Investment Trade Timing

This is a companion page to my notes on
investing and investments

  Trading Calendar

It's perilous to short the market. To paraphrase Keynes, the market can be irrational longer than you can remain solvent.

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Analyst Ratings

Stock prices move (appreciate or fall) only when the stock (or conditions around the stock) change in an unexpected way,
This is why a company's stock price paradoxically drops after a massive jump in sales or profits.
This is also why hot stock tips may not earn you money. By the time you hear about it, the pros have already bid up the price and took away the appreciation you had hoped for.

Ratings by investment bankers such as Citicorp, Goldman Sachs, Morgan Stanley Dean Witter Chase, Merill Lynch are "tainted" because they need to be self serving since bad ratings hurt the underwriting side of the firm.

Analyst Fred Hickey, editor of the fiercely independent $120/yr High-Tech Strategist newsletter from Nashua, NH, is called the "king salmon" among "live fish" (Uncorrupted analysts who do their homework) by short hedge fund manager Bill Fleckenstein in his Contrarian Chronicles.

As part of a 2004 settlement, brokers must now supply investors with second opinions: analysis purchased from outside research firms.

But more than ever, the most pioneering, market-moving research is going exclusively to big mutual funds and the private investment pools (hedge funds), not to the small investor for whom regulators waged their campaign.

• stock-analysis boutique, Majestic Research LLC
• Institutional Shareholder Services is the world's leading provider of proxy voting and corporate governance services for institutions holding corporate stocks.

• Edgar Online provides corporate SEC Financial Reports
• Hoover's Online provides a starting point for information on more than 10,000 companies.
• First call consensus

Small research firms have a tough time despite charging thousands of dollars because retaliation by companies when negative reviews are issued.

Be especially leary of recommendations from unsolicited faxes and mail, which usually come from "pump and dump" scammers who buy up a small issue, tout it heavily, then sell after people who fall for their scheme bid up the stock. Please report such practices to SEC.gov.

Independent Stock Rating Agencies

• $495/year Weiss Ratings on a stock's fundamentals, valuation , momentum, and risk are the most accurate, reliable, and conservative.
• $109/year Morningstar identify undervalued and overvalued stocks.

  Many public libraries buy subscriptions so that you can get into these free.

• $298/year Standard & Poors provides quantitative analysis and analysts' personal opinions.
• $598/year Value Line rates 1,700 stocks on safety and timeliness
• Schwab $25 per company
• Fitch Ratings

  Capital Market Risk Advisors (CMRA), is the preeminent financial advisory firm specializing in risk management, hedge funds and derivatives.

  International Association of Financial Engineers (IAFE)

  Alternative Investment Management Association (AIMA)

Technical Analysts

For $69, Select Information Exchange enables you to get 5 months of 4 newsletters from a list of 169, of which 37 focus on market timing.

Only 5% of timers beat the upward S&P500 market in 1999. Who said this?

$300/yr Market Technicians Association publishes the Journal of Technical Analysis containing papers by level 3 candidates for Chartered Market Technician (CMT) exams, based on these standards in the field available on loan:

• $40 Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy
• Martin J. Pring's $25 Technical Analysis Explained: The Successful Investor's Guide to Spotting Investment Trends and Turning Points, 4th Edition (McGraw-Hill Professional, Feb 2002) originally published in 1985 and $18 Tutorial
  $28 Introduction to Technical Analysis: A CD-ROM Seminar and Workbook
  Investment psychology explained : classic strategies to beat the markets (J. Wiley & Sons, 1993)

$65 Technical Analysis and Stock Market Profits: A Course in Forecasting (Pearson Education POD; October 15, 1997 Reprint of 1932 first edition) by Richard W. Schabacker, a pioneer in TA.

Some characterize Market timing as "rapidly" buying and selling shares to profit from pricing inefficiencies.

In October 2001 Barron's published a graph illustrating that if an investor who bought $1,000 of the Standard & Poor 500 Index in February 1966 and held it 36 years would have $11,710.

Investment research firm Brinyi Associates adds that if an investor who missed just the five most profitable trading days every calendar year, that $1,000 investment would have shrunk to $150. More importantly, a $1,000 investment that missed only the five worst days each calendar year would have grown to $987,120.

Jesse Livermore -- who Edwin Lefevre's 1917 Reminiscenses of a Stock Operator called one of the gratest stock speculators of all time (operating from 1890 to 1929) -- wrote in his book How to Trade in Stocks “One cannot be successful by speculating every day or every week. There are only a few times a year, possibly four or five, when you should allow yourself to make a commitment at all. In the interim you are letting the market shape itself for the next big move.”

Yes, You Can Time the Market! (Hoboken, N.J. John Wiley, 2003) by Ben Stein & Phil DeMuth

Turner Trends focuses on a small number of ETF fund positions. in addition to his paid version for those willing to follow him trade-for-trade using his Technical Rating system and Fundamental Analysis process.

