WSW – Sunday, October 11, 2009

If you are expecting global warming stuff, it’s here:

https://chiefio.wordpress.com/category/agw-and-gistemp-issues/

With a more specific look at GIStemp here:

https://chiefio.wordpress.com/gistemp/

This posting is about the other thing I do, looking at investment markets.

Daily Notes

None yet.

Wall Street Week – Sunday, October 11, 2009

Remember that on any stock or ticker I say I’m looking at, you don’t just go buy it. You wait for a stock entry indication to get the best possible entry into the position.

Well, we are back “off to the races”. This is the most frequent occurance when you hit the moving average stack. About one in 3 or one in 4 you punch through lower in a “correction” rather than a “dip”. The best bet is for the rebound, but you are ready for a “sell out” if the dip turns into a correction. In any case, we ‘resolved to the upside’. Good enough.

Next “nervous time” ought to be at options expiration this next Friday, Oct 16. These folks have a nice readable calendar

Last week I said:

“I managed to buy some small positions in a couple of stocks and ETFs near the top of this run. Fairly common for me. One of my failings is impatience. I can’t quite just sit it out and wait for a clean “dip” entry indication. So I buy a small “marker” position. Having scratched that itch, I can then wait for a better entry to buy more. That is a personal coping behaviour that you need not use if you have more self control ;-)”

Well, on the upturn I was filled out on the marker positions into full positions. I’m now “all in” for the ride. At the next flattening / topping trend, I’ll sell my trades and hold the ‘core’ and repeat the whole thing again. Such is the life of a ‘trader’ as compared to the investor.

I also bought some GLD (Gold ETF ) and some GDX (Gold miners ETF) largely just due to the hype in the news about inflation. I rode gold up from about $400 to about $900 then stepped out for other things during the flat time between $900 – $1000 or so. I’m probably buying the hype at exactly the wrong time (so I only bought a ‘tiny’). My “Ads promoting gold means sell gold” indicator says it is more of a top than a bottom, but we’ll see. Panic and herd behaviour can extend a topping run quite a ways. (The indicator is rather simple. “Gold Houses” trade gold. When they get a ton of orders to “sell gold” and not enough buyers, they advertize gold for sale. When you start getting a LOT of ads for “Buy gold now and a great investment” on the TV, that is a pretty good indicator that they have an imbalanced order book and need to “fill out the buy side”… i.e. time to sell.) So relalize I’m scratching an itch with a tiny here, not making a statement with my Gold buy…

Last posting is here:
https://chiefio.wordpress.com/2009/10/04/wsw-sunday-october-4-2009/

In the last weeks we have been watching an interesting potential “bottom fish” and showed the chart. I’ve been teaching you how to time the entry into a bottom fish and how to trade them. We saw it above the SMA stack, we saw it return to the stack at our buy target, and now we see it moving away again to the high side. I hope this has been instructive (and profitable). Bottom fish can be slow to get started, but once the run begins, you can make money fast. So patience up front then wait for the run and don’t cash out too early.

This ticker, BTW, is a “thin stock” so limit orders only, please… Make the market maker come to you.

Consolidated Tomoka CTO 3 Year Chart

Consolidated Tomoka CTO 3 Year Chart

Two weeks ago I said:

“It looks to me like a $35 to $37 price for a good entry on a pull back, but let the SMA stack be your guide.”

Last week I said:

“CTO is now at $37.36 and dipped to $36.01 at the low. You probably have about a week of mostly sideways motion before it starts up, based on the behaviour last time it was at the SMA stack. “

Well, it didn’t give you that long. Shot up in the next two days and now it’s at $39.80 in a rising trend. Why “buy if touched” orders are your friend in this kind of stock. If you missed it, don’t worry, there will be many ‘return to SMA stack’ events in this stock over the next few months and years. It’s better to buy the NEXT dip than to get in at a local top. Look back, the present price is almost exactly where it was 2 months ago and way below what it was at the peak 2 weeks ago. Yeah, you could “hop on now” and get off at the next peak (that ought to be about 1 month from now) but the timing of the exit has to be better if you muffed the timing of the entry… For long term investing, this is still a great entry in a 7 year recovery.

