Why Mr Trend is your friend...

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holycow

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Friday, April 01, 2005 - 11:21 pm:

Whoa... gotta say I have been reading a lot of trendy posts lately, mostly it's centred on Mr.Trend, because he is every chartist's friend, so they said. And hence they said, because he is a friend therefore if a trend is trending nicely, then it must be true, if not, it must have some grain of truth...

Is it? Sometimes I think, I mean I THINK, that means others may not agree, over long trend, that is, old trend, or old Mr. Trend may be too old to make a good friend to your trend.

Can you see why this is so? If your friend, Mr. Trend is more than 20 years old, sometimes he can be forgetful. Sometimes, people forget him. Sometimes, things change, and change may be a little too much to make any trending reason to be "obsolete", especially with regard to human emotion or psychology that is driven by Mr. Greed and Mr. Fear.

You see, people can be very forgetful sometimes. Try remember how fearful (ok somewhat fearful) people had been just about three days ago... I can still remember how quiet it was in this place; and how "lively" or "relief" this place became immediately after the close of that fateful day, where the index has stopped falling and make a quiet rebound. Now it seems hope has reigned once more and people are merrily forgetting Mr. Fear has just left the building...

The point is sometimes I wonder why drawing a line across the chart diagonally can be used as a representation of stock price support - why? Short term may be because the memory is still fresh and the pain/fear/greed is still fresh and hence there's an impression and people would still react to it.

But after 25years? Hello? Can you remember what were you wearing back in 1987 October 13? Tell me the colour of your undie! I doubt if you can remember... and this is the point - if you can't remember the colour of your undie, or the length of your hair, why would it matter to what level of the aord was back then?

Ok, assuming it is still valid after all these years, may be, how about just may be you give it a little allowance for error or mistake or simply human forgetfulness?

In stock market and TA, they say history always repeat itself, I reckon the reason this is so is because the market is about human emotions and hence when put under a similar market condition, the players tend to react consistently, hence giving rise to "historical pattern due to rewind and replay"... but by simply looking at a line or two and compare what is happening now with what has happened 25 years ago or 30 years ago or 15 years ago? I think that bow is a little too long. There is a need to build in some scepticism into taht view or it's getting a little too "zen".

In Chart reading, the only thing you can count on is the emotions of fear and greed, ie, Mr Fear and Mr Greed and their presence and their impact/effect on market players and the subsequent/resultant reaction the investors adopt/exhibit when put under through the pressures...

Anyway, time will tell. And Mr.Trend will show why he is no match to Mr Sup and Mr Res when come to actually reading what Mr. Fear and Mr Greed has done. And old Mr. Trend may need to take a more youthful outlook like becoming a baby of two springs. :-)

HC

"... if you've got a chart, I have an opinion!"

ann

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Friday, April 01, 2005 - 11:52 pm:

Here I come again HC, if you get fed up with me going blahdeblah, just tell me to nick off. Others, who shall remain nameless, do on a regular basis.

If the long term trend was purely up to the memory then I would/could only agree with your comments.

October 13 1987.... black nickers HC. Bonds brand. Now PBG. [I hold]

We are very lucky to have Incredible Charts or whatever the chosen charting system is, to give us a day-by-day description of the last twenty five years and one month.

So memory plays a very small part as far as charting is concerned.
I have found after looking at umpteen charts over some time now, short term looks just the same as long term with those sweet little stretchy support and resistance lines we can draw all over the charts.

No matter how long/short the chart, once you hit a major bottom or top or whatever. The pattern tends to react in the same way, more often than not.

I guess it is hard for me to react normally, as I got over the fear/greed thing years ago, so I have difficulty relating to crowd hysteria.

Anyway,good luck and good trading to you.

Cheers
Ann

holycow

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Saturday, April 02, 2005 - 09:09 am:

Whoa!

Ann,

I don't think I am talking about anyone in specific here, just highlighting the needs to be more sceptical when looking at very long term trend. That's all.

Here are a few points I like to share:

1) it's not what you/I/we fear or not fear that matter that much, because this is not where the money is... it's the newbies and the not so oldbies that make up bulk of the herd that the market predators are interested in.

In every major business/market cycle (like now) a new crop of such herd is carefully "nurtured" for the eventual milking and subsequent slaughter. This is how it's done and will be for a long while to come. (hence they say 95% of those who had tried in the market failed! Naturally, because they are not "cultivated" to survive the market, they are destined for the slaughtering house for fresh meat!)

