“Best Stock Market Indicator” Ever? A Dissenting View

As long as I’m in a bah humbug mood, I thought I’d turn my cold eye on a fellow blogger, rather than on the MSM.  

There is a fellow who posts on Doug Short’s site named John Carlucci.  He is the author of a Kindle book titled Ashes To Riches:  How To Profit Spectacularly During The Economic Collapse of 2012 to 2022.

Well, he’s entitled to his nuanced views of the future.  As regular readers know, I am much more riven with uncertainty.  As the old Traffic song goes, who knows what tomorrow may bring?

In any case, Mr. Carlucci has the similarly nuanced technical tool titled Best Stock Market Indicator Ever.  The latest update reports (LINK): 

Best Stock Market Indicator Ever:
Rises to 88% and Secondaries Confirm “Tradable”

Here is the longer-term chart he uses to support this view.  The large graph shows the percentage of S&P 100 (not the 500) stocks trading above their 200 day moving averages (“DMA”).  Whether he uses exponential or simple moving averages is not specified in this post, unless I missed something.  In any case, it is a trend-following system, for which he uses certain technical tools for support.  Here is the decade-long graph:

Click to View

 Mr. Carlucci hedges and states:  While not intended as a day trading tool per se it can certainly be used as background information by day or highly speculative traders.

This leaves one unclear.  It’s the best stock market indicator ever, right?  But all it can do is not allow one to day trade, but it “can be used as background info for speculators”.

Basically, my interpretation of this indicator is that it adds nothing.  If you go back to the 2002-3 period, and again to 2009, everyone could see the obvious:  a long bear market had exploded with force into a bull market, in the setting of dramatic Federal Reserve easing.  There are a hundred graphical ways to show this, but anyone who has any business trading needs none of them, just either an eye or an ear.  

To the extent the above data mean anything, they may suggest the opposite of his conclusion that we have a tradable opportunity from the long side.  In 2002, and again in late 2008 and early 2009, extreme negative breadth was seen, with readings under 20%.  Then there was the surge.  By 2006 moving into 2007, buyers pushed most stocks up for about a year, non-stop.  Then the bear market began.  We are now also four years since those extreme negative readings.  The first pop to a bullish extreme following the bearish extreme was, as it was in 2003, a forerunner to a multi-year bull market.  As was the case in 2006-7, a major stock market move occurred without new bullish fundamentals.  That was the topping process before a major bear market.

The bottom line is that so far as the general public goes, the Fates do not let one simply look at prior patterns and have any confidence of what will happen tomorrow, and tomorrow, and tomorrow.

Anyone who really has the best stock market indicator ever isn’t sharing it with us for free.

 

 

 

 

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3 comments to “Best Stock Market Indicator” Ever? A Dissenting View

  • mitch

    ive looked at that thing 50 times over the last couple of years and i must agree.

  • Onlooker

    Doc

    It’s unclear from StockCharts whether it’s exp or simple; it’s an indicator they have programmed in for selection and not one built by the user.

    This “best indicator” is just another variation on any number of “systems” that people tout. Not much different than a system using moving avg crossover with RSI/MACD/Stoch for confirmation.

    He’s also a bit unclear on exactly how to execute his system; do you do it on a monthly, weekly, or daily close? He uses a monthly chart, but then refers elsewhere to a daily close. A lot more whipsaw will occur using a daily, hurting returns. And his

    These things always look better when just looking at the chart than they actually are when backtesting. They can capture large trending moves OK, but give up a lot of that on the back end drawdown before a signal is given. You also get whipsawed during a trendless/choppy period.

    Not having much to do this A.M., I did a quick backtest going back to the ’09 bottom, using his rules. I calculate a 33% gain through Friday’s close, using the weekly close as the signal. A far cry from “profiting handsomely”, though not bad.

    It can be improved a bit by selling when momentum wanes (e.g. a negative MACD cross), thus avoiding the drawdown before his defined sell signal kicks in. Doing that I get a 42% gain. And if you sell half on that cross and then the rest on his defined sell signal the gain is about 38%.

    Not bad overall, for a mechanical system that prevents large drawdowns. But they’re a dime a dozen, and this guy hasn’t made some kind of miracle discovery, LOL.

    And, of course, I only looked at the past 4 years, when we’ve had some good trending periods. In a choppier market, like ’03-’07 I think it would be much less effective (maybe I’ll take a look at that, if I’m bored). And in a secular bull you’d probably be better off with buy and hold, but I’m just guessing there.

  • Thanks for your comments, Mitch and Onlooker. I’m impressed by your quick and detailed analysis, Onlooker. Though I think that the 2011 collapse qualifies the last 4 years as pretty choppy, and then there was the lesser downturn in 2010. If I remember right, the 2003-7 bull actually set a record for having no 10% declines at all. The VIX crept just under 10 at one point. Talk about complacency!

    Normally I don’t bother debating or debunking other lowly bloggers who either just like to see themselves in print or are trying to make a buck, but the arrogance of this one just got my Irish up.