BTW, “bottom fishing” is one of the harder styles of trading to do. It appeals to some folks, not so much to others. It takes patience, just like catching a catfish. Other folks like the “action” of trout or bass. For them, the “momentum trade” is better. Find the action and ride it now, fast, and sometimes short term. That is the other major style I trade.

So as we see one thing doing a slow climb off the bottom, realize that the way it is traded is similar, but a bit different in duration, than trading something on a rocket ride… Start with one of the styles. Get good at it and get comfortable. Then add the second one. One of the “hard bits” about trading is to remember that you need to change styles with the market. Sometimes it is full of bottom fish. Sometimes only trout. (And sometimes everything is going belly up and the best you can do is bet on dead fish… that’s the short sellers market we just came through). So don’t become a “Poor Johnny One Note” who can only do one thing and wonders why sometimes you lose. Match your style to what the market gives you. You can win in every market type, if you stay flexible.

The Long Term Context

I’m changing our long term chart this week. This is an example of how to get shorter term information out of a longer term chart. In this case, we are using the NYSE composite (all stocks and ETFs traded on the New York Stock Exchange) since it has volume that is more broadly based. Over the last 10 years, the SPY ETF has had lots of volume growth from it, as a product, being accepted. That makes it hard to use volume as a long term indicator of markets (as distict from it as a product). In that case, the NYSE volume is more indicative. I’ve also put on this chart the PSAR (those red dots near price). They tell you where to put a stop loss order or where to think about bailing out if the prices punch through that point. Keep in mind, we are now in a 7 or 8 year bull run market. But it will not be all straight up all the time…

10 Years, NYSE

10 years, NYSE

OK, look first at volume. We have red bars and we have a sideways red line. The sideways red line in a running average of past weeks. Notice that recently volume is below that red line. We have a white blob under the line and above volume. I think of those as “spooky eyes”. When you see two of them, it means volume is falling off and it is time to start being a bit more worried than usual. Take a look at the end of ‘08 where volume has two white blobs with a small spike between them. When you see those “volume eyes” looking at you, go to cash and take a vacation…

Next, look at Slow Stochastic. It is pointed down and inflected off the top. This is a “short term trade” indicator being used on very long term data. What it is showing here is a weakening trend. Not too surprising, given that it has been an incredibly fast run up off the bottom.

The two together argue for a weak market in front of us. Still long term up, but it may need to plate sideways for a while and “consolidate”. Don’t be surprised if we dip back to that 200 day (40 week) SMA line or wait for it to come up to prices. I’ll be trading the ripples in any case. Long term investors can add to stocks on those dips and droops.

Also notice MACD. The blue line has gone flat. This usually means a trend that is going to continue at the present (flatter but still climbing) rate. If it turns down to cross over the red, it’s a ‘get out for a while’ signal. So we have another vote for slower perhaps with a dip “soon”. But “soon” on a 10 year chart can be 3 months away, so we trade on the 1 year daily interval chart, but more cautiously. We are “very long term good”, but we have “medium term softening”, in a “right now rising” trend. All in, but ready to bail out if it turns on us (but also ready to hop right back in when the downturn weakens, should it happen. We don’t want to miss that long term good…)

Running ETFs

This is a new section. I have a new tool that searches chart patterns and finds those that I describe to it as “interesting”. For this section, “interesting” is those that have price over 25 day Simple Moving Average over 50 SMA over 75 SMA. Basically, those that are in a steady up run.

This is most likely to continue, but will at some point hit a “dip” and fall off this search, only to return at the next rise. Realize that these have not been filtered in any way for the quality of the fund, nor for the volume traded, nor for what they hold. Each ticker must be looked at for those qualities before buying anything. This is just a way to find “things of interest” to explore. So what is on the top of the list?

See: http://finance.yahoo.com/q/pr?s=MZN

Skipping down, I bought some of PCY which is the Powershares Emerging Market Soverign Dept fund.

