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     eblode
Member
Username: eblode
Post Number: 770
Registered: 11-2002Rating: N/A
Votes: 0
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| | Monday, May 12, 2008 - 02:15 pm: | 
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Finally SMX broke into clear profit and vindicated my reasoning in buying the shares in the first place. How a star stock on Stock Doctor with a 60% increase in annual earnings drops from from my purchase price of $4.40 to 3.63 in 60 days left me wild with frustration. So I bought a swag at 3.95 on the upswing, against my better judgement and all the rules of the game. And no sooner the damn shares started climbing to the moon and they are still going. Hope someone latched on to them.
Eugenio
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cat_lady
Member
Username: cat_lady
Post Number: 446
Registered: 10-2006
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Votes: 0
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| | Monday, May 12, 2008 - 02:44 pm: |
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Hi eugenio
I did get some SMX but not enough to ensure early retirement on the profits  but better than nothing I say!
cat lady
Without my morning coffee I might as well be a dog
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rdumas
Member
Username: rdumas
Post Number: 1400
Registered: 11-2006
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Votes: 0
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| | Monday, May 12, 2008 - 04:09 pm: |
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THE GREAT DEBATE - TA Versus FA
For some months now I have always meant to write an article on the Great Debate that seems to rage between the exponents of FA and TA. I have always marveled at the almost religious fervor that exists within the ranks of these two disciplines. In this article I hope to provide a clear and unbiased view of both disciplines and how they can be used for trading and investing in the equities market.
I do not plan to give an in depth analysis of each discipline but rather an over view of their individual strengths and uses. I will also debunk one of two myths that live in the TA and FA folk lore.
WHY INVEST IN THE EQUITIES MARKET?
Primarily traders and investors get involved in the equities market in order to increase their wealth. They do this through the ability to earn dividends and capital growth of stocks that they own.
THE CASE FOR TECHNICAL ANALYSIS (TA)
How old is the practice of technical analysis
Technical analysis is perhaps the oldest tool designed by investors in order to beat the market. To the best of my knowledge it grew from articles published by Charles H. Dow in the Wall Street Journal between 1900 and 1902.
Since that time TA has been added to by numerous writers and exponents of the art. There is a multitude of indicators and mechanical systems that allows the trader/investor to analyse and predict the likely direction of any stock or index. As millions of words have been written in the past on the various techniques used with TA to predict future stock and index prices I have no intention of adding to that wealth of knowledge in this article. My main purpose here is to briefly discuss some general concepts regarding the use of TA.
Technical analysis can be used exclusively
First and foremost it would be reasonable to say that TA can be used as a tool entirely on its own and without any other tool required to successfully invest in the equities market. One of the advantages of TA is that it does not require any knowledge at all about the fundamentals of the stock or index that the charts relate to because all that we require is the ability to read the charts and apply particular indicators and mechanical methods in order to enter, stay and exit a trade in order to carry out a successful investment. It can equally successfully be used for short, medium or long term investing.
Remember that the aside from the dividends that flow from a stock probably the main increase in an investor’s wealth is achieved through the capital growth of the stock. The use of TA allows the investor to gain wealth through capital growth.
What do the prices on a chart represent?
A popular misconception amongst even the most experienced technical analysts is that the instantaneous prices on a chart represents the likely future value of that stock or index determined by the combined knowledge of all participants in the market including all reported and un-reported details about that stock. The statement appears to be logically based but is in fact fallacious in its conclusion.
It is true that if you combined the total knowledge of the individual participants of the market you would have everything that is known about the stock in question. Due to the fact that the combined knowledge of the entire market is not equally shared and understood by the individual participants to say that the instantaneous price on a chart is an accurate value determined by that combined knowledge is obviously a complete nonsense in fact any study of group psychology shows that the instantaneous prices thrown up by the market during most periods reflects more closely the group market sentiment rather than prices logically calculated through the analysis of the combined knowledge resident within the group.
It is equivalent to saying that the actions of a lynch mob is a reflection of the total knowledge of the participants of the group.
