Thursday, April 22, 2010

Historically Bullish Indicator Flashes A Buy Signal

A rare stock market BUY signal that was generated a couple of weeks ago by a trend-following indicator with an exceptional long-term record.

Prior to the recent buy signal, there had been only 12 since 1967.

And 2 of those 12 prior BUY signals occurred in the last 12 months alone. In other words, between 1967 and March 2009, this indicator gave just 10 BUY signals -- an average of just 1 every 4.3 years.

Since March 2009, though, they have averaged 1 every 4 months or so.

The indicator in question comes from Ned Davis Research, the quantitative research firm. It generates a buy signal whenever the percentage of common stocks trading above their 50-day moving averages rises above 90%.

Mr. Davis refers to such events as a "Breadth Thrust."


The recent BUY signal, according to this indicator, occurred on April 5. The other BUY signals over the last year occurred on May 4 and September 16 of last year.

How has the stock market performed following past BUY signals?

Quite well, according to Mr. Davis's calculations...




Bottom Line: 

If history is any guide, the current climate is a low-risk, high-reward environment.

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