Market Phase Analysis
■ (^) Short Interest Ratio
■ (^) Cash Asset Ratio
■ (^) Advance‐Decline Line
■ (^) New Highs–New Lows
■ (^) Up Volume–Down Volume
■ (^) Market Vane Reports
■ (^) Bullish Sentiment Index
Figure 4.25 is a simple visual guide of how some sentiment indicators vary as
the market swings between tops (distribution) and bottoms (accumulation). For a
more detailed discussion of sentiment indicators, refer to Chapter 23.
4.7 Sakata’s Interpretation of Market Phase
Sakata’s Five Methods is a unique Japanese approach for interpreting and under-
standing the markets, which originated with Munehisa Honma. Under Sakata’s
approach, the market is divided into five distinct phases, as opposed to the con-
ventional three‐phase model by Dow. The five distinct phases are:- San Zan—Three Mountains. This is equivalent to the Western triple top for-
mation which represents the distribution phase. - San Sen—Three Rivers. This is equivalent to the Western triple bottom forma-
tion which represents the accumulation phase. - San Ku—Three Gaps. This is equivalent to the Western triple gap formation
which occurs during the trending phase, popularly known as the breakaway,
runaway, and exhaustion gaps.
figure 4.25 Sentiment Indicator Behavior at Accumulation and Distribution.