  |
||||
 |
Fred's Forum Fred Goodman An open exchange of ideas on technical analysis and the markets between Fred and his fans. Send an e-mail to Fred... just click here!
Wednesday, January 7, 2009 I just want to comment on your choice of bond funds. I suppose in choosing your ETFs you're concerned with easy trading, but they're selling for more than their NAV. TLT and LQD are about 4% over NAV and HYG about 10% over. There are closed end funds with higher yields and selling at less than their NAV. With corporate yields where they are at present I myself feel comfortable holding open end bond mutual funds for an extended period. What do you think? Tom M. FRED REPLIES Hi Tom, I prefer ETFs primarily for their liquidity, especially at a time of financial crisis, otherwise I might consider a well run conventional mutual fund like those available through PIMCO. However, I have not considered closed end funds because their discounts change frequently, they trade on very low volume, their fees can be very high and one must investigate their holdings carefully to determine suitability, while ETFs follow wide, transparent indexes. Posted at 12:30 PM Sunday, March 24, 2007 Mr. Goodman, First of all, thank you for all the great work toward helping the rest of us achieve better returns. Taking a little more risk than usual, I got bit by the most recent downturn and while thinking about what I should have and not have done, I thought about comparing the Short Term Indicator to the Average Signature Indicator by overlaying them on a single chart. I would be interested to see how each behaves in light of the other. It's somewhat difficult to this on my end since the charts you provide are scaled differently (the date ranges are different). Would it be possible for you to overlay the two so we can see how the two compare? Best regards, Adrian Nicolici FRED REPLIES Hi Adrian, Thanks for the suggestion. I have attached a chart showing both the Short Trend Indicator and the Average Signatures on the same scale for comparison. I will probably post it in the next report as well. Let me know what you think. Wednesday, October 11, 2006 I would like to thank you for the work you have done in developing and explaining your market indicators. With limited knowledge of the market I have been working since April 2001 on developing and interpreting market indicators for myself with very limited success. With the incorporation of your indicators along with mine I have been able to dramatically improve my profit margins while increasing my market risk minimally. It wasn't until I began following your daily newsletter that I became able to weed through the information and glean the important tidbits that are vital to making profits. As of Oct. 1'06 my total portfolio return for the past 12 months is 21.7%. All the while keeping my Beta at or near 1.10. I find that absolutely outstanding. Thanks, Jim Ramoin FRED REPLIES Hi Jim, I couldn't be happier to hear of your success, and while I am delighted to learn that I have helped you, the credit belongs entirely to you for your excellent return. Tuesday, December 20, 2005 What is the support on the S&P 500 that you are talking about? We broke 1168 yesterday. Is 1245 the next level that you are talking about? Where do you think we will drop to before a bounce? ROGER DAVIS FRED REPLIES I expect a bounce this week, but I don't know what the low will be. 1245 is a significant stopping place. If it is penetrated then I expect that the 50-day moving average will also get significant testing. I will make decisions about trading in the Discretionary Technical Portfolio based on how well or poorly the S&P 500 does over the next several days. I have no means of guessing where the market will stop. I simply use the support areas to decide how to handle the overall investment in the DTP and other discretionary portfolios. I also pay attention to the position of the 29 indicators to try to determine when a reversal will occur. Monday, December 19, 2005 Two quick questions for you. First, how much do you rely on the price/volume charts? Are they more ancillary, or do they occupy a cornerstone of your investment strategy? And second, you mentioned in today’s commentary that the Summary Index is an intermediate-term indicator, and that one should look at short-term indicators for more precise entry/exit points once the Summary Index flashes a buy or sell. Do you have any favorite short-term indicators that you find reliable (enough)? EMANUEL SCHROETER FRED REPLIES My primary short term trading tools are straight chart-reading. The Price/Volume Charts are useful to show high volume penetrations of previous support and resistance levels, but those levels are important by themselves. I often specify a price below which I will reduce or exit positions. For example, the 50-day and 200-day moving averages. If violated I will expect further weakness and will reduce my long positions if they are. I also use chart patterns such as pennants and previous lows. For example I mentioned 1176.84 in today's report as a critical support level. I wish I could provide a simple formula for either exiting or entering the market, but it is more a continuum than finite change in state. Saturday, December 10, 2005 As you know, Don Hays has been one of the most fervent bulls since the end of the bear market in March 2003. If anything he has always tended to be early with his market forecasts (e.g. most recently he reduced his own cash positions two weeks before your last buy signal of Oct. 26). Now he is strongly forecasting the following: 1) The "last great buying opportunity" of this bull market will begin to materialize over the next few days and weeks - only due to short-term negative investor psychology - then it is lift-off for this market. 2) He sees a surging market over the next 6-12 months (at least) and portoflios doubling within 2 years. In short he forecasts a great bull market for 2006-2008. 3) The next and final leg-up for this bull market will be lead by the technology sector - he is heavily weighted in technology. He sees the energy sector (the darling of Wall Street for the last 15 months) succumbing to lower energy prices. Do you have any opinions on the above views -- especially on the general direction of the market for 2006 and beyond which clearly seems to be at odds with what your own indicators seem to be telling you. ROBERTO MARZOLINI FRED REPLIES I have very few long term indicators. As a matter of fact, the Smart Money Indicator is probably the only one that I have followed that has done well (in the past) in picking the direction accurately over a long period -- and Don Hays is the person who popularized the SMI. However, I noticed the public/total short sales ratio has reached an all time high this week, and I studied it in detail back to 1971. The results of that study will be included in Monday's report. And the conclusion that must be drawn is that the market is about to break out to the upside once the ratio completes peaking and turns down. I cannot pinpoint the date, but it could happen any week, now that it has reached a high. Wednesday, December 07, 2005 I am up overall about 15% this year. Not too shabby in a certainly shaky-bakey year! Your most recent daily columns have me concerned however, and I cannot quite get a “read” past a few weeks. I subscribe to two other “fundamentals”–based services as well as yours. Both are saying be 100% invested right now...one saying domestic equities and the other calling for 75% in foreign-market ETFs and 25% in XLE. This seems somewhat conflicting to me. I am invested, but somewhat cautiously, having kept almost 50% cash on the sidelines during most of this rally. What's your take on the “likelihoods” of the next 8 to 10 weeks? MICHAEL FRED REPLIES The best thing to do is to keep an eye on the Discretionary Technical Portfolio, which is invested to the extent of 91.8% at the present time. Even though the position is very bullish, fully 50% can be converted to cash in an instant because it is invested in ETF's, which are very liquid. The indicators are still bullish, and will continue until the Summary Index gives a sell signal. However, with the Trend Indicator in an Uptrend, I probably will not reduce the DTP to much less than 75% at first, and will act according to the indicators thereafter. With a 15% gain thus far this year, you have earned the right to be cautious so close to an SI sell signal. If you do decide to get closer to the DTP, doing so with high volume ETF's is a good idea to preserve your liquidity. Friday, October 28, 2005 I am curious about your latest GPS readings about Dell. Would it still be considered a buy today? MICHAEL STOOTS FRED