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Yuki,
Last weeks Business Week magazine featured an article on "The most
powerful Trader on Wall Street".
Steve Cohen of SAC Capital Advisors... Hedge Fund operator was the
feature.
Aside from validating many of your speculations regarding
institutional activity, the article pointed out several specific
techniques that the big players use to manipulate prices in their favor.
But for us little guys, it is a puzzle trying to figure out the tricks
that the big guys are playing with our basket of stocks.
I hinted in an earlier post that I personally look for linear
relationships in my backtesting.
To date, I have neither searched for nor stumbled across any
particular pattern associated with institutional holding figures that
indicate anything significant in my own backtested trading systems.
However when I see BETA figures that show a relationship to DOLLAR
volume of trading activity THEN my curosity is stimulated. Does the
preceeding mean anything? Don't know yet.
The trading systems that do work for me all demonstrate linear
relationships in the filtering that I use. In other words, once I
notice what appears to be a linear reationship measurement, then I
'turn the dials' on that aspect of the measurement to see if it reacts
predictably or not.
BTW... BusinessWeek magazine is the ONLY publication I've found that
consistantly reveals new insights to business activity that mean
anything to my own personal understanding of trading. Probably a
fruitless commentary on my part!
Regards,
Phsst
--- In amibroker@xxxxxxxxxxxxxxx, Yuki Taga <yukitaga@xxxx> wrote:
> Hi Al,
>
> Sunday, July 20, 2003, 9:25:05 AM, you wrote:
>
> AV> That was a neat story, albeit anecdotal. Very interesting. I
> AV> remember years ago, when I was interested in O'Neil's CANSLIM
> AV> method of trading, that he used to recommend SOME institutional
> AV> ownership, but not a huge amount. He favored (and still does, I
> AV> think) lower cap stocks with huge growth potential. You seem to
> AV> be saying the opposite: institutional ownership is good, and the
> AV> more, the better. Am I interpreting you correctly? Doesn't a high
> AV> degree of institutional ownership result in diminished
> AV> volatility, to the point of being less tradeable since the stock
> AV> moves ever so slowly? Apparently not, at least in your case with
> AV> Softbank.
>
> Thanks for the kind words Al. Not sure what I'm saying. ^^_^^ As I
> mentioned in another post, I never have really been able to sort the
> characteristics of "orderly" and "disorderly" stocks into anything I
> could profit from. Too many overlapping traits I guess. But the one
> thing I will go one record suggesting is that "orderly" stocks *tend*
> to remain so, and vice versa. The Softbank case is an exception to
> that of course, and I grope for an explanation. That was one
> possible attempt at one, and probably not a great one.
>
> I think a high degree of institutional ownership results in
> diminished volatility at periods where the market has found a level
> it's generally comfortable at. But of course when the institutions
> are dumping or buying, you can then get just the kind of rather
> sustained trending activity that everyone seems to like -- at least
> everyone who knows how to play that kind of situation, which is a lot
> of folks. So I would guess it's really a question of whether you
> think a market is in transition, or rather static. If in transition,
> I want the same stocks the big guys want, or I want to short what
> they want to dump. If it's static, what works? (Not much, or at
> least not much real well, sadly.) Maybe the best bet for trading in
> a fairly flat market would be stocks that have high institutional
> ownership, which might be likely to remain in some fairly well
> defined channel that could be played. And I'd want stocks like that
> with a beta greater than 1 probably, more likely in the 1.4 to 1.6
> range. A hypothesis anyway, and the beta number is simply the range
> of the ones that I trade successfully, and it may be a number that
> has more meaning in Tokyo than in New York or elsewhere. (I think we
> tend to be more volatile here on average, than in the US.) In any
> case, nobody would be too interested in trading beta 1s in a flat
> market I'd suppose.
>
> The interesting thing to me regarding the US market is that it really
> hasn't *really* flattened out for very long, something I'd like to
> see before calling a new bull. Maybe from this point we'll see that,
> as I think earnings need to catch up with prices, and maybe they'll
> catch up just enough to keep a floor under this, but not fast enough
> to lurch it higher for a while. It's also possible I'm just not
> zooming out far enough to see the "flatness". The next 4 to 6 months
> should be really interesting, as if the market isn't always
> interesting anyway. ^^_^^
>
> Just read the note by Phsst, and the beta question is very
> interesting. Think about institutions for a minute -- especially all
> the mutual funds out there with very heavy trading activity by the
> managers. A lot of these folks are really anything but static
> holders. They have the money to move large issues repeatedly back
> and forth between certain ranges, and I'm sure that's exactly what
> they do when the market isn't going anywhere. (As I said before, I
> suspect them of gaming the market during trend outbreaks, as well, as
> they seek to establish large positions at multiple price levels, with
> minimum risk, something we'd all do if we could.) In fact, this is
> about the only way they can make money when the market really
> flattens out. I sure don't notice that their trading activity slows
> in periods like that. I suspect this goes on all the time when
> conditions are ripe, and one of the symptoms may be those volume
> spikes we see all the time that turn out to not mean too much, the
> ones that die after a single day or two and result only in a
> relatively small price movement, one that only the casually observant
> will get overly and incorrectly excited about. So we may be
> suspecting the wrong thing when we equate institutional ownership
> with sluggish price movement. Very interesting subject.
>
> Yuki
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