Newsletters

The Hulbert Financial Digest tracks 165 investment newsletters

CBS Marketwatch Directory of Newsletters

Jim Schmidt's $175/yr Timer Digest rates the performance of S&P 500 & gold market timing newsletters relative to consensus signals. Those consistently among the top 10:

• Christopher Cadbury, Cadbury Timing Service
  
• Dan Turov, Turov on Timing
  
• Tom McClellan, The McClellan Market Report (of Oscillator fame)
  
• Mark Leibovit, VRTrader.com provides the Volume Reversal indicator and a $900 semi-annual forcast.
  
• Jim Tillman, Cycletrend
  
• Doug Jimerson, National Trendlines
  
• Steve Todd, The Todd Market Forecast
  
• Craig Corcoran, Craig Corcoran Futures
  
• Joseph Granville, $250/yr monthly The Granville Market Letter since 1963 (he's 78 now) labeled a parenial pessimist for missing the bull market rise from August 16, 1982.
  
• Arch Crawford, Crawford Perspectives
  
• Michael Gibbons, Gibbons' Trading
  
• Myron Greene, Mutual Fund Timing Guide

  $40 Predict Market Swings With Technical Analysis by Michael McDonald (New York: John Wiley, 2002) credits

• The Stock Market Profile-How to Invest with the Primary Trend by Jacobs. "gave me my first lesson in the subject of technical analysis."
• Why Most Investors Are Mostly Wrong Most of the Time by William X. Scheinman "gave me a firm grounding in the theory of contrary opinion."

Fundamentals

IBD's Relative price strength (RPS) presents the percentile of the stock within its market during the last 12 months.

IBD's Relative industry strength (RIS) grades the performance of a company's industry against other industries.

IBD's A/D (Accumulation/Distribution) grade A shows a stock accumulating on the buy rather than distributing ask (sells).

Exogenous shocks are those out-of-the-blue disruptions that jolt economies and markets.

Endogenous shock are an outgrowth of excesses that build in the macro system for a long time.

Events That Move Stock Prices

• Unanticipated difference in forecasted revenue
• Regulatory actions, such as:
  • FDA approval of a drug or medical device
  • SEC investigation into back-dating stock options
• Top management changes (such as merger announcements and Martha Stewart getting sent to jail).

"The plans of the diligent lead to profit as surely as haste leads to poverty." —Proverbs 21:5

Short Options Bear Funds

The past 10 bear markets have occurred every 2.4 years in the short corrections of 1987 and 1990.

Comparisons

• Rydex Funds was the first, requiring a $25,000 minimum.
• ProFunds requires a lower $10,000 minimum.
• Potomac Funds based on indexes
• Charlie Minter & Marty Weiner of the Comstock Partners Comstock Strategy A Fund CPFAX and Capital Value A Fund DRCVX (part of the Gabelli family)
• Charlie Minter of the Prudent Bear Newsletter and fund
• Leuthold Gizzly Short Fund
• Robertson Stephens Contrarian Fund

  TradingMarkets.com has a course on "Making a Living in a Bear Market"

Fundamental Direction

Indicators are classified as leading, coincidental, or lagging indicators.
Coincidental indicators such as the GNP (gross national product) measure how the economy is doing right now.

Stocks go down a lot faster than they go up.

Fund Indicators:

• Performance in up market and down market
• Alpha estimates the portion of an investment's return expected from its inherent values arising from specific non-market risk, distinct from the amount of return caused by volatility measured by the beta coefficient.
• A fund with a Beta of 2 has double the volatity relative to the overall market benchmark over the last 3 years. This historical metric measures a fund's sensitivity to market movements.
• Delta - the textbook definition is how much for a $1 move in the underlying stock price. Traders see this as an approximation of probability the option is in-the-money at expiration. A negative delta expects price appreciation.

• Theta is the amount of premium decay to the next options due day.
• Gamma is balanced with Theta.
• Vega

• Expense ratio: Annual expenses as a percentage of average total assets for the past fiscal year.
• Sales Charges ("B" funds are Back-end fees when withdrawn)
• Portfolio turnover rate
• Total net assets
• Technology sector weighting
• Price / Earnings Ratio. For a stock fund, measures above 25 traditionally suggest an overvalued market.
• Productivity is a U.S. Economic Statistics (USECON) in EView format from Haver Analytics

  Contrarians believe that the biggest profits come from Trading in "undiscovered" names ahead of the curve. They include Bill Martin, co-editor and founder of real-time service FindProfit.com covering small- and mid-cap stocks in the tech, telecom, media and energy sectors. Martin is also founder of RagingBull.com.