REPLIES A stock is a GPS buy only when its price/volume line is above the trigger, so by definition Dell would not be a buy today. However, it is not a sell from the GPS portfolios, either -- it is a hold. That's because the p/v line is above the sell trigger, so the stock does not yet qualify to be sold under the 30-day rule. Wednesday, October 26, 2005 Do you think this upcoming Summary Index buy signal is the uptrend prelude to the sell (downtrend) you were discussing before, mainly due to the Smart Money Indicator? In other words, are you still as worried about a longer downtrend as you previously commented on, based on the Smart Money Indicator? ARDEN BRION FRED REPLIES Excellent question. It has certainly crossed my mind too and yes, I am still concerned. I think we will have to wait for our answer to see if we get a new high from the S&P 500 or not. Tuesday, October 25, 2005 Are you considering rotating out of energy (XLE, and the energy-heavy WWNPX) in the Discretionary Technical Portfolio? ALAN HELDMAN FRED REPLIES I sold half of XLE a week or so ago but have no plan to sell WWNPX at this time. They are a "thinking man's energy play" -- coal sands, etc. -- which is more long-term oriented. However, I monitor funds weekly and will react if it starts performing poorly with respect other funds. Saturday, October 22, 2005 As an observation, in the past when momentum indicators made new lows not seen in years , after the usual rally to relieve the oversold, disaster usually follows. I am only an amateur technician so I would like to ask you if my observation has any merit in your experiance. -- HAROLD HELLMAN FRED REPLIES There have been just three Summary Index declines that equalled or exceeded the current one. Two were in late 1999 and early 2000, just near the market high reached before the slide. The third occurred in late 2000 after it got started. So, based on this extremely narrow and specialized sample, one might reach the conclusion that there is another disaster ahead. However, I am not comfortable coming to a conclusion based on so few observations and must defer until more information is accumulated. A big confirmation of the theory would be if a major decline is ahead of us in early 2006, which the Smart Money Indicator supports. Wednesday, October 12, 2005 It has been a long time since the Summary Index was below two. My casual glance suggests that would bode poorly. Your more studied assessment would be most welcome. RALPH HISE FRED REPLIES I looked back and you are right. The last time was in 2000 and before that in October 1999. We're still at 4.65, but will get to 0.7 in a week without a rally. The good news is that in both cases a big rally followed the next buy signals. More important to me, though, is the Smart Money Indicator, which continues to drop like a stone. I think it is telling us to expect a big drop, but unfortunately it does not tell us if there will be a big bounce first. Personally, for the Discretionary Technical Portfolio, at this time I do not expect to go much above 75% in the market in the forseeable future. Friday, August 19, 2005 You've talked a lot about how you are worried about a big decline this fall. Will all the negative macro news finally be observed then? What do you see that makes you feel this way? My worry is any big decline doesn't occur until fall 2006. TOM O'GRADY FRED REPLIES I certainly would not worry if a big decline is delayed -- that would be good news. However, I am primarily concerned by the Smart Money Indicator, which has been declining for two years, and the fact that the current bull market is almost three years old. Right now the Summary Index is moving quickly towards an extreme from which a buy signal will occur. When that signal runs its course we'll be in a position to evaluate the fall. In the meantime, I am still 75% invested in the Discretionary Technical Portfolio and will profit from the next upleg. If the recent high at 1245 cannot be exceeded, it is likely that we'll come back down to test the low we are making now. Wednesday, August 03, 2005 You have often talked about expecting a significant decline in the fall due to the readings from the Smart Money Indicator. I know this is early to make a call on any upcoming decline, but is it possible to hint approximately when and how deep the decline will be? I know you'll get your clue the various systems and indicators you use, but can one be prepare for this upcoming event? -- ALBERT QUAN FRED REPLIES I wish that were possible, but it is not. The SMI is a long term indicator, and it is completely non-specific for timing. The reason I expect trouble in the fall is because the SMI has been dropping for almost two year, which is longer than the last cycle. However, I have only tracked the indicator for 7 years and that is not enough time to be able to determine a probable time. My expectation of trouble in the fall is based on many factors not the least of which is simply the traditional decline in Sept-Oct. As we get closer, you can be certain that I will give as much information as possible. Wednesday, July 27, 2005 Dear Mr. Goodman, You stated today that "we can anticipate a sudden increase in the distance between the Bollinger Bands will occur at the first sign of a market decline". Could we therefore infer that with the VIX near a 10 year low, that this would be a good opportunity to buy? Further, what is your interpretation of the VIX being so low? One would presume that with increased program trading and increased terrorist threats, the VIX should be much higher. -- FRANK SCUCCIMARRI FRED REPLIESThere is a big difference between the CBOE ratio of puts and calls and the VIX, which is "a weighted measure of the volatility for eight OEX put and call options." While they may move occasionally in concert, one has little to do with the other technically. I use indicators based on the VIX primarily to show me when a decline is likely to end, since the VIX is often very elevated at that time and suddenly drops sharply. Unfortunately it is not as clear the other way around. The VIX has been declining for three years without reversing for more than a few weeks. Each low has been followed by a decline in the market which pushed it back up for a while, but it quickly turned and fell to another low. The VIX makes up one of my 29 indicators and I simply rate it positive when it is low and falling and negative when it is rising. Wednesday, May 25, 2005 Just an observation, but I feel we are still in a bull market! Do you agree? We have many stocks breaking out to new highs on above average volume, and good earnings reports. A good example is HURC which announced earnings. They were great! Many companies like FRGO are heading up on twice normal volume! I not saying we aren't going to have a small pullback here, but I think that would be a buying opportunity! What do you think? PETER WAGNER FRED REPLIES One does get a "feeling" about the market, and mine suggests that things will be okay during the summer, but we must have a period during which the indicators become less overextended. So I expect a near time rocky period during which the most recent low is tested, followed by a rally in which the 1225 high is tested or exceeded. Then, in the fall, I am looking for a more severe pullback. To trade it I may add to my equity at risk in the DTP when the overextension appears over, and then I will most certainly reduce it as the 1225 high is approached, or at least when the indicators are overextended again after a return to normal. I realize of course that the above must be tempered by the realities that we encounter as we go along. Posted at 2:01 PM Tuesday, May 24, 2005 I note in the report for May 24 that the Smart Money Indicator delined 67 points as stated in the text. The accompanying chart does not appear to reflect this (blue line). Can you help me with this apparent discrepancy? -- TOM CRAIG FRED REPLIES Even with an elarged version of the chart it is difficult to see, and at normal size it is impossible. Today the SMI added 44 points, yesterday it lost 67 and on Friday it gained 27. Because it is so difficult to read and still provide the history that I consider to be most important, I usually list the daily point change. However, it is easy to calculate it yourself if you want precise numbers. Simply subtract the number of points changed in the first 30 minutes from the point change in the final hour and add the result to the total from the day before. Thursday, May 05, 2005 The Option Volume Oscillator seems to be better at signalling a "buy" for the S&P 500 than the Summary Index. Do you have any statistics that show successes versus failures for both? HENRY BURGESS FRED REPLIES The