Weekly Risk Report 02/23/2009
This week didn't start out well unless you've been sitting around with bundles of cash waiting for a market decline to come along. Last week ended poorly and directed three of our four i-Wave components downward. Only Speculation rose slightly. Out of all 6300 stock issues traded on the NYSE and NASDAQ, only 27 hit new 52 week highs last week. That's only 0.4% of all companies traded. By comparison, 1201 company stocks or 19% of all traded issues hit new 52 week lows. Simply amazing.
The cumulative effect is we see a slight rise in the i-Wave value from a week ago. Market risk remains near the lowest levels measured since starting the database in January of 1982. I've checked around some reliable sources to see if we are unique in our view of future potential vs. market risk. Looking at Value Line's "3-5 Year Appreciation Potential" (VLAP) we see them estimating a 150% gain for the 1700 stocks of their regular edition. The chart below shows the actual results 4 years after a specific range of VLAP.
As is shown, usually they've been pretty close historically. When we look at the VLAP against the markets themselves we see it has corresponded nicely (inversely) to the direction we've seen. The lower the stock indexes go, the higher the VLAP has climbed.
So, it appears that Value Line agrees with our i-Wave as to the general condition of the market place. Its current level is +150% and it's been over +100% since the markets started to rapidly decline in October.
How does the VLAP look on shorter and longer time horizons? This next chart shows its 12 and 60 month returns from various levels.
While these charts relate to the Small Cap Index, there is generally good correlation between the smaller cap stocks and the larger caps over time. While the Small Cap Index probably rises faster than the larger cap indexes, it is safe to say they also rose.
Now, it would be hard to find any verification of this optimism when looking at the daily volatility. Every day brings a new wave of bad news - even when the news is good. Many companies are reporting reasonable earnings, but nobody is taking notice. Nobody seems to want to hear any good news or maybe nobody wants to report it.
My good news is that our indicator has been very reliable for decades. Value Line's VLAP has been very reliable for even longer. It's hard to take the long view when so much negativity comes at us from every direction. All the more reason to filter out the noise and concentrate on the Signal.
