast, indicate the failures.

.

The action in the gray ellipse warns us that, in rare situations, the indicator will leave us in doubt, giving us all the more reason to consider other evidence and not rely on just one or two indicators. Additionally, the two confirmed divergences show that this series can also be used to point up sub-surface strength or weakness. To be effective, such divergences should be confirmed by some kind of trend reversal in the price, which, in these two cases, was signaled by trend line violations.

Note that the chart compares this series to the S&P Composite, as it seems to work just as well with this average as the DJIA itself.

The European Diffusion Indicator

Overbought and oversold lines have been placed at +10 and -10. Reversals that take place from a position beyond those points are flagged by the green and red arrows. Note that a good rally can still take place even if the indicator doesn't fall to an oversold level, as can be seen from the blue arrows.

The Emerging Market Diffusion Indicator

It is interpreted in the same way, but due to the volatility of this sector, some of the buy and sell signals develop after most of the price move has taken place.

​The Global Diffusion Indicator

The Dollar (Currency) Diffusion Indicator

  • the Australian Dollar

  • the Japanese Yen

  • the British Pound

  • the Canadian Dollar

  • the Mexican Peso

  • the Indian Rupee

  • …and several others

Since the resultant series is quite jagged, entering the symbol !PRDIFCUR into the StockCharts platform returns a smoothed average of the raw data, as shown below:

The Dollar Diffusion Indicator can be used in two principal ways. The chart above flags overbought and oversold reversals using +4.5 and -4.5 as the signaling benchmarks. The solid arrows indicate successful signals, while the dashed lines failed ones.

The next chart, on the other hand, shows that the indicator occasionally lends itself to trend line construction as well as bullish and bearish divergences. It's by no means perfect, but does offer a useful addition for analyzing the technical position of the US Dollar Index.

- Martin Pring

The indicator calculates a basket of European ETFs that are above their 40-period MA. The data have been smoothed to isolate excessive jaggedness.

The indicator is calculated in the same way as the European Diffusion indicator, but in this case, Emerging Market ETFs are substituted.

The Global Diffusion indicator monitors a basket of country ETFs that are above their 40-period SMA’s. Since the resulting plot would be quite jagged, the indicator contains an additional smoothing. Generally speaking, it is best interpreted by using reversals in excess of the overbought and oversold lines. In the case of daily data, these are plotted at +12.5 and -12.5, as you can see from the chart below. The dashed green buy signal in July of 2011 “worked” for a short period, but it was really a failure. That was because it was a contra-trend signal, since the 25% drop between the spring and fall of 2011 qualified as a mini-bear market.

The Dollar Index ($USD) is heavily weighted by the Euro (over 50%), which means that it occasionally offers a distorted picture of the currency’s fortunes. The Pring Dollar Diffusion Indicator () attempts to get around that problem by calculating a broader measure of its performance. This is done by monitoring a basket of cross currency rates that are above their 40-day MAs. Currencies used include:

!PRDIFEUR
Click here for a live version of the chart.
!PRDIFEM
Click here for a live version of the chart.
!PRDIFGLO
Click here for a live version of the chart.
!PRDIFCUR
!PRDIFDOW
Click here for a live version of the chart