OEX indicator does have a better record for buy signals, but it is a short term indicator and the Summary Index is for the intermediate term, and as a matter of fact, includes the OEX indicator as one of the 29 components. The longer the term under study, the worse is the batting average -- it's just like forecasting the weather. Thursday, April 14, 2005 Weird that the Summary Index actually advanced Wednesday with such a decline. Will it turn down Thursday and go below 4.5? -- MARCO GEROMLIMETTO FRED REPLIES That is the way the SI work. Once it starts to move in one direction it takes a lot of negative activity to turn it around. It may turn down again, but it will take a lot of indicators moving to negative, or it will take a number of days with a few more negative indicators. Keep in mind that it is not a short term indicator, it is for the intermediate term, on average around 6 weeks. Tuesday, April 12, 2005 Please explain why you would keep the 3 most recently added mutual funds in the Discretionary Technical Portfolio when you do not expect the S&P 500 to rally any more than 3-4% from present levels? These funds are down around 3% since inception. Does it not make sense to sell all three positions in the upcoming rally as we have recently seen that they too can take a beating in a down market - which you are fully expecting to return once the next rally fizzles out? ROBERTO MARZOLINI FRED REPLIES Every week I evaluate the funds held in the DTP with respect to their performance in comparison with the S&P 500 in both up and down markets. It is my goal to outperform the index and I will hold any funds that continue to outperform it. In the event that the market goes down as a whole, I expect that my funds will lose ground too, but if they are losing less than the S&P, I can short SPY and protect them during down periods, and make a small profit at the same time. If the funds are not outperforming the S&P, or at least holding their own against the index, I will sell them. While I do expect some rough periods ahead, I will rely on my indicators to help me determine when they will occur. At this point I do not have reliable information to determine when, how far or even if the market will turn down. Friday, April 08, 2005 I have been following your report and my own studies of the market and agree that 1225 will be a challenge for the SP500 to overcome. With the pending SI buy signal upon us, BUT with only 8 negative indicators, is it possible that we could see a short spike up and then a QSI sell signal with the negative indicators dropping below 3 and then rising back above 7? And if 1225 is not breached a sell signal is generated, given the smart money indicators severe negative bias as well as the head and shoulders top - could it not usher in lower lows and negative markets through the spring/summer months? NANDAN SHAH FRED REPLIES You are right about the QSI. A sell signal will occur if the number of negative indicators drops to three and then turns around and rises to 7 or more -- that is not only a possible, but a plausible set of circumstances. While I am now trading for a rally, I am holding 10% out of the market in the Discretionary Portfolio, and 19% is in ETFs which will permit me to raise the cash to 29% very quickly. If we do get a sell signal soon, I am likely to use some of that 30% to short SPY and/or QQQQ to protect my fund positions. In that short spike to which you refer, I am planning to reduce the mutual fund commitments as described -- I'll sell half of BPTRX and RSVAX, and will close out ICENX and ICBMX. Friday, April 01, 2005 Why does your track record of Summary Index signals show that the QSI signaled going long on 3/4/05, and at the same time on the same day, your Technical Condition of the Market shows the QSI giving a Sell signal on 3/4/05. Did the QSI give a buy signal or a sell signal on 3/4/05? PETER TIMMONS FRED REPLIESI think the confusion has occurred as follows: I wrote the report posted on March 4, 2005 on Thursday evening March 3rd -- there was no buy signal then. However, at the close on the 4th there was a Quick Summary Index buy signal because there were 8 positive indicators. The track record, by convention, dates the buy signal March 4 because it happed at the close that day and we take the closing price as of that day. Thursday, March 24, 2005 I'm an "old-time charter" and appreciate all of your various charts and interpretations. I have an observation with a question. I'm looking at the S&P 500 and darned if it doesn't seem to be forming a classic head and shoulders pattern. First low leg about November 2004, followed by a "top" in late December, then a decline, then the low leg beginning about early February to the second slightly higher "top" just recently in early March, and now a decline down to present levels. Pattern suggests the third low leg beginning right in here real soon (about 10 more negative points on the S&P, or just about down to longer-term support) and then up to a "top" with a time frame of 30 or so trading days. Am I all wet here? Does no one look at head and shoulders patterns any more? MICHAEL SCOTT SCUDDER FRED REPLIES Head and shoulders patterns are subject to many different interpretations that depend on volume at the various turning points. For that reason, advocates are never wrong, they just change the parameters. Nevertheless, if we break the January lows one of the primary price factors will be in place -- a lower right neckline. If that happens it will clearly be a negative event and unless the subsequent high exceeds 1225, the complexion of the market will be changed for the worse. I suspect that if there is a lower right neckline followed by a failure to make a new high, the Trend Indicator will also change to Downtrend and then head and shoulders or not, the market will be likely to drop seriously. I have been writing about the failure of the Smart Money Indicator and its implications for a serious decline starting in the late summer or fall. The possibility the scenario described above will certainly make a collapse in the fall more likely. Wednesday, March 23, 2005 Since I'm short the market right now based on your sell signal, my question is: how far can it go down if the 200 day moving average is penetrated decisively? Could your SI signal stay below 4.5 for an extended length of time? Say, 2 months? I'm following another indicator that suggests a continuing weak market until mid-May. What's your thought on this? ALBERT LOUIE FRED REPLIES If the 200-day moving average fails, the next logical support will be found at last summer's lows, around 1060. As far as the SI remaining below 4.5, the longest period it stayed below 4.5 without poking above was a month in September of 1999 and again in September of 2000. Monday, March 21, 2005 I am holding my breath waiting for the next buy signal. Love it when your SI signal drops below 4.5. I have been watching your sell signals for awhile and have noticed after the initial sell signal the market always seems to have one more bounce, almost like a 2 week delay before the sell signal sets in, where as your solid 4.5 buy signal has most of its gains in the first few weeks. I have been watching your individual stock buys and have participated in ones that have great looking charts and are in outperforming sectors such as BNI, EXC and XOM (thanks for these picks), and have avoided the ones that look like they need CPR. I was wondering if you have tried to concentrate buys on individual stocks in sectors that are outperforming such as in the mutal funds you pick, and then pull back to oversold conditions? I was looking for a few more oil stocks, HMOs, or metals. You the man, and you have a great service BRAD HOLLAND FRED REPLIES Thanks for your nice words. You mention two areas that will benefit from additional study: timing the Summary Index signals and refining the selection of the most promising stocks from the list of GPS buys. One thing I am doing for my own account and for clients who have chosen to participate in the GPS trading system, is to time my purchases. So, for example, during the past week I have made all of the sells, but I have not yet made the purchases. The idea of using other techniques to screen the GPS buys is certainly a good one. Monday, February 28, 2005 In keeping with your cautious tone, one issue you have not addressed recently is your previously stated expectation (on the basis of certain indicators) of the formation of a major market top around the April time frame. Do your indicators still point to stormy weather on the horizon? And if so, why open mutual fund positions with the upcoming QSI buy signal and not tradable ETFs instead? ROBERTO MARZOLINI FRED REPLIES