A quick apology for last week: Many of you looked for this column Saturday morning, and instead found my Monday column. I turned them both in by Friday p.m., so it was just a mix-up that caused the Tech Forum to be MIA for a bit.
Nevertheless, I know a delayed Tech Forum just makes the whole darn weekend taste sour. Therefore, this weekend, a special edition: Instead of my staff answering each question, I have personally answered every one myself! It was an incredible sacrifice on my part, but hey, that's what giving is all about.
On the administrative front, please send all future questions to
email@example.com. You must include you first and last name, unless, of course, it's something like
. We'll let those folks slide by.
The Big Favor
This week, a positive view of
, plus I get yet another opportunity to relive my role as Dolly Levi. (I pray, sincerely, this did not go over your respective heads!)
In 1987 I subscribed to Jerry Favor's analysis. He made the most incredible market call I have ever seen and traded on. This was well before the crash. He predicted the night before: a significant drop of about 50 points (a lot back then), a recovery back to even and then a drop back down 50 points, all during one trading day. He was right on, virtually to the penny. John Donovan
Hook Me Up!
Dear Gary, Just read about the woman that's looking to pal-up. I've been hankering for the same lately (about a couple years or so), and it occurred to me that you may be able to assist me in this matter. My preference is to collaborate directly with a like-minded person who lives nearby. I day trade mostly. I am flexible and adaptable. Though I do not trade the GBS, I understand it, and I'm sure it works for those who utilize it. Might have been a little sketchier this past seven to eight weeks, I imagine. Anyway, it has occurred to me that you will/may receive strong response regarding partnering. As you are happy to assist, I'd like to throw my hat in the ring. I'm in Fort Collins, Colo., (head to Denver and hang a north, then go about an hour and turn left). Email: firstname.lastname@example.org Please transmit my vitals to whomever you have the opportunity to, especially if they're close by. Many thanks, Abel Morales
And now for the main event. . .
I am looking at subscribing to
. Is info re: overall market tech indicators available and discussed regularly, such as the recent DJ transport and industrials not supporting each other that seemed to tell us that the market was headed downwards? I am looking at subscribing to
Dow Theory Forecasts
but may not need to if
provides some 'heads up' on tech indicators. Thanks in advance from Canada (Toronto). Frank Lucas
Frank, I think you've come to the right place and between myself and
, you should get a pretty good view of the market each week. If I had to differentiate, I provide a somewhat more micro view, with Helene providing the macro view. However, we both look at a lot of the same things: She'll key in on individual stocks, while I'll occasionally look at the market overall.
Best suggestion is to go through some of the archives and get a feel for both. However, I'd certainly say that $100 for a yearly
subscription is a great bargain.
What's It All Mean?
Is it possible to describe the meaning of the 200-day moving average? Does it have real significance? Thanks for your input. Steven Fraidstern
Steven, I assume you're talking about the 200-day moving average of stock prices. If so, the calculation is straightforward: the sum of the last 200 days of closing prices divided by 200. It's "moving" of course, because on each day, the previous 200th day is dropped off with the new one added.
More significant, however, is your second question. Yes, the 200-day average has significance, but only because everyone
it has significance. In theory, if a stock is above this average, it's still relatively strong; if it drops below it, it's now "weaker." However, like many technical indicators, it's a self-fulfilling prophecy with no intrinsic meaning in the number itself.
Mr. Smith: I enjoy your columns and find them very helpful, thanks! As long as you don't mind being a go-between, I have a question of some of the other readers. I am interested in finding some screens that can give me the info found in
-- at least the info that used to be there -- in regards to the volume increase leaders for both the long and short candidates. I'm in search of a formula or two that will work with the Windows on Wall Street Day trader software. Any help would be greatly appreciated. Perhaps I'll find a Wesson as well! Also, I am interested in getting some feedback from anyone who uses AB Watley or MB Trading. Specifically, how they fared during some of the heavy volume days recently. I believe you used one of those services at one time, Gary. Did you use it during any extremely heavy trading days and if so, how did it stack up? One other quickie, although I'm probably pushing my luck, when you decide to go short, is that with a market order at the open as I believe you do to go long or not? Thanks again! Jim Priola
Thanks for the nice words, Jim. Regarding your question on "Wow" scans, readers: Send 'em if you got 'em!
Regarding day-trading brokers, both the ones you mentioned and many others have threads devoted to them on
(www.siliconinvestor.com). That's an excellent place to start as long as you remember that many comments might be a bit biased.
