4 replies to this topic

[ogm]

This indicator was invented by Professor Bill Barnes and is intended to be an indicator for stock market risk. It is based upon a comparison of short and long interest rates, and S&P 500 "as reported" (GAAP) earnings and dividends. The model implies that market risk is highest when return from stocks is low compared to the return on government securities. The formula is:

Raw Barnes Index = (T-Bill Yield * T-Bond Yield)/(S&P Earnings Yield * S&P Dividend Yield)

Assuming a Raw Barnes Index normal range of 1.0 to 3.5, Decision Point normalizes the Raw Index to a range of 0 to 100 using the following formula:

Barnes Index = (Raw Barnes - 1.0)/(3.5 - 1.0)

From DP:
Rather than measuring "risk", we have come to believe that the Barnes model depicts the RELATIVE VALUE of cash and bonds versus stocks -- a low index reading means that stocks are relatively undervalued compared to other assets.

[Rich]

My market safety indicator also moved into the super safe region (for stocks) today because the tbill interest rate fell to 3 percent. The new MSI value is 3.2. I only update the graph once a week so it will not show the change until this weekend.

Rich

[Russ]

Where do you go to find this chart?

[ogm]

Where do you go to find this chart?

http://www.decisionp...arts/0risk.html

[Russ]

Where do you go to find this chart?

http://www.decisionp...arts/0risk.html

Thanks Ogm