One cannot study the markets daily without forming a general opinion based on all the inputs -- fundamental as well as technical, with cycles thrown in. My overall "feeling" about the market tells me that this summer is going to be dangerous. The reason for funds -- specifically the three recently discussed -- is that they hold stocks that generally do best towards the end of an advancing market. As long as they can be held for 3 months they can be sold without paying fees for early redemption that some brokers charge. In the meantime, we have 15% in cash and another 11% in DVY that can be quickly converted to cash, so there is 26% available to hedge the remaining mutual funds down to the 50% invested level. That is my reasoning, but of course one could look for ETF's similar to the funds in the DTP and invest in them instead. However, we must be aware that some ETF's are thinly traded and a big price may have to be paid to exit under stress. SPY and QQQQ are exceptions to that. Sunday, February 27, 2005 With a probable QSI buy signal looming (and the market remaining in a Trend Indicator Uptrend state) please explain why you intend to only add the 3 new mutual funds to the DTP, as referred to in the February 25 report: ARTKX, ICSLX, CAMOX? Why will you not also open positions in SPY and QQQQ as you did with the last SI buy signal? Does the QSI (and not a regular SI) buy signal negate opening positions in SPY and QQQQ irrespective of the Trend Indicator Uptrend state? ROBERTO MARZOLINI FRED REPLIES The addition of the three mutual funds will bring the total equity at risk to 85%, which I consider to be enough at this point, until I see how things progress. Admitedly I may be too cautious, but I prefer to add ETF's after I see how things work out. Keep in mind that we have closed up 9 out of 11 sessions so if the buy signal comes tomorrow we can still expect to see some backing and filling before a major upmove. Also, 1220 was the high back in 2001 that we must climb over. At that time I will consider adding to the total invested. Friday, February 25, 2005 You mention a higher volume rally and a summary buy signal. well we didn't make it yet and the volume was flat BUT one thing you mentioned was we should have extended to 1208 and then roll over to 1148? Can it be that precise? Although, cycle theory i am aware of has us making an important top soon next week or if anything a trend reversal. Comments? O'GRADY FRED REPLIES What I said was:
Please take it literally. There is no reason to expect that it will do the same thing, but a rally that does not make a new high may re-visit the low before it tries again. On the other hand, there are many reasons, based on the strength the last three days, for the market to just keep right on going. If it does, there will be a new buy signal and a new high and I will be back to 95% invested from the 65% level I am now at. To me, getting out was worth it for the protection it gave me, even if it goes straight up from here. I will make less than I would have had I remained fully invested, but I will still make plenty and had the decline been more severe, I would have saved a lot of losses. As you know, the market closed around 1211. My problem is that I only have index funds available for my 401k and had it all in the S&P 500. Closed out the position and have kicked myself ever since. Since it didn't close above 1213, do you still feel good about the call? Thanks for your advice. STEPHEN WOODALL FRED REPLIES One very important point first. You did notice that I sold only 30% in the Discretionary Technical Portfolio, from 95% invested to 65%. As a result, very good money was made even though I, too, am kicking myself because I didn't make more. This was a sell signal during a Trend Indicator Uptrend state, so I use sell signals to reduce, but not eliminate my long positions. Now to your question. Since I have 65% at risk already I am in no hurry to increase the position unless there is a new high made and a reversal of the sell signal to buy. That will happen in another day or two if the market rises. At that time, I will increase back to 95% invested. Have been following your advice for some time and got out since your last sell signal. What happened these last three days? Left alot of money on the table. With the commodities going thru the roof I don't understand why the market is going nuts. What is your take? STEPHEN WOODALL FRED REPLIES The power does surprise me, but until we close above 1213 I'll stay where I am at 65% invested. I don't like the fact that I sold 30% any more than you do, but it can still prove to have been the right thing to have done and it certainly was the most prudent, win or lose. We'll have a new buy signal if just 3 indicators turn up, and they are bound to do so if the market gets over 1213, if they haven't done so already. We'll know before the opening Monday. Do you ever comment on foreign ETF possibilities that tend to be independent of the US indices and stock activity and look like promising investments for the near future? GARY KASTEL FRED REPLIES I look at the group, on a relative strength basis, every night -- but I just have not had the time yet to extend my coverage to include them. It is certainly in the thinking stage. One priority that is ahead of it is the expansion of sector coverage to include the Semiconductors and Energy stocks as I do with the XAU. Sunday, December 26, 2004 Just wondering what you think of the Dow Theory as an indicator. The Dow Industrials' December 21 41-month high close above its previous February 11 high close reconfirmed the bullish primary trend (though it did not signal a new bullish trend, according to the theory). Prior to that, there had been a divergence between the Industrials and Transportations, which had closed at an all-time high. Therefore, followers of the Dow Theory -- already no doubt committed to equities -- would be deploying more cash on pull-backs. Despite the venerability of Dow Theory, after reading your report for awhile now, I'm skeptical of the weight of any single indicator. Does the Dow Theory carry any weight for you in terms of market timing? ROB LOVE FRED REPLIES It's not a timing indicator -- it can be months or even a year ahead of itself. Or, it can be way behind as it is now, since the market has been rallying for months leading up to the Dow Theory buy signal. For example, let's say the market trades in a tight range of 200 Dow points up and down from today on. You would have to say that Dow Theory was right about the market, but there would be no profits. That said, it is useful when used as a contribution to one's general hypothesis about the market over the next several months based on both fundamentals and other technical indicators. Thursday, October 07, 2004 Tom Mcmanus from BancAmerica does great work, but he is usually one month early when he gets incrementally bullish/bearish. He got bearish right around the time of your sell signal, and it has backfired. My fundamental thoughts are hedgies have been trying to make up for lost performance and are whistling by the graveyard. I think when this rolls over it will be hard and fast! Thought? C O'GRADY FRED REPLIES I have called attention to the fact that the first five sessions of the month are frequently the strongest. Today is the last of the five for October. We'll just have to wait to see, but the market was acting toppy yesterday and closed just below the last high. I am bullish on the balance of the year, so after a pullback, I am expecting a rally that takes out all of the highs of the year and maybe even the 1170 high made a in 2002. Wednesday, October 06, 2004 I have a suggestion for you. Under a Summary Index sell signal, you have added a provision to declare a Quick Summary Index buy signal when the negative indicators go above 19 and then drop below 16. This happened last November. Similarly, you should also be able to generate a QSI buy signal when, under a sell signal, the positive indicators drop to 3 or less, and then go back up to 6 or more. This is exactly what has happened in the past two weeks. Perhaps such a condition would at least suggest that you should go long by 50% rather than being 100% short. MANUEL COSTA FRED REPLIES Thank you very much for taking the time to write with your suggestion. As you know I am planning to undertake some studies now that I have 6 years of data about the Summary Index. It is my intention to try to improve the returns it generates. Your suggestion definitely has merit and I will study it along with some others. Wednesday, September 29, 2004 I have been using your service for over a year now, and so far your buy signals have produced a 100% success rate for