ValueLine Arithmetic Index Remains Strong

September 1st, 2009 by AndyAskey

As I have mentioned numerous times before, the ValueLine Arithmetic Index (VLE) is my favorite measure of the “market”. I have not found how to trade the VLE – and probably would not trade it if possible. But I do use the progression of the index as a gauge to buying and selling strength of all stocks. Remember that the VLE is an equally weighted index of companies that ValueLine follows (I believe around 2000). The other indices are weighted to the largest companies so they may move opposite of the majority of tickers.

The VLE has moved up off the March low between 4-8 times the slope of the move off the 2002 low. The 2007-2009 bear market only dropped at between 2-4 times that slope. Price has moved back up to almost 75% of the total range which is far better than any other index. My assumption is the market will find weakness soon because it has been moving up about 180 days from the March low. But I certainly do not plan on shorting anything with the strength the VLE is showing.

The Nasdaq has been the strongest tradeable market off the March low. The Nasdaq 100 (NDX) actually bottomed in November 2008 which made it obvious in March which index has the strength. The Gann Fan of the 2007-2008 bear market projected to the March low shows price following the 1×1 angle. Price is bullish until this angle is broken. The angle supported the market in July but probably won’t be able to hold off a second break. Note that the 50dma is following this angle which often happens. A break of the 50dma is many times significant because it is actually a break of a significant Gann angle.

So what is an upside boundary? I don’t see price moving more than 10% higher from here as the long term 1×2 angle comes into play. Note that I am not predicting this move. But if a blowoff into a high occurs, this level would be a good place to expect fast moving price action to end.

Tags: Nasdaq Charts (IXIC) · Value Line Arithmetic Index (VLE)No Comments

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