A good example of the fact that stock prices represent market sentiment rather than logically calculated stock value prices is what happened during the Tech Boom/Bust cycle between October 1998 and October 2002.
On the 8th October 1998 the Nasdaq based at a level of 1343.9. From that time right up to the 10th March 2000, the Nasdaq went to 3788.6 a huge increase of around 282%!!!
I can vividly recall that period because the whole market was caught up in the enthusiasm of the new technology. This time was different. The ushering of the new world of technology was going to change the world forever. Throughout the course of the period between October 1998 and March 2000 people became totally caught up in the Nasdaq companies.
There were lots of new start up companies that had not earned a red cent and yet people were piling their money into them in spite of the fact that they had yet to produce any earnings at all. A well known phrase at the time was cash burn rate. That was the rate the start up companies were using up the money that had been invested in them before they were able to generate any earnings.
Even with companies that had earnings they were relatively new and consequently the P/E ratios were astronomically high but people didn’t care at all. This time it was different.
I vividly recall the fact that the funds employing momentum strategies reigned supreme. There were a number of large ‘old school’ funds that did not want to take part in the tech bubble because they saw the whole exercise as extremely dangerous. A number of them actually went out of business because clients deserted them to join funds that offered huge returns. The whole period was totally sentiment based. Fundamentals were thrown out of the door.
I recall during this time Australia being dubbed as an ‘ancient economy’ that relied on exporting rocks that they dug out of the ground. The implication was that our country was ‘backward’ as we did not have the high technology companies that matched those in the US and other countries. It just goes to show that every dog has his day.
Suddenly the tide turned and the bubble started to burst. After the 10th March the Nasdaq started into a strong decline. Investors who were previously filled with enthusiasm and self congratulation started to sense some fear. As the market worked its way down the fear increased and media companies trotted out their technical experts asking them how far the market would drop.
The technical experts would keep talking about possible support levels but one by one the market just sliced through them as if they didn’t exist at all.
The carnage continued until the 10th October 2002 when the Nasdaq hit the 1108.5 level. It had dropped 4024 points or 78%!!! Those 'old school' guys were right but unfortunately were out of business by this time. Just goes to show that being right doesn't mean that you will survive.
Did the prices on the chart indicate the carefully calculated true value of the stocks in question based on the combined knowledge of all of the market participants? Not at, it represented the greed and fear of the market participants. And so it is under normal conditions. It is just that when either the fear or greed forces increase, the effects are much more pronounced than under normal stable conditions.
The equities market is a combination of a large number of players, each with their own agendas and strategies. Each player or group of players has their own limits of knowledge. There are short term, medium term and long term investors. There are investors that use momentum strategies whilst others use value strategies. There are index funds and hedge funds. Each group or participant is a small part in a complex group which is known as the equities market.
Whilst the participants have their own agendas and strategies, one thing that they have in common is that they are human beings with emotions. The market is a place where stresses can quickly arise through either the fear of loss or the enthusiasm of winning opportunities. These emotional stresses create emotional responses that the group exhibit in particular responses. These responses often produce patterns in the charts which increase the probability of a particular out come for a set of circumstances. Double tops, head and shoulder, cup and handle, trend lines, levels of support and resistance are patterns that have been analysed as providing technical analysts with outcomes that provide higher probability outcomes than pure random actions. It is these patterns that have been discovered that have allowed technical analysts to predict possible outcomes with increased confidence.
It is the prices that are important rather than the reasons why they are produced
Regardless of whether prices are determined through the mythical group knowledge concept or because of a sentiment monitoring concept, the one truly important thing is that TA allows us to make predictions about possible price movements and thereby using this to increase our wealth by buying and selling stocks using TA as a tool.
Whether the prices represent some inherent true value of the stock or something else is totally irrelevant because investors make money when the prices of the stocks they hold go up.
TO BE CONTINUED
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coyotte
Member
Username: coyotte
Post Number: 574
Registered: 12-2002
Rating: N/A
Votes: 0
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| | Monday, May 12, 2008 - 10:31 pm: |
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Quote from rdumas
Quote:
What do the prices on a chart represent?
