Posted on 11/15/2002 4:29:31 PM PST by rohry
Market WrapUp for the Week Week in Graphs Storm Watch Geopolitical News Energy Precious Metals Raw Materials Friday, November 15, 2002 Around and Around and Around In general, there has been significant volatility on specific stocks and commodities, but in the overall market we are in a strange holding pattern. I also notice disjointed movements. The stock market has been going up on bad economic news and today just the opposite as we got good consumer sentiment numbers from the University of Michigan, but the market barely moved. My favorite disconnect for the week was watching on Thursday to see the SOX (Semiconductor) Index blast off for a one-day gain of 8% (thats huge!), and the very next day Merrill Lynch advised investors to sell semiconductor shares. They downgraded Intel, PMC-Sierra and Analog Devicesgo figure. If you made your 30+% on Intel over the last month, my hats off to you!! All I can really visualize in my minds eye are these huge blocks of money running around trying to find a home. The stock market has gone sideways, T-bonds made a big dive, bounced right back, and are now headed down again, the dollar has stabilized for now, and commodities have softened a bit. I get this eerie feeling that were in limbo-land just waiting for something to happen. I somehow believe that this is the calm before the storm. A month ago we got through the earnings season for third quarter, then the Feds Beige Book with rough economic news, then on to party time with elections and the Fed rate cut. Shifting Our Attention. . . The easing of war worries quickly came to an end with warnings from the FBI that Al-Qaeda might be planning some spectacular attacks that would feature high symbolic value, mass casualties, severe damage to the US economy and maximum psychological trauma. These potential occurrences do not bode well for the US financial markets. It will be very difficult for the stock market to continue its gains with so much uncertainty. As a matter of fact, it appears that the threats are hurting both the dollar and treasuries. Thursday and Friday the treasury market sold off, the dollar was down on Friday, and stocks barely squeezed out some gains. Once again, stay on guard for the days where we see a lower close on all threethe dollar, stocks, and bonds. That should be the indication that the stock market is going to accelerate to the downside. Two Steps Down, One Step Up
Since we know that the markets never go straight up or straight down, lets take a look at the last five moves to the upside versus the last five moves to the downside. If you were to enter into a trade on either the long side or the short side over the last two years, you would have five entry points and five exit points. The average trade would have lasted a little over five monthsfive trades in 27 months. If you were perfect in timing the bear market rallies over the last couple of years you would have gains of 75% and for bear market downturns the gain would be 105%. Your gains would also have been magnified depending on how much leverage was used based on personal risk tolerances. I dont like excessive risk, so I choose to use an investment vehicle that produces double the gain or loss in the specified index, therefore 2:1 leverage. It is also not very practical to think that we can nail it right at the top or the bottom, so I throw in an error factor of 20%. My goal is to be within 10-20% of the highs and lows to determine entry and exit points. If I am successful with my 20% rule, I will enjoy the 60% gain in the middle of the broad market swing, multiplied by the 2:1 leverage. Using the numbers above, to trade the rallies I would have seen 60% of the 75% gains = 45%, doubled with leverage equals a 90% gain over 27 months. On the short side, 60% of the 105% gains = 63%, doubled with leverage equals 126% gain in 27 months. In the past I have used the cliché, The trend is your friend. The numbers above demonstrate the accuracy of the cliché. Assuming that we are in a primary bear market, you would have made more money to enter into trades that were in the same direction as the primary trend. It is not only more profitable to trade in the same direction, but it is also safer. If you try to trade the counter-trend rallies, it is easier to get burned by some unexpected news release. As it stands, there is a greater likelihood of negative surprises than there is for a sudden burst of increased earnings. Have a Plan Overseas Markets Asian stocks rose, led by exporters including Sony Corp. and Quanta Computer Inc., after a U.S. retail sales report pointed to faster growth in the world's largest economy. Japan's Nikkei 225 Stock Average gained 2.4% to 8503.59. Copyright © Michael Hartman |
Probably the last party before we head into the full Kontratief winter. And Al-Qaeda is willing to take a blame for it by threatening to destroy American economy with terrorism. Such a selfless act to save Greenspan.:)
To the bathroom?
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