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Decisions are what we do, not who we are.
at 2006-02-06 23:45:27
Educational use only. Never intended as advice. All information contained herein comes ‘as is’ and should be independently verified for accuracy and validity. I am not a registered investment advisor and have never taken any securities licensing courses or examinations. What I try to provide is unique information that cannot be easily found and compartmentalized elsewhere, to help sophisticated speculators form trading hypotheses.
Decisions, decisions. As speculators, we make decisions.
Traders often look for how the market resolves ‘supply and demand’ issues around key ‘decision zones,’ which might include previous highs and lows (resistance and support in varying time frames), well-watched moving averages, round numbers (for example the Dow’s brief capture of 11,000). What does this have to do with value? Nothing and everything. Chartists argue that price encapsulates everything known about an investment vehicle, so price embodies both the ‘value’ that fundamentalists prize and sentiment that technicians also consider. In reality, the best traders look at everything, fundamentals, technicals, sentiment, and asset allocation.
Levels (support and resistance)
These often ‘stand out’ on point-and-figure charts.
Dow Industrials
Transports
SPX
NDX breakdown
Housing Index (why the split?)
Bank Index
Semiconductor Index
Biotech Index at resistance
Retail rallies to resistance
North American Telecomm Index - good to go?
Defense Index - best offense a good defense?
Dynamics: It’s where you are
SP500: VXO ratio will it make a lower high?
TRIN5 1.16 with TRIN3 1.14
Put-call ratios shakeout or fakeout?
S&P500 weekly stochastics 84/77
Mamis-Meisler breadth oscillator overbought
Bullish percentage NYSE point-and-figure overbought and at resistance
Worden T2108 66% and falling
VXO would you ‘buy’ this chart?
New highs still dwarfing new lows, but falling dramatically.
Extremes, the feeding ground for ‘mean reversion’ traders (not advice)
Note. The sell side (brokerage industry) has a way of upgrading its favorites after it has placed its bets. So, let’s say “Acme Brokerage” run by CEO Wile E. Coyote, sees that the Internet sector, led by GOOG, YHOO, and EBAY for example has gotten smacked down. Acme takes some big positions, e.g. futures in the sector, and comes out Monday with an upgrade on valuation for GOOG and EBAY on ‘valuation’. Frankly, I expect that very soon. After they’ve made their kill, they move on. If you want to win, you have to understand how they play.
Can you predict the future? The market is a discounting mechanism.
The Defense Index (weekly) Despite a huge run, the chart isn’t showing a breakdown…yes, there could be a stochastics divergence, but relative strength is good. I don’t have a ‘homeland security index’, but my sense is that it would be at least steady.
PowerShares Water Index (PHO) This relatively new index has come back in, and 18 of the 37 water stocks that I monitor have stochastics over 70, so I feel that the group is somewhat overbought. Only 4 of the 37 are oversold by stochastics.
Selected ETF Breakdown by stochastics oversold
DIA 10/30
IGE (Ishares Natural resources) 12/111
EFA (Ishares EAFA) 6/43
EEM (Ishare Emerging Markets) 8/54
IYR (Real Estate) 5/76
IBB (Nasdaq Biotech) 17/121
PPH (Drugs)
RKH (Regional Banks) 6/19
RTH (Retail) 3/18
XLB (Basic materials) 3/32
XLF (Financials) 25/75
XLK (Tech) 17/85
XLY (Consumer discretionary) 21/81
XLV (Healthcare) 10/47
XLP (Consumer staples) 10/35
Screenable findings
Short scan candidates 126 (low but rising)
DeMark-Sen tops versus DeMark-Sen bottoms. Tom DeMark had nothing to do with this proprietary screen except inspire it, so don’t blame him. Currently, using the entire TC2000 database I find 93 intermediate-term ‘extension’ tops and 18 bottoms. Using just the ‘Generals’ mostly SPX, NDX, and selected ETFs, I find 5 tops and no bottoms.
Saturday night special. The markets will spend this weekend digesting last week’s pronouncements. Data and the incredible strength of the gold market argue that inflation lives. For speculators, price matters. Years ago a well-known market analyst wrote that all that matters is buying great companies, like CSCO, which was trading in the 60s. Via email, I argued that great companies at excessive valuations were not necessarily great investments. She replied something to the effect of ‘what do you know?’
The more that I know, the more I realize how little that I actually do know, which could actually be an advantage. When I’m wrong, I can get out. I wrote son Conor earlier this week that my attitude would be ”he who panics first panics best”, and I had a successful week. For the trader, the only performance that counts is absolute performance.
Good trading and great risk management.
Ron
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