A popular misconception amongst even the most experienced technical analysts is that the instantaneous prices on a chart represents the likely future value of that stock or index determined by the combined knowledge of all participants in the market including all reported and un-reported details about that stock. The statement appears to be logically based but is in fact fallacious in its conclusion. Un-Quote
NO ! - NEVER WAS !
TA is about "Probability" -- what you appear to implying here with the statement on " Future Price " is only one part of TA ie: Target Trading , which is BASED on the Probability of a price being reached and not a Prediction that it will be reached.
BUT first you must define what TA is -- and I would dispute that it started with Dow , he was a Chart Reader.
I would be more inclined to say that TA started with the PC and the Moving Avg which paved the way for the endless list of Indicators -- Firstly learn to read a Bar Chart without any Indicators what ever apart from Volume , then bring in TA as secondary/thirdly backup only .
By limiting your post to FA vs TA you are leaving out the overwhelming main person in this for us -- THE TRADER !
As Chris Shea points out in his book " Licensed to Profit" .
it really dos'nt matter whether you use a dart board, the latest alogrithisms, the Sun/Moon or what ever (TA/FA or Chart Reading or News etc etc ) IF YOU DO NOT HEED THE ROAD SIGNS then you do so at your own peril .
REALLY THOUGH , I EXPECTED BETTER THAN THIS FROM A IC THREAD
edit: MAY BE A VERY GOOD IDEA TO READ SHEA'S BOOK BEFORE YOU CONTINUE
(Message edited by coyotte on May 12, 2008)
(Message edited by coyotte on May 12, 2008)
The "Sea of Uncertainty" is defeated by the nimble vessel "Probability", not the unwieldy vessel "Prediction".
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ody
Member
Username: ody
Post Number: 2446
Registered: 10-2006Rating: N/A
Votes: 0
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| | Tuesday, May 13, 2008 - 06:43 am: |
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COYOTTE: DOW THEORY
I am not principally a T/A person, but I think you will find that it is very widely agreed that "Dow Theory", as it is called, developed by Charles Dow and others, did indeed provide the basis for what is today called Technical Analysis.
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rdumas
Member
Username: rdumas
Post Number: 1401
Registered: 11-2006
Rating: N/A
Votes: 0
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| | Tuesday, May 13, 2008 - 08:16 am: |
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Hi Coyotte,
I must admit that I am a little confused and surprised at your strong response to my post. One of the difficulties of the written word is the fact that it can be so easily misinterpreted and I can only assume that you have read something into my post that was not intended.
If I appeared to be saying anything other than the fact that TA (or FA for that matter) is a tool used with the intention of increasing the probability of determining an outcome then I apologise for not being clear enough for it was not my intention to imply any absolute prediction capability. One thing that I have learnt from life and especially my time as a professional punter is that there are very few absolutely predictable events. The best that we can do is to assign various probabilities to an event taking place. That is why horses win races at the odds of over 100 to 1 and the market experiences Black Swan events.
Every time that I leave my home in the morning there is a small probability that I will not survive the day. Hopefully there is an even greater probability that I will. There is a whole range of probabilities associated with any action and in trading/investing we attempt to push the probabilities into our favour by using our knowledge and tools such as TA and FA. I think that we are all aware that these tools do not guarantee that we will be successful.
I am also not sure why discussing TA vs FA leaves out the trader but would be interested in finding out why you perceive this to be the case. I tend to think that you have read something into my post that was not my intention. The use of TA and FA in my opinion is what traders/investors use to look for 'the road signs', dangers and opportunities.
I am afraid that I am at a complete loss as to understand what you are saying in your post.
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rdumas
Member
Username: rdumas
Post Number: 1402
Registered: 11-2006
Rating: N/A
Votes: 0
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| | Tuesday, May 13, 2008 - 08:33 am: |
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S&P500 once again recovers in time!
Last night the S&P500 closed up 1.1% after touching the bottom boundary of the short term bull channel that has been in play since early March 2008. Had it broken down through that channel things may have taken a turn for the worse. I have drawn last night's action on yesterday's chart to show just how close things came.
