The Mother of All Indicators
by Jeff Clark
October 17, 2006
For my entire investing career, I’ve had sole access to a nearly infallible market-timing indicator.
You won’t read about it in any Wall Street research report, and you can’t even buy access to it...
Buy and sell signals from this indicator typically occur once every year or so, and they often occur at major turning points for the stock market.
For example...
- In July 1987, this indicator flashed a “sell” signal. The stock market crashed three months later.
- The indicator generated a “buy” signal in December 1987, and the stock market ran higher for six straight years.
- Another “sell” signal occurred February 2, 1994. Two months later, the Dow Industrial Average was 10% lower.
A recent signal occurred back in March of this year. In fact, I told a crowd at the Investment U Symposium in Delray Beach that this proprietary indicator was screaming, “SELL.”
It didn’t take long after that sell signal for the market to enter a correction phase.
The indicator then flashed a “BUY” signal in August. And you know what stocks have done since then.
What is this amazing crystal ball, you ask? Why... It’s my dear mother. Let me explain...
Investors Intelligence publishes a survey of investment newsletter writers. The American Association of Individual Investors surveys the sentiment of the average public investor. Barron’s, The Wall Street Journal, and many other financial publications offer their own versions of investor sentiment surveys.
But none of them are anywhere near as accurate as my mother. Accurate, that is, in a contrary sort of way.
Sentiment surveys are best used as contrary indicators. In other words, if the majority of survey respondents are bullish, then that’s bearish. If the majority of respondents are bearish, that typically bodes well for the immediate future of the markets.
So when Mom is interested in buying stocks, like she was back in March, it’s best to be cautious. And when Mom is worried that the market is going to crash, like she was in August, then you can bet on a rally.
So today, with headlines of new highs in the Dow Industrial Average plastered across the Internet, television, and the newspapers, wouldn’t you like to know what Mom thinks?
Me too.
I’m visiting the folks this weekend, and I’ll let you know how it goes.
Best regards and good trading,
Jeff Clark
