7/24 Weekly Supplemental

Here is a study of the I1 signals dating back to 3/1970 when the I1 had all of the data and price series that it required.  Although I1 does not include price, volume, or other market-related data in it's construction it had to go through a series of correlation phases in order to assign values to the input series that related to future price expectations.  Thus, 1970 is the earliest that I1 can honestly exist.
The reason for this report is the 5-year sub-par I1 values that began in May of this year.  Therefore I have an expectation that downward movements in I1 will result in more dramatic price drops than in the past.  The government-sponsored monetary inflation has biased both the economic direction and the stock market.  This environment has changed.  The government in the future will not have the power to use monetary inflation to present to the voters any evidence that government can manage the economy.  The debt load simply will not support the multiplier effect through economic output.  Thus, going forward the inflation trend will be removed from stock prices.  Going back I wanted to obtain a conservative measure of the I1 down movement results per detrended price data.  To clarify, if an I1 down move resulted in a price movement that was >0 but less per day than the long-term trend then I wanted to score that as a hit rather than a miss.  This will provide me with a conservative probability of future signals' results.  This will be very conservative because of the sub-par I1 values over the next 5 years creating a sharply lower price trend.

I'll present the report first then include interpretive commentary.
PRICE TREND PER DAY= .0012

TOTAL RECORDS: 10193
I1 UPS: 673
I1 UP HITS: 389
I1 UP MISSES: 180
PRICE CHG I1 UP ACCUM: 7.302001
PRICE CHG PER I1 UP: .0108
PRICE CHG PER I1 UP DAY: .0014
DETRENDED CHG PER I1 UP DAY .0002
I1 DOWNS: 673
I1 DOWN HITS: 545
I1 DOWN MISSES: 128
PRICE CHG I1 DOWN ACCUM: -4.472366
PRICE CHG PER I1 DOWN: -.0066
PRICE CHG PER I1 DOWN DAY: -.0009
DETRENDED CHG PER I1 DOWN DAY-.0021

Since 3/1970 the trend has resulted in an upward bias to the DJI of .0012, or .12%.  This value is used to detrend the following fields:
I1 DOWN HITS
I1 DOWN MISSES
DETRENDED PRICE CHG PER I1 DOWN DAY
The computation of the number of I1 movements was simple.  An I1 move occurred from the time that a I1 daily value changed direction until it changed direction again. Thus, the number I1 UP is equal to the number of I1 DOWNS at 673.  Hits are recorded as the number of price movements that agree with the I1 direction over that period.  Misses are the converse.  As noted above downward hits, misses, and change per day were detrended because I expect the trend to no longer be in effect until 2015.
Notice the ration of I1 down hits to misses  545/128 or over 4:1.  This is very encouraging because of the extraordinary bull market that existed from 1970 onward.  This encourages me to be aggressive going forward on any I1 downward movements, but especially on I1 formal sell signals. I will be less aggressive on I1 upward movements unless they are buy signals or the technical composite is >= +24 on the turn date.
Finally, notice the detrended price change per day the the market traded with a down I1 movement.  At -.21% it is extraordinary. 
Here is a list of I1 movements going forward with date range and I1 change (times 10) over the move:
20100722 DOWN 20100729 -4.50
20100730 UP         20100813 14.34
20100816 DOWN 20100902 -20.75
20100903 UP         20100910 6.98
20100913 DOWN 20100930 -13.46