  Coincidental Economic Indicators

  The GNP

  12 Leading Economic Indicators

  History has shown that increases in these measures foreshadow a better GNP.
  1. S&P500 Stock price Index

  2. Money Supply

  3. Short term interest rates (also a lagging indicator)

  4. The monthly Purchasing Manager's Index (PMI) compiled by the Institute for Supply Management (ISM) poll of 400 manufacturing companies how business is going. It's one of the most widely-followed economic indicators.

  5. Housing starts

     Congress Gross Domestic Product, Income/Corporate Profits, Employment, Investment, Prices, International Trade

  6. New orders for non-defense capital goods (heavy machinery)
  7. New orders for consumer goods (both adjusted for inflation)

  8. vendor deliveries

  9. Inventories

  10. Dow Transportation Index. This is the companion index used in the Dow Theory, introduced over a 30-year period at the beginning of the last century in editorials in the Wall Street Journal written by William Peter Hamilton, then the editor of that newspaper, on the basis of conversations he had with Charles Dow, the founder of Dow Jones & Co., the newspaper's publisher. The basic explanation is that if both the Dow Jones Industrials Average ($INDU) and the Dow Jones Transportation Average ($TRAN) jointly reach significant new highs, the stock market is likely to continue rising. Similarly, the market is likely to continue falling if both averages jointly reach significant new lows.

      The Dow Theory has three prerequisites a signal a change in the market's trend. Consider what those three steps must be when the trend changes from bullish to bearish:

      1. Both Dow Averages must undergo a significant correction from joint new highs.
      2. In their subsequent rally attempt following that correction, either one or both of the Averages fail to rise above their pre-correction highs.
      3. Both Averages must then drop below their respective correction lows.

      A Strategic Guide to the Coming Roller Coaster Market, in July 2000. McDonald did not find a correlation between forecasted corporate earnings and stock price, even though the vast majority of investors and analysts believe earnings are good tool for predicting the tops or bottoms of major market moves.

      McDonald found that the very best indicator of major market tops or bottoms comes from data that measure investor expectation/sentiment.

  Consumer Confidence Indicators

  • Weekly ABC Confidence Index
  • semi-monthly University of Michigan
  • monthly Conference Board
  • ^CMR Morgan Stanley Consumer Index
  • Yale School of Management Stock Market Confidence indexes

More than 100 technical indicators are listed in the Market Technicians Association (MTA) website
• EQUITY FUND OUTLOOK by Thurman Smith, an ex IBM mainframe programmer living in Boston, MA ( Forbes profile) uses investment skill quotient expressing reward to risk diving the portfolio weighted average growth by the weighted average risk. Risk is relative to the Wilshire 5000 for up-market and down-market behavior.

• The Aden Forecast monthly 12-page investment letter published for 22 years by sisters Mary Anne and Pamela Aden in Costa Rica, puts it all together: in U.S. stock market, mutual funds, U.S. interest rates and bonds, the international stock and bond markets, the foreign exchange and precious metals markets.

  Perry J. Kaufman's 0471268488 A Short Course in Technical Trading (New York: John Wiley, 2003)
  and
  Trading Systems and Methods, 3rd edition (Wiley 1998)

  Jack D. Schwager's
  Getting Started in Technical Analysis (New York: John Wiley, 1999)
  Schwager on Futures: Technical Analysis (Wiley, 1996)

  From Michael Sincere:
  The Long-term Day Trader : Short-term Strategies to Boost Your Long-term Profits, with Deron Wagner (Franklin Lakes, NJ The Career Press, 2000)
  Understanding Stocks (New York McGraw-Hill Professional, 2004)
  The After Hours Trader : How to Make Money 24 Hours a Day Trading Stocks At Night, with Deron Wagner (New York McGraw-Hill Professional, 2000)
  101 Investment Lessons From the Wizards of Wall Street : The Pros' Secrets for Running With the Bulls Without Losing Your Shirt (Franklin Lakes, N.J. The Career Press, 1999)
  The After Hours Trader : How to Make Money 24 Hours a Day Trading Stocks At Night with Wagner, Deron (New York McGraw-Hill Professional, 2000)

  HedgeWorld.com
  MAR Hedge sponsored a conference on "Dynamic Asset Allocation"
  Bernstein Investment Research
  Geostrategymap.com online geopolitical magazine by W. Joseph Stroupe.

  Advisory World

  Federal Reserve Scroll to F.4 Credit Market Borrowing, All Sectors, by Instrument, to see how much "U.S. Goverment securities" are being issued (how much feds are really borrowing to finance the deficit) — 1.2 trillion dollars. Divide by 300 million people.

  commerce-database.com

Market Timing

Long term cycles (of 40 years or more) are important for their psychological ramifications. It may be just a self-fulfilling prophesy. But I think they should not be entirely ignored.

