Animal Spirits

The expression "animal spirits" was first used by John Maynard Keynes in 1936 to capture the idea that economic activity might be driven, at least in part, by mere whims & waves of optimisim or pessimism.

More recently, George Akerlof and Robert Shiller have built on this theme in their book of the same name. Fittingly, they tip their hat to Keynes by concluding that:

"... solutions to our economic problems can only be reached if we pay due respect ... to the animal spirits."

And this is where VIXEK™ comes in.
What is VIXEK™?

VIXEK™ is an indicator to gauge "emotional kinetics" of market movers. It is computed daily and is based on intra-day trading trends. A proprietory formula captures this trend and refines it by including some of the readily available market metrics like VIX and others.

VIXEK™ ranges between -5 and +5. Its sign and magnitude indicating direction and strength of powerful "animal spirits" driving the market. It is effective in both bull and bear markets, with its power becoming truly visible when it signals a bearish trend on an "up" day or a bullish one an a "down" day.

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How Does it Work?

VIXEK™ is computed every day after the market closes. It ranges between -5 and +5 and indicates both direction & strength of market momentum based on the "animal spirits" of major market movers.

It may be used to gauge the likelihood of the market changing direction - up or down - in the following 4 to 6 weeks.

Based on last 13 years' data, on a typical day there's an 11% chance of the market losing more than 10% in the following 6 weeks. However, when VIXEK™ gets close to -5, this probability increases over eight-fold to 89%!

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Story Behind VIXEK™

For most people, the "tech bubble" that burst in early 2000 was their first taste of significant wealth destruction.

The founder of this site was no exception. Seeing hard-earned savings evaporate virtually overnight gave him the impetus to "figure it out" before the next bubble..

After much observation, followed by mathematical analysis and real-life stock-market experimentation, VIXEK™ came into being. It not only helped the founder avoid this most recent crash, it also helped grow his long-only portfolio by 73% between Jan 1, 2007 & Dec 31, 2009 - the 3-year period in which S&P 500 lost over 21%.

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 Welcome to the WeatherVane for Smart Investments!

For a market that has two animals - bulls and bears - in its everyday lexicon, acknowledgment of 'animal spirits' is conspicuous by its absence. Regardless of whether one is a “fundamentals" investor or a “technician”, there seems to be an implicit confidence in numbers....and facts....and charts.

Whatever happened to the humility of not knowing everything? Or, not being able to fully explain market behavior?

It is a well known fact that much of the US stock market is driven by large institutional players. As if that wasn't bad enough, these large investors operate with a herd mentality.

A new proprietary indicator - VIXEK™ - captures the “spirit” of large, stock-market “animals” - or the "big whales" as they are fondly referred to by the media.

Regardless of “fundamentals” or “technical” analyses, most individual and small-fund portfolio's performance is largely influenced by hurricane-force gusts created by buy/sell decisions of these large institutional players.

By giving an early-warning of any significant actions by these major market players, VIXEK™ serves as the WeatherVane for Smart Investments.