Archive through March 16, 2008

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sway

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Post Number: 115
Registered: 12-2005

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Votes: 0


Tuesday, January 29, 2008 - 10:17 am:

Dear All,

Out of curiosity, I decided to estimate how much the Dow could move from it's current level of 12,385, based on a range of reasonably forseeable cases, ranging from "Bullish" to "Very Bearish". I looked at all 30 Dow stocks and their respective Weinstein Stages, support levels and resistance levels. I have assumed a timeframe of 3-6 months, which ties in with general expectations of how long it will take for the US mortgage and credit mess to reveal itself fully.

I have based the estimates on the following assumptions:

Bearish
All 30 Dow stocks will drop to next Support level

Very Bearish
All 30 Dow stocks will drop 2 Support levels

Bullish
All 30 Dow stocks will rise to next Resistance level

Realistic
WS Stage 1 stocks will not change
WS Stage 2 stocks will continue rising to next Resistance level
WS Stage 3 and 4 stocks will fall to next Support level

Results are as follows:

Bearish -11% change to approx 11,000
Very Bearish -30% change to approx 8,700
Bullish +22% change to approx 15,100
Realistic -2% change to approx 12,200

Please see attached spreadsheet for the calculations.
All constructive comments and/or interpretations, personal views etc would be welcome.

Regards
Sway

DJIA
djia forecast 29jan.xls (25.6 k)

deanrosario

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Post Number: 1276
Registered: 11-2002

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Votes: 0


Tuesday, January 29, 2008 - 10:33 am:

Sway - I find the following a very useful resource.
Ref: http://www.signalwatch.com/

The technical analysis provided is very similar to how Colin presents his TA in newsletters and I find such presentations great for learning and improving my understanding of TA.

Like Colin, they provide alternative scenarios for either up or down moves based on action around support & resistance levels.

There's no predetermined view - they just call it as they see it.

This is how they have summarised the DJIA after Monday's trading.

- The Dow trended slowly, and basically rallied about 300 points from the session's lows.

- The index is winding up within a clear triangle range that ...

has the potential to really spark a huge 1,000 point move - in either direction!

They've identified the key levels for the DJIA to be:

(a) 12500 for the upward breakout
(b) 12100 for the downward move.

(Message edited by deanrosario on January 29, 2008)

"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

"Hope is a dangerous thing. Hope can drive a man insane." Ellis Boyd "Red" Redding, played by Morgan Freeman, in 'The Shawshank Redemption'.

rdumas

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Post Number: 1081
Registered: 11-2006

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Votes: 0


Tuesday, January 29, 2008 - 04:25 pm:

Hi Sway,

I normally look at the S&P500 but the DOW seems to have used the obvious support/resistance levels so far between the green (11,643) and blue lines (12,778). A break through the blue line takes us down to the orange line at 10,706 which is close to your bearish level.

I like to take a step at a time so I can't see past that at present. Your concept of using the individual stocks and getting an aggregate of their action certainly makes a lot of sense.

sway

Member

Post Number: 117
Registered: 12-2005

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Votes: 0


Tuesday, January 29, 2008 - 08:14 pm:

Thanks for the replies.
I suppose what I was looking for was some quantitative idea of how bad this might get. I think Very Bearish is way too pessimistic and Bearish is probably close to the worst I would expect. Bullish is in fairyland at the moment and Realistic is basically where we are now.

I'm now feeling slightly more comfortable about the future. And at least I've learnt something about the Dow.

Would still welcome further critique of the results.
Regards
Sway
Dow

maxboost

Member

Post Number: 214
Registered: 12-2005

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Votes: 0


Tuesday, January 29, 2008 - 10:12 pm:

Hey guys,

I'm just wondering if old resistance will become new support?
I'm a bit of a bunny when it comes to this style of charts but i think they are a good indication of support and resistance levels. Anyway we are right at the point where we should find out!

The SPX has obviously failed at previous resistance

globalreverb

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Post Number: 7
Registered: 10-2006

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Votes: 0


Tuesday, January 29, 2008 - 09:24 pm:

rdumas, I think you mean "a break through the green line takes us down to the orange line." Either way, it makes for interesting times !

