Green light turns red

May 30, 2008

On August 31st 2007, I wrote about a buy signal in CRB’s stock market momentum indicator (SMMI). The indicator gives a buy signal when momentum is low but rising. Conversely, a sell signal is generated when momentum is high but falling. A more precise description of this system is given on CRB’s website.

A sell signal came into effect after yesterday’s close. Leading up to that, the buy signal was open for 272 days and yielded a negative return of 5.0%. This is the first time that acting on this indicator, which has been calculated since 1994, would have yielded a negative return. Prior to this, the lowest return had been 1.6% and the longest a buy signal had been effective was 191 days.

This negative return has not changed my opinion on the SMMI as a useful timing tool. As discussed last August, there were reasons to be careful and not overly enthusiastic about the buy signal. I will keep tracking the SMMI and notify of future signals with commentary based on current conditions.

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