Aside from the astrological interpretations, Amaria.at in Austria suggests a 76.6 year cycle for the American stocks:



This information presents a significant trading wisdom: One is better off shorting the market when long-term trend is downward. That way, the market is likely to goes deeper toward the direction that you had hoped.

The "Old Model" popularized in the 1970's by Gordon Malkiel's book A Random Walk Down Wall Street assumes a fundamentally unpredictable yet efficient market which self-corrects to true intrinsic (fair) values.

However, recent analysis such as Gluck's Chaos theory describe feedback loops where a seemingly insignificant trigger builds into an avelanche. An example is the 1962 crash which was not explained by fundamental economic data.

McDonald points out that unreasonable declines of up to 13 weeks (3 months) can occur because short-term traders account for 30% or more of daily volume.

Although regulations which put price collars to prevent a repeat of the run-away programmed trading which magnified the 1987 crash.

Jim Rohrbach's RIX index (Rohrbach Index) announced by his $395/year newsletter is based on the 20 Day Moving Average (EMA). It triggers a Buy Signal when the RIX reading reaches +12.0 and a Sell Signal when the reading reaches -12.0.

More than 100 technical indicators are listed in the Market Technicians Association (MTA) website

Winning the Day Trading Game: Lessons and Techniques from a Lifetime of Trading (Wiley, December 2, 2005) by Thomas L. Busby, Patsy Busby Dow of DTITrader.com

Futures Trading

	Call	Put
Buyer (Long)	Right to buy	Right to sell
Seller (Short)	Obligation to sell	Obligation to buy
Options Volatility and Pricing by Sheldon Natenberg

A "long" trade bets on an increase in price.
A "short" trade bets on a decrease in price.

An option is a contract to buy (or sell) something at or before a specific time at a specific price.

LEAPS (long-term equity appreciation options) strike dates go out to two years.

A call writer (seller) of an equity option contract is to CALL (buy) or PUT (sell) shares of a stock before a certain time (the expiration) at a certain strike price. The premium is the option price.

A locked market is when the bid and ask are identical.
A crossed market is when the bid is higher than the ask.

An at-the-money option is at the current price.
An out-of-the-money option is higher/lower than the current price, providing a chance to "win big," percentage-wise, reflecting a premium on time and volatility.

The bid price is what someone is willing to buy an issue for you to sell.
The ask price is what someone is willing to sell an issue for your to buy.

The inside price is the best bid and best offer price currently available in the market.
The inside bid is the highest bid price.
The inside offer is the lowest offer price.

A market maker joins the bid When he enters a bid at the current inside, or high-bid level.
A market maker joins the offer When he enters an offer at the current inside, or low-offer level.
A market maker leaves the bid When he removes a bid from the inside, or high-bid level.
A market maker leaves the offer When a market maker removes his offer from the inside, or low offer level.

Put/Call Ratio

The "Put Call Ratio" is a ratio of the number of puts traded versus the number of calls traded on the Chicago Board Options Exchange (CBOE) (pronounced see-bowl).

PREM

CNBC broadcasts PREM -- an abbreviation for the "premium" -- (or discount) of the futures contract vs/ current price of the stock. A positive PREM can signal a time to buy before arbitrage buy or sell programs kick in.

Volatility is really the only unknown for short dated options of 30 days or less.
Longer dated options also have interest rate uncertainty.
Options allow people to hedge prices by transferring risk.

If a stock moved 1% daily it woud be a 16% Volatility.

Steve Meisinger Synthetic

S&P & NASDAQ Index Futures

The CME created a market for the future prices of leading stock market indexes. They make terrific trading vehicles because they are extremely liquid, and they tend to predict the actual market by a few seconds to a few minutes.

Version	Ticker prefix	Option	$Multiplier	EFT Shares	2006 Open
Maxi	-..	Maxi SP500 (SPY)
	-..	Maxi Nasdaq 100 (QQQ)
E-Mini	EES	E-Mini SP500 (SPY)	$50	500
	EMD me	E-Mini SP Midcap 400	$100	550
	ENQ	E-mini Nasdaq 100 (QQQ)	$20	800
	EQC	E-mini Nasdaq Composite	$20	800
	EER	E-mini Russell 2000	$100	500
Germany	XG	DAX	$100	500
Commodities	C	Corn	$100	500
Commodities	YG	Gold	$100	500
Commodities	QM	Crude	$100	500
Commodities	LC	Live Cattle	$100	500
-	US	US Bonds	$100	500
-	XLU	Utilities	$100	500

There are two versions of contracts: E-mini contracts were created to be electronically traded, at one fifth the size of a tradition "big" maxi contract, which on the SP500 are worth $250 per point.

On March 22, 2004, the Philadelphia exchange began to provide a market for NASDAQ Composite Index full-size (QCX) and mini-size contracts (QCE).