All of these are in a nice chart pattern, by definition of the tool. Mostly you just need to screen them for your particular needs, and for any “too thin” with too little volume to be of interest (i.e. you want over 10,000 shares / day trading). TZD, for example, is an iShares “Target Date 2010 Index fund” that had zero volume Friday a week ago, and not much before that. Complex product not easily understood and likely going to be closed if these kinds of sales are all it can do. Why buy it if it might be closed and you are back in cash against your will?

You also might need to look for any funds sponsored by a “flakey” company, but with the financial meltdown we’ve been through, these survivors ought to be OK.

BNZ, The New Zealand currency, the Kiwi is still rising nicely. I’ve bought some of NZT, New Zealand Telecom, as a way to get exposure into New Zealand even though the NZT chart is a bit flat right now. And EWA, Australia, is ranking high.

I like this tool. It finds interesting things that are relatively easy to evaluate.

   MZN 94
   PCY 74
   IHE 65
   RHS 64
   XPH 64
   BNZ 63
   DNH 63
   EWA 63
   PAF 63
   WIP 63
   EMB 57
   TZD 54
   MZO 50
   GVI 45
   IPE 45
   AGG 44
   HYD 44
   BWZ 43
   DBR 43
  IGOV 43
   BSV 42
   MBB 42
   KXI 39
   THD 39
   PZT 38
   VDC 38
   XLP 38
   PZA 33
  ISHG 32
   PWZ 30
   DEM 28
   DGS 28
    EU 28
   EWT 28
   TIP 28
   BRF 27
   EPI 27
   EWX 27
   FXA 27
   PIN 27
   QAI 27
   VWO 27
  AAXJ 26
  ADRE 26
   BIK 26
   BZF 26
   DBV 26
   DEF 26
   EDC 26

You can explore the rest on your own, if you like.

OOTUS – Out Of The U.S.

The big news here was that Brazil has let it be known that they may draw on their IMF account to buy US Dollars. This is a double edged sword…

It says on the one hand that the Brazillan currancy has been hot hot hot; and would be expected to stay that way. It also says that Brazil knows this and is looking to dump Real on the market to try and prop up the dollar. Now we are playing “Truth Or Dare”…

If enough central bankers all decide to support the dollar, the OOTUS trade can take a short term hit. But if they fail to reverse the “reality on the ground” of the U.S. Congress spending so much as to make a Drunken Sailor look prudent and putting it all on the Chinese Credit Card, well, the US Dollar is very long term “toast”. So we have a dilema. Are you short term or long?

BTW, betting against the Bank of England when it tried to defend the British Pound is how George Soros made his bones. He basically broke the bank of England. I can admire his cleverness and guts in that trade, even if I think his politics are a bit broken. So playing “Truth or Dare” with the central bankers can be very lucrative.

I’ve moved a bit of my holdings into EPP (Asia without Japan) and will look for a bit more “non-Brazil”, rather than raising my 1/2 a Brazil position into a full Brazil position. But the record of central banks proping up currencies is fairly dismal. They try, and it works for a couple of weeks, then in fails. Mostly expect more volatility in the Real vs the US$ as central banks slam the money levers back and forth.

In the long term, the Laws Of Economics are not negotiable.

In the short term, central banks can be stupid and do political things.

When in doubt, hold hard assets.

And what we saw in response to this was a spike in gold buying… prudent or not is something you get to decide…

FWIW, the smaller central banks usually don’t indulge in these games. So the minor markets may be more stable as currency plays. Those central banks focus on their own currency and tend to not think that they can move the dollar. New Zealand or Korea, for example.

See the racing stocks tab for currencies and for foreign emerging stock markets for the latest moves.

If you are in England, put your money in anything else. The pound is in free fall. Even the Mexican Peso has taken off in comparison.

We do see the end of week pop of the dollar as a “droop” at the end of all the other lines. Don’t expect it to last, though. The same “return to the SMA stack” rules hold for currencies.

