STOCKS & COMMODITIES magazine. The Traders' Magazine

Article Archive For OCT1990

  • Can Stock Fundamentals Protect You? by Lewis Carl Mokrasch, Ph.D.

    ARTICLE SYNOPSIS ...Can Stock Fundamentals Protect You? by Lewis Carl Mokrasch, Ph.D. To use fundamental information to find the characteristics of crash-proof stocks, I correlated the price action of stocks during the October 1987 crash with their fundamental statistics. I used data from Barron's and the Media General Financial Weekly Market Digest to select two groups of stocks--one whose prices fell more than 5% in the crash (the Decliners) and another whose prices fell less than 5%, or even rose (the Nondecliners). Figure 1 gives those statistics for which there was no significant difference between the mean...

  • Early Trend Identification by John F. Ehlers

    ARTICLE SYNOPSIS ...Early Trend Identification by John F. Ehlers Impressive profits can be accumulated just by staying with a position during a trend. We would all be millionaires if only we could identify the trend early in its onset. While the trends are obvious in retrospect, it's another matter altogether to identify the trend in the heat of battle. Not only that, there may not be a trend at all at the time we expect one. If we make a reasonable mathematical model of the market we can examine it parametrically. The conclusions we draw from this model can help us establish our entry points and strategies for...

  • Is The DJIA A Defective Indicator? by Max Bader, M.D., M.P.H.

    ARTICLE SYNOPSIS ...Is The DJIA A Defective Indicator? by Max Bader, M.D., M.P.H. The Dow Jones Industrial Average (DJIA) is the most popular and commonly quoted of the stock market averages used to measure market activity. This is due mainly to its long history as a market measurement index rather than to other strengths. Today's DJIA differs considerably from that of previous years, a fact not generally recognized by its adherents. Currently, the DJIA is composed of 30 large-capitalization stocks initially selected to represent the major components of U.S. business. Together, their sales represent about 20% o...

Letters to S&C

  • Market Forecasting Model: ARIMA by Albert E. Parish Jr., Ph.D.

    ARTICLE SYNOPSIS ...Market Forecasting Model: ARIMA by Albert E. Parish Jr., Ph.D. Numerous statistical and time series techniques have been adapted for use in modeling futures prices series by using the microcomputer. One such model is the AutoRegressive Integrated Moving-Average (ARIMA) method. Let us demonstrate the use of the model in trading by applying it to the Chicago Board of Trade (CBOT) wheat contract. Some background in time series analysis is necessary before we can discuss the specifics of ARIMA modeling. If Pt represents the closing price, let Pt be the CBOT wheat contract on day t. On any given ...

  • Measuring Volatility by Jean-Olivier Fraisse

    ARTICLE SYNOPSIS ...Measuring Volatility by Jean-Olivier Fraisse Are financial markets becoming more and more volatile? Can they still attract the small investor, even with such impressive fluctuations in daily prices? Is program trading a source of additional volatility? While the media emphasize the wide swings that periodically occur in the financial markets, most academic studies have concluded that recent price volatility is little changed compared with that of previous years. Why the confusion? The media look at absolute price changes, while academic studies correctly assess volatility through the percenta...

  • Negative Volume Divergence Index by Arthur A. Merrill, C.M.T.

    ARTICLE SYNOPSIS ...Negative Volume Divergence Index by Arthur A. Merrill, C.M.T. The Market Technicians Association has selected the late Paul Dysart for their 1990 annual award ""for outstanding contribution to the field for technical analysis."" Analyst Jim Alphier, in a report supporting the award, wrote: ""The jewel in the crown of Dysart's indicators was his Negative Volume Index. It was largely--but by no means exclusively--his interpretation of this statistical series [that] allowed him to compile his unheard-of forecasting record between 1946 and 1967."" Dysart called the indicator AMOMET (""a measure of ...

  • Reversal Patterns by Melanie F. Bowman and Thom Hartle

    ARTICLE SYNOPSIS ...Reversal Patterns by Melanie F. Bowman and Thom Hartle Market prices, as one well-worn adage points out, are trapped in a two-dimensional world with little directional leeway. They are either climbing up, dropping down or moving sideways. And, the fact is, there is no refuting this simplistic truth. Prices distill the complex interplay of supply and demand, the collective fear and bravado of sellers and buyers, and lay it out as up, down or sideways. The art of chart analysis lies in deducing whether a particular motion signifies that buyers' demand or sellers' supply is predominating. Pri...

SIDEBAR: Calculating the standard deviation of closing prices

  • SIDEBAR: Calculating the standard deviation of the percentage change in closing prices

    ARTICLE SYNOPSIS ...SIDEBAR: Calculating the standard deviation of the percentage change in closing prices Calculating the ratio of two sequential prices in Lotus is straightforward. The natural log function is preprogrammed as @In(). The standard deviation of the logs can then be calculated with the @STD() function. Since the denominator in the @STD function is n rather than (n-1), the result should be multiplied by the square root of n/(n-1) and further annualized with the proper A factor....

  • SIDEBAR: Model identification

    ARTICLE SYNOPSIS ...SIDEBAR: Model identification ARIMA models are specified by defining three parameters q represented by the variables p, d and q. Mathematically, this is expressed with the notation ARIMA (p,d,q), where. . ....

  • SIDEBAR: Relevant formulas

    ARTICLE SYNOPSIS ...SIDEBAR: Relevant formulas This sidebar gives the formulas and an example showing how to detrend wheat contracts, page 401....

  • SIDEBAR: Sample Selection Method

    ARTICLE SYNOPSIS ...SIDEBAR: Sample Selection Method This sidebar gives a selection of decliners and nondecliners that were used in the article, ""Can Stock Fundamentals Protect You?""...

  • SIDEBAR: Summary statistics

    ARTICLE SYNOPSIS ...SIDEBAR: Summary statistics Summary statistics can provide most of the relevant statistical information for a stock option or commodity contract. In particular, the mean ut is the expected value of the closing price on day t and represents an average measure of the closing price; the standard deviation st is a measure of dispersion about the mean on day t; and the autocorrelation function r(t,s) is a measure of the dependence between the closing prices on days t and s....

  • SIDEBAR: Weighting schemes to computes implied volatility

    ARTICLE SYNOPSIS ...SIDEBAR: Weighting schemes to computes implied volatility This sidebar lists the types of weights based on volume, distance in- or out-of-the-money, and volatility....

  • The Broadening Formation And The Bond Market by Thom Hartle

    ARTICLE SYNOPSIS ...The Broadening Formation And The Bond Market by Thom Hartle Trading the bond futures market offers opportunity to the skilled chartist because a diversity of price patterns occurs over time. In reality, chart patterns are accumulation, distribution, consolidation or trending periods. If you are able to accurately recognize an accumulation period -- that is, demand, support or a price bottom -- and are positioned (long) for the markup in prices (an uptrend), then the accuracy of your work can be quite profitable. The same can be said for correctly appraising a distribution period (otherwise kno...








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