me. The last sell signal was great, but the previous ones were so-so. Looking back, the only difference i can see is the performance of the world markets during a sell signal. During a couple of sell signals there were as many as 3 to 5 foreign markets making new highs such as China, Japan, Taiwan, India, Russia, Canada, Africa, Mexico and a few others. With several foreign markets now on the verge of breaking out, such as Brittain, Austrailia, Canada, Mexico, France, Germany and a few others, It would seem that the success of this sell signal will depend on their performance during this signal. BRAD HOLLAND FRED REPLIES Thans for your observation and kind words. I will look further into the relationship between some of the international ETF's and the Summary Index's signals. Do you feel it is too late to invest into the metals sector at this time? JOHN FRED REPLIES The only way I can answer this is in general terms with respect to how I handle the Discretionary Technical Portfolio. I have no intention of selling the position in the Icon Basic Materials Fund, which includes a large metals component. Therefore, anyone who is trying to emulate that portfolio can buy it. However, this can change at any time. I will from time to time warn about a holding without taking action, like I did with the Icon Industrials Fund just this week. I have issued no warning about basic materials up to now. In fact, the gold/silver Index (XAU) has been particularly strong and just broke out to the upside. This is one of the things I look at in considering my position in the materials sector. Thursday, September 09, 2004 Do you use point and figure charts? They seem to make sense to me! PETER WAGNER FRED REPLIES For more years than you would believe, back in the 60's, I hand drew P&F charts on indices and around 200 individual stocks. I still find them interesting, and have written a program to generate them on the Fidelity Select Funds and some stocks, but rarely look at them anymore. They are just as useful at bar charts, but I never found the projections to be of any value to me. Any tool is no better than the operator using them, so for some they may work beautifully, but for me there are other tools that work better. Thursday, September 02, 2004 I trade individual stocks. Does the Summary Index sell trigger apply to the semiconductor sector, which has been decimated? -- PETER WAGNER FRED REPLIES The Summary Index is based on the S&P 500 primarily, but there are inputs from the NASDAQ. Since individual stocks and sectors do not necessarily follow the market -- some even move contrary to the market -- there is no single indicator system that can work for all of them. The good news is that I already have up and running a daily stock-by-stock analysis program for the NASDAQ 100 and the S&P 100 and will soon make that available, after I have written up the results of the study that led to its development. Wednesday, August 25, 2004 You probably have been asked this a thousand times, but what is your take on covered calls? If the stock goes down, doesn't that offset any premium that you received when you wrote the call? If it works so well, why don't the brokerage houses use it for their clients' retirement funds? Why do all these web sites push this? What do they get out of it? They just trying to generate interrest? -- PETER WAGNER FRED REPLIES Interestingly, from 1973 through 1983 I wrote a newsletter called EVM MarketWeek in which I focused entirely on stock options. As a matter of fact, when I started, the CBOE was just opened and mine was the only option letter in existance. For a full year, until everyone caught up, I was in demand as an instructor of brokers in the art of options. That aside, I believe that writing options against a portfolio of stocks has a definite place for those who hold stocks and plan to keep them for at least as long as they have options against them -- it does offer an enhancement to their income. However, it is a lot of work. One has to keep track of expiration dates and be ready to give up their stock or buy back the options when the stock goes up. The advantage is that if stocks go down the money received from the sale offsets the loss -- partially. As far as brokers doing it for clients -- no way, unless the commission income is high enough to cover their time. This means that it will only be done for large accounts. There are a few mutual funds that write options against their holdings. Gateway is one, and I did hold it for awhile during the rotten market in 2002. I found that they did not go down as much as most mutual funds, but they did go down. The reason most fringe websites push them is not for option writing, but for option buying, which attracts people who hope to get rich quick. In the long run, options buyers generally quit because their income is either too little or their money is eaten away by high commissions and frequent losses due to the volatility of the market. It is not unlike the typical fate of commodities speculators. 1. You mention that a decline on increasing volume will complete counterclockwise sell loops for the Price/Volume charts. Is it equally true that increases on higher volume will confirm the nearly completed clockwise buy loops of a few days ago, or does the backing and filling of the last few days render that signal moot and you start all over? 2. do you ever look at prior period volumes (say, August 2003) for comparison to see if today's volumes are meaningfully higher or lower or seasonally adjust the volumes? -- MICHAEL TCHEYAN FRED REPLIES I often make the distinction between a "classic" or textbook buy or sell loop and one that is merely a bullish or bearish pattern. If the volume increases and the market rises, it will certainly be a bullish pattern even though it would not qualify as "classic." For the purpose of the Price/Volume Charts, the volume is just relative to that which is occurring at the present. However, I do often post a chart that compares the 5-day average to the 12-month average to give an idea of how the present compares with past volume. I just posted that chart in the last few days. Monday, August 23, 2004 I have been afraid to re-enter the market. Can you offer any general advice in terms of a percentage or method I might use to re-enter the market gradually? Since I'm currently at 100% cash, I am fearful to lump-sum 85% of my funds into the market. I am thinking of buying only the SPY. Since I have no paper-gain profit cushion, any loss would be from principal. While I understand that you cannot give individual advice, could you offer any very general guidance for entering the market from a 100% cash position? ROB LOVE FRED REPLIES I think your instinct to start with a highly liquid vehicle is a good one. Using a large, heavily traded ETF like SPY, DIA and/or QQQ permits one to get in inexpensively and out very quickly if necessary. One method for entering the market from a pure cash position is to divide your anticipated investment into smaller amounts and buy a constant amount each month or each quarter until you are in as far as you plan. In that way you will buy more shares if the market turns against you since the price will have declined. Once you have some capital in the market, and if things are going in your favor, you will have an opportunity to choose a specific and hopefully longer-term investment while keeping some money in an ETF to permit you to adjust the total amount of the portfolio that is invested, if it appears that the market is going to be weak. You are correct that I cannot give you specific advice without knowing a great deal about your financial situation, but I hope these general comments will be of some value. Friday, August 20, 2004 It seems to me that Zwieg's 4% model should be adjusted to current levels of volatility. Is 4% advance/decline really enough to establish a pattern in today's market? To me, the figure should definitely be higher than 4%. Do you think trying to adjust this 4% figure to be a worthwhile exercise? -- DAVID HAROONI FRED REPLIESIf one were to alter the Valueline indicator according to the present volatility, one would have to extend the study back to the beginning and see what buy and sell signals were added or eliminated by changing the parameters. Perhaps one could apply a modification to the percent needed for a signal based on a current assessment of volatility maybe improve the returns from this indicator, but another method is to modify one's response to the indicator by the position of other indicators. That is the method I employ in my Summary Index. I prefer to look at a lot of indicators with decent past performance records and go with the majority. I think it accomplishes