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Strategies & Market Trends : MDA - Market Direction Analysis

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Feb 6 4:00 PM EST

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To: HairBall who wrote ()	5/4/2000 10:20:00 AM
From: OldAIMGuy	Read Replies (4) of 99985

Hi LG and ALL, This is my first visit to this thread. First let me say that I'm a private investor. The information in my discussion here is my own and is interpreted by just me. I've kept a market risk indicator with contiguous records since 1986 and partial records back to 1982. I call it the Idiot Wave. It's measuring what the market place is doing in various ways: Relative Valuation - interest rates plus Value Line P/E Speculation - Best VS Worst performers Divergence - NASDAQ new highs and lows/# of issues traded Zeal - change in # of issues traded over time All four components are structured so that a High Value indicates a "bearish" condition while a Low Value is "bullish." The cumulative effect can range from being self canceling to reinforcing. During "normal" markets these four components seem to go their own way. However, in times of high market stress they fall into step and show either high or low risk. I've found the IW useful as a relatively short term indicator of market risk or stress. It shows what is going on right now and we can guess from that where the market might go over the next three to six months. Usually High Risk periods last longer without reaction than Low Risk times. It seems that people recognize the start of bullish times better than they do the start of bearish periods. Since the data is based upon Value Line and NASDAQ stocks, it correlates well with the broader indexes. The week of March 20th the IW peaked at a new all time high risk mark and coincided nicely again with the peak of the market. Since then it's fallen back to the high end of the Average Risk range and shows signs of continuing its drop. I'm encouraged as an investor seeing the "excess" of the first Quarter's Bubble being slashed from the indexes. It is my hope that as the money that was taken from the market filters back in we'll finally see some broadening of the number of stocks participating. This most recent High Risk period was carried almost solely to its peak by my Speculation index. It was indicative of the very small number of stocks that were the driving force behind the index moves. If you are curious about the Idiot Wave, I have informational pages devoted to the IW and its components. Please see: aim-users.com There's quite a bit of info there but it's summarized in graph form. Weekly I bring the IW's data up and publish it at aim-users.com This page also has my weekly trading history. Last week, for instance, I sold some TWE, SFS, BSX and bought some BPUR. It was nice to have positive cash flow from the trades and all three sells were nicely profitable. My thoughts at this point are that we're nearing the end of the massive selloff we've had in the last month. CNBC is still making lots of bearish noises, but that's just because they have to make some kind of noise to justify themselves. The market in my opinion is basing nicely. You'll see what I mean with the IW changes in recent times. Hope this is of interest to the thread. Best regards, Tom

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