I still like Indonesia and bought a little bit as way to see if the “tool” that identified it is working well enough to trade. This is a personal failing. I just pay more attention to things I own and I’ll only do the homework if I have some “skin in the game”… Not an ideal “entry” but at least now, with my “tiny”, I’ll be paying attention as I look to add more “on the dip” to the SMA stack.

Indonesia Fund 1 Year Chart

Indonesia Fund 1 Year Chart

This chart compares FXI – China 25 big stocks, EWZ – Brazil, EWO – Austria, EPI – Wisdom Tree India fund, and the Indonesia fund.

What I said last week still holds”

“In this roll down of the market, all three of IDX, EWZ, and EPI have held up nicely. I’ll be rolling more of my money into them, and less into some of the others. I’m especially looking at lighter positions in China.”

Though with a bit more in EWO too, and a bit lighter in China and EWZ (maybe – every time I “lighten” my Brazil holdings, I regret it….)

VIX the Volatility Index

The chart of VIX – the Volatility Index.

We had the “blip up” at the dip, now we’re headed for dead low in the run up. Ok, no news here. Hang on, make money, and start figuring out what stop loss orders to enter.

VIX  - Volatility Index (not a ticker, you can't trade it)
VXX - Short term VIX futures ETN (a ticker you can trade)
VXZ - Medium term VIX futures ETN (a ticker you can trade)
FXY  Japanese Yen
SH  "Short" sell of SPY
SPY  S&P 500 benchmark

The Dollar

Dollar Trade -Down - back on

Dollar Trade -Down - back on

Right now, we have a “failure to advance” position in the dollar-down trade. We have two peaks of equal hight at the far right. If the dollar does not fall enough to punch through that point, look to step out of any ‘dollar down’ bets.

Also, on the RSI, we have this peak being far lower than the last peak. That usually means a trade is “ending soon”.

OK, the Dollar has taken a very big beating and may be due of a rest at present levels. I would not take that as a sign to be FOR the Dollar. Just neutral “real soon now”.

So I won’t worry quite so much about holding dollars for a week or two, but just don’t think that Congress can spend a few $Trillion on car companies and banks, and a few more $Trillion on “stimulus” and “healthcare” (meaning socialized medicine) and have no long term consequences.

FXY, the Japanese Yen, is a safe place to park your money followed closely by the Aussy FXA and the Swiss Franc FXF (and I’ve taken the Real off the list until we see what games their central bank wants to play). Dropping against the dollar is the British Pound, FXB.

Ideas of the Week

I’m “all in” at this point, so no ideas yet. Just protecting gains at they happen. The RIMM “friend of the market maker” trade is “in the money” so I’ll exit it at some point. It’s a short term trade idea only at this point.

I’m also back into RCL as a trade, so I need to think about how long to hold it, too.

What does the 10 day hourly chart say is happening now?

The charts on this posting are very large. On a Mac with Safari, “CTRL” and a mouse click lets you open them in another window for better viewing. Other browsers, YMMV…

One minor note, before we drop to the 10 day, realize that on the 10 year we’ve got a firm “buy” signal. The crash is over, and for long term investors, this is a “bottom” on a decade scale. You can still improve your performance with shorter term trades and calling an entry to the day or month rather than to the year, but if you are from the “bonds 3 years – stocks 7 ” economic cycle trade, it’s time to go shopping for stocks.

Here’s a 10 day houly chart of the Dow 30 Industrials (DIA), the S&P 500 (SPY), the Nasdaq tech companies (QQQQ), the Russel 2000 (RUT), and both a Brazil fund (EWZ) and an Australia fund (EWA). It also has a ‘short fund’ (SH) on the chart so you can see what being short this market is doing right now. We also have EWO, an emerging Europe Austria fund, EWW for Mexico and IIF for India.

10 Day Hourly Interval Broad Market

10 Day Hourly Interval Broad Market

This is a live chart, so my comments will describe how it is now, but in a week it will be showing new data and a new week. Since I think it’s more important to be in touch with what the market is doing NOW than to preserve the historical chart, this is, IMHO, a reasonble choice. Just don’t be surprised if the chart I describe is not the one you see a few weeks from now!

