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> An A/D divergence is simply an indication of a market which is
> not healthy, not a guarantee of a funeral.
Between Ben, Earl, and other worthy inhabitants of the polar world, a little
squeak emerges from some wimpy place deep inside of me...
As always, to the investor, it does not matter how many stocks are going up
or down - it remains a question of which ones, and what the investor does
about them.
In both cases, for the active investor, it is possible to make money.
Which is what we are here for.
4000 stocks going up 1/16th will make for a major momentum jump in the AD
charts - and 4 weeks of this performance will tremedously enrich the
"health" of the market.
It will, sadly, enrich nobody - even if they held one share of each of those
4000 securities throughout this 20 day period - for, their collective wealth
will have gone up by a mere $250 or $500, if one were to allow for 1/8
instead of 1/16th - assuming of course, no "friction" - commissions,
slippage and portfolio limitations.
A mere 100 shares in a GE or a MSFT or even the presently lowly MO can make
that $250 or $500 in a far more efficient fashion.
For those who wonder, the cumulative AD line peaked on Feb 27, 1959 at
35.579 and has yet to break or even come anywhere near that high. Accurate
aggregate data goes back to 1931 as NYSE would attest Simply adding day 1
to day 2, adding day 3 to the result, and so on.
By this measure, the A/D line bottomed on 12/31/74 at -90,541.
On November 2, 1999 we find ourselves nowhere near either extreme.
Ben, you were around then. Say it ain't so.
If anything, the declining A/D line in a rising market makes stock selection
easier - for it is a simple situation of going with the winners. In a
situation where the AD line is rising AND the market is rising, sector
selection and market timing may have more critical roles to play since one
then wants to be where the best advances are happening.
Again, one finds, it becomes a question of which ones, and not how many.
I mean no disrespect. I do mean for us to know how numbers speak - and
sometimes, are made to speak.
Since I've opened my mouth to size 10, I might as well put my foot into it
by venturing forth this comment about this market:
I see, in the traditional tape reading sense of the word, money flowing into
this market. I do not see a tape where the market is anticipating
armageddon - even in the Internet stocks.
On a day that is supposed to be the top in internet stocks, consider the
following message of the tape as I read it - and tell me where I can
improve:
AOL
Net money flow $190,046,000 positive.
Block volume 5.09 million shares (blocks of 10k and over shares)
Total volume 14.129 million shares, of which
Uptick volume 4.159 million shares
Downtick volume 3.425 million shares
As I understand the above stats: Institutions were active, accounting for
36% of total activity in AOL.
As we well know, institutional sponsorship is critical for any undertaking
to be successful in the stock market.
Of the total activity, fully 1.2 times more buying took place at the more
expensive offering price, indicating urgency to buy.
With buyers taking more of the offering price (uptick volume) than sellers
hitting the bid (downtick volume), buyers held the upper hand for the day.
The tape, evidently, is in disagreement with Ben's view of the internet's
largest company - or I need to learn how to read the above message of the
tape.
The same kind of activity was evident for the Dow 30 industrials.
10 of the 30 esteemed names saw money flowing out, even though price
actually closed up on the day for 2 of those 10.
The total money outflow for these 10 was $223 million.
The other 20 names saw accumulation of $715 million, and only a handful of
these 20 names closed up on the day.
Earl, you will find all these numbers on Q-Charts, and pray do allow me an
eyesore error of rounding or two for it is well into the night after a long
day. Those with Bloomberg terminals - or with brokers who have Bloomberg
terminals - can also look at money flows, block trades, and other such
mundane features of tape reading - I am sure your rep will guide you through
the keystroke combinations or fax you the money flow history of - lets take
AOL and Citibank - as two case studies of money flows and technical analysis
at odds through the past few months.
The message contained in these numbers is unequivocal: Buying is still in
fashion in the institutions that matter to this country.
It would seem to me on a day where 3 times as much money went into the
country's "blue chip stocks" as came out, the buyers that vote with their
block trade million dollars a pop checkbooks continue to have - and
express - an urgent desire to buy stocks. In the face of falling hemlines,
a-d lines, and jawbone lines from Greenspan's ilk.
Since we are talking about multi-decade cycles, I end this humble note with
a quote from the days of yore:
"It is not that people necessarily place much confidence in what economists
have to say; it is that they have a profound human need to hear utterances
about the future, plausible or not.
Economic predictions, like those of the ancient seers and sibyls, serve two
functions. To the naive, they hold out hope that foreknowledge will enable
the hearer to escape a dire fate, or to make a fortune. To the knowing, they
provide reassurance that the future is not just chance and contingency. The
human psyche can tolerate a great deal of prospective misery, but it cannot
bear the thought that the future is beyond all power of anticipation." -
thus wrote Robert Heilbroner, and I end quote.
The above quotation is an observation of human psyche through the passage of
time. The more things change, the more they remain the same.
If the market is constantly discounting the future, then the tape says we
remain in a bull market well into Calendar 2000. If the market anticipated a
5 year top, the tape would have telegraphed that message many months ago.
It would seem to me that the market is in the process of discounting the
seasonality that erupts around this time of year, as displayed in the 2
gifs.
I am, therefore, obeying the tape and am long of AOL among other names and
index securities. In case I am wrong, I am protected against loss of
principal - and may entirely give up the opportunity to benefit from the
downside momentum unless I change my current collection of trades.
Which, if warranted, I will. If the tape says so.
Gitanshu
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