The ticker symbols for stock index futures four characters (such as "es4z"): The symbol for E-Mini contracts based on the SP500 index are prefixed with "es". The symbol for E-Mini contracts based on the NASDAQ 100 index are prefixed with "nq". E-mini trading symbols are suffixed with one digit for the year (such as 4 for 2004), followed by a letter of the alphabet representing the month of expiration:

Contracts expire on the Thursday before the third Friday of these months.

F = January	G = Feburary	H = March
J = April	K = May	M = June
N = July	Q = August	U = September
V = October	X = November	Z = December




Have at least 20 days before the expiration date and one strike out. Risk increases the closer you get to the expiration date.

Charting Formats & Tools

Both "bar" charts and Candlestick (Cdl) formats present open, high, low, and closing prices.

I like the candlestick format because when an issue closes below its open the body (the "squarish" section of the candlestick) is shown with a solid color. The top of the body then indicates the opening price.

When the issue closes above its open, the body is empty and the top of the body indicates its closing price.

The "wick" of a candlestick — the vertical line above the candlestick body — is called the upper shadow and reaches up to the highest price for the period. The lower shadow reaches down to the low point for the period.

These tools are delivered via internet browsers:

Finance.Yahoo.com offers the best all-around charts, if you ignore the ads.
Stockcharts displays the performance of funds as a "carpet".
BigCharts
Jan Arps' Trader's Toolbox offers modules to create charts associated with various theories.

Oscillators

Oscillators compare the current price of a stock to its trading range over a defined period of time.
• The trading range is a consistent price pattern characterized by definable resistance and support levels. The stock appears to bounce back and forth between these levels for a period of time.

• The trendline is a straight line, or two parallel straight lines bracketing highs and lows, indicating the direction in which a stock has been moving, and can be predicted to move.

• The resistance level is the price where a stock receives considerable selling pressure.

• A stock that is said to have broken through when it closes significantly and consistently above a price that has hovered for a long time just under a milestone price. This is a breakthrough or breakout.

  Bollinger bands

  Bollinger bands shows support and resistance points (a trading range), defined by the standard deviation, or volatility, of a stock's price.

  Bollinger Bands are a type of envelope plotted at standard deviation levels above and below a moving average. Since standard deviation is a measure of volatility, the bands are self-adjusting -- widening during volatile markets and contracting during calmer periods. Stephen Aechlis, author of Technical Analysis from A to Z, has the following to say about interpreting this indicator: "The basic interpretation of Bollinger Bands is that prices tend to stay within the upper- and lower-band. The spacing between the bands varies based on the volatility of the prices. During periods of extreme price changes (i.e., high volatility), the bands widen to become more forgiving. During periods of stagnant pricing (i.e., low volatility), the bands narrow to contain prices."

  John Bollinger On Bollinger Bands (New York: McGraw-Hill Professional, 2002)

  "BandAid" is the nickname for Market price relative to its Bollinger Bands. Readings of 2.25 and -2.25 are considered to be overbought and oversold, respectively.

  Stochastic

  A stochastic refers to the location of a current futures price in relation to its range over a set period of time (usually 14 days).

  In an 1984 article George Lane observed that as prices increase, closing prices tend to be closer to the upper end of the price range. In down trends, closing prices tend to be near the lower end of the range. Because it has slightly wider overbought and oversold boundaries, Stochastics is a more oscillator (indicator of volatility) than the RSI.

  RSI (Relative Strength Index)

  The Relative Strength Index quantifies a security's price momentum by measuring the price of a security against its past performance in order to determine its internal strength.

  First described by Welles Wilder in his book New Concepts in Technical Trad-ing Systems (Trend Research, 1978), the RSI compares the power of up days versus down days over a lookback period, which is 14 day (half of a 28 day cycle most prevalent of short term markets). Calculated using five columns on a spreadsheet, the Wilder formula includes the magnitude of price changes. (on CBS Marketwatch)

  On a scale from 0 to 100, a RSI above 70 is a sign of an "overbought" condition and a sell signal.
  A RSI below 30 signifies an "oversold" stock and a buy signal.

  According to Stephen Achelis in his encylcopedic (but not in-depth) book $12 Technical Analysis from A to Z, 2nd Edition (McGraw-Hill Trade; October 2, 2000) "A popular method of analyzing the RSI is to look for a divergence in which the security is making a new high, but the RSI is failing to surpass its previous high. This divergence is an indication of an impending reversal. When the RSI then turns down and falls below its most recent trough, it is said to have completed a "failure swing" — a confirmation of the impending reversal."