Cheers, Rob

sway

Member

Post Number: 122
Registered: 12-2005

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Votes: 0


Saturday, February 02, 2008 - 05:21 pm:

Dear All,
For the sake of academic research, I will re-do the spreadsheet above after 3mths and again at 6mths to see how my crystal ball gazing turned out.
Cheers
Sway

sway

Member

Post Number: 139
Registered: 12-2005

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Votes: 0


Tuesday, February 12, 2008 - 09:21 am:

Just heard that Honeywell will soon drop out of the DJIA, to be replaced by Chevron. That messes up my analysis just a bit. Will have a look at Chevron and see how to merge it in. Shouldn't make a lot of difference.

Sway

stocky

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Post Number: 184
Registered: 10-2003

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Votes: 0


Tuesday, February 12, 2008 - 03:19 pm:

sway,

Honeywell and Altria were taken out.

Chevron and Bank of America is what they were replaced with.

sway

Member

Post Number: 141
Registered: 12-2005

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Votes: 0


Tuesday, February 12, 2008 - 03:25 pm:

Thanks for that Stocky. Do you know when this takes effect?

Sway

stocky

Member

Post Number: 185
Registered: 10-2003

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Votes: 0


Tuesday, February 12, 2008 - 09:49 pm:

looks like its gonna be 19th Feb.

sway

Member

Post Number: 143
Registered: 12-2005

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Tuesday, February 12, 2008 - 10:00 pm:

test test

looks like a few of my posts have gone astray

sway

Member

Post Number: 156
Registered: 12-2005

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Votes: 0


Wednesday, February 20, 2008 - 08:07 am:

A question.

While I was figuring out how my estimates would change with the 2 stocks departing the Dow, I got to thinking about DJIA index trading.

The DJIA is calculated by simply adding up the price of 30 big stocks and dividing by 0.123017848, giving a number such as 13,227.22 (as of this morning). Individual stock prices move according to normal market forces, causing the DJIA to move also.

and ....

there are many instruments for trading the DJIA itself.

So my question is: Which is the cart and which is the horse? ie do stock prices drive the index or does the index drive stock prices?

When a trader buys a DJIA index contract, does the broker hedge the trade by buying the DJIA from another broker, or buy the underlying 30 stocks? Or maybe do they buy the stocks they think are rising faster than the Dow, or short sell the ones falling, or both?? Or all of the above? Or maybe none of the above, but something else?? I'd like to understand this a bit better if anyone can shed any light.

Thanks
Sway

deanrosario

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Post Number: 1333
Registered: 11-2002

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Wednesday, February 20, 2008 - 09:51 am:

Sway you've raised a very interesting question and one that I've contemplated before - alas, without reaching any major conclusions, I'm afraid.

As you've rightly pointed out, the price of the index is derived from the price of the individual stocks that comprise that index.

However, "trading the index", as you would know, is purely based on derivative products - futures, options, etc.

Hence the question, for me becomes more general:

What are the market dynamics between derivative financial products and their underlying asset?

That is:

(a) does the price of the derivative drive the price of the underlying asset; or

(b) does the price of the asset drive the price of the derivative?

Purely from watching one index (XJO) and its derivative product (SPI)this is what I have observed:

1. the SPI (almost always) makes its move BEFORE the XJO;

but ...

2. IF the XJO does not follow the SPI the SPI quickly reverses its original "pre-emptive" move.

My analysis of these observations are:

In relation to observation (1), I think SPI traders (i.e. index traders) are pre-empting the likely move of the underlying stocks and, hence, they are pre-empting the move of the index

NOTE: moving the SPI does not in any way move the index since the underlying stocks alone move the price of the index.

In relation to observation (2), some stock traders are probably following the index traders (i.e. SPI traders) and move the stocks (and, hence, the index moves) in the same direction.

However, I reckon the bulk of stock traders are probably acting independently of the index move, which is why the index does not always follow the SPI and, when the index does not follow the preemptive SPI move (i.e. the underlying stocks did not move in the direction preempted by SPI traders), the SPI reverses it's direction.

I trust I've totally complicated this issue more than it needs!!

Best wishes
Dean