Golf Digest just came out with its top 100 courses list. Shoot, Aronimink (where I once came in second to Jay Sigel in a one-day tournament!) got knocked off the list, so that cuts my "have played" number to nine. Jeez, a measly nine. So, my question to you readers is this: Where are you Oakmont members? Where are you Cypress Point members? Where are you Double Eagle members? And why haven't you had the common courtesy to invite me to play at your course??
Oh well, maybe it was something I said.
Have a question? Have a problem? Have an invitation to
? Send any and all to
email@example.com. Make sure you ask for head pro Gary B. Smith.
In the April 17
column, someone asks about
Apex (APEX) - Get Report and
Dell (DELL) - Get Report, but you only answered the part about DELL. The chart on APEX looks good to me, and I'd like to buy something with a reasonable valuation for a change!
What's your opinion on this one?
Hi, Gary, Enjoy your column. Could you look at the chart of EMC (EMC) ? It has broken through its 50-day moving average and I was wondering how low it will go. Or, is there a formula to predict where it will bounce so I don't try to catch a falling knife? How are the girls? Any swim success stories for your next column? Kevin Holtz
Kevin, by this time next week, I'll have some swim stories. The success part? I'm keeping my fingers crossed.
As for formulas, folks have tried to use magical numbers (i.e. Gann), and waves (i.e. Elliot), and just about every other cockamamie notion, but I think the simple stuff like support and resistance works the best. Let's look at EMC to see if there's anything there.
Babe in the Woods
Hey Gar, I'm a neophyte, a quintessential babe in the woods! I held stock in a company that I used to work for ... forever. It stunk, and went nowhere but was at least flat. Now, I work in the Internet, and I decided last week to invest in companies that I know and use like Cisco (CSCO) - Get Report, Covad (COVD) , Qwest (QWST) and DoubleClick (DCLK) . All of these stocks took a miserable hit. I invested last Tuesday, and lost 20% by Friday. Bad, but I am not risk-adverse. I think we ain't seen nothing yet. My goal with this investment is to take any doubling of the stock and move half of it into peripheral stocks that will grow with the Internet, like Extreme Networks (EXTR) - Get Report, Williams (WMB) - Get Report, Cox (COX) , MCI WorldCom (WCOM) , etc. I expect to have a large portfolio of stocks in the future. Some will be dogs, but I don't want to live in a cow pasture either! Do you think this strategy will work? What say! Best regards,
Peter, I don't mean to be harsh, but what "strategy"? By that, I mean you're counting on a doubling of a certain number of stocks to have the ability to invest in a number of other stocks. First of all, just counting on a double is a bit aggressive, but more importantly, what's the downside? You took a 20% hit last week, and if you were still holding, more on Monday. So you need to think not about the profits, but potential losses.
On your other stocks, WCOM, etc., I can't comment. That sounds like a fundamental decision (vs. TA), so I'll pass on my opinions.
The important things to think about with your question are a) what are the realistic odds of your success, and b) what is your risk/reward equation. To paraphrase the words of a hedge fund manager, Paul Tudor Jones, don't just think about great offense -- think about great defense. For further thoughts on developing a methodology or strategy of any kind, see the
series on methodology development I recently put together.
Gary, I have an interesting chart for you: Maxxam (MXM) . A politically incorrect company and a despised CEO. But the chart going way back to inception seems to have a distinct upward bias. Resistance appears to be around 60, give or take a couple points, and the lows keep rising. There seems to be a flat top resistance line with a generally upward trendline. It seems like a break to the upside should occur within a year. I know, a rather long time horizon for a trader like you or me. What does Gary make of this one? Thanks,
Gary, I would be appreciative if you would review the charts of any one of three of my local-yokel stocks: PsiNet (PSIX) , Friedman Billings Ramsey (FBG) or Manugistics (MANU) - Get Report (yes, your old nemesis). Robert Boyce
Robert, how could I resist a return visit to MANU?!
Dear Gary, I am a casual reader who is just now getting inspired to incorporate some of your methods. My question is that after reading many of your columns, I am not comfortable with shorting. Could you expand on any apprehension you might have with shorting? I realize you set stops to protect the downside, but you still take more risk with a short. What convinced you that you must incorporate shorting in your method? Jerry Mohn
Jerry, your question is shared by many, so here's my "short" answer. I view shorting as having the same exact risk/reward as going long. Sure, a stock you short can go up, but by using proper money management -- stops, appropriate lot sizes, etc. -- you limit your risk on any one trade. In fact, in both backtests and real trading my risk/reward with shorting is slightly
than my long trades, because I have a higher "win rate." So I think it's a fallacy to think that shorting is risky. It is, buy only if you don't use stops!
As for what convinced me, it was a brief question from my ever-astute wife: "How will you make money if we enter a bear market?" That was all I needed to get me motivated.
Gary, I made a lot of technical mistakes when I got into MGC Communications (MGCX) on April 16 at 47 1/4. I violated all logic when I went long for a stock that was up over 540% (9 to 49) in a little over a week, thinking that there may be enough momentum to get out around 60 and snap up a quick profit over a couple of trading days. To my credit, I am now down 25% off my original investment trying to analyze where MGCX is going next. I would like to know if you have any suggestions or ideas on where MGCX may be heading. Thanks!
Seeing the Light
Gary, I never miss one of your columns and have learned a lot from them, but not enough to understand this one-year chart of New Era of Networks (NEON) - Get Report. From all I've been able to find out about the company, this should be a good stock to go long, but the chart gives me that sinking feeling. I would really appreciate your thoughts on it. Gwilym Archer
Gary, How do you and Wesson test your theories? What program, but more importantly, what process do you use to find that, for instance, the 5% profit/6% loss is best, or the congestion period should be 20 days, etc.? Thanks,
Patrick J. Fernicola
Patrick, our testing really involved a two-step process. Step one was observation. That is, prior to meeting Wesson, I had traded the same pattern many times. From entering every trade into a spreadsheet, I was able to see that 70% of the stocks hit 5% before they fell 6%. Once I had these rough parameters, I simply kept track of how much each winner fell before it hit my target. In fact, I initially started out using a 7.5% stop loss, but found I kept almost as many winners by raising the bar to 6%.
Then Wesson came along, and with his programming skills was able to write a C program that back-tested every trade I had made to ensure my money management parameters were correct. But in addition, he was able to test trades I had not made, but which had roughly the same "breakout" pattern, to see if our current money management parameters worked with those trades also.
Now, frankly, most people have neither the access nor skill to do this last bit of programming magic. But if you're in that category, I don't think you have anything to worry about: While I found the programming useful, I also found the simple steps of observation, recording and refining worked and still work nearly as well whether you're testing money management, volume surge requirements or congestion length. Just make sure to write down everything you see. It's tedious, but worth the effort.
Gary, Since it traded at highs in the 50s, Philip Morris (MO) - Get Report has collapsed. A look at the daily price chart shows three distinct gaps. Would you classify these gaps as the classic "breakaway, runaway and exhaustion"-type gaps? If so, at what point would you consider going long? Jerry Link
Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication he had no positions in the stocks mentioned, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith also writes Technician's Take, which appears every Monday, and Charted Territory, which runs Wednesdays. While he cannot provide investment advice or recommendations, he welcomes your feedback at