What is the Greedometer?
The Greedometer® gauge represents strategic investment risk levels in the S&P500 stock market index. Its intent is to warn in advance of major / historically important stock market crashes. In the period from 1881 to 1999, the Greedometer would likely have warned on three occasions, yet as of January 2013 is providing its seventh warning since year 2000.
Try it out! It’s interactive.
- Adjust (slide) the input parameters to the Greedometer® and watch the needle move as the risk level changes.
- By moving the slider dot for any of the top 4 inputs, the Greedometer’s risk level changes.
- i-phone / i-pad: touch the brown area on a slider to select input values.
In reality, these parameters don’t operate wholly independent of each other, as depicted with this interactive gauge. But the relationship between individual input parameters and the Greedometer gauge is reasonably approximated by this. To protect the intellectual property behind the proprietary Greedometer algorithm, only 4 of the parameters are adjustable via this tool. Having the other inputs non-adjustable inhibits the ability of the Greedometer to reach extreme readings (in case some of you are trying to crash the needle).
Note: Some may be familiar with a gauge found elsewhere on the internet that became public in May 2012. It has a similar appearance, name, function, and even shares some of the same inputs used in the Greedometer algorithm. It is apparently very coincidental that their gauge has so much in common with what was provided in an email I sent them in June 2011. Greedometer is trademarked with the U.S. Patent and Trade Office. The trademark application was received by the USPTO in May 2011, and approved/registered in May 2012. Draw your own conclusions.
Anyone can examine a historical stock market chart, identify the major peaks and troughs, and thereby reach a conclusion those levels are worthy of representing future stock market tops and bottoms. However, this is not what the Greedometer does. Stock market price is not an input to the Greedometer algorithm. Including it would result in a near-useless indicator. To illustrate, the following example is provided.
The S&P500 hit an all-time peak of 1565 in October 2007 (then crashed 57%). Forward now to early 2011 where the Greedometer began redlining again – warning another stock market crash would soon initiate. Yet the S&P500 was only at 1265 – nowhere near the 1565 previous stock market peak. The market would have had to have climbed a further 24% to match the previous peak level. The Greedometer was correct. A quick stock market drop of nearly 20% happened over the summer – requiring the Fed and ECB to come to the rescue once more to stop this stock market collapse before it went further. The fact that the collapse was stopped does not invalidate the Greedometer’s warning because without new Fed and ECB actions, there can be little doubt the stock market would have continued its collapse.
The Greedometer® is supported by a database of several thousand data points (mostly weekly) beginning in January 1999 and incorporates nine sources of macroeconomic as well as fundamental and technical market data. Whereas tachometers warn when an engine is likely to self destruct at high rpm, or stall at low rpm, the Greedometer borrows from this analogy and identifies periods of extreme risk that accompany secular US stock market tops and bottoms.
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