MARKET INDICATORS
Point-and-click access to quotes, analysis, SEC filings, and breaking news makes online traders the savviest investors in stock market history, right? Yes and no. If Ameritrade's customers are any indication, Net money is dumb money - and you can profit by monitoring the Ameritrade Online Investor Index and betting the other way.
The Ameritrade Index represents the aggregate balance of buying and selling, weighted for share value, among the brokerage's 125,000 daily transactions. Unlike volume or price indices, Ameritrade's calculation differentiates between purchases and sales. For instance, if Ameritrade served 5,000 buyers and 3,000 sellers on a given day, the Index would measure 5,000 divided by 8,000 (total buyers and sellers), or 62.5 percent. Readings above 50 percent imply that traders expected prices to increase; percentages below 50 suggest they anticipated lower prices.
Ameritradeindex.com lets you compare the index with other indicators, and that's where things get interesting. Graph it side by side with the Nasdaq 100, and you'll likely see proof of an amazing phenomenon: The two are almost completely out of step. When Ameritraders are bullish, the Nasdaq 100 dips. When they sell, it rises. In fact, the Ameritrade Index registered consistently low readings during the first six weeks of Nasdaq's massive run-up between November 1999 and March 2000. Over the past 18 months, the Index's correlation to the daily return of the Nasdaq 100 has been -0.66.
Like any indicator, this one is useful only in context with other market intelligence. It can't predict daily fluctuations, but it does illustrate patterns unfolding over time. When Ameritrade customers buy, I go short. Conversely, during periods of heavy selling, I look for opportunities to buy. The Index site's lists of Top 10 daily buys and Top 10 daily sells, which identify the most frequently traded shares, are especially useful.
The Net's ability to track user behavior can seem nefarious to consumers, but in this case watching the herd - and steering clear of it - can help individuals follow the money.
- Jonathan Hoenig (www.capitalistpig.com)
Ameritrade Index: www.ameritradeindex.com.
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