OK - let's not see the same hands all the time - you - nervous kid in the back - what's your guess?
I whine about it but I really like the weeks when the market is down - it makes the following weeks that much more profitable.
Thursday, January 18, 2007
Whither Q’s?
Take a look at the following chart – does anyone want to guess where the Q’s are going to go next week?
OK - let's not see the same hands all the time - you - nervous kid in the back - what's your guess?
I whine about it but I really like the weeks when the market is down - it makes the following weeks that much more profitable.
OK - let's not see the same hands all the time - you - nervous kid in the back - what's your guess?
I whine about it but I really like the weeks when the market is down - it makes the following weeks that much more profitable.
An Apple a Day?
Here we go again - the market, having run out of C stocks to abuse, will now turn its attention to a great source of vitamin C - AAPL. Yesterday evening, based on the early numbers and massive celebration that followed thereafter I failed to notice that AAPL too has forecast a missed analyst estimate by 4 cents - 4 cents. That, of course, is sufficient to drive AAPL into debtors prison and to punish all of the folks who are holding AAPL in their retirement accounts. AAPL finished the evening down another 70+ cents.
And even though GLW has nothing to do with AAPL I'm sure GLW is going to get punished too. And SYMC too. And watch MOT give it all up because, after all, they make something like phones like AAPL does. And NOK and probably the oil stocks too because isn't there a lot of oil used in plastic and doesn't AAPL rely heavily on plastic for their IPOD cases not to mention their failing Mac line.
The only one that is going to win is MSFT because MSFT is the direct opposite competitor of AAPL.
Remember - day three of the GOOG short squeeze watch is upon us. Pay attention kiddies - learn something. Learn that Jimmy Crack Corn is an entertainer and his jokes are starting to show their age.
And even though GLW has nothing to do with AAPL I'm sure GLW is going to get punished too. And SYMC too. And watch MOT give it all up because, after all, they make something like phones like AAPL does. And NOK and probably the oil stocks too because isn't there a lot of oil used in plastic and doesn't AAPL rely heavily on plastic for their IPOD cases not to mention their failing Mac line.
The only one that is going to win is MSFT because MSFT is the direct opposite competitor of AAPL.
Remember - day three of the GOOG short squeeze watch is upon us. Pay attention kiddies - learn something. Learn that Jimmy Crack Corn is an entertainer and his jokes are starting to show their age.
Wednesday, January 17, 2007
RSI 8 Vs RSI 7 - Shootout at Filter Corral
Stephen asked an interesting question - how much different from 8 20 was 7 20? I didn't know so I went to see. First - here is the filter as it was originally written:
show stocks where close is between 15 and 35
and average volume(90) > 500000
and RSI(8) < 20.00
They don't get much simpler than that.
This filter produced 69 completed trades with 45 winners for a 65% win rate with a 121% ROI. Now the ROI is not that important except for comparison purposes with other filters - you probably won't get that exact value because you will be playing different priced stocks with different amounts of money for different periods of time. What does matter though is the next item of comparison the net over days held.
What I selected was
1 day chg +++ 4 day chg+++10 day chg++++20 day chg+++30 day chg
.66% ++++++++ 1.70% +++++ 2.84% ++++++ 4.69% +++++++ 5.30%
Obviously the longer you hold the better off you are. Then I changed the last line above to
and RSI(7) < 20.00
Ran a back test with all of the same conditions as I had for the above set of results and this is what I came up with:
72 completed trades with 42 winners for 58.33% with a net gain and a 70.89% ROI.
1 day chg +++ 4 day chg+++10 day chg++++20 day chg+++30 day chg
.31% ++++++++ 1.01% +++++ 1.70% ++++++ 2.71% +++++++ 4.49%
What a difference a day makes.
Now it might make a difference if you use 7 periods over another time period rather than the one I selected. It is always dangerous to assume that because a filter tests so well that you have found the Holy Grail - or the Rosetta Stone for all TA. So I tried a different time period.
I switched to 6/01 - 9/28 which overlapped into the first month of the last period.
This time the RSI 8 tested at 76 completed trades with 58% win percentage and a 28% ROI.
The net change over time numbers looked like this:
1 day chg +++ 4 day chg+++10 day chg++++20 day chg+++30 day chg
.36% ++++++++ .62% +++++ .84% ++++++ 4.47% +++++++ 7.48%
Which suggests that the longer you hold the better off you are. Still we are just using these numbers for comparison purposes.
The RSI 7 tested at 78 completed trades with 51% win rate and 13% ROI (which happens to be 2 points less than the SPX ROI for the same period).
But the net change over time tells another story.
1 day chg +++ 4 day chg+++10 day chg++++20 day chg+++30 day chg
.09% ++++++++ .20% +++++ .82% +++++++ 3.90% +++++++ 7.72%
Short term the RSI 8 is a lot better than the RSI 7. As you get out into the longer net change numbers they are about the same - but that is explained by the fact that the period after mid-July was hot for just about anything.
And something even more subtle takes place with this kind of testing - the starting values in the later months of last year are higher - i.e. the dips are higher than they were earlier in the year. So stocks entered in Augues for example will show better appreciation than stocks entered in October even though both periods were characterized by dips.
Which is why when you have someone bragging about their great portfolio returns for the past year you should congratulate them but don't think that they are something special (even if they think it themselves) - everybody had great returns last year - including me. And if your portfolio manager didn't - then you might think about finding another manager.
Just a thought - never advice - I know nothing.
show stocks where close is between 15 and 35
and average volume(90) > 500000
and RSI(8) < 20.00
They don't get much simpler than that.
This filter produced 69 completed trades with 45 winners for a 65% win rate with a 121% ROI. Now the ROI is not that important except for comparison purposes with other filters - you probably won't get that exact value because you will be playing different priced stocks with different amounts of money for different periods of time. What does matter though is the next item of comparison the net over days held.
What I selected was
1 day chg +++ 4 day chg+++10 day chg++++20 day chg+++30 day chg
.66% ++++++++ 1.70% +++++ 2.84% ++++++ 4.69% +++++++ 5.30%
Obviously the longer you hold the better off you are. Then I changed the last line above to
and RSI(7) < 20.00
Ran a back test with all of the same conditions as I had for the above set of results and this is what I came up with:
72 completed trades with 42 winners for 58.33% with a net gain and a 70.89% ROI.
1 day chg +++ 4 day chg+++10 day chg++++20 day chg+++30 day chg
.31% ++++++++ 1.01% +++++ 1.70% ++++++ 2.71% +++++++ 4.49%
What a difference a day makes.
Now it might make a difference if you use 7 periods over another time period rather than the one I selected. It is always dangerous to assume that because a filter tests so well that you have found the Holy Grail - or the Rosetta Stone for all TA. So I tried a different time period.
I switched to 6/01 - 9/28 which overlapped into the first month of the last period.
This time the RSI 8 tested at 76 completed trades with 58% win percentage and a 28% ROI.
