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> Re: "Hugh Whinfrey" <whinfrey@xxxxxxxx> - response by bruce@xxxxxx:
>
> Don't be too hard on him Bruce, it's just his reasoned response,
> and he gets
> to have an opinion just like you.
>
Absolutely. And I strongly encourage anyone on this list who disagrees with
me to make your thoughts known. If I wasn't interested in counter opinions,
I wouldn't spend the time making these posts about economic myths. In
Hugh's case, the only thing that struck me as strange was the fact that the
evidence he cited seemed to agree with me more than disagree, and c'mon, if
there's a little verbal sparring going on in the process, that's not the end
of the world, is it? BTW, I emailed Hugh privately, and I think we're ok.
> I agree with the analysis you gave about the Dow shedding losers and this
> contributing to the disparity relative to the Russell 2000, but think
> there's more to it than that. And just because it's written up in the WSJ
> doesn't make the interpretation gospel either, or even
> technically accurate.
> It's open to interpretation as to what it means.
>
Couldn't agree with you more about the WSJ in general. I've caught them in
numerous inaccuracies myself. I'm getting ready to send a letter to their
editorial board about their trashing of Republicans who favor debt reduction
over tax reductions. Not because they aren't entitled to their opinion, but
because they got their economic facts wrong in supporting their opinion.
In this case, however, there really is no "interpretation" involved. Either
the supply of small cap stock is growing relative to the supply of large cap
stock or it isn't. There are no shades of grey here, and the answer to the
question is "yes it is." The law of supply and demand tells us then that
there will be an inherent disparity between the increase in prices of large
caps relative to small caps because of this. Obviously this could change in
the future. If large caps start issuing large quantities of stock (and stop
buying promising small cap stocks in their infancy) I'll change my tune
because the supply/demand curves will have changed.
I think we've beaten this topic to death as far as the general list is
concerned, but please feel free to email me privately if you want to
continue. I want to get on to exposing other economic myths I think the
traders on this list should be aware of.
As to your second post about the advance-decline line giving you a sell
signal on July 22, if that's really true then all I can say is
congratulations, because you essentially cherry-picked the top! I just have
one question. If the recent market correction was caused by the disparity
between large caps and small caps, shouldn't this disparity be decreasing
during the correction?
By my calculations (which are very rough, admittedly) the Russell has
experienced approximately a 10.7% correction from its high around July 17th
to its close on Friday. The Dow has experienced approximately an 8%
correction during that same time (and there's been no changes in the Dow
composition over the past few weeks, so let's not get ino that debate
again!). If you exclude Friday (which was a great day for the Russell), the
disparity is even worse.
Michael, if you turned bearish on July 22 because of this disparity, and the
disparity has only gotten worse during the correction, then it stands to
reason that you're even more bearish now, right?
If so, I think everyone on this list would be very interested to know when
specifically the A-D line tells you to get back into the market (and not so
far after the fact, if possible). My economics posts are more about the
long term health of the stock market, but it's always fun to hear someone
try to call the shorter term moves!
Bruce
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