Good morning John, Your January call is right on target for where the IW will probably be nearing the High Risk level. Even if some of the components never make it to the Bearish level, the Speculation component will most likely overwhelm the rest. Part of the reason is that this component is based upon comparisons of gains and losses in Value Line's 41 best and worst performers over the previous thirteen weeks. Well, the first week of Oct. gave us the most recent market low point, and guess when 13 weeks will be up!
See
aim-users.com
It popped up rather quickly but has settled back to Neutral right now. We can, however, expect that 13 week knee jerk reaction to the Oct. lows in the first part of Jan. Many stocks are up 200% since then in the telecom and tech sectors. These will send the Speculation Index way off balance (just as the Oct. lows unbalanced it to the bullish side).
The consumer's debt has shouldered this entire recession. That's a scary thought. I performed an analysis for a friend in Japan one time relative to the Nikkei. We used AIM as the guide and a healthy cash reserve to start right at the peak of their exchange's bubble. It wasn't a pretty sight, but AIM did manage to start to trade the bottom of their cycle and recover by the time the analysis was complete.
I should have kept that synthetic spreadsheet up to date. It would be interesting to see if there were enough cycles between N- 10,000 and 20,000 to have continued the recovery process as long as that deflationary market has continued. I would say that it was over 5 years ago when we did this test.
I agree we need to profitably trade this market and be very cautious about getting back in. The IW has not signaled very many Low Risk times in the past 20 years. It spent much more time signaling High Risk than low. That was a symptom of the market's continuing rise for such a long time without substantial setbacks. I have a cumulative value that I graph which looks at this. It subtracts the long term average value of the IW from the current value. The difference is accumulated over time. If the current IW is higher than average, the cumulative value goes up by that difference and visa versa. Here's what that graph looks like for the last few years:
aim-users.com
You'll note that the IW's been essentially range bound since the peak of the Nasdaq Bubble. It's only been this recent Low Risk period that has finally returned the cumulative total to where it was in 2000. Since I don't have a comparable period of history in the market for the IW, I don't know how to guess about the future. If we are to be stuck in a trade range that's essentially horizontal, we should see a more even distribution of low and high risk periods.
However, it's nice to know that AIM likes range bound markets better than almost any other kind. I continue to use AIM for essentially all of my holdings. It's only our alumni group's money that is being semi-AIMed. There we're using AIM to cap risk in a rising market but dumping the equity completely when the market's at high risk.
Best regards, Tom |