The net change over time numbers looked like this:
1 day chg +++ 4 day chg+++10 day chg++++20 day chg+++30 day chg
.36% ++++++++ .62% +++++ .84% ++++++ 4.47% +++++++ 7.48%
Which suggests that the longer you hold the better off you are. Still we are just using these numbers for comparison purposes.
The RSI 7 tested at 78 completed trades with 51% win rate and 13% ROI (which happens to be 2 points less than the SPX ROI for the same period).
But the net change over time tells another story.
1 day chg +++ 4 day chg+++10 day chg++++20 day chg+++30 day chg
.09% ++++++++ .20% +++++ .82% +++++++ 3.90% +++++++ 7.72%
Short term the RSI 8 is a lot better than the RSI 7. As you get out into the longer net change numbers they are about the same - but that is explained by the fact that the period after mid-July was hot for just about anything.
And something even more subtle takes place with this kind of testing - the starting values in the later months of last year are higher - i.e. the dips are higher than they were earlier in the year. So stocks entered in Augues for example will show better appreciation than stocks entered in October even though both periods were characterized by dips.
Which is why when you have someone bragging about their great portfolio returns for the past year you should congratulate them but don't think that they are something special (even if they think it themselves) - everybody had great returns last year - including me. And if your portfolio manager didn't - then you might think about finding another manager.
Just a thought - never advice - I know nothing.
Wednesday Wrap
Strange day - a little up - a little down and once again no clear direction in a directionless swamp. AAPL just came out with record earnings and that probably means the market will explode tomorrow and I can't wait. I bought a bunch of crap today and wound up holding it overnight. Among the many mistakes - RX, CQB (Chiquita Banana), CRVL, and SYMC. Still holding GLW but regretting every minute of it. Especially since it went past my buy point and I could have gotten out with a small profit this afternoon. I'm going to regret that too.
Wait did anyone hear that? That rocket blast? That was DHI - freed from the encumbrances of my owning shares it took off today with the rest of the homies. Up 2.35% on a relatively down day in the old marketplace. And Bullish Jim thinks that he sells too soon. Fahgedaboudid!
Day two of the GOOG short squeeze watch dawned bright and crisp and as the nation waited for that event with baited breath - it didn't happen. Why oh why Jimmy - tell me why...I mortgaged the homestead - I sold off the hogs including Ma's prize winning Jersey Petunia and put it all on the line at 513 - and now its selling at 497 and the broker called and he wants the cows, horses, and chickens toooooo.
Nobody knows nothing - don't ever forget it and if you wake up every morning and look in the mirror and say that and add "including me" to the end of it you will probably stay out of trouble. I didn't this morning - obviously.
MDRX that I bought yesterday for a couple of days hit a very tight stop loss this morning (my error - I told you the range was a buck and change but did I listen - oh hell no) and, of course, rebound one tick too late. Anyway I replaced it with RX and that one just kind of meandered sideways/down (swon which is the opposite of swup) all day. CQB is a buy because of the recent freeze out in CA and it was going up and then hit an imaginary ceiling and did a mime impression all morning beating against it and then fell away. Both these two are up or out tomorrow.
SYMC I grabbed up at the bottom and I actually made a buck or two on it today. If it turns tomorrow it too is gone - I should have sold at close today but I was busy with some other things - if it continues up tomorrow I'll double up. I know I'm going ot regret that. CRVL is also a purchase against a brighter day (tomorrow).
Tomorrow should be better - AAPL's earnings will make the pain go away and everything will go up and the world will be a better place. Right.
The up/down ratio actually increased today to 44% but the new 20 day high/low ratio went down to 60%. That's what I like about two disparate ratings that sound alike but are totally different. The only time they mean anything is when they both go in the same direction. Otherwise it is a split decision. The 4 majors and GS were all over the place at the end - some up - some down. More split decision - and to add to the confusion the VIX actually went down in a down market - talk about not knowing which way the wind is blowing. There's a reason for that but you'll have to go ask Adam as I haven't a clue. I think all of these holidays and extra days off and the rest of that has gotten the markets so confused they don't know which end is up. But I'm still thinking about years past and the fact that right around here you normally get a bump. Of course earnings have been pretty good in years past.
I think tomorrow will be another weak day but will close up - I'm calling tomorrow for the bulls.
The magic coin says ... heads - bull market coming.
OK it was a bear market today and I called for an up market that makes me 3 - 3 and 1 and the coin is 3 - 3 and 1. What a race - a train wreck in slow motion.
Wait did anyone hear that? That rocket blast? That was DHI - freed from the encumbrances of my owning shares it took off today with the rest of the homies. Up 2.35% on a relatively down day in the old marketplace. And Bullish Jim thinks that he sells too soon. Fahgedaboudid!
Day two of the GOOG short squeeze watch dawned bright and crisp and as the nation waited for that event with baited breath - it didn't happen. Why oh why Jimmy - tell me why...I mortgaged the homestead - I sold off the hogs including Ma's prize winning Jersey Petunia and put it all on the line at 513 - and now its selling at 497 and the broker called and he wants the cows, horses, and chickens toooooo.
Nobody knows nothing - don't ever forget it and if you wake up every morning and look in the mirror and say that and add "including me" to the end of it you will probably stay out of trouble. I didn't this morning - obviously.
MDRX that I bought yesterday for a couple of days hit a very tight stop loss this morning (my error - I told you the range was a buck and change but did I listen - oh hell no) and, of course, rebound one tick too late. Anyway I replaced it with RX and that one just kind of meandered sideways/down (swon which is the opposite of swup) all day. CQB is a buy because of the recent freeze out in CA and it was going up and then hit an imaginary ceiling and did a mime impression all morning beating against it and then fell away. Both these two are up or out tomorrow.
SYMC I grabbed up at the bottom and I actually made a buck or two on it today. If it turns tomorrow it too is gone - I should have sold at close today but I was busy with some other things - if it continues up tomorrow I'll double up. I know I'm going ot regret that. CRVL is also a purchase against a brighter day (tomorrow).
Tomorrow should be better - AAPL's earnings will make the pain go away and everything will go up and the world will be a better place. Right.
The up/down ratio actually increased today to 44% but the new 20 day high/low ratio went down to 60%. That's what I like about two disparate ratings that sound alike but are totally different. The only time they mean anything is when they both go in the same direction. Otherwise it is a split decision. The 4 majors and GS were all over the place at the end - some up - some down. More split decision - and to add to the confusion the VIX actually went down in a down market - talk about not knowing which way the wind is blowing. There's a reason for that but you'll have to go ask Adam as I haven't a clue. I think all of these holidays and extra days off and the rest of that has gotten the markets so confused they don't know which end is up. But I'm still thinking about years past and the fact that right around here you normally get a bump. Of course earnings have been pretty good in years past.
I think tomorrow will be another weak day but will close up - I'm calling tomorrow for the bulls.
The magic coin says ... heads - bull market coming.
OK it was a bear market today and I called for an up market that makes me 3 - 3 and 1 and the coin is 3 - 3 and 1. What a race - a train wreck in slow motion.
