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Strategies & Market Trends : A.I.M Users Group Bulletin Board

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To: jackfx who wrote (18611)	4/30/2020 11:00:11 AM
From: OldAIMGuy	1 Recommendation Recommended By Condo Read Replies (1) of 18928

Hello Jack,Re: v-Wave vs MRI............................... I built the MRI starting back in the 1980s with the collection of data from Value Line and Barron's. For instance, the Relative Valuation Index came from a talk I heard on the old Louis Rukeyser show on PBS. Elaine Garzarelli spoke about how the combination of a broad index P/E and short term interest rates added up to a long time average of "20" which she considered a magical number. Much above 20 and the markets were bearish; much below it and markets were bullish. A P/E of 12 with interest rates of 8% was neutral just as a P/E of 18 and interest rates of 2%. Both add up to 20 which is neutral. Compare that to now with P/E of 15.3 in Value Line and ST interest rates at 0.127%. That adds up to 15.427 which is massively bullish. Anything below 18 as a sum is in bullish territory and anything above 22 is bearish. Each of the other MRI components was similarly constructed and arranged so that "low" meant bullish and "high" meant bearish. Each was then weighted and scaled to be roughly of equal emphasis on a weekly basis. All components move roughly in sync even though they measure very different aspects of the market's activity. Recently we had three of four components all bullish at the same time with one being low neutral. That makes for a very strong overall bullish signal from the MRI. The MRI is a proprietary risk index. The v-Wave is derived from Value LIne's "Appreciation Potential" which is published weekly in their Summary & Index section. Value Line is available in most public libraries. I'd been collecting the Appreciation Potential data along with other things for decades. In 2007 I licensed the rights to the MRI so couldn't share it publicly any more. I used the Appreciation Potential data to create the v-Wave to offer to the AIM users. Appreciation Potential is high when risk is low, so I inverted the data for the v-Wave. High Value Line Median Appreciation Potential is now low market risk while low VLMAP suggests high market risk. The v-Wave is based upon just that single datum from Value LIne. It's a complex statistic about which you can read more here: valueline.com Generally it moves in sync with the MRI but seems to be a bit more conservative. Again I scaled it and wiggled the results to approximate the appropriate cash level needed for AIM's usage. The results have been good enough that the v-Wave is still in use 13 years later. So the similarities are that both are used to judge the appropriate cash level of a new or on-going AIM engine. Mr. Lichello only gave us a "one size fits all" cash level, even though over the years he adjusted that "one size" downward. Both the MRI and the v-Wave help to custom fit the cash level for AIM and base it on a measurable and reliable market risk approximation. By sizing the cash reserve in an appropriate fashion to market risk we improved AIM's efficiency by more effectively sizing and utilizing AIM's available cash. Differences are that the MRI looks at four variables while the v-Wave looks at one "black box" source of information. Both have data back to January of 1982. Both respond to market stress. The MRI is a bit more reactive while the v-Wave is a bit more conservative and responds a bit slower. There's a lot of "in depth" information on AIM and aspects of its use at the archived AIM-Users.com web site: web.archive.org One page people find helpful is the "Cash Burn" chart. It gives you an idea of how deeply a stock price can drop before you run out of cash from various starting points. It takes a minute to understand, but it basically shows how deeply a price can decline before one runs out of cash with various SAFE levels: web.archive.org Let me know if this answers your questions. Best regards, OAG Tom

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