It's perilous to short the market. To paraphrase Keynes, the market can be irrational longer than you can remain solvent.
Stock prices move (appreciate or fall) only when the stock (or conditions around the stock)
change in an unexpected way,
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.
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
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:
$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.”
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.
NewslettersThe Hulbert Financial Digest tracks 165 investment 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:
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.
Chinese calligraphy for "Chaos"
Every crisis carries two elements, danger and opportunity. No matter how difficult the circumstances, no matter how dangerous the situation.... At the heart of each crisis lies a tremendous opportunity.
Great Blessings lie ahead for the one who knows the secret of finding the opportunity within each crisis.
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.
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.
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
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.
An at-the-money option is at the current price.
The bid price is what someone is willing to buy an issue for you to sell.
The inside price is the best bid and best offer price currently available in the market.
A market maker joins the bid When he enters a bid at the current inside, or high-bid level.
Put/Call RatioThe "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).
PREMCNBC 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.
If a stock moved 1% daily it woud be a 16% Volatility.
Steve Meisinger SyntheticCME 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.
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.
Have at least 20 days before the expiration date and one strike out. Risk increases the closer you get to the expiration date.
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.
Breath of Advances vs. DeclinesBreath 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.
TRINThe 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:
High TRIN readings over two consecutive days is bullish.
Volatility Indexes VIX & VXNThe 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.
Moving AveragesIn 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)
Market strategist Abby Joseph Cohen of Goldman, Sachs.
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)
By Marc. Friedfertig & George West:
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?
$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:
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.
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)
training and wireless alerts for technical charting
of options, futures and foreign markets.
It works with their
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.
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.
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