Monday, July 30, 2007

Ideas to Start a Volatile Market Week

* Tracking the Bear - I've updated the Trading Psychology Weblog; note especially the revised chart of the Cumulative NYSE TICK taken from the Weblog, which I've been tracking without an adjustment (i.e., adjusted to a zero mean). The TICK Line shows the persistent hitting of bids among NYSE stocks and has tracked the recent market weakness quite well.

* VIX Perspectives - The market is currently trading at 60% above the level of the 50-day VIX average. That has occurred on only 20 occasions since 2000 (N = 4350). All of those occasions have been up 30 days later in OEX by a whopping average of 6.43%. The track record was much more mixed from 1990-1999 (16 occurrences; 9 up, 7 down). Rennie Yang of Market Tells finds positive near-term returns following two days of 10+% consecutive gains in VXO; his latest newsletter is worth checking out for other patterns as well.

* Still Bullish - David Korn notes in his newsletter that the top 5 market timers followed by Hulbert are still bullish on this market. My own findings have been that weak market days tend to cluster, meaning that an oversold market can get more oversold before rallying. That makes the near term dangerous. Still, when you look at the specific occasions when we've been 60% above the 50 day MA in VIX, it's clear those have been good longer-term buying opportunities--even during the 2000-2002 bear market. Those dates include March, 2007; June, 2006; July, 2002; September, 2001; October, 2000; September, 1998; October, 1997; April, 1994; and August, 1990.

* How to Learn - A thought-provoking post from the Sharp Brains blog examines the stages of learning and how we can learn to learn--a topic very relevant to trading performance. See also the interesting post on building cognitive reserve through enriched learning.

* Using Visualization to Change a Behavior Pattern - Interesting example from the 59 Cedar Street blog and a vivid example of the problems faced by many discretionary traders trading off charts.

* Tracking Trading Results to Improve Performance - Here's a fine example from Stephane and the The Chart Strategist blog. He has a grading strategy for reviewing his trades and compares his performance to goals that he sets. Excellent.

* Investing Lessons - The Straight Stocks blog offers contributions from recognized bloggers re: sound investing practice. Nice collection of resources.

* The Very Long-Term Perspective - The Market Rhymes blog examines what happens following record bull market decades.

* More Links to Come Later Today!


Markus said...

Hi Brett,

I like this one by Linda B. Raschke:
"There was a saying one of the specialists on the floor used to say when I was a peon floor trader, “Take the cookies when they pass the plate around.” Enjoy the volatility while it is here. Nobody knows what the future holds, especially those managing those 200 billion dollar funds or they would not be defending their positions so vigorously on Bloomberg."



Will Rahal said...

With the "subprime" word dominating the news , it is easy to forget the Durable Goods Orders report that came out Thursday. Non-Defense Capital Goods(ex Aircraft) was particularly weak.
This indicator is considered a proxy for Business Investment. I track it as a percentage of
Durable Goods Orders. It clearly shows the boom/bust in Business Investment of the late 90’s.
Plotted against the Semiconductor index(SOX) helps visualize the trends. This report was not good. Now we have weakness on the consumer side, accompanied by a feeble Investment side. By the way, the market’s slide started after this report.

The economy last pillar of hope is job creation. When this falters recession will follow.
See “Business Investment: Strike Two”