January 4th, 2011

The Cramer Metrics: Return of the Individual Investor

We’re always on the look out for new indicators that can give us a hint as to investor sentiment. The VIX is popular with many but I believe I attempted to dispel the myth surrounding that indicators accuracy a couple of weeks ago in “Debunking VIX Predictive Value“. Part of the problem with the VIX for the average individual investor is that it’s impacted by the trading activity of the larger investors and the extremely active traders.

The media continually tells us that 1) the individual investor has abandoned the stock market and migrated to fixed income investments and 2) it is anticipated that those same individual investors will return to the stock market this year just in time for the last innings of this bull market. Is there a proxy to measure this return migration? I’m not sure how accurate it might be (and I suggest it with my tongue firmly planted in my cheek) but two indicators might be the price of theStreet.com stock (TSCM), the website that Cramer was a co-founder and Chairman of the Board and the Nielsen Ratings for his CNBC show, Fast Money.

The Nielsen ratings for Fast Money has declined by 50% between 2008 and 2010 (a little less for the 35-64 age group):

At the same time, the price of TSCM (theStreet.com) has declined from a high of nearly 17 at the end of 2007 to 1.70 at the bottom last March:

These declines may reflect a general decline in TV viewership, a decline in the number of cable viewers at that time slot, the abandonment of Cramer as a stock market oracle. Or, the decline may be symptomatic of a general lack of interest in or fear of the stock market on the part of individual investors. [By the way, another factor in the decline of theStreet.com stock was an SEC investigation begun early in 2010 into the company's accounting practices at a subsequently sold subsidiary, Promotions.com.]

If we see TSMC’s price start to increase and cross above the neckline of its ascending triangle and if we see Mad Money’s Nielsen’s Ratings increase will that indicate a renewed interest on the part of individual investors? Will that new interest on the part of individual investors lead to further market gains? We’ll have to stay tuned to find out.

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