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Lets see if we can quantify the dilemma by what is actually going on in
terms of new highs, new lows, advances, declines. When the market is either
extremely overbought or oversold, the turning points can be measured with
something called a trend exhaustion index. One can be created for the
overbought status and another for the oversold status and they can be
plotted in the same subgraph for perspective. The code came from an old
TASC article. Here is the basic code and as you can see it is just an
exponential moving average of the ratio of new highs to advances or new lows
to declines.
TEI = TEI[1] + K*(new highs/Advances - TEI[1]) where K = 0.18 or a speed of
your choice.
Attached is a chart of the TEIs where the red line in subgraph 2 is for the
new lows and declining issues. As you can see it has just given another buy
signal. The simple fact that selling is gradually abating will permit the
residual and increased buying to put upward pressure on the quality bluechip
stocks and we will see a rally of gonzo proportions. Thus, there is no
dilema when the numbers speak clearly.
On another note, there is a book titled "Risk Reward, The Art and Science of
Sucessful Trading" that clarifies the dilema issue somewhat.
Happy dilema,
BobRoeske
----- Original Message -----
From: Gwenael Gautier <ggautier@xxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Cc: List Serenity-Trading <serenity-trading@xxxxxxxxxxx>
Sent: Thursday, December 23, 1999 2:08 AM
Subject: [RT] Re: Dilemma
> Trouble is , Everybody speaks of bullishness, but ALL comments I read
> ANYWHERE were all fearful, mine included. Everybody speaks of bullishness,
in
> the press and TV in particular, and yet all are afraid of a larger
> correction. Does that mean the real consensus is that a correction is
near,
> meaning it isn't? Tell me:
> - Who amongst yourselves is buying stocks now???
> - Who is not because it is too high, and you are afraid???
> - Who is waiting to buy on a correction???
>
> I was about to sell some of my net stocks yesterday when some blasted
through
> upper resistance lines. Blow Off or beginning of new bull? Since I am very
> afraid, I tend to think this is a bull. In the 80s before the crash,
people
> were not afraid. They were making fun of you if you bought 100 shares
where
> you could load up 1000.
>
> They say, let your profits run. I think now it can be much harder to do
that
> than to cut losses short. In fact it is like racing fullspeed ahead
> blindfolded and trusting your triggers.
>
> So what's my road map now?
> - I assume we are going up without correction till the first week of Jan
or
> so, and a large correction hits us out of the blue for NO OBVIOUS REASON
and
> by SURPRISE, just as everybody is getting resignated prices always keep
> rising and there is no correction coming. How about that?
>
> confused Gwenn
>
>
>
>
> Jpilleafe@xxxxxxx wrote:
>
> > In a message dated 12/22/99 2:01:26 PM Pacific Standard Time,
> > hehohop@xxxxxxxxxxx writes:
> >
> > << I beleive that the high level of bullishness, discounting of the y2k
> > non-event, and the January Effect migration to Nov/Dec is a setup for
a
> > down January in the stock markets.
> > >>
> > All good points,...consider too the likelihood of
> > tax selling in NASDAQ issues being deferred into
> > next year,...can postpone a tax bill for another
> > year if sale is delayed into year 2000,...etc.
> > Players with huge gains want to defer those
> > gains into next year's tax bill. Question is will
> > tax selling to lock in gains more than offset
> > sidelines cash looking to re-enter the market
> > assuming Y2K is a non-event. My guess is yes,
> > ..as the gains in Nasdaq are so huge,...the
> > sentiment so complacent,..and at some point
> > the pressure from rising interest rates likely to
> > become real,...that it is difficult to see how a
> > new uptrend could develop from these levels.
> >
> > The most constructive thing in my mind that
> > could happen at some point in time in the First
> > Quarter of 2000 we get very washed out,.....
> > then the possibility for a sustained advance
> > would be much greater.
> >
> > Regards,....JIM Pilliod jpilleafe@xxxxxxx
>
>
>
>
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