Fosback, who served as head of the Institute for Econometric Research for three decades, has a “long and eminent a record”, according to MarketWatch’s Mark Hulbert. Hulbert notes that in the latest Fosback’s Fund Forecaster newsletter, Fosback says his econometric model is calling for the stock market to rise by 19% over the next 12 months, and 89% over the next five years — that’s almost 14% annualized.

Fosback’s model uses several indicators that he has found to have predictive value, Hulbert says, and right now Fosback says the major underlying issues that will drive the U.S. market higher are “domestic corporate profits, valuations of domestic stocks, and Federal Reserve policy.” He says corporate profitability is at an all-time high, but market P/E ratios are back where they were in 1990.

As for the European debt crisis, Fosback doesn’t think it will take down U.S. markets, saying all the talk in the media about Europe is little more than “sleight of hand: Look over there … while the real action is right here.”

Hulbert looks at an approach that moves to an all-cash position whenever the CBOE’s Volatility Index (VIX) rises above its median level of just shy of 20, and buys stocks when the VIX falls back below that median level. “The stock market’s average return over the last couple of decades has been higher following below-median VIX levels than above-median levels,” Hulbert writes. “This surprising result held regardless of whether these returns were measured over the following day, week, or month.”

Recently, the VIX — which rose above 20 in late July — has come very close to crossing back below that median level, Hulbert notes. The VIX strategy seems to work because “periods of high volatility tend to be clustered together — an insight that traces to research conducted by Robert Engle III, a finance professor at New York University who received the Nobel Prize in economics in 2003 for his work along these lines,” Hulbert notes. “To the extent the future is like the past, therefore, an investor who goes to cash whenever the VIX spikes upwards will end up forfeiting little return.” That’s hard for most investors to do, however, Hulbert adds, because it means not jumping back into the market even after some explosive upside days.

“The initial reports of how retailers are doing on Black Friday are an unreliable guide to how the stock market performs through the end of the year,” Hulbert writes for MarketWatch. “In fact, more often than not, it’s been a bad omen whenever those initial reports are especially positive and stocks soar.”

Hulbert says that’s the conclusion he reached after studying stock market returns back to 1975, when the term “Black Friday” became popular. He says he looked at the correlation between a) the Dow Jones Industrial Average’s performance on the Friday and Monday following Thanksgiving and b) the Dow’s performance the rest of the year.

“Surprisingly, I found an inverse correlation,” Hulbert writes. “That is, whenever the Dow was strongly up over the two post-Thanksgiving trading sessions, the market tended to fall from then through New Year’s Day. And just the opposite tended to be the case whenever the Dow lost ground over these two post-Turkey sessions.” What’s more, he says the correlation is “significant at the 95% confidence level that statisticians often use to determine if a pattern is genuine.”

“Don’t believe it,”  Hulbert says in a recent column for  MarketWatch. “The trading environment has not changed. Superior stock picking remains as possible — and as valuable — as ever.”

Hulbert says that a statistical bias is part of the reason for the misguided belief that the stock market has fundamentally changed. “It turns out that increased market volatility more or less automatically leads to heightened estimates of stocks’ correlation — even when nothing has really changed,” he says, noting that academic researchers discovered this more than a decade ago.  The other reason, he says, is that correlations always tend to be higher when the market is going down versus when it is going up. That’s also been known in academic circles for more than a decade, Hulbert says. So in the past few years, with volatility often elevated and big declines occurring more often than normal, correlation figures have naturally been higher because of those factors — not because of some fundamental market change.

“We’re in a highly interdependent world all the time,” Kristin Forbes, an MIT professor and one of the researchers who initially pointed out the statistical bias factor, told Hulbert. “We are just more aware of it during volatile periods and down markets.”

In a recent MarketWatch column, Hulbert comes to that conclusion after examining the Presidential Election Year Cycle. “The implication of this theory is that, immediately after assuming office, presidents swallow whatever economic medicine is necessary, in order to set the stage for the recovery and economic good times that, come the next election, will convince voters with only short-term memories that happy days are here to stay,” he writes. That, he says, would mean that stock returns tend to be better in the second half of a president’s term than the first half. And, he says, that’s true — but “it turns out that second-half strength is almost entirely concentrated in the third years of the cycle.”

In his analysis, Hulbert looked at Dow Jones Industrial Average returns going back to 1932, which, he says, is around the point at which the federal budget became large enough that a president could impact economic cycles. He also used fiscal years (which begin on Oct. 1) rather than calendar years. He found that the fourth-year returns differed insignificantly from the overall returns for the entire period.

The bottom line, according to Hulbert: “The stock market could still produce an impressive return over the next year. The lesson of the data is just that, if the market does do so, it won’t be caused by this coming year being the fourth of President Obama’s term.”

The indicator: The High Low Logic Index, created by Norman Fosback in the 1970s, when he was president of the Institute for Econometric Research. “The index represents the lesser of two numbers: New 52-week highs and new 52-week lows with both expressed as a percentage of total issues traded,” Hulbert writes on MarketWatch.com.

Essentially, the index looks for uniformity; that is, times when the highs far outnumber the lows, or times when the lows far outnumber the highs. According to Fosback, Hulbert reports, “it doesn’t matter what direction that uniformity takes. Many new highs and very few lows is obviously bullish, but so is a great many new lows accompanied by few or no new highs.” Conversely, Fosback has said, times when there isn’t high uniformity indicate that “the market is undergoing a period of extreme divergence … Such divergence is not usually conducive to future rising stock prices, [since] a healthy market requires some semblance of internal uniformity.”

Fosback recommended using a 10-week exponential moving average of the High Low Logic Index. Ned Davis Research uses that technique, and it has found that readings below 2.5% are bullish, Hulbert says. “Whenever the 10-week exponential moving average of the High Low Logic Index is below this level, according to the firm, the S&P 500 index has appreciated at a 17.9% annualized rate,” Hulbert says. “Whenever it has been above 4.05%, in contrast, the S&P 500 index has declined at a 12.5% annualized pace.” (Readings between 2.5% and 4.05% are considered neutral).

Currently, the indicator is at 1.7% — solid bullish territory, Hulbert notes. He adds that there have been just four times in the past 25 years in which the Ned Davis version of the index has moved from bearish territory to levels of 1.7% or lower. The four times came right near major market bottoms: late 1987, late 1990, early 2003, and late 2008, he says. That’s not quite the case today, however, since the indicator didn’t rise above 4.05% before its recent decline. But all in all, the indicator is painting a bullish picture, Hulbert says.

“Market declines rarely end with days like Thursday’s 513-point drop for the Dow,” Hulbert writes on MarketWatch.com. “So even if you think that we’re just suffering a mere correction within an ongoing bull market, you still should be prepared for lower prices in coming sessions.”

Hulbert says that after analyzing past bear market bottoms, he found that “the days on which those bear markets actually registered their final lows typically were rather uneventful — nothing like what we saw on Thursday.” He cites past bottoms, like the March 2009 low and the low that followed the 1987 crash, as examples. (What’s not clear is whether he found any difference between bear market bottoms and bottoms during corrections.)

“Chances are that the final low of the decline we’re experiencing will not be recognized as such until well after the fact,” he says. “It’s most unlikely that, on that day itself, so many traders will be doing what they did on Thursday — falling over themselves announcing that the bottom has been seen.”