We had a great run this week, with even Mexico EWW taking off. The “usual suspects” of EWZ, EWA, and EWO are running nicely. RSI is near 80, which usually portends weakness in the next few days, but with MACD dead sidways, it may be a gentle protracted run to the upside with only minor dips.

Other Asset Classes

The 6 month asset class race:

Asset Class Race

Asset Class Race


SPY  S & P 500 US stocks
GLD  Gold
EEM  Emerging Markets
FXY  Japanese Yen
JJC  Copper
SHY  Short term bonds 1-3 year
USO  U.S. Oil
DBA  Agricultural basket
SLV  Silver
WOOD  Wood / Timber

Wood has recovered from it’s dip nicely (I’m still holding PCL for a long term wood demand recovery). Silver did a rocket ride out of it’s dip.

Last week I said:

OK, make a shopping list of “stuff” you wanted that had run up too much to buy in. Watch the copper stocks (PCU, FCX) and the silver play SLW and SLV for entries “soon”.

Hope you did that. I didn’t… (I was too busy buying other things. I’d have made nice money if I’d followed my own advice, but I was making nice money elsewhere. Decisions decisions…)

So what happened in the Tech Market relative to world markets?

Speaking of elsewhere, I’m in the “top three” on this chart. I’ve also started trading the QQQQ based on Slow Stochastic and MACD to test a potential “automated trade” theory.

Recent months - A Tale of Two Markets

Recent months - A Tale of Two Markets


QQQQ  Nasdaq 100 mostly Tech companies
DIA  Dow Jones 30 Industrials
SPY  S & P 500 largest companies in the U.S.A.
MDY  Midcap  (Middle sized in terms of market capitalization)
RUT  Russel 2000 - a collection of 2000 companies from small to large.
EWZ  Brazil fund
EWA  Australia fund
EWO  Austria fund
EWW  Mexico fund

Last week I said:

“Rolled over more or less right on cue. MACD looks like a fairly reliable trade indicator for the QQQQ ticker. Buy and sell on crossovers. Slow Stochastic ought to cross over first as the ‘set the trigger’, then on MACD make the entry.”

And it has rolled back, more or less right on cue. So I’m doing a “put buy if touched in place on Slow Stochastic at a bottom, and then a “stop loss” in place after MACD crosses to the upside and Slow Stochastic shows clear “top run” behaviour. We’ll see how it works. So far, so good.

Were Bonds a good idea?

OK, lets take a peak at the Bonds Race.

Bonds, generally, tanked. I’ve added WIP (World Inflation Protected Securities) and PCY to this chart. “The ETF Tool” identified them last week. I think we can see why… You know, I think I’m going to like that tool… And I’ll likely buy a bit of WIP next week.

What sectors won this week?

10 Best Performing Industries

17.24%  DJ US Platinum & Precious Metals In...
13.65%  DJ US Coal Index
12.87%   DJ US Nonferrous Metals Index
12.59%  DJ US Mining Index
11.41%  DJ US Gold Mining Index
11.30%  DJ US Tires Index
11.24%  DJ US Aluminum Index
10.92%  DJ US Full Line Insurance Index
 0.73%   DJ US Basic Resources Index
10.18%  DJ US Pipelines Index

Ok, the “hunker down consumer staples ended” (it is the usual “alternate” trade in a dip) and we’ve headed into a mix of “dollar is trash” and “industrial recovery” mix. At least now you see why I was building a position in platinum and paladium miners ;-) We also have coal, metals and mining with basic resources. No surprise, given the theme.

The interesting “odd bits” are tires (that I identified a frew weeks back, but still have not bought… just can’t get excited about tires. Ought to, but can’t.), full line insurance (we talked about insurance a week or two back, too) and piplelines. I’m using oil trusts and my LNG tanker TGP rather than the traditional pipeline companies, but they are a great long term hold, often with good dividends.

