Sunday, January 30, 2011

Technical Breadth Indicators: Historical Data

As promised, below is a Chart and Table of historical data for Technical Indicators which were first written about on 1/29/11.   As a refresher, both indicators are used to indicate whether investors are being compensated for risk.  Alternatively, when they blink SELL, the market is at a High Risk of sudden drops.

As one can infer from the line-chart below, the indicators turned into Negative Territory (about -3% and lower) about 1 week ago.   Though, they've been lower, reaching as low as -8.9% near the market top of March 2000.  Does anyone remember the "Tech Wreck" ?

While a negative 3% value isn't as low as the 2000 time period, note that it hasn't given a sell signal for a long, long time (since 2008).  Thus, this signal may be more reliable.  I find that it's less reliable in periods of high market volatility.  Data start date is 1994, which wasn't shown as the chart would've been too small.

Furthermore, I can't recall the last time both the Sentiment and Technical Signals indicated that the market was at such a High Risk.  For perspective, the last time they both gave Buy Signals was in March 13, 2009 (at +10.7% for this Indicator).

 The table below shows how the stock market performed (Gain/loss or flat market) after 1 week, 2 weeks, etc. time periods after the Down Signal indicator reached significant low values.  The higher the percentage, the more times the Indicator was accurate.

Best time period was T5 (6 weeks after signal) at 57%.  This is lower than the accuracy of the Sentiment Indicator.   However, note that I always use what's called Dummy signals. These are incorrect signals I place purposely to avoid any potential biases.  Essentially, they make the results look worse than they actually were.  Removing the Dummies, yields the actual % Declining/Total of 65% (meaning the indicator worked 65% of the time at the T5 period.  Still not great, but better than before.

Helios and Matheson: I’ve seen this movie before, and it ends badly !

Summary:   My career as a penny-stock equity analyst gives a unique perspective to the issuer  HMNY is insolvent and the likeli...