  Stochastics

  The Stochastic indicator compares where a security's price closed relative to its price range over a given time period. The Stochastic indicator is displayed as two lines. One line is called "%K." A second line, called "%D," is a moving average of %K. According to Stephen Achelis, these are the three popular ways to interpret stochastics:
  Buy when the Oscillator (either %K or %D) falls below a specific level (e.g., 20) and then rises above that level.
  Sell when the Oscillator rises above a specific level (e.g., 80) and then falls below that level.
  Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line.
  Look for divergences. For example, where prices are making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs.

  Parabolic SARs

  Parabolic SARs define resistance and support levels by taking into account previous volatility and trading patterns.

  In a Business Week article, Granville was quoted as saying “I put all my stress in reading the market through parabolics. A parabolic is a curve that's not only going up, but the angle of its rise becomes increasingly acute until the rise is going vertically. When you see that, you know that's the top.”

  McClellan Oscillators

  Sherman and Marian McClellan developed their Oscillator in 1969 and wrote about it in their book Patterns For Profit. In 1995 son Tom launched their Market Report ($195/yr. twice-monthly or $600/yr. daily) featuring a Summation Index of 10% and 5% moving average oscillators on NYSE breath, volume, and DJIA prices.
  spreadsheet

Trading Signals

Breath of Advances vs. Declines

Breath is the difference between the number of advancing issues (stocks that closed higher) subtracted by the number of declining issues (stocks that closed lower). A 2:1 ratio positive breath signals a sustainable rally. On the NYSE, "good breadth" is +500 or so, and Very good breadth is +1000.

TRIN

The TRIN (Trading Index) was developed by Richard Arms in the late 1960s, so it is also sometimes called the Arms Index. It is calculated by taking the ratio of two numbers, each of which in turn is also a ratio:
• The numerator is the breath ratio of advancing issues to declining issues.
• The denominator is the ratio of the volume of advancing issues to the volume of declining issues.

High TRIN readings over two consecutive days is bullish.

Volatility Indexes VIX & VXN

The VIX is calculated by the weighted average of the implied volatility from 4 calls and 4 puts on the S&P 100 index (OEX) traded on the CBOE (Chicago Board Options Exchange)

If the VIX closes 1.75 points or more higher than its open, there is a downward bias for tomorrow's stock market opening. If the VIX closes 1.75 or more lower than its open, there is an upward bias for tomorrow's stock market opening.

VIX above 35 signals a bottom in the stock market and a VIX below -5 precede a sell-off.

VXN is the symbol for the implied volatility index of the NASDAQ 100 index.

Momentum Indicators

Analysis of momentum follow trends.

Moving Averages

In my charts I display both a 20 day and 200 day moving average.
Aggressive investors prefer to use 50 day (13 week) moving averages.
Conservative investors prefer to use 200 day moving averages.

MACD (Moving Average Convergence-Divergence)

Divergence is when two indicators that usually move up and down together are now moving in opposite directions, not confirming each other. This is a signal.

Each MACD line illustrates by how many multiples the 12-day EMA (exponential moving average) is leading the longer 26-day EMA. The red "Signal" (or "trigger") line is the 9-day EMA plotted on top of the MACD.

According to Stephen Aechlis (as quoted from his book Technical Analysis from A to Z)

• there is enough momentum to buy when the MACD trend rises above 0 or rises above its signal line. MACD lines dipping below 0 may indicate a stock becoming oversold (a good time to buy while it's cheap).
• there is enough momentum to sell when the MACD trend crosses 0 or dips below its signal line. MACD lines rising above 0 may indicate a stock becoming overbought (a good time to sell before prices return to more realistic levels).

  A indication that an end to the current trend may be near occurs when the MACD diverges from the security. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.

  MFI (Money Flow Index)

  Measures the volume of money flowing in and out of a security, According to Stephen Achelis: "Look for divergence between the indicator and the price action. If the price trends higher and the MFI trends lower (or vice versa), a reversal may be imminent. Look for market tops to occur when the MFI is above 80. Look for market bottoms to occur when the MFI is below 20."

  TrimTabs tracks the daily cash flows of roughly 500 mutual funds in 90 mutual fund families that collectively control about $1 of about every $7 invested in U.S. stock funds.
  

  Price ROC (Rate of Change)

  This illustrates the difference between the current price and the price x-time periods ago. The difference can be displayed in either points or as a percentage. According to Stephen Achelis: "The 12-day ROC is an excellent short- to intermediate-term overbought/oversold indicator. The higher the ROC, the more overbought the security; the lower the ROC, the more likely a rally. However, as with all overbought/over-sold indicators, it is prudent to wait for the market to begin to correct (i.e., turn up or down) before placing your trade. A market that appears overbought may remain overbought for some time. In fact, extremely overbought/oversold readings usually imply a continuation of the current trend. The 12-day ROC tends to be very cyclical, oscillating back and forth in a fairly regular cycle. Often, price changes can be anticipated by studying the previous cycles of the ROC and relating the previous cycles to the current market."