IWM Crossing
IWM just posted a crossing pattern on the 15-minute charts (11:15). Suggests that small caps are finally going to start hitting the offer. Meanwhile there is no love for GLW today - told ya - the market hates that stock and uses any old excuse to beat up on it - makes me wonder why I'm in it. SYMC is rebounding although slowly (I bought at the bottom this morning and will run it up today and sell at COB - with the exception of Glass I don't think I ever want to hold another tech stock overnight in my life - and as soon as GLW returns to profit/break even it's gone). (Piece of Crap!)
ACI (coal company) also had a crossover in the first 15 minutes and it looks like it is going to make a bit of a run.
Update - IWM crashed into the afternoon and ACI continued going down. So much for that and even though GLW got past break even this afternoon - I kept it. I'm going to hate myself for that.
ACI (coal company) also had a crossover in the first 15 minutes and it looks like it is going to make a bit of a run.
Update - IWM crashed into the afternoon and ACI continued going down. So much for that and even though GLW got past break even this afternoon - I kept it. I'm going to hate myself for that.
Notable Calls
I've added another link to my Blog rolls - Notable Calls - this site has more ideas per square inch than any other I've been to recently (including the most prolific TradingGoddess). It is worth a look and a bookmark - I'm starting to read it every day.
INTC's Turn
Yesterday was SYMC today it will be INTC that brings down the market - I can only think that there is one lesson for all of us in this - stop playing stocks that end in "C". It's obvious isn't it?
I did a quick check to see if there was any symbiosis between GLW and INTC and there doesn't seem to be any - except "tech" in general which is a shame. I just know that GLW is going to feel this pain too.
Time to take a vacation I think. The market is going to go crazy during this earnings season because the promises of yesterday are going to be dashed on the rocks today and we all know what happens then. The peasants get sacrificed on the altar of commerce in the name of the great and mighty Profit - Good Ol' Buck.
Well good ol' luck today fellow peasants - and avoid any stacks of kindling with poles sticking out of them.
I did a quick check to see if there was any symbiosis between GLW and INTC and there doesn't seem to be any - except "tech" in general which is a shame. I just know that GLW is going to feel this pain too.
Time to take a vacation I think. The market is going to go crazy during this earnings season because the promises of yesterday are going to be dashed on the rocks today and we all know what happens then. The peasants get sacrificed on the altar of commerce in the name of the great and mighty Profit - Good Ol' Buck.
Well good ol' luck today fellow peasants - and avoid any stacks of kindling with poles sticking out of them.
Tuesday, January 16, 2007
Tuesday Wrap
What was that? A bull market, a bear market - a bullish bearish bullish market? I have no idea - all I do know is that SYMC was the story of the day and I followed it closely - you seldom get to see the sharks in an irrational feeding frenzy so it pays to watch when it happens - more about that later.
Bought some MDRX this morning off a weekly breakout. The average true range is 1.74 on the weekly charts and I planned to hold it for a couple of days so I put the stop at 50 cents below the buy price. Breakouts are excellent opportunities for profit - but you need to be patient and actually wait for the breakout. I tried to show this picture earlier but Blogger, at least the server I have access to, was broken - again. Blogger = Google = hmmmmm? More about that later, too.
I hit break even with DHI in the first 15-minutes and sold it off immediately - I'll wait until housing does a real turn around before I buy any more of the homies - but at least I didn't lose any money. The way I played it was like this. On the way down I sold it off in pieces except for the last piece. Then I waited for it to turn. When it finally bottomed out I bought back enough of the pieces all at once to reduce my base to a reasonable level - when it hit that base this morning (actually a bit more on the open) I sold for a bit more than break even. Right after I sold it dropped again. Lucky me.
The Donchian Channel scan I ran off Friday's close came up with an old friend - BLG - and it showed a crossing on the first 15-minutes bar this morning but I took a pass - a shame - I would have made my losses back on that one in about an hour.
SYMC spent most of the day looking for a bottom. At 3:45 EST there were 110 million shares sold and I mean sold. Quick - tell me what percentage of SYMC is that and why do I call it an irrational overreaction to a non-event? 110 million shares is over 10% of the total outstanding shares of SYMC. Today SYMC shareholders lost more than 317 million dollars by 4 P.M. EST. And this is all based on the fact that they say that they are going to miss their estimate by about four cents. So you see - profit means nothing - perception is reality - "beat by a penny" is life and death - this is why I hate playing stocks into earnings.
The last 15-minute candle looks like short covering - so we'll see what tomorrow brings. I know one thing from watching the time and sales screen - there wasn't a second all day long from 9:30 till 4 when someone somewhere wasn't selling SYMC. The first time it went through 18.00 it looked like a waterfall of red - then the next couple of times every bid was hit but it didn't go down as fast. Probably the brokers taking out the rest and building inventory. You have to know that that was a lot of institutional selling and those guys take care of one another.
Played CRVL early for some easy change - in at 44 - out at 44.5 - the best 30 minutes of the day. After rewarding me for no reason whatsoever it turned around and went down. This might be a good chance to get involved in this stock - or maybe not.
GOOG hit 513 - but no short squeeze - gosh - could Jimmy have been wrong? At any rate it rebound off 513 as if it burned its hand. I wonder what that's all about? And there was a hell of a short squeeze - between 3 and 3:45 EST a lot of shorts piled in on a red bar cross and took it to 503 at which time the covering took it back up to 506. You can see this on the 15-minute charts. They banged it some more up to the close.
The up/down ratio is 40% which is good because it means that some of the pressure was taken off the market. The new high/low ratio is 68% which is also down but not as low as I'd like it to be. The VIX has withdrawn from being 10% under its 10 day moving average and the four major indices we follow all had strong white candles in their final hour. (I think the Q's would have turned green also if it hadn't been for SYMC). GS however finished the day red. Put all that together and I think we have an up day tomorrow.
The magic coin says ... tails - bear market tomorrow - well at least we will have a contest.
Of course today is a no decision because of the split so we have Marlyn at 3 - 2 and 1 and the coin at 2 - 3 and 1. See you tomorrow.
Bought some MDRX this morning off a weekly breakout. The average true range is 1.74 on the weekly charts and I planned to hold it for a couple of days so I put the stop at 50 cents below the buy price. Breakouts are excellent opportunities for profit - but you need to be patient and actually wait for the breakout. I tried to show this picture earlier but Blogger, at least the server I have access to, was broken - again. Blogger = Google = hmmmmm? More about that later, too.
I hit break even with DHI in the first 15-minutes and sold it off immediately - I'll wait until housing does a real turn around before I buy any more of the homies - but at least I didn't lose any money. The way I played it was like this. On the way down I sold it off in pieces except for the last piece. Then I waited for it to turn. When it finally bottomed out I bought back enough of the pieces all at once to reduce my base to a reasonable level - when it hit that base this morning (actually a bit more on the open) I sold for a bit more than break even. Right after I sold it dropped again. Lucky me.