AHD looks like a bottom fish with 6% dividend while WMB is in a shallow run up with a 2% dividend. I still like TGP better. Rising nicely but still with a 8.8% dividend and with long term (25 year to 30 year) contracts, pretty secure too.

Remember, you can click on the link in the title of this section to get the list of sectors for this week. You can change the time period to 1 month, 3 months, or a year. And, you can click on any given sector to see what stocks are inside that sector. Just pick one, or race them to see what you like.

What Is Our Context

Let’s look at the S&P 500 largest stocks in America compared with some other kinds of assets; a couple of month maturity bond fund, oil, gold, Yen.

Asset Class Races

Asset Class Recent Race

SPY       The S&P 500 ETF
GLD       Gold ETF
USO       Oil ETF
FXY       Japanese Yen currency fund
SHY       1 to 3 year U.S. Treasury Bond fund
FXE       Euro currency ETF
SLV       Silver fund
BZF       Brazilian currency ETF
EWA       Austria ETF
WOOD      A wood and paper products fund

Same story we’ve seen for months now. Resource economies and non-dollar resource plays winning. Oil in a flat wobble. Euro, Yen and Gold beating the dollar, but the Brazilian Real is beating them all. Easy money.

What about Brazil? A Closer Look.

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

Gotta love Brazil. Just gotta love it. But look at the distance from the SMA stack. And look at RSI at 80. This is looking like a “blow off top” where it spikes up, then drops. Have a stop loss behind your position and ride if for all it is worth, but it’s a bit late to be adding to Brazil and it is time to start thinking about how deep the next “dip” will be …

What About Oils?


XOM  Exxon Mobil - Largest, U.S. / Global
COP  Conoco Philips - U.S.  with Russian exposure
CVX  Chevron Texaco - U.S.
PBR  Petrobras - Brazil
PCZ  Petro Canada HAS NOW MERGED WITH SU SUNCOR
BP   British Petroleum
STO  Norway
E    Eni Italy
TOT  Total - France
RDSA  Royal Dutch Shell
IMO  Imperial Oil - Canada Oil and Oil Sands
SU   Suncor - Canadian Oil Sands
SSL  Sasol - South African Synthetic Oil Company

Last week I said:

Notable exception is COP. Connoco is holding a lot of natural gas. Someone is betting nat gas is going up… IMHO.

And COP is on the top of this chart, up 11% on the week. Nice. Looks like the oils are waking up a bit. It would be reasonable to race them against other proposed buys and “pick the winner”. Right now, I’d expect COP to stay in the lead.

Some Near Oil and Oil Related Comparisions

.

Not much to see here. A bit scrambled. CZZ wobbling sideways. EWZ and the Real rising. No real trend, probably since oil has been sideways. PBR still acting nicely since they found a few billion barrels of oil.

The REITS race – Real Estate Investment Trusts


PEI  Pennsylvania Real Estate - Mall REIT
VTR  Ventas - sr. care, nursing homes, hospitals
PSA  Public Storage - junk storage units
BXP  Boston Properties - office REIT on BosWash corridor  
HCN  Health Care REIT -  extended care, senior care, medical offices
HCP  Health Care Properties - ex. care, senior living, Dr. offices
PCL  Plum Creek Timber - lumber and trees REIT
SPY  S & P 500 broad stock market benchmark
RPT  Ramco Mall REIT
PLD  Prologis - logistics 

Nice slow rising bottom fish. I think there is more money to be made elsewhere, but “buy a tiny” and start accumulating good properties at this bottom.

The REITS have a decade long recovery in front of them. Still plenty of time. Just check the “coverage ratio” on their debt and make sure you are well diversified. (i.e. 3 or 4 of them, not just one, OK?)

Conclusions and Likely Actions

All in. Will roll a trade or two, but mostly it’s “watchful waiting” for the top signals.

Stock Indicators – what and how


If all this talk of indicators is leaving you wondering what the heck I’m talking about, hit the link in the heading of this section and there is a bit of an explanation.

