A hodgepodge today, as I clean up some miscellaneous items on my desk ...
Item No. 1
Will there ever be a humble financial writer? I mean someone who doesn't subtly sneak in the "I told you so!" or the equally annoying "See, I was right!"
Uh-uh. It won't happen. People just
to be right. Sadly, me too.
Wednesday, when I said I didn't see what all the "bull market is back" fuss was about. My rationale was that we were heading right back to the top of congestion. A chart of the
makes it clear.
Here you can see the steady climb back to the bottom of previous support. What's even more ominous is that the volume continued to fall off. Edwards and Magee fans would probably call this a wedge but, whatever -- it looked scary. And, of course, right when we got into the danger zone, the market tumbled on Thursday.
Now, I bring this up not because my analysis was correct -- although, let's face it, this is so self-serving -- but because by constantly keeping an eye on the overall market it can help your trading. How?
As an example, on Wednesday I had one outstanding long,
Suspecting the market might fall the next day, I certainly made sure I was aggressive in taking my profits and moving on. I still stuck to my method, but if push came to shove, I would have settled for a bit less to have closed the position. As it turns out, APCC was a champ on Wednesday but got taken to the woodshed like everything else on Thursday. Coming into a -200 open, I was glad to be on the sidelines.
A perfect trading system will have you long when the market is going up and short when it's going down. Short of perfection, though, there's nothing that says you can't eyeball the overall market and at least be aware that you may be running into danger.
Item No. 2
I received a few emails on the recent changes
made. Many readers were curious about what exactly I disliked.
OK, fair question, and here are my problems:
One, it now limits the "where the big money's flowing" (formerly the "stocks with greatest rise in volume," my bread-and-butter
listing) to stocks of $18 or more. Academic to me, as my cutoff is $20, but maybe not to many of you. An arbitrary decision at best.
Two, it further screens out stocks that have a combined EPS+RS of less than 110. Huh? Where'd this come from? I mean, is there some statistical basis for this, or is it an intuitive way of limiting the listing? I'd guess the latter, and yes, that feels right to me also. But here's the catch: should a stock like
AMZN break out on heavy volume, it wouldn't be listed, as its combined "score" is only 100 (EPS = 1 for AMZN). That strikes me as odd, since AMZN would certainly be a stock "where the big money is flowing."
Three, the final screen is that next year's earnings estimates must be 17% or more. Again, why? Estimates are notoriously way off, and as a technician, I could care less anyway. Just let me see the price and volume, and I'm happy.
Bottom line on all this is that
has some incredible data. But now it's trying to present it in a way that further forces you into its way of thinking. Frankly, I'd rather have the raw data.
But, don't cancel your subscription yet. The General Market & Sectors page is a lot better now.
Big Picture analysis is usually dead-on and a great mini-TA lesson each morning. A major improvement there. The Mutual Fund Index was even moved into this section, which -- as long as I'm killing those guys -- I love to look at.
So, I guess I'm going to have to keep my subscription. I mean, didn't
scoop every other national newspaper by being the first to lead with "Catch Fall Foliage From the Golf Course" on the front page this past Friday?
Item No. 3
I am always learning. Well, let me rephrase that: I'm always
to learn. Sometimes it doesn't always sink in.
As such, I like to read what others have to say about trading and the markets, and while a lot of it is warmed-over boilerplate, every once in a while I come across a fresh voice who appears to have a good handle on what it takes to consistently make money.
commentary, of course, is a good example and what first attracted me to
Now I have another addition to my required reading list. The fellow is
, and I ran across him via the
Drach is a writer/trader who takes tartness to a whole new level. From his Sept. 11 newsletter:
Entertaining week for those who enjoy watching analysts run in circles. It is important to recognize that the majority view among most analysts and financial media will follow price change: up = positive comments, down = negative comments. After all, to state differently carries the risk of looking stupid. However, the commentary is after the fact of price change and as such basically worthless in the process of profit extraction. Many silver-tongued and costumed-in-pin-striped pomposity can be quite impressive in their portrayal of current and future conditions, but when it comes to their published record of each and every position specified during their career they poof like schmoos, but (fortunately) another generation of the same emerges to proliferate misinformation.
Drach, as you can probably glean, is the ultimate contrarian. I've been getting his newsletter for the past six months, and it wasn't until the past three weeks that he was even in the market. Never have I seen someone more patient in sitting on the sidelines waiting to pounce.
He's long now, though, so how's he feel about the market?
It can seem wild because of wide price gyrations and analysts crying ... but it is a fairly normal cycle: been through many over the 20+ years of this Report's publication. Psychologically tough for those inexperienced, but statistically at ease.
Finally, a statistician after my own heart ...
Every position taken having a 95% probability of concluding successfully as have their 1110 predecessors. Usually at a minimum of 10% net profit ...
So, in a way, Drach's approach is similar to mine. He enters the market only when statistics and probability favor success. Obviously, no amount of media hype will ever sway him off his methodology, and given his track record, his stand is justified.
However, one thing to keep in mind. I fully believe 95% of his trades are successful, and he had detailed documentation throughout his newsletters. However, he is on the sidelines for long periods of time, and given that, his returns are consistently positive but fairly concentrated. Remember, those 1,110 trades were done over 21 years, which breaks down to about 55 trades per year. As a comparison, I might do 55 trades in two weeks.
Regardless, though, he has a consistent, patient, unemotional methodology that yields consistent winners. That makes him a great trader. Even better, he's fun to read.
My wife has returned! Good thing too, because we were just about out of
Gary B. Smith is a freelance writer who trades for his own account from his Connecticut home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. This column, Technician's Take, appears every Monday. Smith also writes Charted Territory, which appears every Wednesday, and TSC Technical Forum, which runs Saturdays.