Kind Words from Terry Laundry, Founder of T Theory

"Parker has sent me what I consider to be the most important refinements to T Theory I have ever received from anyone in an e-mail . . . which he calls Tweaking the 13th Advance Decline T." September 29, 2010

"Parker has sent me a very interesting concept which is the NY Advance Decline line divided by the put-call ratio . . . What he's done is introduce the idea of sentiment." September 15, 2010

"Parker discovered the Money Flow Ts . . . This is something like the Holy Grail in T Theory. You are always looking for something that will help you refine the peak date." October 17, 201

"Money Flow Ts are probably the greatest new thing I have seen in 20 years in terms of time symmetries." December 5, 2010.

Sunday, April 25, 2010

$$ Confidence Indicator

Terry Laundry's T-Theory Confidence Indicator is the ratio of the price of a Fidelity junk bond fund (FAGIX) divided by the price of a Vanguard long term treasury fund (VUSTX). The theory is when confidence rises, money flows from the safer investment to the riskier investment, and therefore the ratio rises. When confidence falls, money flows from risk to safety, and the ratio falls. The concept is similar to Barron's Confidence Index which has been around for decades, but Terry thinks his indicator is better, and I agree.

As it turns out, following what the bond investors are doing is a nice leading indicator of turning points at stock market tops and bottoms. Here are links to charts showing pretty dramatic divergence between the T-Theory Confidence Indicator and the S&P at important tops and bottoms over the last 10 years:

2000 Top

2002-03 Bottom

2007 Top

2009 Bottom

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5 comments:

  1. Matt AmsdenApril 25, 2010 at 8:25 PM

    Thanks for turning me on to the T Theory stuff via Twitter. It's made me a lot of money since last year by keeping me long.

    ReplyDelete
  2. PositionSizingApril 25, 2010 at 9:24 PM

    Hey Matt -

    Thanks for the note. I think Terry Laundry's incredible. For those unfamiliar with him, here's his main website that has links to all his material:

    http://ttheory.typepad.com/

    Since last year, he's been calling for the stock up trend that started in March of 2009 to end in late August 2010.

    ReplyDelete
  3. DenaliguideApril 26, 2010 at 9:05 AM

    I am not sure that a Liquidity Index such as the T-theory will call tops. As we know tops tend to be long drawn out affairs, and hard to pinpoint. SLV/GLD and a couple others are helpful, but I like to look at the "weight of the evidence" to get a good feel.
    Keep up the good work.

    dg

    ReplyDelete
  4. DenaliguideApril 26, 2010 at 9:15 AM

    voted for you on S/C, you do nice work

    ReplyDelete
  5. PositionSizingApril 26, 2010 at 1:21 PM

    Thanks for the note and the vote, DG!

    I agree with your comment that the T-Theory Confidence Indicator is just one piece of the puzzle.

    ReplyDelete

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