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Jim,
I've appreciated your sharing with all of us your thoughts. Thought I'd try
to summarize my view of an alternative approach.
In the last two weeks there was a brief discussion on the metastock list
about the relative value of "charting" vs. "harder indicator" based
approaches. I'm sure both are valuable.
But I think one of the values of charting has been illustrated recently in
market action. As you note, many major indices have broken trend support
levels of one kind or another. But there may well be something more going
on. When you look at the major indices they all, to one degree or another,
look very much like the tops depicted and described in all the classic
technical analysis texts.
I performed an interesting exercise over the weekend. I loaded and printed
all the S&P industry indices and have gone over them one by one. Many,
maybe even more than 50% (I didn't count), show the same kind of potential
topping patterns, albeit at varying stages. This is a multi-hour exercise
but one of, if not the, most valuable exercises I've performed in a many
months. To get a quick sense of how valuable this might be, look at the
Philadelphia Semiconductor Index chart (SOX). If that wasn't a train wreck
waiting to happen I don't know what was.
Now, it's also clear that this could be a bear trap. (Does anyone know the
stats on this. My sense is that when you see a clear topping pattern in so
many major and industry indices as well as individual equities that the odds
are heavily weighted toward the topping patterns being important indicators.
Is this true? Thoughts?) There are certainly things the market could do
that would convince me that we weren't at the beginnings of a major downturn
at least for many individual equities. (Classic stuff like higher highs and
higher lows.)
But if we assume that the dominance of topping patterns is very likely to
result in continued drops in prices, it seems to me that one has to be
especially careful being long anything as you suggest. Early last week, I
bought puts on stocks with topping patterns within industries with topping
patterns. I'm even for the week. Mine didn't drop (yet I hope).
Steven Buss
Walnut Creek, CA
sbuss@xxxxxxxxxxx
-----Original Message-----
From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
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Date: Saturday, October 25, 1997 9:26 PM
Subject: Weekly Stock Watch
>All,
> I'm sure you've noticed that I'm sticking with stock watch, not stock
>pick <G>. It looks like I was wrong on switching back toward larger cap
>stocks. Friday, both CUBE and CPQ closed below my stop and I'll close
those
>positions Monday. I don't mind taking the profits in CUBE, but don't like
>the quick loss in CPQ. However, it now looks like CPQ will head back to
the
>bottom of its intermediate term up trend channel at 56. I still like CPQ
>and want to get back in, but will wait for it to test the bottom of the
>intermediate term channel.
> Looking at the indices, both the DJIA and the OEX broke through the
>bottom of my up trend channels, while the NYA, SPX, RUT, and NASD are still
>in their up trend channels. That indicates to me that my move back to the
>larger caps was premature and also we are still in danger of an overall
down
>trend. I don't think that will happen but I've been wrong before and will
>be wrong again <G>. Anyhow, the prudent thing to do here is to build up
>some buying power and watch for a few days at least.
> I did want to identify a strong stock in a strong group to test the
>waters with if it looks like the up trend is going to continue. After
>looking for strong industry groups, I finally decided on the oil drilling
>group which has done good for quite a while and shows no sign of slowing
>down. I then looked at some analyst stories and liked what I saw about
>Rowan Companies (RDC). While RDC is in both offshore and land drilling as
>well as heavy equipment manufacturing and transportation, the real story is
>deep water drilling. The rates for deep water drilling are exploding and
>RDC has most of the new capacity coming on line in the next few years.
>Their earnings are already turning up with last quarters earnings being
over
>50% of the previous quarters and more than double the quarterly earnings a
>year ago. With a lock on deep water drilling, the earnings should
>accelerate even more from here.
> RDC at 39.312 is slightly below mid channel of an Intermediate Term Up
>Trend Channel (ITUTC) with the top at 45 and the bottom at 35 1/2. There
>was a MetaStock RSquared, S/C,MFI system test buy signal in late May and
>the stock has been moving up strongly ever since with only one sideways
move
>to the bottom of the channel in July and August followed by another strong
>up move in September and August. In October, RDC did move down and
sideways
>to its current mid channel position. RSquared and S/C indicate a strong
>trend in progress, but the money flow did drop in August and September and
>has leveled off in October. The fundamentals are excellent except for PSR
>which is at 5.06 and higher than I would like. However, this is offset by
>the potential for large earnings gains. The Debt/Equity is 0.48, there is
>over 30% insider ownership, and revenues have been growing at over 20% per
>year. In a perfect world, I'd like further movement towards the bottom of
>the channel before entering. However, I'll also enter if it breaks out and
>the market looks like it is resuming its upward move. I'll keep the email
>list posted.
> RDC.GIF attached.
>
>Jim
>
>
>
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