Hi Monty; THIS is HOT
Message 10699239
I tried posting this late last night but SI was hung up.
Now read the rest in spite of it being long, This is
Good and maybe the best I've done up to date, I condenced
it best I could to still get the idea out, and while it may
take some careful reading, if a person can't grasp the idea
they are indeed to dumb to be trading stocks and would
be better off in a mutual fund.
THE $VTI ( Dollar value traded index)
It will have to have stocks rotated in and out, but using
the most 3 month VOLUME X Price of major stocks the 11 are
what I wound up with, it's a measure of where the most money
is moving back and forth on a 3 month average.
I could do the whole S&P and might but
That I could get it down to 11 stocks surprised me.
That AOL was trading
twice as many Dollars as MSFT also surprised the heck out
of me, that it has stocks that are not at the top of the
Market cap heap , and even Yhoo in it, makes it more
volatile than any kind of cap weighted index, yet they have
the volume to make the list and it is representing
Dollars on the move which is the KEY to letting me see sentiment
as it's happening and in a much more exaggerated way than any
normal index does.
This is not a buy or sell list as to the stocks which are in
it, it's just checking the FLOW of traffic on corner that
is prone to attract the most traffic.
( it is a buy the dip list if your prone to do that
and I'll explain why latter )
Simply put looking at the amount of dollars moving here and
getting a composite on the percentage going North or South
as well as the volume compared to their normal volume
gives a much clearer and uncluttered picture of
what the market "is" currently doing, before that picture
ever shows up in any of the major indexes.
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As you know I've always said major indexes can skew, and
not always tell the truth, but this counts dollars moving not
market cap.
There are a lot of angles to look at it too.
Composite of UP or Down price percentage as to volume,
is the up or down MORE than the volume would normally
have it be ?
It's still a work in progress, I have yet to back test it
enough to picture the amount of price change to volume
or establish mean high/low water marks so to speak.
I'm not sure exactly how good it will be for longer term trends but it's an ass kicking short term leading indicator if
there ever was one, and I'm sure it will give longer term
trend signals as good as or better than most indexes
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In one sense it's not really leading the market , it's
part of it, but at least so far it looks like
what happens where the most action is, spills
over into the rest of the market
The 11 are almost always on the MOST ACTIVE list, many times
right at the top, they are the "regular" show ups , I didn't
want the anomalies and odd ball one time IPOs or Bad news
taken out and whacked ones who represent some unusual one time
event to clutter up the radar screen, this is the heart beat.
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If you chart a composite of them with a moving average
It will produce a kick butt TA chart that will lead
the S&P nicely, most of the time.
Right now all I can tell is 6 of them are still in Up trends,
5 down trends , but AOL being the most active dollar wise and
trending down puts a negative trend on it as an index.
To do it right as an index for what I want to do
this needs to be weighted but not by market cap , but by average 3 mouth dollar volume traded. I want to take this time to say
this type of weighting is of my own making, and As far as I know
I am the inventer of this type of weighting based on Dollar
Volume Traded and now have now put a time stamp on it in
public for all time. Unless some one shows me an early
time stamp this is my claim to fame. As I am Positive
it will make the BEST type of index charts for TA
All along if you remember I've always been some what critical of
TA on most types of indexes , as the index itself does not always
represent what the market is doing, just some arbitrary value
that may or may not coincide with the real action.
Fault number one with most indexes is you don't see "inside
the index " it can pump up or down on some thinly traded
stock and it's peaks and lows may not coincide with Real peaks
and lows of the money changing hands. Wave counts on an index
I have always faulted because I've always known that the index
itself can lead or lag the actual market. This Dollar Volume
if weighted as such exposes all the internals in one swoop.
If done on the whole market or any index it makes tracking A/ds and
hunting for divergence's out of style as all of that is
built right into it..it's a true representation of the action.
Now I'm going to say this once and them that miss it will just
have to miss it.
In 1987 right after THE Crash those stocks which had been trading
the TOP volume in Dollars in the previous 3 months, were the first
to recover as a group, and had you bought the 10 most active
just before the crash , and held them during the sell off,
they came back & went on to make money while 90% of the rest of the market went bearish and stayed bearish for a long time.
I have noticed this after every major correction, what was
the most popular before the correction become the most popular
right after. The popularity changes happen after the rest of
the market starts getting back on it's feet.
And that's why as a group these most active stocks are the prime
picks IF you are into buying on dips, and I'm sure many fund
managers already know this.
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This whole thing is a spin on my Head/tail thingy, "most" of it comes from reading VALUE LINE, they just don't seem to see how much
good information they have given me as if they did they would
have organized it better. None of it's really original except
for the way I have organized it, and the weighting of an index
based on average dollar volume traded. Such an index takes
regular adjustments to keep the Weighting up to date for it
to be at a reasonable level to represent the reality of what
the market is actually doing. I have wrote a program to make
this dynamic but I don't feel up to explaining it at this
time. The dynamic re weighting produces an absolute condition
of the market on the fly at all times that you are getting a feed
( not the hypothetical value of the market ) but it's the money
flow that is collected and assimilated into a pool that tells
you the direction no matter how the Market Makers or specialist
may jack with certain bids or asks to cause a fake out.
Ie they may hold the bid ask up on some key stocks to make the
market look better than it is, but with dynamic $ traded
weighting if the volume is not there then those issues drop
in weighting so no matter what kind of tricks they pull you
KNOW if money flow is positive or negative and by how much.
The tick and trin don't even need to be looked at.
The S&P does not do what this does, nor do any others I know of
they are to some extent more smoke and mirrors than a real market indicators as you have to guess at what's going on inside
them. The Dow is really bad, except it's only 30 stocks
and i can look at them as grope and just by eye ball
tell you if it's being jacked up by some small dude on low
volume or not.
I could take the whole S&P and re-weight it based on dollar volume
traded and the tops and bottoms would shift considerably from
the rather arbitrary way they have it set to reflect market cap,
the weighted $ volume traded index could then be used with TA and
one would be TAing an index the way it ought to be done.
Jim
PS if you do a volume X price to get "dollar volume traded"
remember to stay apples to apples you must divide the ones on the Nasdaq by 2, because of how they count volume.
PS #2 I use to consider the largest caps to be the most dominate
part of the market and that the market followed them , well this
was true but not as true as the fact that it's the most active
stocks per dollar on a regular basis that dominate the direction
of the market.
So toss out the old Nifty Fifty of the Big CAPS , and make it
a Flying Fifty of the most $ active, right now I'm just doing
the $Hot 11.
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JIM JIM
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