If there's such thing as business cycle and market cycle (3.5-4 year according to market belief), this naturally place very long term trend in doubt - my pet theory; unless, people like to play with the K-cycle with 45 to 60 years time span. But I probably won't bother too much or will live to enjoy the end of such cycle anyway...

2 Chart data record the actual transactions and what transpired but that's about it. What makes TA is how one interprets the various chart attributes and some smart mathematical calculations to give indicative direction or oscillations of the invisibles, ie, the crowd's thinking and feeling behind such data. That's all rather subjective.

Without really having adequate supportive information (like news - mrkt news, political news, economic news, etc); the reading of charts and indicators and TA would be somewhat less effective (read: lacking timing, accuracy and precision). This is another of my pet theory - which again raises the question on long term trend where much of the "old" information is lacking.

3) "No matter how long/short the chart, once you hit a major bottom or top or whatever. The pattern tends to react in the same way, more often than not." - I agree with this. But the issue is the definition of a "major top" (or bottom) and its timing.

Is the current top a major top? I believe this is what everyone is talking about, and they are referring back to 1987 to support their "thesis".

So what makes a major top? Is there a percentage (correction) definition of a major top? Is there a time (period) factor separating a major top from a not so major top?

4) here's something I think we are definitely on the same wave length - I think black knickers is HOT! Just love it... errhh, I mean not me wearing, I like to go "nature's way" and be free.

Cheers and have a good weekend.

HC

"... if you've got a chart, I have an opinion!"

ann

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Saturday, April 02, 2005 - 04:20 pm:

Geez, what did I say to get bonked on the head with a single star. The name is Ann not jr!!!

HC did I sound sharp,wasn't meant to be? Sorry.

I NEVER get offended by anyone,[except Alexxxx who totally ignored me in ETC, you'll keep chum]. So always feel free to have a swipe at me. I do it to others on a regular basis.

As far as a major top on the All Ords or any of the market charts is concerned, I step well back and can only see any of them rising and will do until there is a more popular pastime for wealth creation.

All I see is a meandering path moving upwards.....growing upwards like trees and children do.

I take your point about "nurtured" cattle being milked and slaughtered. This is a totally contrived and unethical situation which I am hoping as the "fresh meat" get milked and slaughtered, enough will survive, bruised and battered and say, "Right ya b*st*rds, we know who you are and what and how you did it......you will keep" "You'll get got"

What's the saying....what doesn't kill you, makes you stronger.

Now HC, congratulations!! YOU WIN!!!!!!! The fellers have been trying for ages to find out what colour nickers I wear. There may be money in it, you should check it out....was there a bet on, boys??????

Cheers
Ann

msparks

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Saturday, April 02, 2005 - 05:06 pm:

Hi HC and fancy pants

I think you are going to be crushed by the weight of PL 's excellent strategy, fully endorsed by the dogalog , who is suspiciously requesting cat stephens songs to be published by his secretary ,ann who sounds like a PL sort of a long term investor, flirting with decow to make the dogalog jealous, who is i suspect a long term buy and hold sort of a guy who flutters with his pocket money for fun while the old wombat does the deep down research.

......................................................
Disclaimer
If i have upset anyone i am deeply remorseful but hey, what are ya gunna do ,bash me.

holycow

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Saturday, April 02, 2005 - 05:34 pm:

Hi Ann,

Not me. I didn't give you that single star. As a matter of fact I'd just given you a five star to balance thing up. :-)

And no, you didn't sound sharp but I thought I need to explain further my view why I think too long term trend needs careful treatment. It's more to my desire of wanting to explain everything that moves than any fault on your side, ok?

On the last point being the survivor of the slaughtering, well, I reckon if you have been around that long, you will be around for a long while, unless you decide to quit.

Cheers.

ps: on the nicker thingy, I think I will leave it at that point, imagination is running wild here... :-)

(Message edited by holycow on April 02, 2005)

HC

"... if you've got a chart, I have an opinion!"

holycow

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Saturday, April 02, 2005 - 05:38 pm:

Mark,

I agree PL always makes very good cand onvincing arguments. He's the Man who knows what he is talking about. The best year to talk to Peter was back in 2003, too bad I had not discovered IC then.

I have not checked out what this Cat Stevens thing is about. Hasn't be become a muslim with name Yusef Islam or something?

I will check.

Cheers.

HC

"... if you've got a chart, I have an opinion!"

msparks

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Saturday, April 02, 2005 - 06:26 pm:

Ah Ofcourse HC
Suggest you where a helmet for a while cause i reckon he is up to something.