Having bounced off the bottom boundary of the bull channel the market has confirmed the strength of the bull channel lower boundary. It now continues on its upward path to once again test the overhead resistance at 1420.3
The CPI figures for the US economy will be released on Wednesday which should determine the future short term direction of the US market. Analysts will be on the look out for a worsening in the inflation figures.
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moldy
Member
Username: moldy
Post Number: 62
Registered: 11-2004
Rating: N/A
Votes: 0
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| | Tuesday, May 13, 2008 - 09:31 am: |
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Rudy
Draw a line around 13900, and you will see the price hit it three times in about three months. End of Jan, mid Feb & early april and then it had another go end of April and went through. It now has rested on thet line twice since, Friday night being the second time.
Moldy
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dug
Member
Username: dug
Post Number: 3136
Registered: 07-2005
Rating: 
Votes: 1
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| | Tuesday, May 13, 2008 - 10:11 am: |
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coyotte wrote on Monday, May 12, 2008 - 10:31 pm:I would dispute that it started with Dow , he was a Chart Reader.
I would be more inclined to say that TA started with the PC and the Moving Avg which paved the way for the endless list of Indicators -- Firstly learn to read a Bar Chart without any Indicators what ever apart from Volume , then bring in TA as secondary/thirdly backup only .
I think this a "narrowing" of definition of TA.
In that chart reading is separated from the use of all the "new" indicators ie MACD,Bollinger etc.
Your chart reading,coyotte involved trend lines,support and resistance and Simple Moving Averages.I know this because that's what I was taught in the late 1960's at 15years old odd.
I completely agree that it was the PC that "popularised" all those fancy,high maths Indicators but these were available in variations to Wall Street "boffins" and academic investigations.Also types like Stoian,maths nuts etc dabbled with them because THEY were in the First Wave of Computerisation.When did that start?about the 1950's?or a bit earlier?
Anyway,Rudy has always advocated pretty much the Major Practise of TA is in Trend and Support/Resistance Lines.I think this avenue is too often ignored by "GreenHorn" Pilgrims to the Mammon of the Market.
I reckon these types too quickly jump for the High Science New Indicators which are always calculated as Lagging the Action.
The only thing TA that "predicts" the Future is a Trend Line.A trend line,to me,can tell you next week,next month the price you want to be at and when you find your not?well than you make a Decision on whether you want to stay in.
Simple,hey?Yet one always/often come across the KISS advocates,the "I just go by the chart"ists,whacking in some bleeding MACD RSI waffle justifying their decision.I reckon if you can't do the Calculations in ya head? You're not Simple but Stupid!
Anyway,Charting TA started way before Charlie Dow.Have you forgotten Candles in the Medieval Jap Rice Market?
Geez I'm warning you.Charles is probably at this very moment retrieving the First Chapter of his Book/unpublished Manuscript about the Rice Trader who was admired by the peasants as a GOD for his machinations of candles in the Rice Market!!
regards.
Even 'til Jaded.
Dig for the sake of it.
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eblode
Member
Username: eblode
Post Number: 771
Registered: 11-2002Rating: N/A
Votes: 0
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| | Tuesday, May 13, 2008 - 11:04 am: |
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Rudy,
I've got a feeling "Coyotte" is also from Brazil.
Eugenio
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rdumas
Member
Username: rdumas
Post Number: 1403
Registered: 11-2006
Rating: N/A
Votes: 0
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| | Tuesday, May 13, 2008 - 11:49 am: |
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Hi Moldy,
Thanks for sharing that observation. It is yet another example of the fact that people can see the same chart and derive different things from it. In both your case and mine however whilst we view things in a different way we none the less see a positive outcome for the market in the short term.
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moldy
Member
Username: moldy
Post Number: 63
Registered: 11-2004
Rating: N/A
Votes: 0
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| | Tuesday, May 13, 2008 - 12:20 pm: |
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I think the market has been bullish since Easter.
Moldy
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rdumas
Member
Username: rdumas
Post Number: 1404
Registered: 11-2006
Rating: N/A
Votes: 0
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