Seeking Alpha

Greedometer's  Instablog

Greedometer
Send Message
Author of : - Greedometer. Dow 5000. Why nobody sees it coming. and - Greedometer 2.0. The rats are jumping ship. Engineer, Fee-Only Investment Advisor, CFP. Owner of Triangle Wealth Management Creator of the Greedometer algorithms
My company:
Triangle Wealth Management
My blog:
Triangle Wealth Management Blog
Back To Greedometer's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (2)
Track new comments
  • pmcmullen100
    , contributor
    Comments (92) | Send Message
     
    Like you, I've been anticipating a crash for quite a while. But the decision to stay in cash and shorts has been quite expensive for both of us. You've been predicting a crash since at least October 10, 2012, when you posted for the first time here:

     

    http://seekingalpha.co...

     

    As you disclosed, you were long SDS (a short ETF) at that time. And since then, SDS is down 13.7%. Here's my question: your own data shows that the Greedometer can hit the "redline" as much as seven months before a crash (see 2000-2003), and obviously the market can accelerate quite quickly even after that level is hit, as it has in the past few months. So what is the value of the Greedometer as a market-timing tool?

     

    More specifically:

     

    1. What is the correlation between Greedometer values and S&P returns? This should be a simple analysis, and it should be inverse.

     

    2. How many false positives has the Greedometer given? Your site shows the Greedometer's performance prior to three crashes, but can we see its levels, against the S&P, over the entire period for which you have data (1999 to present)? Are there times the Greedometer has hit 7000 without a crash in the following year?

     

    3. How many false negatives? Are there times when the Greedometer has reached a very low level after a crash and the market did not rebound? For example, how long was the Greedometer at very low levels in 2008/2009 before the market stopped crashing and started moving up?

     

    Overall, I think you've combined an interesting set of inputs to measure the risk of a crash. But I'm not convinced that there's any statistically significant correlation between Greedometer readings over 7000 and imminent market crashes. And given that you've only got data from three crashes--one of which lasted only a month (2011)--your conclusions will be suspect without that data analysis.

     

    None of this is meant to undercut what you're doing - I'd love to see some more rigorous analysis that shows you're on the right track.
    28 Feb 2013, 10:38 PM Reply Like
  • pmcmullen100
    , contributor
    Comments (92) | Send Message
     
    After reading some of your comments from back in October,* I have another question:

     

    What do the two Greedometers tell you about the *depth* of a downturn? In 2011, the GM hit 8,000--a historic high--and the downturn was 20%. In 2008, the GM hit about 7,800 and the downturn was 50%. In October, you predicted the S&P would drop to FIVE FIFTY (550) by July - a two-thirds crash. So what's the correlation between the GM level and the extent of the correction? Is that just based on your gut instinct, or have you done some sort of statistical analysis?

     

    I think I know part of your answer - the 2011 downturn would have been much worse. But can't the Fed always do more QE or something even more radical to stop a freefall? The Fed can buy individual stocks if it has to - that is within its charter. And the ECB has already demonstrated that it will violate the EU's treaty, if necessary. Why won't the past be prologue now - a 20% drop, then some magic bullet that stops the bleeding and re-inflates equities?

     

    *This is your comment from back in October. I should note that in the article this was published with, you said to expect significant volatility between October 2012 and January 2013, but that the S&P would end up within 50 points of its level at that time. You were right. Still, July is not that far away, and I repeat - you're predicting a drop from 1515 to 550, a massive crash, in four months.

     

    "I'll rely on the Greedometers and bet the S&P500 will drop to 550 by the end of July. This is easy money isn't it? Surely you could miss by a mile and still beat me, no? I mean even if you pick 1560, the S&P500 would have to drop to 1054 or under by the end of July for me to be right. "
    28 Feb 2013, 10:53 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

  • 14-day Free Trial of Advanced Access Newsletter. See http://bit.ly/1awnQKD
    Jul 1, 2013
  • 3 days Free download on amazon.com July 2, 3, 4: Greedometer 2.0 The Rats Are Jumping Ship (e-book on amazon.com)
    Jul 1, 2013
  • The Greedometers are suggesting the latest mini rally in risk assets is running out of steam, and that the next leg down is about to begin.
    Dec 13, 2012
More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.