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For what it's worth,...I have been constructive on the market for many years.
This means as a short to intermediate term trader,.....I have been biased to
buy the dips, etc. However,...over the past year my perspective has become
increasingly less constructive,.....partly due to the fact the the forces
behind the secular decline in interest rates are mostly behind us, ..etc.
Bigger picture,..I feel we are in the later stages of a multi-year topping
process, and it will become more difficult to make money on the long side.
One strategy that has worked well for me in any market environement involves
using an International (EAFE indexed) type mutual fund to pursue overseas
followthough. This strategy works great in a tax deferred account like an
IRA or 401-k where you can buy the fund one day and sell it the next, and not
have to account for trades on a Schedule D.
Due to the way international funds are priced,...there exists a "free lunch"
type of opportunity. This is not conjecture,..I have been successfully
short term trading overseas followthrough for years. Below is the first page
of a several paged paper I prepared on the subject. I am more than willing
to share this information with other participants in the RealTraders
discussion group,..this is a key reason I joined. If you would like to
receive the rest of the report,...send me an email,...and ( I am embarrased
to say this,..but not being terribly computer literate,..I need to get the
rest of the report typed from hard copy into email format,...etc) I will pass
it along in a few days. Have a good week,...
Regards,...JIM Pilliod jpilleafe@xxxxxxx 860-443-5671
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PROFITING FROM OVERSEAS FOLLOW THROUGH TO US MARKETS p. 1
OBJECTIVE: BUY EARLIER CLOSE IN OVERSEAS MARKETS KNOWING FULL
WELL WHAT TO EXPECT THE FOLLOWING DAY. CLOSE
OUT TRADE (i.e. SELL) THE NEXT DAY TO LOCK IN GAIN.
VEHICLE: International No-Load Mutual Fund(s), EAFE indexed, or country
specific, US based, priced daily at 4pm ECT
KEY POINT: Most overseas markets complete their trading well ahead of Wall
Street's 4pm market close. A US based "International" fund, which holds
STOCKS TRADED ON FOREIGN EXCHANGES (i.e. Japanese stocks traded in Tokyo, or
German shares traded in Frankfurt, etc., NOT US listed ADRs) will price those
shares based on their earlier overseas markets closing level. EVEN THOUGH THE
OVERSEAS CLOSE MAY HAVE BEEN 4-16 HOURS EARLIER, IT IS THAT EARLIER PRICE
WHICH IS USED AT 4PM ECT TO VALUE THE INTNTL FUND'S NAV. BUYING OVERSEAS
MARKETS AT EARLIER DAY'S CLOSE KNOWING FULL WELL WHAT TO EXPECT THE NEXT DAY
IS THE ONLY "FREE LUNCH" IN MONEY MANAGEMENT.
CONSIDER: When you awake each morning you see the Tokyo and Asian markets
2am to 4am ECT closing levels. Europe continues to trade into the 11:30 am
ECT time, then they too are closed. Consider US economic reports released in
the US at 8:30 am ECT,... though most of Europe will have a chance to react
to the news, markets in the Far East,...Japan,..Hong Kong,.etc. willnot have
sen either the news or our reaction to it. Look at an intraday chart of the
SP500 or Dow,...and look for an upmove after the timeframe when Europe
closes.... OBVIOUSLY, A BIG MOVE 1-2% IN THE US MARKET BETWEEN 11:30am and
4:00pm East Coast Time WILL AFFECT ALL OVERSEAS MARKETS THE NEXT TRADING DAY.
Review "Objective".
SIMPLE ROUTINE: Each morning write down the Nikkei and H. Kong cash closing
level, and the change (i.e. Nikkei Cash 17991.96,...-4.96). As Europe is
closing, take two "snapshots" by writing down cash and futures markets
levels,..readings as of 11:00am and 11:30am East Coast Time. (Why these
times ?..markets in Europe are closing at 11:00 into 11:30 am ECT...here is
an intraday chart link..
<A HREF="http://www.trendfilter.com/ssa_worldcharts_realtime.html";>70+
realtime charts of global stock markets</A> note closing times for major
European markets including....FTSE,...CAC,...CAX,...etc.
When taking the "snapshot",...note the Dow-30,...SP500,..NASDAQ COMP,...30 yr
Bond Yield,...and perhaps index sectors including XOI,..CRB,...BKX,.. and
ratio of A/D,...U/D volume,...etc. US Dollar vs key world currnecies,..etc.
Basically at 1:00 and 11:30,....I record the data that scrolls across the
CNBC ticker under Market Summary. Very straightforward.
This "snapshot" view of the financial markets is a baseline which can be
compared to the 4pm US closing price levels. Just before 4pm, repeat this
exercise and compare to the earlier 11:00 and 11:30 readings. When a
compelling situation exists,..the opportunity to pursue overseas
followthrough will be readily apparent.
Pretty simple,.eh? In my mind it is truly amazing that this opportunity
exists at all.
Consider this,....Let's say at 9:00am you could make a decision to buy or
sell the previous day's cash SP500 close, like entering a mutual
fund...knowing full well what the SPZ's (Dec. SP500 futures contract) had
done in the overnight session. Seems too good to be true, right? Well in my
mind trading overseas followthrough is no different,...It is the only free
lunch out there,..and the mutual fund industry is feverish about keeping it a
well guarded secret. Isn't it odd how you never hear a commentator or pundit
point out the merit of buying into overseas at the previous day's
close,..ahead of an advance in their markets,...just to lock in the gain.
*********************************************
Again,..let me know if you would like to receive the rest of this paper,..and
in a day or two when it's typed,..I'd be glad to pass it along. JIM
Have a good day,...JIM
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