  Volume

  Represents the number of shares transacted for the price period. For example, if A sells 100 shares to B, the volume is 100 shares.

  Volume +MA

  Represents the number of shares transacted every day. In addition, a 13-day volume EMA overlay is used to provide additional information on the volume trend.

  Williams %R

  The Williams %R indicator seeks to measure overbought/oversold levels. According to Stephen Achelis: "Readings in the range of 80 to 100% indicate that the security is oversold while readings in the 0 to 20% range suggest that it is overbought."

  Parabolic SAR

  Also known as the "Parabolic Time/Price System," this indicator is used to set trailing price stops and is usually referred to as the "SAR" (stop-and-reversal). Stephen Aechlis says: "The Parabolic SAR provides excellent exit points. You should close long positions when the price falls below the SAR and close short positions when the price rises above the SAR. If you are long (i.e., the price is above the SAR), the SAR will move up every day, regardless of the direction the price is moving. The amount the SAR moves up depends on the amount that prices move."

  A gray triangle indicates the date of historical splits events for a stock.

P.N. Haurlan was the first to use EMAs for analyzing the stock market in the 1960s.

Market strategist Abby Joseph Cohen of Goldman, Sachs.

• fundsinteractive.com is for traders who dart in and out of mutual funds

  Books

  Day Trading books at Day Trading World

  Among the Wiley Online Trading for a Living series:
  Electronic Day Trading to Win by Bob Baird & Craig McBurney (New York: John Wiley & Sons, Inc. (US), 1999) attempts to be a humorous introduction, featuring cartoons. A sample:

  Day Trading On the Edge : A Look-before-you-leap Guide to Extreme Trading by Masonson, Leslie N. (New York AMACOM Books, 2001)

  Trading On Momentum : Advanced Techiques for High-percentage Day Trading by Ken Wolff, Chris Schumacher, Jeff Tappan (of mtrader.com) (New York McGraw-Hill Professional, 2002)
  Technical Charting for Profits - Wiley Online Trading for a Living by Mark L. Larson (New York John Wiley & Sons, Inc. (US), 2001)
  Financial Freedom Through Electronic Day Trading by Van K. Tharp; Brian June (New York McGraw-Hill Professional, 2001)
  The Market Maker's Edge : Day Trading Tactics From a Wall Street Insider by Lukeman, Joshua. (New York McGraw-Hill Professional, 2000)
  Tools and Tactics for the Master Day Trader : Battle-tested Techniques for Day, Swing, and Position Traders by Velez, Oliver L.; Capra, Greg. (New York McGraw-Hill Professional, 2000)
  How to Get Started Day Trading Futures, Options, and Indicies by Katz, Jeffrey Owen.; McCormick, Donna L. (New York McGraw-Hill Professional, 2000)
  The Undergroundtrader.com Guide to Electronic Trading : Day Trading Techniques of a Master Guerrilla Trader by Yu, Jea. (New York McGraw-Hill Professional, 2000)
  The Day Trader's Guide to Technical Analysis : How to Use Chart Patterns, Level II and Time of Sales to Profit in Electronic Markets by Lewis, Chris. (New York McGraw-Hill Professional, 2000)

  By Jacob Bernstein: (not Jake Bernstein)
  The Compleat Guide to Day Trading Stocks (New York McGraw-Hill Professional, 2000)
  The Compleat Day-trader: Trading Systems, Strategies, Timing Indicators, and Analytical Methods (New York McGraw-Hill Professional, 1995)
  The Compleat Day Trader (McGrawHill, 1995) focuses on technical analysis of the commodities markets.

  The Master Swing Trader: Tools and Techniques to Profit Form Outstanding Short-term Trading Opportunities by Alan S. Farley (New York McGraw-Hill Professional, 2000)
  How to Get Started in Electronic Day Trading : Everything You Need to Know to Play Wall Street's Hottest Game! by David S. Nassar (New York McGraw-Hill Professional, 1999)
  Digital Day Trading : Moving From One Winning Stock Position to the Next by Howard Abell (Chicago, Ill Dearborn, A Kaplan Professional Company, 1999)
  Strategies for the Online Day Trader : Advanced Trading Techniques for Online Profits by Gonzalez, Fernando.; Rhee, William (New York, N.Y. McGraw-Hill Professional, 1999)
  Understanding Electronic Day Trading : Every Investor's Guide to Wall Street's Hottest Phenomenon! by Troy, Carol A. (New York, N.Y. McGraw-Hill Professional, 1999)
  The Complete Idiot's Guide to Day Trading Like a Pro by Sander, Jennifer Basye. (New York Alpha Books, 1999)
  Day Trade Online by Farrell, Christopher A. (New York John Wiley & Sons, Inc. (US), 1999)
  DeMark On Day Trading Options : Using Options to Cash in On the Day Trading Phenomenon by DeMark, Thomas R. (New York McGraw-Hill Professional, 1999)

