Replies to post #43319 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

Good morning Allen, Re: Market Risk Indicator results............

Since the start of 1982 there have been 15 bearish signals and 17
bullish signals generated by my data. I decided that if the sign lasted
just one week it was more "noise" than "signal" so eliminated those. The
totals above are the results of at least 2 consecutive weeks of either
bullish or bearish signals.

I then took the starting date's Index value and counted out 4 weeks, 3
months, 6 months, 9 months and 12 months to see where the indexes were
after the initial signal. I then compared the percentage change to the
average change for those indexes for the same time frame since 1982. For
instance, of the bullish signals at the 3 month time we see the average
NASDAQ change being 10.8% vs 3.09% average gain.

If the change seen at each time interval for each event was a beneficial
call, I scored it as a positive call. The % Success column represents
how many of the calls were positive for each time frame. The "sweet
spot" values scored the highest success percentage. At 3 months from a
Bullish signal 76% of the time it proved to be fruitful (better than
average returns).

There were some embarrassingly bad calls along the way, but on average
the data has been useful and better than flipping a coin.

[OldAIMGuy]

Hi Allen,
Here's one component of my market risk indicator, Speculation. It measures indirectly how money is flowing through the markets. High speculation is visible when market gainers are greatly outdistancing losers and visa versa.



The apparent spike in speculation in early 2016 was a rebound effect from the very low level seen at the start of the year. The white lines represent the threshold of bearishness (above 20) and bullishness (below zero). This is the second week of a bullish signal for this component.

There is some seasonality to the Speculation Index in that tax selling has some influence some years. We're seeing some serious tax loss selling this year, it appears. Another aspect of Speculation is that it can persist as a bearish signal for far longer than one would think to be rational. Once the Lemmings start a stampede it's hard to turn them. This is also true of low speculation periods when everyone is selling and nobody is buying. Lemmings will be lemmings....