The Donchian Channel scan I ran off Friday's close came up with an old friend - BLG - and it showed a crossing on the first 15-minutes bar this morning but I took a pass - a shame - I would have made my losses back on that one in about an hour.
SYMC spent most of the day looking for a bottom. At 3:45 EST there were 110 million shares sold and I mean sold. Quick - tell me what percentage of SYMC is that and why do I call it an irrational overreaction to a non-event? 110 million shares is over 10% of the total outstanding shares of SYMC. Today SYMC shareholders lost more than 317 million dollars by 4 P.M. EST. And this is all based on the fact that they say that they are going to miss their estimate by about four cents. So you see - profit means nothing - perception is reality - "beat by a penny" is life and death - this is why I hate playing stocks into earnings.
The last 15-minute candle looks like short covering - so we'll see what tomorrow brings. I know one thing from watching the time and sales screen - there wasn't a second all day long from 9:30 till 4 when someone somewhere wasn't selling SYMC. The first time it went through 18.00 it looked like a waterfall of red - then the next couple of times every bid was hit but it didn't go down as fast. Probably the brokers taking out the rest and building inventory. You have to know that that was a lot of institutional selling and those guys take care of one another.
Played CRVL early for some easy change - in at 44 - out at 44.5 - the best 30 minutes of the day. After rewarding me for no reason whatsoever it turned around and went down. This might be a good chance to get involved in this stock - or maybe not.
GOOG hit 513 - but no short squeeze - gosh - could Jimmy have been wrong? At any rate it rebound off 513 as if it burned its hand. I wonder what that's all about? And there was a hell of a short squeeze - between 3 and 3:45 EST a lot of shorts piled in on a red bar cross and took it to 503 at which time the covering took it back up to 506. You can see this on the 15-minute charts. They banged it some more up to the close.
The up/down ratio is 40% which is good because it means that some of the pressure was taken off the market. The new high/low ratio is 68% which is also down but not as low as I'd like it to be. The VIX has withdrawn from being 10% under its 10 day moving average and the four major indices we follow all had strong white candles in their final hour. (I think the Q's would have turned green also if it hadn't been for SYMC). GS however finished the day red. Put all that together and I think we have an up day tomorrow.
The magic coin says ... tails - bear market tomorrow - well at least we will have a contest.
Of course today is a no decision because of the split so we have Marlyn at 3 - 2 and 1 and the coin at 2 - 3 and 1. See you tomorrow.
Maybe Not Irrational - Just Nuts
According to Notable Calls SYMC is being downgraded by UBS because UBS believes that they are going to have a bad quarter. There is some proof of this of course, a company such as UBS can't just come out and say that - or can they? Of course they can - their model only takes into consideration sales in sticks and bricks stores and not on-line.
Consequently they used a half data point to make the argument - who am I to argue - I only lost money as a result of this rush to publish.
Never mind - SYMC just came out with an announcement that says it is cutting its third quarter projection - oddly enough not as a result of software sales but because of its data center management unit.
So UBS got the story right just used the wrong rationale to get there - that remains irrational.
Consequently they used a half data point to make the argument - who am I to argue - I only lost money as a result of this rush to publish.
Never mind - SYMC just came out with an announcement that says it is cutting its third quarter projection - oddly enough not as a result of software sales but because of its data center management unit.
So UBS got the story right just used the wrong rationale to get there - that remains irrational.
RSI 2 vs 14 - How About 8?
I picked this up over on Bullish Jim's site * There's a great article on Trading Markets about the use of the Relative Strength Index as an indicator in trading. Interestingly, their studies show that the RSI (14) (which is shown in the top left corner of every single chart I post!) is basically useless as a short term indicator. However, their studies have shown great predictive value in using much shorter period RSI, specifically the the two period RSI.
Well I took that as a challenge since I have the technology to prove or disprove such a contention. I tested the RSI 14 and then the RSI 2 and, truth be told - neither one of them is worth much.
So I'm sitting there thinking about the RSI 2 (which did test a little better than the 14) and I said - wait a minute - I'm checking for an exit from below the 20 what if I checked for an entrance instead? So I tested for right after the RSI 2 slipped below the 20 line. The thinking being a short term RSI doesn't spend a lot of time at either the top or the bottom so you should look at them going into a condition rather than exiting it. Long story longer - the results improved but still were nothing to write home about. (I rechecked the 14 in the same manner and got worse results - which I expected - for obvious reasons).
I made one more adjustment - I changed the hit line to 10 and then checked stocks where the RSI 2 slipped below the 10 in the last day. And I obtained good results. Nothing that I would use in any shape, form or manner - but OK results.
I thought about that for a minute or two and I said if 2 below 10 gives good results I wonder what 8 below 20 gives? So I checked that out too. And that gave the best results of all. So how did I come up with 8? Simple - 14 minus 2 = 6 plus 2 = 8. Nah - I typed in 8 and didn't feel like changing it so that's how it became 8. I did try a couple of others afterward but 8 always tested best. I tried this filter at higher prices and lower prices without any real success. I have found that to be true that not all filters work equally well at all price ranges. That's intuitively obvious so I won't bother discussing it further here.
Here's the filter:
show stocks where close is between 15 and 35
and average volume(90) > 500000
and RSI(8) crossed below 20.00 within the last 1 day
The results were a 67% win rate, 127% ROI (annualized). And that's based on a 4 day hold period with 25K being invested in each selection. The selection is the top volume stock of the day from the filter output. The stop loss (fixed 8%) was triggered 2 times out of 62 selections. This filter won't find one every day but when it does it is a good one.
You can improve the hit rate a bit to nearly 1 per day if you change line three to RSI(8) < 20.00 but you will give up a little bit of win percentage and a little bit of ROI (which is unimportant).
I'm going to explore this a bit more later and combine RSI's and vary the entry and exit criteria a little and see what we can come up with without screwing the pooch.
Well I took that as a challenge since I have the technology to prove or disprove such a contention. I tested the RSI 14 and then the RSI 2 and, truth be told - neither one of them is worth much.
So I'm sitting there thinking about the RSI 2 (which did test a little better than the 14) and I said - wait a minute - I'm checking for an exit from below the 20 what if I checked for an entrance instead? So I tested for right after the RSI 2 slipped below the 20 line. The thinking being a short term RSI doesn't spend a lot of time at either the top or the bottom so you should look at them going into a condition rather than exiting it. Long story longer - the results improved but still were nothing to write home about. (I rechecked the 14 in the same manner and got worse results - which I expected - for obvious reasons).
I made one more adjustment - I changed the hit line to 10 and then checked stocks where the RSI 2 slipped below the 10 in the last day. And I obtained good results. Nothing that I would use in any shape, form or manner - but OK results.
