Today, let's take a look at the Value Line Appreciation Potential (VLAP). I've described these charts before (here), for which we show two adaptations. The first one is the pure historical record of the metric, and this is the one taken into account with our Asset Allocation Model.
The second adaptation of the VLAP we show includes my idea that valuation varies based on inflation outlooks, so it simply takes out the core rate of inflation.
Both of these variations have good records, and in some periods the "pure" version works best, and in other times the inflation-adjusted version works best. But since the overall statistical regression is better for the "pure" VLAP, we us this in our discipline.
Today, we're watching this metric very close, along with our Psychology Composite, to get a good sense of how the market is evolving.
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