It ’ s Your Money
almost a year , looking at the number of stocks that are moving above the 200 day MA is another indicator of a strengthening market .
McClelland Oscillator ( MO ) — This oscillator also looks at the daily advance / decline line , but takes it a step further by smoothing out the data using exponential moving averages . In my last article , I spoke about moving averages and how they are used to create support and resistance lines . An exponential moving average weighs the more recent data heavily and the older data less so . The MO uses a shorter 19-day moving average and a longer 39-day moving average referred to as 10 percent and 5 percent trend . The numerical difference between these two moving averages is the value of the McClelland Oscillator . The MO is graphed with a 0 line . When the MO is above the zero line it represents money coming into the market and is a good time to buy , and when it is negative or below the zero line it represents money leaving the market , which is bearish and a good time to sell . The more positive , the stronger the market and vice versa . When the MO reaches extreme levels either high or low , it is an indication of an overbought or oversold market . Readings above + 100 are considered to be overbought and readings below -100 are considered to be oversold . McClelland Summation Index is obtained by summing up all the daily values of the McClelland Oscillator . A market is considered neutral when it is in the + 1000 level and the market normally swings between 0 and + 2000 . Anytime the readings are outside of the range the market is considered to be overbought on the high side and oversold on the low side . Historically , market bottoms have been reached when the index falls below - 1000 while readings above + 1600 represent a market top . As of December 24 , 2009 , the McClelland Oscillator was 180.2 and the summation index was 3,295 ; both represent a very overbought market that would predict a market pullback .
VIX — This is often called the fear index . The market is made up of two emotions – fear and greed . As people get greedy , they bid up the prices of stock so high that in many cases it creates a bubble , which will eventually burst with stock prices diving as per the technology bubble .
On the other hand , when fear predominates , investors will sell off stock at such a pace that it has no relationship to the fundamentals of the stock or the stock market . The VIX is a way to measure those emotions . The VIX is a volatility index based on the S & P 500 stocks . When a large number of investors become fearful , they will buy puts because of the risk they believe is in the market . ( A put is an option contract that is used to either protect ones position if stocks fall or a bet that stocks will decrease in value . A put goes up in value as a stock drops in value .) The more puts bought , the more fearful the investor and the higher the VIX goes . The opposite is also true . As investors become complacent , they will not buy puts and the VIX will decrease in value . Generally speaking , VIX over 40 is a sign of an oversold market , which could predict that buyers will start to purchase stocks and increase prices , and VIX under 20 is a sign of an overbought market perhaps being the precursor of a market sell-off . VIX is the ultimate contrarian indicator . Historically , market lows have coincided with a very high VIX and vice versa . ( As of December 2009 , the VIX was 20 ) As I have written before , Warren Buffet says be fearful when people are greedy ( low VIX ) and be greedy when people are fearful ( high VIX ). History bears him out . There are some “ fun ” stock market indicators . The hemline indicator suggests that when hemlines on skirts rise , the market will go up and when hemlines are lengthened by fashion designers , the market will go down . The Super Bowl indicator suggest that when a team from the NFC wins , the stock market will go up that year and when a team from the AFC wins the market will go down . This has been a surprisingly consistent indictor . The lipstick indicator says that when there is an increase in sales of lipstick , the market will go down . Lipstick is considered a “ mood elevator ” during uncertain economic times and an inexpensive purchase as well . The popular January Effect states that when small cap stocks outperform mid and large cap stocks during January , the stock market will increase that year . The Sports Illustrated Annual Swimsuit indicator suggests the market does better than its historical average when the cover model is from the United States . Finally , what effect does politics have on the stock market ? During the past 60 years , the first two years of a presidential term are the weakest for the market and the third year is by the far the strongest . Democrat presidents have been better for the market then Republicans , and the market has its strongest performance when there is the combination of a Democratic president and a Republican congress . Surprise !
Dr . Mark Funt is a Board Certified Oral and Maxillofacial Oral Surgeon who maintains a full-time practice in Elkins Park . He received his MBA from Temple University in 1994 . Since that time , he has lectured and written articles on practice management and investing topics .
38 May / June 2010 • Pennsylvania Dental Journal