I thought about that for a minute or two and I said if 2 below 10 gives good results I wonder what 8 below 20 gives? So I checked that out too. And that gave the best results of all. So how did I come up with 8? Simple - 14 minus 2 = 6 plus 2 = 8. Nah - I typed in 8 and didn't feel like changing it so that's how it became 8. I did try a couple of others afterward but 8 always tested best. I tried this filter at higher prices and lower prices without any real success. I have found that to be true that not all filters work equally well at all price ranges. That's intuitively obvious so I won't bother discussing it further here.
Here's the filter:
show stocks where close is between 15 and 35
and average volume(90) > 500000
and RSI(8) crossed below 20.00 within the last 1 day
The results were a 67% win rate, 127% ROI (annualized). And that's based on a 4 day hold period with 25K being invested in each selection. The selection is the top volume stock of the day from the filter output. The stop loss (fixed 8%) was triggered 2 times out of 62 selections. This filter won't find one every day but when it does it is a good one.
You can improve the hit rate a bit to nearly 1 per day if you change line three to RSI(8) < 20.00 but you will give up a little bit of win percentage and a little bit of ROI (which is unimportant).
I'm going to explore this a bit more later and combine RSI's and vary the entry and exit criteria a little and see what we can come up with without screwing the pooch.
Monday, January 15, 2007
Some To Watch
I like these and will be watching them this week.
EMA 4 over EMA 12: RIO, SPLS
EMA 4 over EMA 8 (Lo Ball): AUY, KGC
Close > EMA 21 < EMA 90: CHS, MEE
Crossover: VRX,CBK
And that's a wrap - a very prolific weekend and to all my readers and especially my favorite reader (that's you Ma) have a great and profitable week - see you back here tomorrow nite with the Wrap.
I have no position in any of these stocks but may buy any or all of them during the next several days - especially one of the two gold (AUY, KGC) they both move about the same.
EMA 4 over EMA 12: RIO, SPLS
EMA 4 over EMA 8 (Lo Ball): AUY, KGC
Close > EMA 21 < EMA 90: CHS, MEE
Crossover: VRX,CBK
And that's a wrap - a very prolific weekend and to all my readers and especially my favorite reader (that's you Ma) have a great and profitable week - see you back here tomorrow nite with the Wrap.
I have no position in any of these stocks but may buy any or all of them during the next several days - especially one of the two gold (AUY, KGC) they both move about the same.
GOOG Short Squeeze
Oh goody - Momma Cramer's favorite little boy Jimmy says that once GOOG gets to 513 then a "short squeeze" will send it to 520. I say Bull Snot! If GOOG gets to 520 it will do so on its own merits and not on a short squeeze and here is why.
The fact is Goog was never higher than 513 so far. Since all short sales were made from 513 and lower I'm not sure what he is talking about.
If there was a short squeeze going on in GOOG it happened in the last eight trading days which is obvious on this daily chart.
You can see that during the first three days of the last eight there was rapidly elevated volume - this is probably a lot of short covering. First the market turned on 12/26 but the volume wasn't there. It then went up strong on the next day but still no volume. The next two days it went down. So far the shorts are not afraid.
Then we had the three day week. You see that spinning top candle on 01/03? That suggests indecision and because the shorts couldn't sell it down and the bulls couldn't buy it up there was a standoff on that date with heavy volume. The next day it opened and went up That's when the shorts started grabbing every offer they could. The next day was a another opportunity to close the shorts. Then it was pretty much over. If anyone was still short after that they are morons. Not that aren't a lot of morons managing money (I know of several personally) but the pro's should've been out by then.
If they weren't then the two gap ups on the last two days would have had huge volume and they didn't. Nobody stays short on a gap up - not even a moron.
In addition the two gap ups the last couple of days are relatively small candles (for GOOG) with declining volume on the second gap. If increasing volume means increased volatility in a stock - which it does - what does decreasing volume mean? Well it could mean a three day weekend but if I were short significant shares of GOOG at this time I think I'd be scurrying around to cover.
Unfortunately neither I nor Jim Cramer will be able to prove our contention - isn't it time for short interest to be reported in real time? Nah - the brokerages would never permit it - you might discover how often they take the countertrade in order to force the squeeze.
The fact is Goog was never higher than 513 so far. Since all short sales were made from 513 and lower I'm not sure what he is talking about.
If there was a short squeeze going on in GOOG it happened in the last eight trading days which is obvious on this daily chart.
You can see that during the first three days of the last eight there was rapidly elevated volume - this is probably a lot of short covering. First the market turned on 12/26 but the volume wasn't there. It then went up strong on the next day but still no volume. The next two days it went down. So far the shorts are not afraid.
Then we had the three day week. You see that spinning top candle on 01/03? That suggests indecision and because the shorts couldn't sell it down and the bulls couldn't buy it up there was a standoff on that date with heavy volume. The next day it opened and went up That's when the shorts started grabbing every offer they could. The next day was a another opportunity to close the shorts. Then it was pretty much over. If anyone was still short after that they are morons. Not that aren't a lot of morons managing money (I know of several personally) but the pro's should've been out by then.
If they weren't then the two gap ups on the last two days would have had huge volume and they didn't. Nobody stays short on a gap up - not even a moron.
In addition the two gap ups the last couple of days are relatively small candles (for GOOG) with declining volume on the second gap. If increasing volume means increased volatility in a stock - which it does - what does decreasing volume mean? Well it could mean a three day weekend but if I were short significant shares of GOOG at this time I think I'd be scurrying around to cover.
Unfortunately neither I nor Jim Cramer will be able to prove our contention - isn't it time for short interest to be reported in real time? Nah - the brokerages would never permit it - you might discover how often they take the countertrade in order to force the squeeze.
Four Days Down
This is a simple filter that I derived from something Dr. Steenbarger wrote regarding the various indices and what happens after they go down for a period of time. Needless to say after a decline there is an appreciation. Most of the time anyway.
The filter is fairly simple -
show stocks where close is between 15 and 30
and average volume(90) > 500000
and low < low 1 day ago
and low 1 day ago < low 3 days ago
and low 2 day ago < low 4 days ago
and low 3 days ago < low 5 days ago
And no that isn't a mistake - I skip a day up until the last day. I learned to skip a day from another stock market analyst who has brought some new thinking to the market - Tom DeMark. Mr. DeMark has written a number of books devoted to his methods - they're worth a scan if you have the time. I'm not that much of a true believer but I've used the skip-a-period method for so long that I know it is the best way to look for a sequence of declines or rises. I also use lows when I am looking for a sequence of down days. I want to see how far the bears are pushing the stock not how far the bulls are taking it back.
The filter back tested well but this time instead of giving you some percentages from back testing I thought I'd isolate out the various selections of the program over the last 20 days and show what has happened to them since.
20 - INTC = 6.75%
19 - AMAT = 8.7
18 - MOT = -12.95
17 - GLW = 2.77
16 - GM = 4.95
15 - S = -9.4
14 - JNPR = 7.2
13 - YHOO = 15.51
12 - CSCO = 7.4
11 - DELL = 4.43
10 - CHK = -4.8
9 - JDSU = -3.1
8 - CHS = 8
7 - CDNS = -.06
6 - STX = 1.59
5 - SGP = 4.15
4 - GPS = .2
3 - HAL = 1.43
2 - NOK = 2.15
1 - BJS = 2.66
Which isn't too bad - 15 winners and 5 losers just picking the top most volume stock in each day's output without any other consideration. The only other constraint was only going to each stock once during the run.
