Hi Peter, I have what I term a "Speculation Index" that I've used since the '80s. It is some data taken from Value Line's index section. In that section on page 33 there's twin lists of 41 stocks each. One list is the "Best Performing Stocks (Measured by price change in the last 13 weeks)" and the other is the "Worst."
These lists show the 13 week price change of the stocks shown. The range in price change is quite dramatic in one time frame versus another. Right now, there's one stock up 191% (CKE Restaurants), but there's no others up over 83% on the list. It takes a 34% gain in the last quarter to make the list. Comparing this to October 13, 2000 gives some instruction. Then there were 13 companies on the list that showed gains of at least 100% and the top one, Read-Rite, was up 325%. It took a 61.7% gain to make the list!
Now, how about the "Worst" list? Last October it required a 45% drop in price over 13 weeks to get the honor of being listed. The Worst of the Worst was down 74.7%. What about last week? It required a drop of over 61% just to get noticed and the worst stock listed was down 89%.
So, by this simple measure we see that the "bad" stocks have become worse, and the "good" stocks aren't nearly as good as even last October. I have this data all the way back to 1982 and it has consistently been able to measure the level of market speculation. Most important are the extremes with the middle ground being sort of a "no comment" area.
Generally, if you add up the four percentages represented by the top and bottom stocks in each list it will most of the time range between zero and one hundred. That would be the "neutral" range. Below zero is essentially always bullish and above 100 is where speculation is getting heated up and eventually becomes bearish.
Right now it adds up to a mild 75. However, looking further at the list and realizing this number is only that "high" because of one stock, CKR. That stock is rallying back from a terrible beating earlier this year. If we were to ignore that anomaly, we'd see the value going into bullish territory showing a minus 34.
So, by my rules, we're not yet in bullish territory statistically. But if it weren't for that one stock, we would be. This indicator is usually pretty good at short term predictions; one to three months. I'll be watching this indicator very closely over the next few months.
Note that after the October, 1987 "crash" there weren't even 41 stocks in Value Line's 1700 that showed positive 13 week gains! This is important to understand. At my Speculation's 1987 low point, the "Best" performer in V/L was up just 26.7%, #41 on the Best list showed zero gain. The Worst performer was down 84.2% while #41 on the list was down 56.4%. The sum here was minus 114!
So, this Speculation measure shows we've trimmed a lot of fat, and done so over a longer period of time than in 1987. It also indicates we're nearing a point of bottoming if we use the 1982 to present time table.
Best regards, Tom
PS: Here's the last few years of my Speculation Index through 08/10/2001:
aim-users.com
Note that I've changed the scale by dividing by 100. |
