STOCKS & COMMODITIES magazine. The Traders' Magazine

Article Archive For JUL1991

  • Analyzing Volume For Consolidations And Reversals by Thom Hartle

    ARTICLE SYNOPSIS ...Analyzing Volume For Consolidations And Reversals by Thom Hartle Markets move from one price level to another as trends. Once a trend has been established, technicians tend to continually analyze the market searching for clues about the current status of the trend. Is the trend beginning to weaken? Will the trend be reversed? Or will the market consolidate and then resume the trend? A market that has had a sustained advance will typically enter into a trading range. How can you ascertain whether the trading range is a consolidation or a reversal? Analysis of the volume and the price action is...

  • Arms On Arms by Thom Hartle

    ARTICLE SYNOPSIS ...Arms On Arms by Thom Hartle STOCKS & COMMODITIES readers may already be familiar with the work of Richard Arms, inventor of the Arms index and Equivolume charting, author of many books, a 30-year veteran of the stock market and contributor to STOCKS & COMMODITIES. Editor Thom Hartle interviewed Arms via telephone on April 22,1991, about the importance of volume in analyzing the market, volume cyclicality and his methods of individual stock selection. ""If the market wore a wristwatch, it would be divided into shares, not hours."" -- Richard Arms...

  • Asset Management Funds In Review by Charles Idol

    ARTICLE SYNOPSIS ...Asset Management Funds In Review by Charles Idol Many small investors would be grateful for a service that adjusted their portfolio for diversification and modified the mix to meet the changing financial climate. While money management services have been available for such services, usually they required a substantial portfolio and charged a hefty fee. These barriers were hurdled in 1989, when Vanguard and Fidelity, the giants of the mutual fund industry, among others, introduced money management funds. Enough time has passed to permit evaluation of their performance. How did they do? Vangua...

  • Computing Cyclic Entries by John F. Ehlers

    ARTICLE SYNOPSIS ...Computing Cyclic Entries by John F. Ehlers Knowing how to compute entry points for your trades exactly at price crests and valleys when the market is in the cyclic mode can be advantageous. In fact, the procedure can be adjusted to anticipate price extremes so you can make your entry precisely at the extreme. Alternatively, the procedure can also be adjusted to delay the signals slightly as insurance against whipsaws. The market has several identifiable modes, among which are trends, seasonals, pure randomness and short-term cycles. The procedure I am proposing is intended for use only when ...

  • Dow Theory Confirmation And Divergence by Richard L. Evans

    ARTICLE SYNOPSIS ...Dow Theory Confirmation And Divergence by Richard L. Evans According to one of the most important tenets of the Dow theory, the Dow Jones Industrial and Transportation Averages must confirm each other to be able to derive forecasting significance from them. In The Dow Theory, originally published in 1932, Dow theorist Robert Rhea states: ""The movements of both the railroad and industrial stock averages should always be considered together. The movement of one price average must be confirmed by the other before reliable inferences may be drawn. Conclusions based upon the movement of one avera...

  • How Accurate Is Sentiment? by William Lansburg

    ARTICLE SYNOPSIS ...How Accurate Is Sentiment? by William Lansburg Of all the tools that technicians use in trying to predict the future of the stock market, one of the most common is the sentiment index. Basically, the theory behind the sentiment index holds that it is best to be a contrarian. The theory states that whenever a high percentage of investment advisors are bullish, the market should decline, and when a high percentage of investment advisors are bearish, the market should move up. Some say ""the high percentage"" should be 60%, while others argue it should be lower, at 55%. Let's examine the sentim...

  • How interest Rates Affect Stock Prices by Mark C. Snead

    ARTICLE SYNOPSIS ...How lnterest Rates Affect Stock Prices by Mark C. Snead The basic theoretical relationship between changes in long-term interest rates and stock prices is inverse. Falling interest rates signal rising stock prices, while inversely, rising interest rates signal falling stock prices. Changes in interest rates affect stock prices inversely for two distinct reasons. First, as interest rates fall, corporate borrowing costs (to fund expansions, acquisitions, inventories and so forth) decrease, and the outlook improves for future corporate profits. Investors view stock ownership favorably when corp...