Click for Disclaimers, Disclosures, and Where To Get Charts

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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3 Responses to WSW – Sunday, October 11, 2009

  1. Harold Vance says:

    E.M., I found your blog at The Air Vent. Your analysis of the temperature data was fascinating. Nice work!

    btw, if you like to follow the VIX and the NYSE, you might also enjoy checking out $BPNYA (the NYSE bullish percent index) at stockcharts.com, which incorporates a little of both. The NYSE bullish percent index is a percentage of the number of stocks in the NYSE universe that have bullish point & figure chart formations. imho, it’s one of the simplest indicators of sentiment out there. I use it to determine the emotional state of the market and to measure bullishness and bearishness.

    The reason that I am writing is that the NYSE BPI hit a 20-year low in October 2008, and then last month, it rebounded to a 20-year high. It was a classic yin and yang. Extreme oversold state to extreme overbought state. Both readings were outliers in every sense of the word. (They may have been all-time records for all I know, but there is only 20 years worth of data at the moment.)

    To see 20 years of data for the NYSE BPI, dial up a point & figure chart for the symbol $BPNYA at stockcharts (it’s free). Then, click the chart type “Text” hyperlink. Last, check the “Wide Chart” box and click the “Update Chart” button. This will show 20 years worth of data.

    The peaks and valleys of the NYSE BPI tend to mark the beginnings and ends of secular phases. This indicator doesn’t have any predictive value, but it does convey overall market sentiment in its purest state.

    There are also bullish percent indicators for the usual market indexes and industry sectors that are also fun to watch.

    (I tend to prefer point & figure charts over candlestick charts as the p&f charts automatically filter noise over time. Identifying breakouts is something of a cinch. The trends can also be stored in a database and analyzed like any other data set. All that are needed are access to end of day price data (high, low and close) and a good database/application development tool.)

  2. e.m.smith says:

    @Harold Vance

    Thanks!

    I’ll take a look at the BPNYA, sounds interesting. Oh, and if you have a pointer to public / free PnF charts somewhere, I’m always open to trying new tools!

  3. Harold Vance says:

    The only places that I know that offer p&f charts are stockcharts.com, Investor’s Intelligence and Dorsey Wright. I think that Michael Burke of Investor’s Intelligence invented the BPI. (He is a great technician.) The p&f charts at stockcharts.com are free. They have text and graphical versions. I’m not pumping their service although I have subscribed to it in the past.

    The X axis on the p&f chart does not measure equal increments of time. Rather, it measures when a trend begins and ends. A single point on the X axis (a column of Xs or Os) can represent a trend that lasts for years, months or days.

    Bear markets tend to be more volatile than bull markets with a few exceptions (1998 comes to mind). It is possible to casually(!) test this hypothesis by counting the trends on a major index such as the S&P 500 or the DJIA. The price action from 2004 to 2007 was pretty tight, whereas the price action in 2008 was horrendously sloppy. Counting the number, duration and magnitude of trends is another way to ascertain the weather so to speak.

    I’m not saying that p&f charts have predictive value. I am saying that these charts can help one to identify market phases in terms of both volatility AND sentiment. And they provide an elegant if simple framework for spotting breakouts and breakdowns.

    This link should display 20 years of data for the NYSE BPI. You may have to copy/paste it:

    http://stockcharts.com/webcgi/Pnf.asp?S=$BPNYA&E=on&N=A&C=2

    It is hard to believe that the BPI fell to such low levels in 2008. Sentiment does not get any blacker for such a broad spectrum of equities. We will probably not see another value this low in our lifetimes unless the bear has more surprises in store. (Actually, the market could post a lower low but I would be surprised if the BPI followed suit. The cat (or bear?) is already out of the bag.)

    Oh, and the bullish percent index for the S&P 500 ($BPSPX) hit 1.6% in October 2008. (1.6% of 500 = 8 bullish stocks out of 500.) Fear just doesn’t get any rawer than that.

    Thanks again for your excellent analysis of the temps.

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