Jake Bernstein's JBXC Complete

The Expansion Contraction indicator, created by Brian Latta, provides enormous insight into a security's market status. Based on Jake Bernstein's Moving Average Channel method, it identifies:

  • Long-term trend and trend strength
  • Short-term swing and swing strength
  • Range expansion and contraction
  • Support and resistance levels
  • Overbought/oversold conditions
  • Divergences
  • Short-term breakouts

Expansion Contraction compares two price points (the high and the low), up or down, through the MAC settings. Since Expansion Contraction measures every period (chart setting), it's technically considered "concurrent" (not a lagging indicator). A second high and low comparison uses a longer lookback moving average channel.

Long-Term Trends
The shaded part of the Expansion Contraction indicator is the cloud. It represents the instrument's long-term trend. A green cloud indicates an upward trend, whereas a red cloud denotes a downward trend. The clouds expand as their trends grow stronger and contract as the trends weaken. If the cloud is less than one standard deviation, then there is no effective trend. The instrument is in a period of consolidation.

Short-Term Swings
The Expansion Contraction indicator's thick red and green lines measure the strength of short-term trends (swings). The green line represents the upswing, while the red line is the downswing. Whichever line is higher determines the current swing. Similar to the cloud, if the top line increases, the swing grows stronger. A decreasing top line is a weakening swing. If both lines are within one standard deviation, the short-term trend consolidates.

The Expansion Contraction indicator measures the range by the height of the cloud. If one trend is taller than the previous trend, the range is expanding, indicating that the current trend is stronger than the preceding one. Conversely, if the current trend is shorter, the range is contracting, and the trend is (currently) weaker. Please note that a trend may require time to exceed the range of the previous trend. That means a trend may show as weaker until it grows to exceed the prior trend.

Overbought and Oversold
JBXC calls the events Overbought or Oversold conditions, but Brian Latta prefers to say they are points of limited upside or downside potential. He defines these as events where the Expansion Contraction indicator moves beyond two standard deviations. JBXC Complete does not label those events on your chart but does note them in the expert commentary.

The Expansion Contraction indicator can detect short-term and long-term divergences. Short-term divergences occur between the swings and the prices. Long-term divergences are between the cloud and the prices. A bearish divergence happens when the prices make a new high, but the green cloud (or upswing) fails to make a similar new high. A bullish divergence occurs when the prices make a new low, but the red cloud (or downswing) does not make a new high.

Short-Term Breakouts
Short-term breakouts occur when the top line of the Expansion Contraction indicator falls and then turns up. The first bar (and only the first bar) is the breakout.

Jake Bernstein's JBXC Complete includes everything below:

  • 3 Expert Advisors
  • 2 System Tests
  • 12 Expert Commentaries
  • 7 Explorations
  • The JBXC - Keltner Indicator
  • The JBXC - Expansion Complete Template

About Jake Bernstein

Jake Bernstein is an internationally recognized market analyst, trader, and author. He has written over 44 books, numerous research studies, and newsletters on futures trading, stock trading, trader psychology & economic forecasting.

Mr. Bernstein is the publisher of several market reports. Now presented in digital media video format, The Jake Bernstein Online Weekly Capital Markets Report and Analysis has been published every week since 1972 without interruption.

Starting with trading futures and stocks in 1968, Jake has appeared frequently on radio and television throughout the United States and Canada. He has been a guest on numerous business radio and television shows, including Wall Street Week, CNBC, JagFN.TV and WebTV.com.

Mr. Bernstein also lectured extensively in the United States, Canada, and Asia. His forecasts and opinions are quoted frequently in the financial press and on numerous websites. Mr. Bernstein is a consultant to investors, traders, industry, financial institutions, short-term traders, brokerage firms, and commercial firms. His market advisory services are subscribed to by floor traders, professional traders, money managers, both new and experienced traders and hedgers, the world over.

Jake has pioneered numerous technical, cyclical, and seasonal methodologies in the futures markets.