  • Letters To S&C

    ARTICLE SYNOPSIS ...LETTERS TO S&C REAL-TIME FAIR VALUE? Editor, In the July 1991 issue of STOCKS & COMMODITIES you published two letters concerning Jean-Olivier Fraisse's December 1990 article, ""Clues to market direction with the S&P 500 premium."" Mr. Fraisse noted in the July issue that the easiest way to get the fair value and program levels was through Financial News Network. There are two potential problems with Mr. Fraisse's comment: 1) What if the reader does not have access to FNN? and 2) The fair value is not constant during the day; it varies in relation to the price of the cash S&P 500 index. How...

  • Predicting The Market With Unreliable Sources by Van K. Tharp, Ph.D.

    ARTICLE SYNOPSIS ...Predicting The Market With Unreliable Sources by Van K. Tharp, Ph.D. Joe trades Standard & Poor's 500 contracts, and at the moment he is in a quandary. He looks at a chart of the market and wonders what he should do. The market looks as though it's in an uptrend. But perhaps it's gone as high as it's going to go, and it might be topping out. On the other hand, the pattern looks bullish. What will the market do? If it moves, will it be a strong enough move for Joe to make a major profit? The difference between luck and skill can be difficult to distinguish when it comes to market predictions,...

  • Random System, Loss Control? by Mark Harris

    ARTICLE SYNOPSIS ...Random System, Loss Control? by Mark Harris In his Settlement column in the January 1991 issue of STOCKS & COMMODITIES (""Trading simply: Minimizing losses""), Technical Editor John Sweeney says, ""I haven't tested a random set of rules yet, but I wouldn't be surprised if they worked given good loss control."" I thought it might be interesting to check out a very random system with a certain degree of loss control. I'm hedging on this a bit because the system I've set up literally only gives a degree of control over losses. The basic idea of the system is as follows: On some randomly chosen ...

  • SIDEBAR: EASE OF MOVEMENT

    ARTICLE SYNOPSIS ...EASE OF MOVEMENT This indicator is an oscillator designed to reveal the direction that a stock or commodity is moving with the least amount of resistance. First, calculate the midpoint movement (MPM):...

  • SIDEBAR: EQUIVOLUME CHARTING

    ARTICLE SYNOPSIS ...EQUIVOLUME CHARTING Equivolume charting is a method of charting developed by Richard Arms based on the principle that the market is a function of volume, not time, and so gives more emphasis to volume than traditional bar charts. Equivolume charts put volume rather than time on the horizontal axis and depict each day as a box. The bottom and top of the box represent the low and high for the day, while the width is the volume of shares or contracts traded during that day. The shape of the box generated is thus a visual representation of the relationship between price range and volume. Tall, th...

  • SIDEBAR: THE ARMS INDEX

    ARTICLE SYNOPSIS ...THE ARMS INDEX The Arms index, also known as TRIN or Trader's Index, was developed by Richard Arms in 1967 to indicate when abnormally high volume is accompanying either advancing or declining stocks. The index is based on the assumption that volume tends to swing in the direction of market sentiment. If we are in a bullish atmosphere, volume will tend to be proportionately higher in the stocks that are going up. If the bears are in control, the volume will tend to be proportionately heavier in those stocks that are declining. The formula is a ratio of two ratios:...

  • The Summer Rally: Fact Or Fiction? by Arthur A. Merrill, C.M.T.

    ARTICLE SYNOPSIS ...The Summer Rally: Fact Or Fiction? by Arthur A. Merrill, C.M.T. The ""summer rally"" appears in some years and is completely absent in others. Does it deserve its name? I've consulted the record back to 1885 and find that there is a good case for a bullish bias in July and August, the summer rally season. To test the theory, I divided the two months into six parts of approximately 10 days each. The years in which the market rose were counted in each 10 day period. The results are in Figure 1. The first 10-day period had the best record, rising in 69.5% of the years. That period includes the ...

  • What Is A Trend, Anyway? by John Sweeney

    ARTICLE SYNOPSIS ...What Is A Trend, Anyway? by John Sweeney A reader reacting to the Settlement article in January on trading basics (Settlement, ""Trading simply: Minimizing losses,"" Stocks & COMMODITIES, January 1991) asked a key question: What is a trend? How do I identify it when I'm trading? (Personally, I use dual moving averages.) Most of us could think of a number of ways of defining trends, but it fascinates me what our analytical methods tell us about our own thinking. Typically, our thought of ""trend"" amounts to no more than drawing lines upward or downward. I think it should also encompass drawin...







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