As always I provide these filters to stir your imagination and to show that it is possible to find good trades in the market using just straight technical analysis.
From the above list I currently have a position in GLW.
The filter is fairly simple -
show stocks where close is between 15 and 30
and average volume(90) > 500000
and low < low 1 day ago
and low 1 day ago < low 3 days ago
and low 2 day ago < low 4 days ago
and low 3 days ago < low 5 days ago
And no that isn't a mistake - I skip a day up until the last day. I learned to skip a day from another stock market analyst who has brought some new thinking to the market - Tom DeMark. Mr. DeMark has written a number of books devoted to his methods - they're worth a scan if you have the time. I'm not that much of a true believer but I've used the skip-a-period method for so long that I know it is the best way to look for a sequence of declines or rises. I also use lows when I am looking for a sequence of down days. I want to see how far the bears are pushing the stock not how far the bulls are taking it back.
The filter back tested well but this time instead of giving you some percentages from back testing I thought I'd isolate out the various selections of the program over the last 20 days and show what has happened to them since.
20 - INTC = 6.75%
19 - AMAT = 8.7
18 - MOT = -12.95
17 - GLW = 2.77
16 - GM = 4.95
15 - S = -9.4
14 - JNPR = 7.2
13 - YHOO = 15.51
12 - CSCO = 7.4
11 - DELL = 4.43
10 - CHK = -4.8
9 - JDSU = -3.1
8 - CHS = 8
7 - CDNS = -.06
6 - STX = 1.59
5 - SGP = 4.15
4 - GPS = .2
3 - HAL = 1.43
2 - NOK = 2.15
1 - BJS = 2.66
Which isn't too bad - 15 winners and 5 losers just picking the top most volume stock in each day's output without any other consideration. The only other constraint was only going to each stock once during the run.
As always I provide these filters to stir your imagination and to show that it is possible to find good trades in the market using just straight technical analysis.
From the above list I currently have a position in GLW.
Blog Review
Oh hell someone else does it all the time - my turn - if you want to be a successful trader and you don't read Brett Steenbarger's amazing Blog then you will not be a successful trader.
End of review.
End of review.
BS in a CAN
If you want to be successful in this business all you need is a system.
Some people say – “all you have to do is CAN SLIM your way to riches.” CAN SLIM is simple – (Courtesy – Wikipedia under “CANSLIM”):
C – current earnings per share are up 30% or more
A – annual earnings are up 25% or more in each of the last 3 years
N – new – the company should be under new management, have a new product, or have a new service. It should also have a new high for its stock price
S - supply and demand. Look for a company that has large trading volume. High demand = increasing prices. Micro- and small-caps are more volatile, they can go down as fast as they go up.
L = leader or laggard? Within an industry, always choose the company that is leading the way, not one that is following in another's footstep
I = institutional sponsorship. Make sure large mutual fund companies (and other institutions) are investing in your stock - you can ride on their capital. Also, focus on the better performing institutions buying your stock.
M = market trends and market indices. Recognize the cup and handle pattern, as well as other market correction footprints. Know when a stock has peaked out. Also, buy stocks only when the Dow, S&P 500, and NASDAQ are going up.
CAN SLIM was popularized by William J. O’Neil in his book Make Money in Stocks: A Winning System in Good Times or Bad.
I think IBD invented CAN SLIM and has a CAN SLIM scan. I also understand that CAN SLIM is best applied to small caps and O’Neil violated this principle in his book.
I often say that S, I, and M are probably the most important part of the puzzle (although some folks disagree with the “I” part). L is Jim Cramer’s favorite in that he often says pick the best of breed and not the also rans – and I believe that he uses C and A and sometimes N to determine L.
Whatever – apparently it works. Probably as good as “buy the dips - sell the rips”. Actually “buy the dips - sell the rips” works a lot better as long as M is being considered.
So then I went and ran a pseudo-CAN SLIM for you using the Yahoo site screener – I’m sure there are better ones out there but that one was handy and the scan was based on the following criteria:
Earnings growth for 5 years – > 20% per year
Institutional holdings - > 75
Average daily volume - > 1 Million
Capitalization - < 3 Billion
EPS (TTM) - > 30 cents
That is just CAN SLIMish but I got the following 6 hits off it –
2 energy – HLX and SPN
1 educational – CECO
1 tech – SLAB
2 retail – CAKE and PSUN
Of these I like SLAB because it printed a crossing pattern on Friday. Of the rest - the energy stocks are down so they are “buy the dip” candidates, the retails are both trending up and could be good investments (based on CAN SLIM rules) and education is falling asleep in class.
Truthfully I could invest in any one of these (CECO after its next breakout) but I will probably play SLAB on Tuesday because I understand its pattern (that’s if I can get past the name). I’ll keep the two energy stocks on my energy watch list.
Some people say – “all you have to do is CAN SLIM your way to riches.” CAN SLIM is simple – (Courtesy – Wikipedia under “CANSLIM”):
C – current earnings per share are up 30% or more
A – annual earnings are up 25% or more in each of the last 3 years
N – new – the company should be under new management, have a new product, or have a new service. It should also have a new high for its stock price
S - supply and demand. Look for a company that has large trading volume. High demand = increasing prices. Micro- and small-caps are more volatile, they can go down as fast as they go up.
L = leader or laggard? Within an industry, always choose the company that is leading the way, not one that is following in another's footstep
I = institutional sponsorship. Make sure large mutual fund companies (and other institutions) are investing in your stock - you can ride on their capital. Also, focus on the better performing institutions buying your stock.
M = market trends and market indices. Recognize the cup and handle pattern, as well as other market correction footprints. Know when a stock has peaked out. Also, buy stocks only when the Dow, S&P 500, and NASDAQ are going up.
CAN SLIM was popularized by William J. O’Neil in his book Make Money in Stocks: A Winning System in Good Times or Bad.
I think IBD invented CAN SLIM and has a CAN SLIM scan. I also understand that CAN SLIM is best applied to small caps and O’Neil violated this principle in his book.
I often say that S, I, and M are probably the most important part of the puzzle (although some folks disagree with the “I” part). L is Jim Cramer’s favorite in that he often says pick the best of breed and not the also rans – and I believe that he uses C and A and sometimes N to determine L.
Whatever – apparently it works. Probably as good as “buy the dips - sell the rips”. Actually “buy the dips - sell the rips” works a lot better as long as M is being considered.
