Usually I have trouble parsing Cramer’s advice. But just a while ago he was surprisingly lucid. I’m referring to Cramer’s call for people to take out money that they would need in 5 years’ time. Remember that? Here it is again, in case you missed it:
Well, it turns out a very reliable indicator is now flashing buy. The funny thing about this indicator is that it isn’t a short term buy signal. But whenever it has indicated a buy point, as it is now, the market has been higher four years in the future.
The indicator is the Value Line’s Median Appreciation Potential which is the median measure of how much higher or lower a large sampling of stocks will be trading as indicated by Value Line’s analysts. VL itself frowns on using it as an indicator but according to a market timing system devised by others, VLMAP signals a buy when it rises above 100 - meaning that in 4 year’s time, stocks will be trading higher by 100%.
As Mark Hulbert reports (link above) the last two times that VLMAP has given a buy signal were after the tragic events of 9/11 and at the bear market bottom in 2002. It also gave a signal in mid-July when the markets spiked lower.
Hulbert was kind enough to send me the in depth study he cites in his article. It concludes:
While it is clear from the above regressions and analysis that VLMAP is not a perfect predictor of the market, it is also true that VLMAP does have strong statistically significant forecasting powers. …The Value Line Composite Indexes, especially the geometric version, have the best track record in comparison to VLMAP. During the decade of the 1990s, the Russell 2000 is the best market measure as predicted by VLMAP.
While VLMAP may not represent the long sought after Holy Grail for predicting the market, it nonetheless proves to be beneficial and worthy of investors’ attention.
You can download & read the whole report in my Free Trading Resources section (under Reports & Articles). But be careful you don’t get stuck there rummaging through all the other free stuff there.
I don’t have a crystal ball and this indicator is, like everything else, far from an iron-clad guarantee that the market will indeed be higher… but watching Cramer put in that sober performance, I couldn’t help but think that he will regret it. It was a gut feeling but now there is quantifiable data to back it up.
But of course, considering the short term memory of the average “Cramerican” within four years, even if the market is higher, they won’t bother to remember it. Just like they ignore his call at the top of the tech bubble cheerleading bloated stocks even higher or his most recent disasterous calls:
In March, he said Bear Stearns “is not in trouble.” After Bear Stearns tipped over, he wrote in his New York magazine column that the bottom had finally come. “I feel the bear has been tamed, and the worst of the clawing is over,” he said. And on Sept. 15, he hosted his friend Robert Steel, chief executive of Wachovia, and suggested that its $10.71 share price was a bargain. Two weeks later, it was at $1.84.
Source: Cramer Retreats Along With The Dow
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