Perfect Indicator Signals +20% In a Year!

I just stumbled on this article by Mark Hulbert from last week. He talks about an indicator that actually signaled 3 weeks ago. Historically the indicator was right 12 out of 12 times and predicts +20% gain in a year!

Right now the market is about at the level when the signal took place on Apr-05 with SPX=1,187.44. So, you may still cast your prediction, we will seal it into a time capsule and you will be able to brag about it in a year.


"...What I have in mind is a rare buy signal that was generated a couple of weeks ago by a trend-following indicator with a good long-term record. Prior to the recent buy signal, there had been only 12 of them since 1967.


...The indicator in question comes from Ned Davis Research, the quantitative research firm. It generates a buy signal whenever the percentage of common stocks trading above their 50-day moving averages rises above 90%. Davis refers to such events as a "breadth thrust."

The recent buy signal, according to this indicator, occurred on April 5. The other buy signals over the last year occurred on May 4 and Sep. 16 of last year.

How has the stock market performed following past buy signals? Quite well, according to Davis' calculations

 

http://www.marketwatch.com/story/a-...a-good-record-2010-04-21?reflink=MW_news_stmp

 

Let's see the signals plotted on an S&P chart?

 

i will try to search for the previous dates. the article only mentions the previous two: "The recent buy signal, according to this indicator, occurred on April 5. The other buy signals over the last year occurred on May 4 and Sep. 16 of last year. "

 

Never mind. I found some charts. Doesn't look reliable to me unless you have a looooong waiting time.

http://www.tradersnarrative.com/a-very-rate-breadth-thrust-buy-signal-from-ndr-3979.html

 

not sure what you are seeing on that chart. look into the worst experience column in the table in the first post.

 

somebody posted the dates in the comments in your link. may not be the same dates due to methodology differences but the conclusions seem similar:

 

i suppose 12/12 could simply mean the indicator was curve-fitted to the point when it actually has zero predictive power going forward.

 

but then flash would zoom by you .....but ming used his powers to pull you back in line.
WTF?

 

12 outta 12 doesn't mean shit, except that the indicator is almost certain to end up 12 out of 13.


Do yourself a favor and ignore this one...