So then I went and ran a pseudo-CAN SLIM for you using the Yahoo site screener – I’m sure there are better ones out there but that one was handy and the scan was based on the following criteria:
Earnings growth for 5 years – > 20% per year
Institutional holdings - > 75
Average daily volume - > 1 Million
Capitalization - < 3 Billion
EPS (TTM) - > 30 cents
That is just CAN SLIMish but I got the following 6 hits off it –
2 energy – HLX and SPN
1 educational – CECO
1 tech – SLAB
2 retail – CAKE and PSUN
Of these I like SLAB because it printed a crossing pattern on Friday. Of the rest - the energy stocks are down so they are “buy the dip” candidates, the retails are both trending up and could be good investments (based on CAN SLIM rules) and education is falling asleep in class.
Truthfully I could invest in any one of these (CECO after its next breakout) but I will probably play SLAB on Tuesday because I understand its pattern (that’s if I can get past the name). I’ll keep the two energy stocks on my energy watch list.
Sunday, January 14, 2007
Oil? or No Oil?
Cal Trader writes that he thinks oil is becoming a buy. I do too and have talked about it several times this past week or so - but I bring it up again because he focused on CHK (among others) and CHK just happened to show up on my newest favorite filter - Donchian Channels - this weekend. Here is what that looks like -
I showed you OIH earlier today on the weekly charts - here it is on the daily's with Donchian Channels
And then XLE from the same space -
The number one stock coming out of the Donchian Channel this weekend was HAL and it too is part of the energy space and it is a prominent (top 10) member of both XLE and OIH. Here is what it looks like -
And yes, I know grasshopper - they all look exactly the same. That is probably not an error.
Now I've left you an excrutiatingly difficult question to answer - which one to play?
Well there is no simple answer but there is an answer -
Let's say that your account can only buy 100 shares of any of the 4 issues - you would go for the one that would pay the most in the shortest time which, based on the average true range would be OIH. But otherwise let's say that you have 29000 bucks and you will use it all to buy as many shares as possible of one of the four - in that case you would go with HAL. That's because simply based on the numbers of shares and the expected return (ATR) you would achieve a higher net with HAL. OIH of course would be in second place.
Well that was easy wasn't it - actually there are some other considerations such as that you might be better off with a fund rather than an individual stock and so on and so forth. So actually you would be best served by reviewing your circumstances at the time of the buy and acting appropriate to your situation.
This is not a recommendation to buy any stock - it is simply a discussion of one sector and a lesson in how stocks reflect ETF's or vice versa.
I showed you OIH earlier today on the weekly charts - here it is on the daily's with Donchian Channels
And then XLE from the same space -
The number one stock coming out of the Donchian Channel this weekend was HAL and it too is part of the energy space and it is a prominent (top 10) member of both XLE and OIH. Here is what it looks like -
And yes, I know grasshopper - they all look exactly the same. That is probably not an error.
Now I've left you an excrutiatingly difficult question to answer - which one to play?
Well there is no simple answer but there is an answer -
Let's say that your account can only buy 100 shares of any of the 4 issues - you would go for the one that would pay the most in the shortest time which, based on the average true range would be OIH. But otherwise let's say that you have 29000 bucks and you will use it all to buy as many shares as possible of one of the four - in that case you would go with HAL. That's because simply based on the numbers of shares and the expected return (ATR) you would achieve a higher net with HAL. OIH of course would be in second place.
Well that was easy wasn't it - actually there are some other considerations such as that you might be better off with a fund rather than an individual stock and so on and so forth. So actually you would be best served by reviewing your circumstances at the time of the buy and acting appropriate to your situation.
This is not a recommendation to buy any stock - it is simply a discussion of one sector and a lesson in how stocks reflect ETF's or vice versa.
Funny Business
Back when I was in industry making bid and proposal we would determine a competitor's efficiency in a very quick and dirty manner - we simply divided their revenues by their numbers of employees (both readily available) and that would give us an idea of how good they were at what they were doing. A low number and they were pretty bad - a high number and they were pretty good.
Here are four industry leaders and their contribution per employee (C/E) values. The last column is a rough estimate of how much the company needs on a daily basis to maintain their staff. That's right IBM requires about 187 million dollars a day 7 days a week 365 days a year to keep their staff happy, housed, warm and dry. And it is obvious that the most efficient company of all is MSFT. That's because their contented employees each generate 638732 dollars each on an annualized basis.
I show you this only to give you an idea of how much money we are talking about when we discuss these various companies. They are estimates of course and are acmitedly rough - does it really cost IBM 187 mill a day? Probably not - but they do own a lot of real estate and they do have a lot of employees and they are world-wide in scope - so maybe it's only 167 million a day. Does it really matter - it is a big number.
So I ask you - why don't these little numbers such as employee contribution and the large numbers such as "nut per day" filter into the stock price? Because all that Wall Street is interested in is "beat by a penny" accounting. The rest just doesn't matter.
So if you read an article that suggests that you look at EBITA, and GAAP, and GAP, and Bladdiblah Blah Blah Blah and projected future revenue growth vs past 6 months and crapita crapita crapita - just say - "Oh bull snot, did they beat by a penny or not?" And you won't go wrong. Because if they didn't all the rest of that crap is just that - crap.
You can make these estimates for any company vs. any other company but try to stay in the same industry - it wouldn't make sense to compare WMT to IBM. I use an average annual income in the software sector of about 80K per year including benefits. This is burdened by 2.5 (you need to make 2.5 bucks for every one buck you pay an employee). As I said quick and dirty and it is probably higher these days because I'm basing on figures I last used in the mid-90's.
Here are four industry leaders and their contribution per employee (C/E) values. The last column is a rough estimate of how much the company needs on a daily basis to maintain their staff. That's right IBM requires about 187 million dollars a day 7 days a week 365 days a year to keep their staff happy, housed, warm and dry. And it is obvious that the most efficient company of all is MSFT. That's because their contented employees each generate 638732 dollars each on an annualized basis.
I show you this only to give you an idea of how much money we are talking about when we discuss these various companies. They are estimates of course and are acmitedly rough - does it really cost IBM 187 mill a day? Probably not - but they do own a lot of real estate and they do have a lot of employees and they are world-wide in scope - so maybe it's only 167 million a day. Does it really matter - it is a big number.
So I ask you - why don't these little numbers such as employee contribution and the large numbers such as "nut per day" filter into the stock price? Because all that Wall Street is interested in is "beat by a penny" accounting. The rest just doesn't matter.
So if you read an article that suggests that you look at EBITA, and GAAP, and GAP, and Bladdiblah Blah Blah Blah and projected future revenue growth vs past 6 months and crapita crapita crapita - just say - "Oh bull snot, did they beat by a penny or not?" And you won't go wrong. Because if they didn't all the rest of that crap is just that - crap.
You can make these estimates for any company vs. any other company but try to stay in the same industry - it wouldn't make sense to compare WMT to IBM. I use an average annual income in the software sector of about 80K per year including benefits. This is burdened by 2.5 (you need to make 2.5 bucks for every one buck you pay an employee). As I said quick and dirty and it is probably higher these days because I'm basing on figures I last used in the mid-90's.
HOLDRS
These "mutual funds" or ETF's invented by Merrill Lynch are useful for determining investment vs trading targets over the next whenever. HOLDR stands for Holding Company Depositary Receipts and each fund contains the big movers in that particular sector.
