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Sunday, December 30, 2012 11:20:13 AM
Amateur Investors Weekend Stock Market Analysis (12/29/12)
http://www.amateur-investor.net/Weekend_Market_Analysis_Dec_29_2012.htm
With only one trading day left in 2012 unless we see an epic one day sell off the S&P 500 is going to finish the year with a positive gain. Even more remarkable is that over the past 10 years the S&P 500 has finished with a positive gain in 8 of those years while 2010 was an even year. Thus in the past 10 years there has only been one down year in 2008 although it was substantial with a 38% loss.
Meanwhile continuing my series on using indicators to time market bottoms this week I will focus on the Mutual Fund Panic Index which was developed by myself based on flows into and out of Mutual Funds on a quarterly basis. This data can be tracked going back to the early 1950's. Basically when the % of outflows reaches -20% or more (points A) the S&P 500 has put in a major bottom followed by a significant rally. The last signal was in March of 2009 which has been followed by a 121% rally in the S&P 500. Other signals occurred with the late 2002 low, late 1987 crash, late 1974 low, early 1970's low and further back in late 1962. All of these signals were followed by at least a 70% rally from the lows.
The chart below is a strategy using the Mutual Fund Panic Index as Buy Signals (red diamonds). Exit points (green triangles) are based on the following three conditions happening at the same time after 2 years has elapsed from the original Buy Signal.
1. The S&P 500 is 9% above its 89 Week Moving Average.
2. The Fed Funds Rate is higher than it was 6 months earlier.
3. The Yield on the 10 Year Bond is higher than it was 6 months earlier.
Using these criteria the lowest return was 40% while the highest return was 227%. Meanwhile the last two [Buy Signals averaged 75%.
The table below summarizes all the Buy and Sell Signals using the Mutual Fund Panic Index.
http://www.amateur-investor.net/Weekend_Market_Analysis_Dec_29_2012.htm
With only one trading day left in 2012 unless we see an epic one day sell off the S&P 500 is going to finish the year with a positive gain. Even more remarkable is that over the past 10 years the S&P 500 has finished with a positive gain in 8 of those years while 2010 was an even year. Thus in the past 10 years there has only been one down year in 2008 although it was substantial with a 38% loss.
Meanwhile continuing my series on using indicators to time market bottoms this week I will focus on the Mutual Fund Panic Index which was developed by myself based on flows into and out of Mutual Funds on a quarterly basis. This data can be tracked going back to the early 1950's. Basically when the % of outflows reaches -20% or more (points A) the S&P 500 has put in a major bottom followed by a significant rally. The last signal was in March of 2009 which has been followed by a 121% rally in the S&P 500. Other signals occurred with the late 2002 low, late 1987 crash, late 1974 low, early 1970's low and further back in late 1962. All of these signals were followed by at least a 70% rally from the lows.
The chart below is a strategy using the Mutual Fund Panic Index as Buy Signals (red diamonds). Exit points (green triangles) are based on the following three conditions happening at the same time after 2 years has elapsed from the original Buy Signal.
1. The S&P 500 is 9% above its 89 Week Moving Average.
2. The Fed Funds Rate is higher than it was 6 months earlier.
3. The Yield on the 10 Year Bond is higher than it was 6 months earlier.
Using these criteria the lowest return was 40% while the highest return was 227%. Meanwhile the last two [Buy Signals averaged 75%.
The table below summarizes all the Buy and Sell Signals using the Mutual Fund Panic Index.
Buy Sell
Signal Closing Signal Closing %
Month Price Month Price Return
Sep-62 56.27 Oct-67 93.30 65.8
Sep-70 84.30 Dec-72 118.05 40.0
Dec-74 68.56 Aug-78 103.29 50.7
Mar-88 258.89 May-97 848.28 227.7
Dec-02 879.82 May-07 1530.62 74.0
Mar-09 797.87 Mar-12 1408.47 76.5
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