MackTheKnife's Blog : MTK Ratio-of-Ratios Indicator, Jun 25

"If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away."
-- Henry David Thoreau
Walden

As a Do-It-Yourself kind of person, I believe building my own market indicators -- as well as my own investing and trading systems -- gives me an edge in my market operations. However, I also think it is helpful to carefully evaluate not only the track records of these instruments developed by me but also the track records of those instruments developed by others.

Along this line, I was pretty amused recently when I came across an old Credit Suisse First Boston (CSFB) Equity Research Quantitative Analysis report comparing the effectiveness of eight indicators widely employed in attempts to identify overbought and oversold equities. According to CSFB:
-- The four most successful of these indicators were (from best to worst) Bollinger bands, five-day money flow, the commodity channel index (CCI), and the nine-day relative strength index (RSI).
-- The four least successful of these indicators were (from worst to best) Fibonacci range score, moving average convergence/divergence, 14-day stochastic, and Fibonacci score.

The reason I found this report amusing is that the MTK Daily Market Seismometer -- as well as my ongoing scoring of individual issues -- encompass variants of three of the indicators in the first group (i.e., Bollinger bands, money flow, and the RSI), and no variants of any of the indicators in the second group.

Meanwhile, I clearly have my work cut out for me in terms of the CCI, which apparently deserves more than the cursory attention I gave it while considering its integration into my approach years ago.

Beginning Monday and ending tomorrow, I plan to present during this week the first five daily installments of a six-part blog-post series on the MTK Ratio-of-Ratios Indicator, with each of them centered on its current reading. On Saturday, I plan to present the sixth installment of this series, which will discuss the indicator's basis and related issues.

MTK Ratio-of-Ratios Indicator, Jun 25: Neutral on the Standard & Poor's 500 (http://www.zacks.com/research/report.php?type=main&t=SPX">SPX)

N.B.: Although the MTK Ratio-of-Ratios Indicator is currently flashing neither a Buy nor a Sell signal vis-a-vis SPX, the movement in the indicator's underlying data has me feeling more bearish than bullish at the moment. Of course, better-than-anticipated figures in the U.S. Bureau of Economic Analysis http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm">Gross Domestic Product: First Quarter 2009 (Final) report or the Employment and Training Administration http://www.workforcesecurity.doleta.gov/unemploy/claims_arch.asp">Unemployment Insurance Weekly Claims Report to be released today at 8:30 a.m. ET could outweigh this sentiment, at least in the early going of this trading session. Sic transit gloria mundi.

Disclaimer: Obviously, I believe it would be unwise for anybody but me to employ the MTK Ratio-of-Ratios Indicator's signals for trading any relevant vehicle in a real-world portfolio (e.g., exchange-traded funds, futures, options), but it could be fun for anyone to use them for trading in a virtual portfolio. Because the indicator was launched Jan 2, its data series is very short. As a result, there is a significant risk I have made unwarranted assumptions in my interpretation of its limited history.

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