Wednesday, July 04, 2007

Independence Day Ideas

* The Psychology of the Permabear - Here is my comment for Daily Speculations regarding the psychology of those who infuse their market commentary with persistent bearishness, and here is coverage of the comment from South Africa. Bearishness can make a great deal of sense as a market position; as an ongoing ideology--particularly one that flies in the face of objective reality--I question its motives.

* More on Testing Trading Ideas - My recent post made note of the new Worden Blocks program. Thanks to Jeff of the Stock Bandit blog for passing along his review of the precursor to Blocks. The Worden folks tell me the new program will be able to chart and backtest any indicator over any time increment for any basket of stocks. I'll report further after I attend their Chicago seminar this weekend.

* Regimes - The Trade Ideas blog recently made the case for trading by rules rather than by emotion. Some of those rules I derive from the market's recent action. One of the patterns that has produced consistent results for me in the Trade Ideas Odds Maker is the fading of opening range breakouts. I note, for instance, that over the past several weeks, we've had seven downside breakouts of the opening hourly range in the semiconductor stocks (SMH). Fading that breakout and holding for 60 minutes has made money six of those seven times, with the one loser down by only -$.10.

* It's Becoming Easier to Short - Trader Mike notes that we're doing away with the uptick rule for shorting individual stocks. Let's see if that has any impact on downside volatility once we do get a major drop. One unintended consequence: programs such as Market Delta that assess volume at the bid vs. ask will now reflect a more accurate reading of sentiment in individual stocks, as short-sellers will increasingly hit bids.

* When to Hold Overnight - This will be a topic of upcoming posts, examining when strength or weakness is likely to carry over to the next trading day. Rennie Yang of Market Tells has been using a unique indicator to address this question. He looks at the NYSE TICK, not at the end of the trading day (which is skewed by MOC orders), but several minutes prior to the close. He finds that significant buying interest late in the day tends to carry over into bullish follow through the next day. His work on distribution of volume and follow through price action is also worth checking out. Solid research.