ABC Indicator Flashes S&P 500 ‘Sell’ Signal: Jan. 14

The ABC Indicator of movements in the S&P 500 (INDEXSP:.INX) introduced in a J.J.’s Risky Business blog post last month is flashing a Sell signal this Tuesday morning. In forecasting the short-term direction of the U.S. large-capitalization index on a closing basis since July 6, 2009, this indicator’s signals have been correct on 97 occasions, or 71.85 percent of the time, and incorrect on 38 occasions, or 28.15 percent of the time.

There have been important differences between the behaviors of the ABC Indicator’s Buy and Sell signals during the above-referenced period, as mentioned in a blog post this month. Its Buy signals have been right on 55 occasions, or 80.88 percent of the time, and wrong on 13 occasions, or 19.12 percent of the time, while its Sell signals have been right on 42 occasions, or 62.69 percent of the time, and wrong on 25 occasions, or 37.31 percent of the time.

Meanwhile, I am happy to note the first public test of the ABC Indicator in forecasting the short-term direction of the S&P 500 on a closing basis has continued to go well at J.J.’s Risky Business. This test will encompass 10 signals, and history suggests they will be right between six and eight times and wrong between two and four times. The initial three signals mentioned in the blog posts linked below were successful, as follows:

• In the case of the Buy signal on Dec. 20, the index on a closing basis rose to as high as 1,848.36 on Dec. 31 from 1,809.60 on Dec. 19.

• In the case of the Sell signal on Jan. 3, the index on a closing basis fell to as low as 1,826.77 on Jan. 6 from 1,831.98 on Jan. 2.

• In the case of the Buy signal on Jan. 10, the index on a closing basis rose to as high as 1,842.37 on Jan. 10 from 1,838.13 on Jan. 9.

The brief duration of this last ABC Indicator signal leads to the obvious question: What is the length of the so-called short term in this context? Historically, the indicator’s Buy signals have ranged between one trading day (eight cases) and 43 trading days (one case), with a median of 7.00 trading days, a mean of 9.71, and a standard deviation of 9.24, while its Sell signals have ranged between one trading day (10 cases) and 24 trading days (one case), with a median of 5.00 trading days, a mean of 7.04, and a standard deviation of 5.94.

Duration in Trading Days of ABC Indicator ‘Buy’ and ‘Sell’ Signals:

Median, Mean, and Standard Deviation

Related Reading

The ABC Indicator of Movements in the S&P 500

ABC Indicator Flashes S&P 500 ‘Sell’ Signal: Jan. 3

ABC Indicator Flashes S&P 500 ‘Buy’ Signal: Jan. 10

Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author’s best judgment as of the date of publication, and they are subject to change without notice.