  By Marc. Friedfertig & George West:
  The Electronic Day Trader (New York McGraw-Hill Professional, 1998) provides detailed coverage of inner market dynamics, rules, and day-trading strategies.
  Electronic Day Traders' Secrets : Learn From the Best of the Best Day Traders (New York McGraw-Hill Professional, 1999)

Trading Tools

Find the best Retail MMF rates from ibcdata.com

Think or Swim offers an AJAX web platform with fast execution times with low fees (especially important since they are favored by futures traders) and free training. What's not to like?

At the low end is the $10/month Livecharts Basic service from Quote.com, which gives quote data plus a lot of market analysis, commentary, and company data. through finance.lycos

$59/mo. VectorVest.com each day analyzes and assigns VST-Vectors to over 8,000 individual stocks. The program rates each stock with a vector consisting of 3-forces, each to a scale of 0.00 to 2.00:

• When Relative Value falls below 1.00, it's better to buy AAA Corporate Bonds.
• When Relative Safety is above 1.00 reflects low debt to equity ratios, above average price stability, and a propensity to rise in price.
• Relative Timing above 1.00 reflects rising stock price.
Dr. Bart A. DiLiddo's maintained his VectorVest Composite index (VVC) of stocks since April 1991. The program makes Buy, Sell, Hold recommendations with a suggested Stop-Price.

If you rely on stop orders, you would sell at the worst possible (lowest) price because due to volatility there is a high chance of an issue just touching a price.

Don't submit a market buy (at open price), but at least a few minutes after the market opens. This can be done using the thinkorswim platform.

297.50/yr TC2000 displays Indexes live and from a CD-ROM databank. The product includes training by father and son team Don and Peter Worden plus others on ther TCNet.

The Wordens created a proprietary technical graph they call Balance of Power (BOP). Green is used to illustrate the extent of 'systematic' accumulation (buying) with rising prices. Red is used to illustrate the extent of 'systematic' distribution (selling) with lowering prices. Yellow or Blue is used to illustrate neutral ("flat") trading activity.

After a period of heavy selling (illustrated by red bars), prices may reach a temporary low -- a "selling climax" when most or all selling pressure is temporarily exhausted. This can and many times will soon result in a 'technical bounce'.

To get E-Mini futures in real time, traders pay $10 a month to the CME (Chicago Mercantile Exchange).

More serious trader use real time charting packages such as Qcharts or eSignal.

Real-time stock quotes start at $79/mo. for the basics with Data Broadcasting Company's eSignal (formerly StockEdge/Signal Online) offers training and wireless alerts for technical charting of options, futures and foreign markets. It works with their
Equis MetaStock system "the world's most popular technical analysis software."

DBC's Quotrek system sends FM band signals to a device resembling a walkie talkie, with an LCD display. You can customize quote feeds to give you a personal real-time ticker for stocks you watch. Alerts and alarms of all sorts can be set. The battery lasts 8 hours. The one-time receiver charge is $295 plus a $125 setup and connect fee. The basic monthly charge is $90.

Carl Swenlin's Decision Point has tutorials and breath charts going back to 1926.

$49.95/mo. MarketEdge provides technical analysis of 5,000+ stocks.

The-Gears focuses on sell signals.

$150/yr Market Radar predicts stocks about to make significant moves. 30 day free trial.

PC Quote is very similar in description and price to StockEdge/Signal.

S&P Comstock offers to consumers its vernerable professional product

DTNiQ, at under $1,500/year, prepaid, is the price leader. But no wireless feeds and not as many newswire or research/ commentary.

Mobeo (800-328-0870) sends quotes and faxes to pagers with a full keyboard, so it claims better geographic coverage and faster response. all for $399 + $25 to get started, plus $125 a month and modest exchange fees. Mobeo waives the initial $399 charge if you buy a 2-year subscription.

Omega Research claims to be the "world leader in strategy backtesting,"a backbone of statistical analysis. You can acquire the package as part of a suite that includes direct-access stock and option trading-an "integrated" trading platform.

Elite Trader specializes in training: free and paid tutorials to a complete training course, a store of books, software, and PC hardware.

Teachdaq offers five-days of hands-on simulations for $1,000 in New York.

DTrade SyeNet offers "an online community for active stock day traders and investors." It features a Day Trader's Virtual Trading Room, Information Center with a Tutorial, Toolbox, Best Practices reference, and market-simulations.

E-Trade starts you with $100,000 to invest in your trading game. Winners get $1,000 in real money.

Daytraders.com for the serious day trader is probably the largest chat room.