As for my own experience, I was using Watley during some wild days and found them to be unreliable. However, that was nearly six months ago and in Internet time might as well have been six years ago. I'm certain they've made changes since then, but I do not have first-hand experience.
Finally, I do go short at the open with a market order. I find that invariably beaten-down stocks open up strongly, so I want to be in early to take advantage of this -- hopefully -- dead-cat bounce.
Do you know of any on-line source for point and figure charts? Your columns are always very informative. Irby Cohen
Thanks, Irby. Point and figure charts are tough to find, but you might want to check out the
site at www.dorseywright.com. I believe you can sign up and look at P&F charts online there.
I happen to notice that a significant number of small caps are starting to make downside formations, a number of them descending triangles. What makes this interesting is that the same occurrence happened a few months ago when the INDU was making a new high. Care to comment? Mike Lecaros
Mike, without the benefit of specific small-cap charts, I'll use the
index as a representative.
While there may have been bearish patterns in specific stocks, the Russell looks mixed at this point. The good news is that the downward trendline is now broken to the upside. The bad news is that this index (and of course, many of the stocks that make up the index) is still below the 50-day moving average.
So, I'm a little more positive on the small caps than I was a week ago. On the other hand, I'm not sure the bulls have won this battle yet. Hopefully, the picture will be clearer in a few weeks.
Gary -- For several months I have been interested in your methods for buying/selling stocks. I have been getting a feel for your methods by paper trading and am about ready to embark with real money; however, I have some questions that I was hoping you could help me with: Do you take on both short positions and long positions on the same day if you find candidates for both? Do you always enter the market when you have candidates or do you sometimes sit it out? Example: Suppose you have selected some long positions but the S&P futures are either up the limit or down the limit prior to the opening. Would you enter as planned; would you wait to see what happens and then enter; or would you not enter at all? Thanks for writing such great articles. Myron Zeissler
Myron, you mean you paper traded first, not blindly trusting my "wisdom" with your hard-earned money? Well, good for you.
Regarding your questions, I will trade both long and short positions on the same day if I have good candidates. In fact, if the market is trending hard in one direction, and a candidate pops up on the other side, those are usually pretty solid bets.
As to your second question, I confess I do sit out occassionally. However, I shouldn't. What happens, quite frankly, is that I choke. Particularly if the futures are limit down, and I have a few good longs, I'll occassionally take the gas and pass. It doesn't happen often, but it does happen. (The longs still usually work out, by the way.)
Ironically, if the futures are limit up and I have a few good shorts, I almost never pass. Who knows, maybe I'm just more comfortable on the short side.
Regardless, the statistician and pure trader in me says to make every high odds trade that comes along, regardless of what the market looks like. But if I happen to miss a day here and there for whatever reason, I don't beat myself up too badly.
Greetings Gary, I'd like to compliment you on an intuitive and informative column. You've created a forum where investors of all backgrounds -- newbies or experienced -- can learn and exchange information that can only serve to enhance our understanding of present and past market behavior. A sound method to this crazy madness is the only way to profit in this business. Thumbs up. Keep up the good work! Do you close your positions if your target price or stop has not been reached within two to three days of the purchase date, leaving yourself open for the next trade? I've seen stocks break out of congestion to reach new highs at around + 50 - 60% above the 30-day average volume. This doesn't seem like significant traffic to me, especially when previous highs show much greater volume activity. Are you looking for a more significant 70 - 75% change in volume? Do you compare present "new high" breakout volume to previous "new high" volume? I'm experimenting with the TC/2000 scans you posted earlier this week and would like to verify whether or not I've properly entered the scanning formula. TC/2000 didn't give any GBS long candidates for Wednesday. Do I need to recheck the formulas? Regards, John McCaw
Thank you, John, for your nice words.
Per your questions, a two- or three-day time stop would be pressing it a bit. My average hold period is about seven days, so any time stop I use would have to be at least a few weeks longer. Generally, I will stop a stock out at 30 days, but that happens infrequently.
On the volume breakout issue, I do like the volume "surge" to be as high as possible. However, if the rest of the chart looks good (i.e. tight congestion, breakout not too far extended above resistance, etc.), I certainly won't pass on the trade if the volume is only 50% above the moving average (note: I use a 50-day, not 30-day MA).
On comparing current volume surge to surges in the past, I do look, but I don't usually factor that into my decision.
On the TC scans, yes, there were some candidates from Wednesday, so you might want to recheck. When you're writing the criteria, there is a way to test an individual stock, and that will tell you if you've written the formula correctly.
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. Smith also writes Technician's Take each Monday and Charted Territory, which appears every Wednesday.