the same thing without fine tuning all of the individuals. One runs a definite risk in fine tuning -- it is possible to tune past the usefulness of the indicator. The process is called "over fitting" and it is often done when trying to optimize a stock selection system. I am presently involved with optimization of a system for buying NASDAQ 100 stocks and am dealing with this problem. I'll soon be writing a lot more about it. Since you have formulated the Summary Index, have there ever been any "triple dips," and if so, what have been the historical results? -- JIM MCGOWAN FRED REPLIES Not yet, and I hope it doesn't start now! Thursday, August 19, 2004 As you know, Sept-Oct period, historically, have been very weak, with major lows occurring during the late Oct time period. Given that fact, does that infor mean anything to your system generated buy signal or are you a bit cautious going into the buy signal. ALBERT QUAN FRED REPLIES I am always cautious :>) -- Very good question, which I will answer in detail in tomorrow's report. Thank you for the idea. Monday, August 16, 2004 Have you looked at or evaluated Elliot Wave analysis? Maybe you use some or all of the same principles. -- PETER WAGNER FRED REPLIES I have not been able to make effective use of Elliot Wave analysis. Like Fibonocci numbers, which also remain ellusive for me, they permit change of the parameters as the "signals" are reached, when the market does not react to them. I know that others swear by the technique, but I have not been able to profit from it. Monday, August 09, 2004 At the Dow's and S&P 500's current juncture, it seems almost impossible to identify a technical support level upon which most (or even many) market technicians are willing to agree. Some of the possible support levels I've recently heard or read seem completely arbitrary. I understand the basis for your recent prediction of possible near-term support - previous market bottoms on 10/24/03 and 12/10/04. However, I'm wondering whether, during your many years of experience, you have identified any long-term moving averages that tend to provide support after the market has broken down through the more commonly watched levels (20-day, 50-day, and 200-day). Over the past few days, I've heard a number of technicians paying homage to the 80-month moving average but, when I look back at charts from the past 75 years, I fail to see the significance of this "line in the sand". -- CLARK DUELLMAN FRED REPLIESExperience tells me that technicians rarely agree on anything, but traders often do. We are all programmed the same way and all respond to the inputs from a falling market with fear tempered with a desire to take advantage of the low prices. There are a few things that have happened repeatedly as the bottom is approached, and one of the most frequently seen is that more and more shares are dumped at any price as it gets closer to the end of the slide. This results in volume increasing, which has not really happened as yet. It also results in a great increase in new lows and declining volume, which has started to occur. The best I can do is to note the number of indicators that have fallen and wait for them to start to reverse to the upside. That takes the form of my Summary Index. For the short term, various moving averages and "lines in the sand" make themselves felt, and while far from certain, previous magic numbers come into play near the bottom. That is not to say that minor violations will not occur. One can only come up with a range and then note how the market is acting as that range is entered. That is what I am trying to do now. The 200-day moving average is about the longest period in which I have any confidence at all. The reason is that I don't believe traders have memories longer than that. It is truely mysterious how the 9-month cycle and the 200-day moving average are tuned so well to each other. Even though they are roughly the same number of days, there is nothing to prevent them from being out of phase by 100 days, and yet they are not. Both will meet at a potential bottom right after Labor Day, a point in the calendar that often sees spectacular increases in volume and in the market. It is known as a turning point month, not strictly up or down, but in this case since we have been weak for months it is a likely point for an upside reversal. So in short, technicians are affected by many observations about the market -- numerical, historical and instinctual. Let's hope this time is one when all three converge and the market responds with an upside reversal. That is my best educated guess, and I underline that it is still a guess. Thursday, August 05, 2004 Fred, the Baron Partners Fund has been underperforming vs. the S&P 500 for several months now. I realize you chose the fund for its hot track record but sometimes you have to reevaluate your decision. The fund is heavily weighted in just 4 stocks. It is way too risky in this enviorment. -- ARTHUR YOLLIN FRED REPLIES I get out of funds when the reasons for entering are reversed. My reasons were not that it was "hot," but that it was doing very well in both up and down markets relative to other funds and had a superb track record going back for many years. It has been underperforming the S&P for just under one month, since July 8, when it got hit by one of its education holdings and by Krispy Kreme. Hopefully the damage has been mostly done. Keep in mind that the fund does engage in short selling on a limited basis which may help it should the market continue to fall. If I were worried about the market here, I would be more likely to hedge it with an outside short position than to exit it at this time. When I have a reason to sell it from my personal account I will certainly say so in the reports. Monday, August 02, 2004 Is it possible to have a rally with the VIX and VXO so low? I am interested in what you have to say. ANDREI RACEANU FRED REPLIES I have to say that I am concerned that the upcoming buy signal will usher in a lukewarm rally. However, it is not just a single indicator that gives me concern -- many of the indicators are giving half-hearted positive signals. Sunday, August 01, 2004 Is there any empirical evidence on buy and sell signals based on the various loops from the Price/Volume charts? I.e. what is the average gain on trading a price/volume loop buy signal? Sell signal? What about the long term Price/Volume charts? I know they are just one indicator, but other indicators can be judged on results of their signals. Finally, could you point me to an explanation of the Goodman version of the Price/Volume charts? I thought you had explained once how you translated the loops into the more linear charts but I can't seem to find it. DAVID ZORN FRED REPLIES The original Benjamin Crocker Price/Volume Charts do not lend themselves to careful monitoring of results over years because they are transitory and subjective by nature. One would have to attempt to go back and interpret them and measure their efficacy to answer you question. I have always (over close to 40 years) used them as aids in trading -- not as the be-all and end-all indicator -- and have the overall impression that they are of help to me. However, the Goodman Price/Volume indicator does permit computer analysis of the results, the charts are easily reproduced over the past years and I have been heavily involved in doing just that for individual NASDAQ 100 and S&P 100 stocks starting with data from 1998. The results of that research have been implemented in the design of a trading system for individual stocks that I am about to introduce to readers starting in about six weeks. The testing system involves the optimization of parameters that permit the analysis of my Price/Volume indicator to provide buy and sell signals based on reading of charts that do not have to be drawn. The optimized parameters are then used in a test of trading the next six months of out-of-sample data -- price data that followed the optimization window. The preliminary results are excellent and I started paper trading the system on the first of July. All of the above will become clear to readers over the rest of the year, after that I expect to start real-time trading in January. The actual system will remain proprietary for the immediate future. However, it is based on the Crocker method of Price/Volume Charting. Thursday, July 29, 2004 Thank you for posting the MinMax Indicator. I have studied this indicator for a while now, and I think this it is very usefull. The way it's calculated, it sometimes give a false buy signal. MinMax is a way to show the stress the market is living with. Usually, high Minmax values are when markets have been declining. But like early 