4/19 Notes

Links:
http://www.morganstanley.com/GEFdata/digests/20050418-mon.html#anchor0
...This is an article by Stephen Roach, economist for Morgan Stanley. Sometimes I wonder if they keep him on as the token bear. This article is entitled 'Tilt'. The title comes from Roach's opinion that the "....unbalanced global economy is at risk of becoming unhinged. The system was already threatened by account deficits and imbalances. Now there are several other blows, among them energy, trouble between China and Asia, and protectionist sentiment here in the U.S. What Roach finds particularly troubling is that the latest market tank job occurred with oil prices falling, not rising, indicating that there are reasons for the fall other than the excuse you read in the media every time the market is down ("Traders reacted today to rising oil prices, ad nauseum...).
...Roach's opinions, whether you agree or not, are always well thought out and describe thoroughly.
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http://www.safehaven.com/article-2923.htm
SafeHaven is another site that is required perusing for me. Unless you are a perma-bull and never want to hear the other side of the story, there are often interesting articles. Today's Stock Market: CNBC Report by Bill McLaren is good. McLaren seems to be an excellent technical analyst. His charts are interesting and I like his take on the time factor in the markets. He focuses some attention on how many days it takes a market to go up and complete an up move vs how many days the down move lasted. I haven't seen that viewpoint often, and it is interesting.
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http://www.marketwatch.com/news/story.asp?guid=%7B414532AE-BC13-4AE4-B235-E18640CD1295%7D&siteid=mktw

Marketwatch article "Standard Bear". An interview with James Grant, who publishes "Grant's Interest Rate Observer. Brief, interesting interview. The part that particularly attracted my interest was in regard to energy prices. Grant feels they are not in a bubble, and that Wall Street is under-estimating the energy companies. I agree.
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MISC NOTES:
...Monday 4/18 market action was not awe inspiring, to say the least. While some feared a complete meltdown after last weeks action, especially after Friday, others looked for a big bounce. Neither occurred.
...On the boards I frequent, bulls are still bullish and see this as a great buying opportunity, bears are still bearish, but holding, not initiating new positions. Both camps seem to be expecting a short term bounce. I thought yesterday might be a big up day, and I consider it a negative for the bulls that it was not.
...The market plummeted through several important support levels last week. The Dow, S&P, Nasdaq, and Nasdaq 100 all now sit below both their 50 day EMAs and the 200 day bull/bear dividing line EMA. Yesterday, they all were up, but not much, not nearly enough to dent Friday's losses, and the volume was lighter than Friday. The bulls really need to make a stand.
...I had two day trades yesterday in XTO and VLO. I normally don't day trade anymore. It is not my style, and I have lost trying it over the years. But yesterday I succumbed to the temptation, and they both worked out ok. I did it because these are two stocks that I follow daily, so I feel comfortable with them. After their selloffs, I was looking for a bounce. I probably would have held onto the trades, but both stocks are reporting earnings this week. One of my short term trading rules is not to hold stocks on the day they report earnings, since I never seem to know which way they are going to break when the earnings are released.
...http://www.vtoreport.com/rsi.htm
I've mentioned the VTO Report before. The site maintains a historical record of the effects of making a QQQQ trade based strictly on the 5 day RSI of the Nasdaq 100. The public trade-by-trade records go back to 1997. When the 5 day RSI of the NDX goes below 30, the trade is entered at the close of that day. You hold on until to day the 5 day RSI goes above 50. The money from one trade is all rolled over to the next trade.
...I mention the VTO Report 5 day RSI trade because it is currently open. The trade was entered 4/14 with the NDX at 1441.13.
...The previous 85 trades have yielded an overall return of 347.8% (the record does not include commissions or slippage), as opposed to 81.6% for the Nasdaq 100. More interesting is that the system has NEVER had a losing year. Its worst year was last year, with a 3.4% gain.
...I have used this system a few times. I usually don't take the signal just as a result of the 5 day RSI. I look for some other market confirmations. What bothers me the most about the system is that there are no stops. So you can suffer through some pretty powerful down turns if the market doesn't bounce back. I always use stops on my trades. The largest loss the system ever incurred on a trade was 14.1% in August 2001. That would have been too much for me. I don't intentionally allow a trade to go that far against me. But it is hard to argue with the results of this system. You are out of the market most of the time, and have a 4x better return than the index benchmark. That is impressive.
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