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Industrial Production (year to year change)
I know some of you are interested in testing long histories of data, ect. I
know that I have often scoffed at fundamentals and tout completely
mechanical systems. But just to show you that if you can get your hands on
the data and enough of it, you can make a system out of fundamental data. So
can a mechanical system based on fundamental data beat buy and hold? Yes, it
can and as you can see in the test it had 100 percent profitable trades.
Industrial production measures the actual (unit) output of the
manufacturing, mining, and utilities industries. An increased industrial
production growth rate is generally bullish for the stock market and the
economy, but production can reach excessive levels.
The normal growth rate of industrial output is about 3.0% per year. We (my
dog and me) have found that output levels which increase at a rate greater
than 6.1% per year approach excessive growth rates. Such excessive rates
can lead to economic strain. The sell signals on chart
http://24.0.100.173/charts/S01045.gif are produced when industrial
production becomes excessive.
On the other hand, when industrial production growth is less than 3.8% on a
year-to-year basis, enough time probably has elapsed to correct whatever
excessive production may have previously occurred. Buy signals are therefore
produced when the year-to-year growth rate of industrial production falls
below 3.8%.
This industrial production indicator well illustrates the stock market's
anticipation mechanism as it relates to the economic cycle. It shows how
the market moves with the economy until it nears an extreme, at which point
the market turns in the opposite direction in anticipation of an economic
reversal.
And so have a nice day, Anti Omega Man
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