Here’s the good news: I am happy to note the latest ABC Indicator signal succeeded in its task during the current public test of the pointer at J.J.’s Risky Business: The Sell signal on Jan. 24 was followed by the S&P 500 falling to as low as 1,741.89 on Feb. 3 from 1,828.46 on Jan. 23. The test will encompass 10 signals, and history suggests they will be correct between six and eight times and incorrect between two and four times. To this point in the test, they have been right five times and wrong one time.
The first five ABC Indicator signals mentioned in the blog posts linked below produced as follows:
• In the case of the Buy signal on Dec. 20, the S&P 500 on a closing basis rose to as high as 1,848.36 on Dec. 31 from 1,809.60 on Dec. 19. Successful.
• 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. Successful.
• 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. Successful.
• In the case of the Sell signal on Jan. 14, the index on a closing basis rose to 1,838.88 that day from 1,819.20 on Jan. 13. Unsuccessful.
• In the case of the Buy signal on Jan. 15, the index on a closing basis rose to as high as 1,848.38 that day from 1,838.88 on Jan. 14. Successful.
Here’s the bad news: I am unhappy to note that in forecasting the short-term direction of the S&P 500 on a closing basis since July 6, 2009, the ABC Indicator’s signals have been correct on 96 occasions, or 69.57 percent of the time, and incorrect on 42 occasions, or 30.43 percent of the time.
Meanwhile, the indicator’s Buy signals have been right on 55 occasions, or 79.71 percent of the time, and wrong on 14 occasions, or 20.29 percent of the time, while its Sell signals have been right on 41 occasions, or 59.42 percent of the time, and wrong on 28 occasions, or 40.58 percent of the time.
So why do these apparently excellent figures constitute bad news? They do so because they are inconsistent with the numbers reported in the blog posts linked below.
In recently conducting a historical research study of the ABC Indicator, I discovered three cases during a volatile period in September-October 2010 when I categorized its signals in my spreadsheet as being successful on a closing basis even though they were successful only on an intraday basis. I recall my thought process at that time as running along this line: “If I am making money by employing a given signal, then how can I classify it as unsuccessful?” It was a fair point. However, this blog series focuses not on the indicator’s behavior on an intraday basis but on its performance on a closing basis. Therefore, a Correction with the appropriate data will appear beneath each previously published post in the series.
Source: This chart is based on J.J.’s Risky Business proprietary data.
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.