Value Line Technical Rank - a near "perfect" predictor of stock performance

Our recent posting "Monetary stimulus favors poor quality equities" was a reminder of Value Line's Technical Rank and its near "perfect" record of predicting relative performance in the recovery since January '09.

The only imperfection is that it is in the exact opposite order to what one would want to see in a ranking system where 1 is the best and 5 the worst.

These results are based on the linked one month relative returns on the 500 plus stocks that we cover.  In addition to keeping our own monthly valuation data, we have kept some Value Line data on these stocks including their Timeliness, Safety and Technical Ranks.

Their definition of the Technical Rank is as follows:

The Value Line Technical Rank uses a proprietary formula to predict short-term (three to six month) future price returns relative to the Value Line universe. It is the result of an analysis which relates price trends of different durations for a stock during the past year to the relative price changes of the same stock over the succeeding three to six months. The Technical  rank is best used as a secondary investment criterion. We do not recommend that it replace the Performance rank. As with the other ranks, the Technical rank goes from 1 (Highest) to 5 (Lowest.)

The Value Line Timeliness ranking has a more mixed record.

Like the Technical description, there is no meaningful definition of what goes into the Timeliness equation.

Robert L. Colby