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Weekly Crash Indicator
As of today we are adding a new component to our process. If we are 100% invested then we own the Ultra S&P 500 Proshares (SSO) which returns 2X the S&P 500, 75% we own the S&P SDRS Unit Trust (SPY), 50% invested S&P Powershares Low Volatility(SPLV), Cash is Cash and 100% short we own the S&P Ultrashort S&P 500 Proshares (SDS) which returns 2X the downside of the S&P 500. This week we own SPLV.
Market crash/correction indicators remain at DEFCON 3 50% invested. Our DEFCON ratings are from 1 to 5 with five being the most severe.
The Madison Letter remains in cash this morning as our scores moved into the red a week ago. Overall Madison signals have returned 45.73% while the S&P 500 has returned 6.61% since 4/2/2007 through yesterday’s close for outperformance of 39.12% since 4/2/07.
Next the Erlanger Big Barf Indicator moves to -1.59 from -0.43 on a daily basis. We note the daily has moved below 0 which is a confirmed sell signal. The Weekly EBB remains above zero as does the Monthly Indicator.
The EBB is only available in Erlanger Chart Room but we report on it once a week in this column. If you want to see it daily or intraday, which is killer, then we suggest signing up for Erlanger Chart Room where you will never look at a chart the same.
Next,the proprietary advance/decline measure for NYSE/NASDAQ stocks remains a buy on the market but barely. Since inception this signal is up 109.64% while the S&P 500 is up 117.52% since 3/2/2009 for underperformance of -7.89% on an absolute basis. This indicator is either buy or sell. Sell signals have generated positive returns in addition to our buy signals. This morning we show cumulative returns.
Simon Economics Greed & Fear Index (GFI) moves from 100 to 96 this past week, as we now are in “el feugo” mode.
Last, our Weekly Chart on the 50 Day moving average slope of the S&P 500 remains positive for an eighth week in a row.
We added a sixth indicator this summer that is a measure of risk and it is extremely proprietary and will remain as a black box indicator. It remains underweight beta.
What is interesting about these various market crash/correction indicators is they are independent of each other and use different methods but all arrived at similar conclusions at or around the September lows. These indicators also will allow some give and not provide a ton of false signals. The bottomline is these indicators will capture drops of 5% or more on a very consistent basis.
We have assigned a percentage of the portfolio that is invested based on our DEFCON indicators. We have been publishing this in Superstock investor and will add to here. A rating of DEFCON 1 equals 100% invested. DEFCON 2 equals 75% invested. DEFCON 3 equals 50% invested. DEFCON 4 equals cash. DECON 5 equals 100% short.