V.10:3 (127-128): The 4% Model: Using The Value Line Composite by Bob Kargenian, C.M.T.

The 4% Model: Using The Value Line Composite by Bob Kargenian, C.M.T.

Looking for an indicator that doesn't predict huge booms or busts, but tells you what the safest course of action is? Here it is. For this model, all you need is the Value Line Index. It's simple, but it works. Here's how.

Originally, the 4% model was developed by Ned Davis of Ned Davis Research fame as a method with which to follow the trend of the stock market. Simply, a buy signal is given when the weekly close of the Value Line Index rises 4% or more from any weekly close; a sell signal is given when the weekly close drops 4% or more from any weekly peak. For example, if the lowest weekly close was 175, then to generate a buy signal the index would have to close at 182 or better on a weekly basis. As long as the weekly close does not decline by 4% or more, the buy signal stays in effect.