2000 and march 2003, the high MinMax was due to volatility because of a strong snap back by the market, not because of a decline. I would compute MinMax only if the past 10 or 20 days was a market decline. For buy signals, I would start considering only when indicator is at 1 standard deviation and higher followed by a 10% drop as you do. The indicator is more usefull for buys than sells. Your indicator is very usefull at finding the timing of major bottom with only a few days early or later. I think it has a lot of potential if you continue to fine tune it. how about trying 20 days? For sells, maybe a different rule than buys would be more useful. It's much more difficult to find something that might work. If i find something for MinMax for sells, I will let you know. -- JEAN-MARC MILETTE FRED REPLIES Thank you, Jean-Marc, for your analysis. I certainly will spend some time taking another look at the MinMax Indicator with your comments in mind and will post the results in the future. Sunday, July 11, 2004 I would to know where your 45-week Diffusion Index, based on Fidelity Select Mutual funds, is for the last week. I remember you mentioned that if it is below about 60%, the market would tumble. Also, may I ask for your opinion about the possibility of the market to re-visit the May low next week. -- JIN ZENG FRED REPLIES The Diffusion Index generally moves slowly. It stands at 86.8% and a sell signal will not occur unless it drops below 65%. I will certainly announce it in the report when/if it occurs. I have no specific indicator that can tell me if the May lows will be revisited or not. My expectation is probably not yet, but I would not count it out over the next couple of months. Wednesday, June 23, 2004 In today's report you say, "we are always ready to reverse engines and reduce the equity at risk at a moment's notice. To do so simply requires the sale of the positions in SPY and QQQ and even, if conditions warrant, the opening of a short position in one or both. We can take equity at risk down from 75% to 15% in 5 minutes, if we have to" Does that mean that I have to keep a vigil all the time the market is open to do the same thing, or there may be some kind of earlw warning from one or more of the indicators? -- SWAMI FRED REPLIES I cannot think of a time when I traded in the Discretionary Technical Portfolio without first reporting that I was considering a trade in that morning's report. Nor do I intend to do so in the future -- so there is no need for an early warning. If I am looking for something to happen during the day I will mention it in the report so there is time for all to act if they choose to. With so many indicators currently neutral and the S&P500 within 3% of it 200dma; why would you not reduce your holdings by more than 25%? At 14.50 (and without any changes a turn back up next week at 12.70) we are very far from a SI Buy Signal. Is it your belief that we will drop below 4.5 and be in position to generate a buy signal without the market breaking out to the downside? -- NANDAN FRED REPLIES I have answered it in detail in today's report. If you have further questions after reading it please let me know. Some time back you published the historical macro movement of the market, and opined that the state of the market at that point fit the pattern as part of a "hesitation" phase. You pointed out how, in the past, these hesitation states invariably preceded a resumption of upward market movement. I would be interested if the current market continues to behave according to the "hesitation" pattern, or if it is now behaving contrarily to the historical model. Needless to say, there are no guarantees, but your assessment of the historical trends seemed like it pointed to probable repeatability.-- DINO VALLONE FRED REPLIES Thanks Dino, for reminding me of that chart from the March 1 report. After reviewing it I think we are still in the "hesitation" phase, since I don't remember a "manic" stage. Although there are some writers who would maintain that we are in it now. It would certainly fit in my overall view if there were a major rally in the course of the next six months followed with a sizeable decline. We'll just have to wait and watch. Wednesday, June 16, 2004 I have been somewhat reluctant to act on the last few sell signals. Especially in light of your recent analysis on Marty Zweig's 10-day average advance/decline ratio and the average returns after 3 and 6 months. I wonder if you have done any research on the success of sell signals when the 200 DMA is going up versus the success of sell signals when the 200 DMA is going down. -- GERALD GITCHELL FRED REPLIES I haven't separately studied signals based on the condition of the 200DMA, but in general, my reaction to the current drop in indicators, while we are well entrenched in a trading range, is to use it as a signal to decrease portfolio volatility rather than to attempt to make profits on a decline in the market. There is no reason now to expect a penetration of the lower border of the range, but there is even less to expect an upside penetration. For me, I will stick with 75% in equity until there is a reason to expect a breakout. Friday, May 07, 2004 There is a SI buy and now the negative indicators are very close to a QSI buy signal yet, in the Volume -Enhanced which is very bearish you say we must be ready to exit. This is confusing as the indicators will need to go more negative to give a QSI buy yet, the Enhanced is telling me to exit? Which to I go with? -- GUS BANDEMER FRED REPLIES I am not surprised that there is confusion, with the market in a trading range there is little to rely upon until there is a breakout up or down. However, the Smart Money Indicator and its Volume-enhanced version serve as just one indicator out of the total of 29. Always pay attention to the SI and QSI for direction the details are of interest, but the main indicators for the intermediate term are SI and QSI. Short term are the Price/Volume Charts. There will be a QSI buy signal if the number of negative indicators decrease from 19 (where they were earlier in the week) to 16 or fewer. Since there is already an SI buy signal, this will merely confirm the buy we already have Thursday, March 18, 2004 Strange comment on insurance in your Thursday report. One normally buys enough insurance (house, car) to protect the total amount invested or the replacement cost. Protecting 14% of the investment does not really represent insurance, but is rather a kind of fence straddling. -- DAVE FRED REPLIES In my opinion, there is not enough life insurance that I could buy on my life that I would consider to be enough, and in investing, there is the argument that you can't keep your long positions and then go short enough to protect them from losses, and in addition insure yourself against the lost income that would have accrued if the market were not falling. The question is, how much insurance are you going to buy? Each must answer that question personally. The answer will depend upon your position in life in terms of both years and the size of your portfolio relative to your net worth and income requirements. In the Discretionary Technical Portfolio my answer is just enough to protect from severe losses in a downturn unless I anticipate an extended and extreme decline. However, our indicators are overextended to the downside in number, and many are in the process of reversing, so I do not see a sustained decline without a positive reaction first. Those who wish to take on more risk for the possibility of higher gains should the sell signals be extended in time and degree, can invest in part or entirely in the two "always invested" portfolios that are either 100% long or short the QQQ's or SPY. Monday, March 15, 2004 I have been following your always-on summary index for the past few months and it's been giving rather bad signals. Can you please explain why this is happening after years of good record? -- JONAS LING FRED REPLIES That is the million dollar question. Not only has this been a difficult period for the Summary Index, but it has been difficult for almost all of the components and for the many new indicators that I continue to study and monitor. It has also been difficult for other technicians that I read about as well. That said, I have every confidence that we will be back on track very soon, perhaps as we speak, for that matter. All technical systems rely on the transition from uptrend through trading range to downtrend and back. Unfortunately for technical analysis, the last year has had only updtrend punctuated by a couple of trading ranges -- the worst environment for a technical system. Thank you for your tenacity in sticking with the program, I