Remember a couple of weeks ago I said to keep an eye on the oil industry? Well here is the current weekly chart of the Oil Industry HOLDR (OIH).
You can see that oil is bouncing off the 90 period EMA even now and that, based on the past performance, seems to be a good thing.
Then some time ago I compared hardware to software in the computer industry and used the SMH/SWH as the basis - take a look now. First SMH -
And then SWH -
I think looking at these two shows that software is a bit overbought perhaps and the hardware sector might be looking for a bid.
The point being that you can use the HOLDRS to inform your investing. Set up a watch list and look at them once a week or so. I know one thing - I think if I were holding software I'd be looking for a place to exit and if I was thinking about buying some hardware I might proceed with the purchase - stocks that is.
If you are really interested in HOLDRS go to the AMEX site (amex.com) and click on HOLDRS in the left window. That will give you a list of them. You can then review them individually.
Remember a couple of weeks ago I said to keep an eye on the oil industry? Well here is the current weekly chart of the Oil Industry HOLDR (OIH).
You can see that oil is bouncing off the 90 period EMA even now and that, based on the past performance, seems to be a good thing.
Then some time ago I compared hardware to software in the computer industry and used the SMH/SWH as the basis - take a look now. First SMH -
And then SWH -
I think looking at these two shows that software is a bit overbought perhaps and the hardware sector might be looking for a bid.
The point being that you can use the HOLDRS to inform your investing. Set up a watch list and look at them once a week or so. I know one thing - I think if I were holding software I'd be looking for a place to exit and if I was thinking about buying some hardware I might proceed with the purchase - stocks that is.
If you are really interested in HOLDRS go to the AMEX site (amex.com) and click on HOLDRS in the left window. That will give you a list of them. You can then review them individually.
Correction Coming?
Regular readers of this Blog know that I don’t dwell on the gloomier side of the market such as corrections and such and that I’m usually pretty upbeat about the whole situation. I did write a post back in December that suggested that a correction was due and I’m going to follow that up today with yet another post along the same idea.
I’m a great believer in regression to the mean (duh) and I believe that the best view of any stock, index or otherwise is the 90-period EMA applied to the weekly charts. Here I show a picture of the SPY, which I use as a proxy for the S&P 500 index since it kind of is the S&P 500 index. The diagram shows clearly that the SPY weekly bars stay well in touch with the 90-period EMA. And whenever it pulls too far away it hurries back again. Now “too far” is a relative term and I normally just eyeball it and watch the highs and lows and it looks to me on this chart at least that the SPY and therefore the S&P 500 is flattening at the top. It could be that we will have another decline like last two years and then explosive growth through the remainder of the year – but I’d be careful right now if I were planning any really long-term relationships with stocks. I’m not saying don’t get involved (remember rule 1) but be watchful and don’t let your portfolio on autopilot.
Here is the IWM, which is the proxy for the Russell 2000. It isn’t as graceful as the SPY and that probably reflects the fact that the small caps are more volatile than the S&P 500 large caps. But the effect is the same and if you were to overlay the two figures you would see that the corrections occur about the same time. In other words small cap, large cap is meaningless in the context of the larger market. This one looks like it is already rolling over at the top (highs and lows lower than previous highs and lows). If we take the past as prologue (and what else can we do) then we could probably expect a 7 to 10 point drop before the correction is over. And that would be about 10%. Do I expect more? Expect - no – is it possible – yes.
Last but not least here is a picture of MSFT on the same baseline (weekly with 90-period EMA). Note Mr. Softy’s love affair with the EMA and note how very, very far away Mr. Softy has run from its anchor. I leave the rest to your fertile imaginations.
I’m a great believer in regression to the mean (duh) and I believe that the best view of any stock, index or otherwise is the 90-period EMA applied to the weekly charts. Here I show a picture of the SPY, which I use as a proxy for the S&P 500 index since it kind of is the S&P 500 index. The diagram shows clearly that the SPY weekly bars stay well in touch with the 90-period EMA. And whenever it pulls too far away it hurries back again. Now “too far” is a relative term and I normally just eyeball it and watch the highs and lows and it looks to me on this chart at least that the SPY and therefore the S&P 500 is flattening at the top. It could be that we will have another decline like last two years and then explosive growth through the remainder of the year – but I’d be careful right now if I were planning any really long-term relationships with stocks. I’m not saying don’t get involved (remember rule 1) but be watchful and don’t let your portfolio on autopilot.
Here is the IWM, which is the proxy for the Russell 2000. It isn’t as graceful as the SPY and that probably reflects the fact that the small caps are more volatile than the S&P 500 large caps. But the effect is the same and if you were to overlay the two figures you would see that the corrections occur about the same time. In other words small cap, large cap is meaningless in the context of the larger market. This one looks like it is already rolling over at the top (highs and lows lower than previous highs and lows). If we take the past as prologue (and what else can we do) then we could probably expect a 7 to 10 point drop before the correction is over. And that would be about 10%. Do I expect more? Expect - no – is it possible – yes.
Last but not least here is a picture of MSFT on the same baseline (weekly with 90-period EMA). Note Mr. Softy’s love affair with the EMA and note how very, very far away Mr. Softy has run from its anchor. I leave the rest to your fertile imaginations.
Catch a Falling Knife
Bullish Jim brought this stock up on his Blog and we've had a small discussion of it but I just wanted to show the world what a classic melt-down looks like. You seldom get this kind of relentless action from so high for so far for so long.
I give you VOL - note that it is a "red bar crossover". I've been showing you a lot of "white bar crossovers" lately and this one is gorgeous in the opposite direciton (I had mentioned that the red bar crossover was a good short signal). Then after a couple of drops note how it retreats to the 8 EMA.
Turn this stock over and it is the kind I write about frequently on the long side. What a beauty. A train wreck in slow motion.
Now - something to notice - the last 15-minutes was not a short covering rally but some really hard selling persisted and there was absolutely no one ready to catch this falling knife. This stock is splitting 3 for 2 on Tuesday (actually Monday) and it is possible that it will go up off that split. Maybe not but I'm keeping it on a watch list. I'll revisit this in Tuesday evening's wrap regardless of the outcome.
I give you VOL - note that it is a "red bar crossover". I've been showing you a lot of "white bar crossovers" lately and this one is gorgeous in the opposite direciton (I had mentioned that the red bar crossover was a good short signal). Then after a couple of drops note how it retreats to the 8 EMA.
Turn this stock over and it is the kind I write about frequently on the long side. What a beauty. A train wreck in slow motion.
Now - something to notice - the last 15-minutes was not a short covering rally but some really hard selling persisted and there was absolutely no one ready to catch this falling knife. This stock is splitting 3 for 2 on Tuesday (actually Monday) and it is possible that it will go up off that split. Maybe not but I'm keeping it on a watch list. I'll revisit this in Tuesday evening's wrap regardless of the outcome.
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