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FRED GOODMAN'S KEY INDICATORS FOR
INVESTMENT SUCCESS
I have developed the Growth-Value Oscillator to reflect the relative strength of the Russell 2000 Growth and Value indices. It's an adaptation of an indicator I've followed for many years, based on the relative performance of two mutual funds -- an aggressive growth fund and a less aggressive value fund. That indicator is one of the 29 that I use for the Summary Index, and it certainly adds to the ability of the SI to track the market. The new Growth/Value Oscillator is charted as the pink line in the graph below. You will see horizontal periods during which there was no movement in the oscillator at all. These periods occur very close above or below the zero line. A buy signal occurs when the pink line penetrates zero to the upside, as it did on April 13, the last day depicted in the graph. The signals since the beginning of January 2002 are all shown on the chart, and for the most part they have been timely. A definite exception is the buy right at the top of the August 2002 reversal that occurred just before the October bottom. The indicator is based on the observation that markets are at their best when growth stocks outperform value stocks. Of course when value stocks outperform there may still be gains to be made. However, when growth outperforms, the gains made by value stocks are usually better than they are when value stocks lead the pack. To clarify, assume the value is leading and is generating 10% annually. When growth starts to lead, growth stocks may generate a 20% annual return, but value stocks may actually produce as much as 15% -- more than they generated when they were leading.
Fred Goodman, CFP, is a fee-only Certified Financial Planner based in Los Angeles. You can send him your questions and comments via email at Fred@MarketMonograph.com. The charts and commentary represent what Fred is thinking about the market and thinking of doing for his own account and for accounts he manages. There is no guarantee that you will profit from trading as discussed herein. You may lose money and Fred assumes no responsibility for what you do or do not do with this information. 
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