Having a view on market direction is not good HC.
"Unless you are right almost all of the time"
In the very SHORT TERM, there is at best a 50 / 50 chance the stock will go UP or DOWN (or stay the same which is time wasting but the next day you get another flip).

In the long term everything has always gone up unless the stock is a "dog" and the fundamentals should have indicated this before it went bust or down and if not MM would have got you out before it hurt.

The TA may improve your entry,for example:- only buy when the stock is in an uptrend ,or only buy after a power equivolume candle, but the money management and rules of the trading system is the only thing that really matters.
The TA can give you the exit points or buy points but the "position size ,exit strategy and diversification will determine survival".
The FA can highlight a buy price and the TA can determine the timing.

Having a view on the direction of a market is not a good thing.
So called value investers like CAM, WIL ,MMA are sitting on heaps of cash as a percent of their investors money because they have a "view" the market is overvalued.
They could have made 15% or 20 % if they had invested the money they were given on startup in 10 or 15 blue chips.
OK, they MUST think the market is more overvalued now so they still cannot invest the money.
By the time the market crashs down 20% it will be at the same price, when they said it was overvalued 12 months ago.
What happens if the market stays at this level or goes higher ???
What is more of a gamble?

{What trading/investing rules/plan would set up a situation where the best return you could hope for is interest rate return.}

Thats a big bet !!!! but at least they still have there initial capital ,even though all the other investors have capital plus 15 or 20 percent.

Referring to the chart:-
What entry strategy would keep you out of this stock?
What exit strategy would see anyone get out of this stock (except a fixed profit exit).?

What i would love more than anything is to come into my office at home a couple of days a week or 20 weeks a year and make 1% on the total "wad" short term day in liquid largecap shares or indices ,picking up opportunities that are a no brainer trading.
What a lifestyle.No work, just me against the market. 6 or 8 months a year even, and 4 months off.Just pick the best times, best opportunities.

Then i think, if i could it , why doesn't everyone do it?
Because it can't be done, right HC?

Do the maths on that DJ
Say you had 3 times the annual income as the wad,what %age would you need to make in a year trading to be square with the job if you could get say 10% on the wad while working.

(Message edited by msparks on April 02, 2005)

holycow

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Saturday, April 02, 2005 - 07:33 pm:

Mark,

I believe many points in your message will be answered in "due course" and as a matter of time. It's April 2 today, the next two quarters plus a bit more will take us to October, in between there will be at least 3 time tests for ASX. I know this is quite a long time away, but if you are talking long term, this should not be a problem.

I know I am talking like weasel now because I am talking quite a long time from now, but frankly when we are talking about the general market, short term don't mean much nor hold much water. JMV here.

Without a seer's eyes I hope the market can show you and I a clearer and more decisive direction in the next few days or weeks, but that's its call. We can only hope and watch, right?

By end of October if things don't work out as I have envisaged, ie, there will be a sizable correction and price discount on most stocks - I will treat myself with a big humble pie and I promise I will turn over to a new leaf and start all over again - this time, I will listen and listen good. Meantime I will continue my short term trading with a good reserve of cash by the side.

On MM, I don't think I am disagreeing with anyone or the concept, except I am saying between MM and picking the right entry, I would probably concentrate more in the later, that doesn't mean MM is to be ignored. I have this rather simple view of exit strategy - exit when your loss is at 7% or more and I take profit if my %gain is more than 21% - ala William O'Neill's advice. (there are exception, as usual).

Let's wait and see.

Cheers.

ps: there's some view in your message I don't quite get the "full meaning", like this: "The FA can highlight a buy price and the TA can determine the timing" - do you really mean it?

And in very short term approach which I assume you know - I don't wait too long to take my profit or cut loss - both at much lower %.

HC

"... if you've got a chart, I have an opinion!"

msparks

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Sunday, April 03, 2005 - 12:56 am:

Hi HC
Thanks for all your efforts HC.
quote
"The FA can highlight a buy price and the TA can determine the timing" - do you really mean it?

Yep,I really mean it.
They all have a price based on future earnings etc and that is why the prices go up or go down.The chart doesn't make the price, the funnymentals make the price and the chart tells the story of the underlying data.
The reason you are not long now is you must be saying these shares are over priced because they cannot grow their earnings for the next 2 years.
However , a few are saying oil,resources,materials, will keep going for a couple or 20 years due to the demand from the asian countries.
Is the reason why the market is going to fall because it has gone up and it always has before OR because the earnings of companies are going to deteriorate OR are we going to have a bomb, or a currency collapse.
I reckon the big picture view is the wrong way to go HC because now you are out till October and BHP and WPL and CTX could all be $30 by then if oil and stuff keep getting scarce.

