From article:
"The $OEXA200R Monthly (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the "sweet spot" time period in the market when you have the best chance of making money. See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.
The charts below are current through the week's close."
Best-Indicator-Ever-UpdateRelated Article using this tool:
Best-Indicator-Ever-Part1Link to the actual Chart:
stockcharts-24OEXA200RLong term Market indicator is a little worrisome:
regression-study
Comments
As I mentioned in earlier posts, I invested using technical tools in the 1960s. The technical approach failed me so I abandoned it in the 1970s. Subsequently, I have monitored its developments over the last few decades by purchasing a few books on the subject, and by attending presentations given at my annual visits to the Money Show and by attending lectures sponsored by financial institutions.
I am still a recovering technician since I remain dubious about the merits of technical investing. The various sales pitches that I have exposed myself to have not made a compelling case from my perspective. I continue to be open-minded on this controversial topic.
I wonder. Are you committed to the technical forecasting tool referenced? Have you tested it? Do you endorse the procedure or perhaps have you contributed the references as a simple matter of interest?
I merely glanced at the four articles that you Linked, and I am puzzled by its benchmark standard, by its complexity, by its penetration standards, by its performance record since proposed, and by the cheapness of the published book that reveals/documents its secrets.
I do not plan to conduct a through or rigorous review of the material. I would only commit to that time consuming task if I suspected the methodology was a significant finding. I do not anticipate that outcome. Overall, the procedure embeds far too many arbitrary assumptions and assertions in its formulation and in its execution.
The likelihood of these assertions holding water over time is remote at best. I’ll illustrate with just a few things that I find troublesome.
Why use the S&P 100 as the comparative benchmark? That’s a 20 % subset of the market standard. If I were a skeptic, I might suspect that the S&P 100 index provides a shorter pricing history than the more common benchmark, thus limiting a more robust challenge to the method.
Do you remember the Hindenburg Omen criteria? It was given that sad name because it was designed to project a likely stock market crash. In its original form it was fairly simple. However, it failed on numerous occasions, and went through several iterations in an attempt to improve its score. Each successive modification failed to capture the event; each iteration added more criteria and the current version is a very complex array of terms.
In complexity, the S&P 100 methodology mirrors the Hindenburg Omen history. It is much more than a simplistic number counting measurement. In addition to a “65” count level other technical signals are introduced. The RSI, the MACD, and the Slow STO are deployed as confirmatory indicators. The author states that two out of three of these separate signals must be violated. Why not all three? Because they give too many false alerts. Escape doors are provided.
The selection of the “65” threshold is arbitrary, and in a sense is a factor of safety because of the scatter within the data sets. The original analysis used the 50 marker to identify major pricing upward and downward trends.
In the forecasting model, the basic S&P composite trendline and the 50 % down line are more or less arbitrary also. Alternate, equally likely lines, are plausible. That is similarly true for the supposedly constant 34 degree down cycle lines. These charts merely record history. To believe that the 34 degree slope is constant is to believe the market exactly repeats itself without consideration of external events that most likely drive the marketplace. Fat chance!
Note that the charts are semi-logarithmic. That means that predictions that are linear on this type of plot are very non-linear, power series in reality. Now we are in the world of Benoit Mandelbrot. In that world small modeling errors get magnified and quickly generate bad projections. I do not trust postulated power law analysis; the physical world has drag mechanisms that limit this type of misbehavior. Trees do not grow to the sky.
Finally, as a practical matter, if this analysis were so superior, would it’s inventor sell the secret for a mere $ 3.99? I doubt it. Especially since history demonstrates that once the secret becomes common knowledge in the investing universe, arbitragers rush to close that edge, and it quickly losses its potential advantage.
I hold serious reservations with respect to the technical analyses that you referenced. The probability claims are definitely extravagant given the paucity of data and the limited mathematics that were employed.
I hope I’m not stifling any enthusiasm for the product. Wait, that’s not true. I am very cautious about accepting its short-term S&P 100 predictions; I would not consider its long-term S&P composite projections reliable at all. It is a wild guesstimate.
Best Wishes.
Thanks MJG,
Any product touting itself as "Best Ever" makes me nervous.
I agree that using the S&P100 is at best limiting. OEF does trade as an ETF that represents S&P 100 so some further research could be done...which lamely I admit...I haven't. One quick observation, OEF does seem to underperform SPX on a long term basis.
You make great points that counter it "Best Ever" status. Thanks for your comments.