The RIX Index: A Rohrbach Buy

08/27/2004 12:00 am EST

Focus:

Jim Rohrbach

President and Founder, Investment Models, Inc.

Jim Rohrbach, was recently featured by Timer Digest as one of the Top Ten Timers for the year ending March, 2004. He had been correctly on a sell signal through the market’s recent weakness. In Atlantic City, I asked him to notify me when he turned bullish. He has.

"As much as we would like to make money in the stock market, the sophisticated investor knows that there are long periods of time when making money is very difficult. There are long periods of time when the market goes sideways or down. These periods of time require patience while waiting for an opportunity to make money. In particular, we have to avoid the big drops, and keep our money waiting for the next buying opportunity. When stocks get cheap, you have to have the cash to buy them and ride the next up move. If we can ride the big up moves and avoid the big drops, the power of compounding will take over and provide outstanding results. Impatience and the desire to make money in the market, every day, is the downfall of the average investor. You cannot force the market to make money for you.

"The experts keep telling us that the stock market can't be timed. If they say that market timing is predicting what the stock market will do in the future, then I will agree that it can't be done. People spend an inordinate amount of time trying to predict the future course of the market, but the market is very efficient. It can handle all of the transactions for millions of people for what ever emotional or logical reasons they used to decided to buy or sell. The best that we can do is identify a change in the trend of the market. That can be done, and I have been doing it for 33 years. I can’t tell how high or how low the market will go, but I can mathematically determine when the trend turns up or down. Each day, I convert the stock market action into a number that represents the trend of the market. The result is the RIX Index, which has allowed me to avoid every Major Decline in the stock market for the past 33 years.

"The RIX takes the action of the stock market and converts it into a number that represents the trend of the market, every day. I have a RIX Index for the NYSE and one for the NASDAQ. This timing indicator was developed to be very simple and to take the emotions out of investing. The RIX signals are precise with no what ifs, maybes, or hedged statements. That’s what we do at Investment Models. We notify investors when the trend of the markets change. We do not predict the future course of the markets, but rather identify the changes in the trend after the top or bottom, but close enough to take advantage of the bulk of the up moves while avoiding most of the drop. We have proven that being on the right side of the trend greatly increases our chances of being successful.

"Lets look at the most recent Signals. We had a Sell Signal on the NASDAQ on July 8, and a Sell Signal on the NYSE on July 26. Both markets went into severe drops following those Sell Signals, thus validating the change in trend. The RIX then issued a Buy Signal on the NYSE on August 18. Quite frankly, the buy signal came as a bit of a surprise, especially while the price of oil rose above $48 per barrel at the same time. Somehow I thought that the market would respond negatively to rising oil prices. I could list several other factors that might cause someone to conclude that the market should be going down, but I learned a long time ago that I should not decide where I think the market should be going and then look for indicators to support that subjective feeling. It's much better to have an objective mathematical formula to let me know when the trend of the stock market changes.

"I never ignore the RIX so I am now bullish. In addition, the NASDAQ RIX Index also finally reached a Buy Signal level as of August 25. The current rally in the stock market could have a sustained up move from here. Buy Signals usually last for several months because they identify changes in the intermediate trend. The market itself determines how long it wants to go up, so we will have to wait and see if the market wants to cooperate this time. The RIX Index kept us in the 2003 up trend for the entire year from March 2003 to March 2004 with only a two-week period in August 2003 when we were taken out and got back in. So up trends can be sustained for long periods of time. The RIX indexes for the NYSE and NASDAQ have shown very powerful up moves that have led to our Buy Signals. This kind of strength just can not be ignored, so I am now 100% invested."

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