believe it will pay off in the long term. I have no intention of changing my methods. I do not understand the basis for this statement from your most recent report: "The Commitments of Traders for the NASDAQ 100 appear to be calling for further weakness." It looks to me like the commercial hedgers ("smart money") have accumulated a very large net long position on the NASDAQ 100, rivalling that found at market bottoms in the past --- e.g., March 2003 (roughly 9,000 contracts!) as this chart at http://www.vtoreport.com/sentiment/cot.htm shows. Now, you could make the case for the NASDAQ going down based on other things (trend, etc.), and typically the commercial hedgers take their positions before a market bottoms and sell/short while it's still going up. But I simply do not understand the basis for your statement from the COT data. In fact, the COT data is saying precisely the OPPOSITE. Is there something I'm not seeing here?? -- AARON COHN FRED REPLIES The line you quoted is from the "At a Glance" section of yesterday's report. There is a lengthy explanation at the very bottom of the report in which I have made some comparisons with the past. There is a distinction to be made between the small speculators, the large traders and the commercial traders. The small speculators are the ones considered to be almost always wrong, and they are playing a very small role in the procedings at the present. The commercial traders are assumed to be just "fading the bets" of the other two classes, which makes the large traders the prime movers at this time. That said, the large traders are doing exactly the opposite from what they were doing at the beginning of the rally in March. then they were buying with both fists, now they are selling in even larger quantities. Also, the commercial traders have been long three times in the last two years. Now, and twice during the slide in 2001-2002. In both instances the market was sliding, or about to. As a result, I am very skeptical of the significance attached to the commercial long positions. There is more to be read by visiting the section on COT in Key Indicators for Investment Success. Tuesday, March 09, 2004 Could the strength for the first five days of the month be from 401K administrators putting the cash to work into mutual funds from the payroll deductions taken on the 15th and last day of the month? Is there also strength from the 16th to the 20th? Or maybe the funds from the 15th are held in escrow and released to the portfolio managers at the end of the month. And as far as seasonality goes with 401K funds being put to work, the highest amounts would probaby be in the first 3 to 4 months of the year until many employees hit the maximum allowed by law. -- JIM STOECKER FRED REPLIES If you look at the chart in the December 4th report you will see that there are two double peaks -- a big one on the 30th and 1st, and a smaller one on the 11th and 14th of the month. Each point represents the average for the day and the next four days following, so rising prices are seen in a range from the 30th throuth the 5th and from the 11th through the 19th. It is certainly possible that you are correct in thinking that these peaks are related to the 401k deposits, but whatever the cause, the phenomenon appears to be real. Tuesday, February 24, 2004 Please explain how to handle the present situation with the QSI and the 4% stop loss. The QSI buy signal was given on 2/11/04 when the QQQ's closed at 37.58. My understanding is that if the Q's fall 4% below the highest subsequent close (which in this case is 37.58 less 4% = 36.08) then I am to close out my long position and sell short QQQ at that time. Since the Nasdaq and the S&P have bifurcated of late is it possible the signals for the S&P and the Nasdaq may also be different? If QQQ were to be stopped out but not the S&P we theoretically will have QQQ short and the SPY long. Please let me know if I am correct in this assumption. -- RICK FRED REPLIES The QSI stop-loss is based on the S&P, not on the QQQ. So, the stop loss for the QSI buy signal is still at 1111.45, and we are still far from there. I will use QQQ for any short activity in the Discretionary Technical Portfolio because the NASDAQ has been weaker than the other indices for some weeks. It is more likely that the QSI buy signal will end when the SI drops below 4.5, than because of a violation of the stop-loss, but either is possible. When (if) that happens we will reverse the two automatic portfolios, but in the DTP it will depend on the technical conditions that present themselves at the time. So, in answer to your specific question, there can be no different treatment of SPY and QQQ in the two automatic portfolios, but there can be in the DTP which is based solely on my discretion. Wednesday, February 18, 2004 You mentioned in today's report the importance of the 1170 area on the S&P 500. I just wanted to share with you some potential heavy resistance areas. You may already be aware of this. SPX 50%
retracement from the 2000 top: 1160.75 It appears momentum has topped while prices are still inching higher. We are entering a favorable seasonal period from Feb 25 to March 7. We'll see what happens. Keep up the good work. Thanks. -- ALBERT QUAN FRED REPLIES I totally agree that the 1170 area is key to whether we are going to make further gains or retrench for a while first. I think this will be resolved to the upside, but it could take weeks or months jockeying around before we get through. Monday, December 22, 2003 I'd like to hear your ideas on concerning the decline of the dollar with it's relationship to the stock market's advances. Has the real advance of the market has been diminshed by this weaker dollar? If so, over all, how much do you think? -- DAVE WILKINS FRED REPLIESÂ Â Â For those of us living in the US there is no reduction of the gains made here from the market in terms of our lifestyle. However, the decline of the dollar certainly affects our ability to travel and import things since the cost in dollars has risen. The low interest rates have played a big role in the decline of the dollar and the result of the process is likely to be inflation here at home. A possible advantage has accrued from our investments in foreign stock markets because their stocks have appreciated more in terms of dollars than they would have otherwise. Wednesday, December 03, 2003 As you have pointed out, you got a sell signal in August, and the S&P 500 has been fairly lackluster over these past few months since then. However, it seems to me that the S&P 500 has been lagging quite a bit the smaller cap indicies. I know you've pointed this out, especially when you purchased the RSPFX fund. One of the indicies that has done particularly well has been the MidCap 600, which has ishares with symbol of IJT. Since August, depending on what date you choose, it's up at least 20%. I've also seen a number of articles where folks have pointed out that the S%P 500 has underperformed the market quite a lot over the past few years because of some of the choices that the index managers have made. For instance many of the smaller cap indicies are at all time highs, while the Dow and S&P 500 are nowhere near all time highs. Does it make sense to start looking more at some of these smaller to midcap indicies, and are you considering that going forward? These actually seem more representative of the overall market performance. What do you think about the divergence between the Dow, S&P 500 and the smaller cap indicies? -- BILL KAMPS FRED REPLIES I have indicators based on the Russell 2000, Mid-Cap 400 and the ValueLine Indices in addition to the NASDAQ, Dow and S&P 500. I use the S&P as my primary benchmark, but the others play a role in calculating the Summary Index. While it is certainly true that the small cap and NASDAQ have been leading the show of late, they will respond along with the S&P to the SI. Since there is no free lunch, investors will pay a price for the opportunity to make bigger gains trading small cap stocks. That price is an increase in the volatility of their portfolios. It is for that reason that most investment managers recommend a mixture of sectors and investment classes in designing a portfolio. For that reason I have chosen to mix Asia, Gold, small cap, bonds and cash in designing the Technical Portfolio. Wednesday, November 05, 2003 I wrote before about means to use the Summary Index as a timing signal other than the simple crosses above or below the 4.5 and 17 level. I still haven't found any method that gets a greater profit for the S&P since the beginning of 1999 than the one you're using. But I cant trade that method, since it's not my style and I dont have the patience or t |