Investor Preference Index for Comparing Relative Price Momentum

Summary

The Investor Preference Index is presented as a long-term stock-market sentiment measure originally described by Cyril V. Smith Jr. in a 1997 magazine article. Its stated premise is that investor preferences can be assessed by comparing the performance of two instruments; the original application compared the S&P 500 with the New York Stock Exchange. The document also illustrates comparisons between GBPUSD and several other currency pairs.

The calculation takes the difference between the two instruments’ rates of change, smooths that difference with fast and slow simple moving averages, and applies a further smoothing step to form the oscillator. Inputs include the comparison instrument and the rate-of-change and smoothing periods. The source provides no empirical results, interpretation thresholds, or evidence that the oscillator predicts market turns. It also warns that historical data for the comparison instrument are needed, which can delay the indicator’s initial display or its refresh after changing symbols.

Key ideas

• The index compares rate of change between a charted instrument and a selected comparison instrument.
• Fast and slow simple moving averages smooth the relative change before a final smoothing step.
• Its original use was described as a long-term stock sentiment measure.
• Historical data for the comparison instrument are required for the oscillator to display correctly.
• The document supplies no performance evidence or signal thresholds.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.