I am just putting up the other side of the argument HC to get your big black and white ears flapping about.
Perhaps PL could give you his fundamental valuations for CPU and PIF , are they over priced ? and i reckon the rush will be on Monday to get back into some of the stocks that have corrected to a better valuation.
The Bulls charging and he won't be stopped quickly unless a major event happens or someone jamms the interest rates back to 9 or 12 % but that may not hurt the resources etc.

Heres the numbers i asked for JR.
Trading your way out of a day job, start saving early.

Need 5 times salary and a 30% annual return
OR 3 times salary and 43% annual return (bit hard maybe)
Bet that makes the super look sick although draw down OK as long as there is an end in site.

holycow

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Sunday, April 03, 2005 - 10:08 am:

Mark,

At this point I disagree with you or I agree with your disagreement. But I need to correct you on this - I don't knock down or talk down the stock/market just because I am out of it. I don't believe I have this ability nor do I have this motivation. I also believe people choose to listen to what they want to believe in. Remember Elders' famous quote - " you trade your belief in the market and not the market...".

So at the end I think we each take responsibility of our decision, fair?

Responding to your other points... I have no problem with FA approach except as I have said many times before FA'ers have the habit of getting into the valuation trap at every major top of the market. At this point in time, the issue to me is not whether the valuation is fair or not; at this point, the price movement (either up or down) has become a function or a resultant sum impact of crowd sentiment plus exuberance.

It's their PERCEPTION rather than actual valuation that is driving the stock price. So when you state so confidently "They all have a price based on future earnings etc and that is why the prices go up or go down." - my immediate reaction was this statement is too absolute. There're too many assumptions made in supporting this claim.

The keyword is "FUTURE" - you are making a/many prediction(s) on many events both at macro and micro level. At macro levels - you assume for example, the demand will remain the same, which is quite doubtful with Japan biz confidence at a low, Chinese' expressed desire to curb growth and their reduction in money supply will not have any impact on demand, etc.

Locally you are making assumptions on interest hike would have no effect on consumer spending, additional rate hike will not have any effect on business earning, consumer spending habit, etc.

I can go on and on, but you get the gist? You are making a lot more predictions and assumption than the TA'ers who base their prediction on stock price/volume data. The question here is who is making a lot more wild guesses?

The whole argument here boils down to our PERCEPTION, let me repeat. Your perception of stock valuation from the FA angle, and my perception of stock valuation from the TA angle. It's a case of who thinks what is more important AT THIS MOMENT - is it logical thinking or emotional feeling?

In my simplistic view - it's the sentiment that's ruling the pricing and not logical valuation. At this moment, I believe everyone, the FA'ers, the TA'ers, you and I are wondering whether the recent correction has made a major top, or the correction is over. And whether we should go back into the market - in your eyes, the stock price at the current level is attractive, in my eyes the stock market as a whole is still having more fat to be rid of.

Hence I am not surprise to read what you are saying at all. If you go back a couple of weeks, you were saying the same thing. And if you go back a few more weeks, I believe I was talking to Peter quite extensively on the same thing and over the valuation of some of his stocks. Go back and check them out and you just ask yourself this question: "What has changed since that time from the FA's or valuation point of view?"

Nothing! What has changed is your perception of the market and stock valuation a few times over. Last week you were glad you didn't go back in and hence you'd managed to stay out of the slam-dunk, this week you were feeling regret because you'd just missed the opportunity to buy in for the rebounce. I think, you need to do a review of your plan - be it trading short term or investing long term - make it crystal clear and you will not be riding such emotion roller coaster next time.

Cheers.

ps: how'd you verify your SP valuation base on FA? I have this very simple way - I compare it with what the market is paying, by checking with a chart. Attached are a few charts for your perusal. In particular, check out MAY which I remember I had a discussion with Peter on it sometimes back.

But there's a very IMPORTANT considering in all our discussion - let's assume everyone including the instos and fundies are thinking like you - at what stage will they exit? Look at the obvious - 95% of the people lost their money in stock market - if everyone is going long, who has cashed out and who has made the money? (according to news, last week's rout costs $40bn, someone just pocketed that money, but we have no losers yet!)

MAY Daily
may

CPU Daily

PIF Daily

CTX Daily

HC

"... if you've got a chart, I have an opinion!"