Tom Dorsey Q&A
Q) I am just trying to get a potential range. With AMAT we continually get a stair step approach as it progresses up. Prior to AMAT's last runup to $108 presplit (54 postsplit) it's previous high was $60 in 1995. It then ran down to $21.625 presplit (10.8125 postsplit) in July 1996. Then, it again ran up to its $108 far exceeding it's previous high. Therefore, this $108 far exceeded my original projection.
In my original projection in Sept. 1996, I, using the vertical method, calculated a high of $59 with a horizontal high of $62. Value Line had a high of $70 and then revised with a range of $65-$95.
When we ran a NAIC Stock Selection Guide we came up with $104-$139. I also, referred to Tom O"neil's Investor Business Daily, Cup and handle which gave me an expectation that when AMAT hit $60 thus completing the cup that momentum would continue to take the stock further up.
An additional question which I have, "How many stair step, tiers, (double top or triple tops) do I keep re-figuring using the vertical method as I progress up the staircase? Five? ten? "?"
If you can help me in getting projections I would appreciate it. Paul V.
A) Paul, you can do another count once the stock gives a sell signal followed by a buy signal in the uptrend. The sell signal must be given first. The count has nothing to do with consecutive double or triple tops.
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Q) Hi Jan. Question for Tom on subgroups-
According to an article in the Feb 23 issue of IBD, subgroup movement contributes 3 time the effect of broad group movement on a stock's price move. I believe the numbers are broad group contributes 12% to a stock's move and subgroup movement contributes 37% to a stock's move.
t's in the A section around page 4 or 5. Tom, what do you think of these numbers?
P.S. I ignore subgroups with less than 30 stocks.
P.S.S. Thanks for your time. Looking forward to the next book.
Duke
A) Duke, the only sub groups we deal with are those that trade options such as the SOX. We are however creating charts now on other groups that don't trade options so we can continue to expand our relative strength calculations on these groups verses the S&P 500. The problem with a sub group is you cannot do a bullish percent index which in my opinion is the most important consideration in sectors. Otherwise sub groups must be used on a chart by chart basis which is good too but not as good as a bullish percent. Relative strength indexes calculated by dividing the sub group by the S&P 500 and then plotting that result is very, very helpful. Keep it simple. T
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Q) What is the process in selecting the Relative Strength Dow 5?
Also, to you find it out performing the Dow 5 strategy that uses dividends? Thanks, Steve Frazer
A) Steve, it is calculated by ranking the Dow 30 by those stocks in column's of X's on their relative strength chart then choose the five lowest prices. It has outperformed for the last 10 years. Dividends are not a consideration and with the Dow stocks so high I'm not sure they are much help now in the Dogs of the Dow. Anyway you construct this strategy it is sensible as it forces you to buy low and hold for one year. Corner your IRA in this strategy then use sector rotation for the rest. T
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Q) In the bpsemi chart there was a one time a "Link to The EQ Table for Bullish Percent for Semiconductors."
This link list all the Semiconductor stocks in the sector placing them in a Bell shaped curve as to their statistical place in the sector. Naturally, this would give us the small investor the opportunity not only to buy into the sector which in the 30% or lower sectors and in addition buy into the stock(s) which were low in the sector.
Since, IMO, the total market and sector makes up 75% of a stocks price the remaining % is where the stocks fundamentals place it and where it is placed in the sector.
The old expression of "Buy low and Sell high" can be very useful if we just discipline ourselves in this principle. Tom's information can provide this data for us to do such.
Originally, the equalization table was provided on the sector chart but was later discontinued I see.
I was sorry to see it go since it was a valuable resource. I strongly encourage SI threaders to subscribe to service, however, a thorough explanation should accompany just how to use the system. I assume
Tom is just build the site and the his services on SI. Thanks for you excellent service. Paul V.
A) Paul we will revisit the idea of the distribution table for the $25 service. You are dead right in your evaluation of how it works and yes the idea is to buy low. I realize Wall Street has gone to momentum investing where one buys high and hopes to sell higher, I still think buying low is the best strategy for any business in America.
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Q) With all the hoopla about CPQ any comments on that stock? Considering you been in this market a while, the way a stock used to act would give you an idea of what the street thinks of the company. I just cant get this love/hate relationship sometimes.. Joe
A) Joe forget love/hate and stick to the indicators. If I told you that CPQ would break significant support and a major bottom at $25 and that the Relative Strength chart just gave a sell signal, what would you do
with this information. There are many right answers. One might rethink buying the stock and instead only invest in a call option. One might buy the stock and buy a put which is equivalent to buying a call. One might short a put to buy lower than current prices. One might just consider another of the 12M stocks that trade. That is another right answer. If one owned the stock one might consider buying a disaster insurance put at the $20 line. Or tighten up stops or sell a call or just hold the stock and pray. All right answers. You see too many investors think there is only one thing to do in the market given a certain situation. There are generally many right avenues. And many wrong.
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Q) Tom, I note the REITs have been getting weaker. Would you wait for a sell signal first in P&F before selling or would you consider now a good time with the RS on sell signal. In other words would you wait for both to turn negative before selling? Thanks.
A) Lets look at the facts. One major consideration is the REIT Bullish Percent Index has reversed and is close to going to Bear Confirmed at 72%. Interest rates are rising and we did a major write up in our report a week ago on the futures. Money supply is increasing at an alarming rate. I would set close stops. Now, their div's are probably secure so if you own them for dividends then hold. If you don't want to let the cap-appreciation go tighten up the stops. I would consider some of the oil partnerships that pay good div's and we are featuring some this week. T
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Q) Dear Tom, Could you please give me your most accurate reading <g> on my hail Mary, CKR ?Does it look ready to pop? Thanks so much.. GD ("The Defender!")
A) Defender. Major overhead resistance at $45 and support $35. In nice triangle and could go either way. No rush to buy and if you own it I would expect too much right now. T
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Q) As you know I'm an options player...usually I buy in the money(ITM), with 2-3 month time frames...
My question is this...help me formulate a good entry point on the P&F chart for buying both puts & calls...
I'm currently using a 3 box reversal( as in "Pull Back") on trending stocks going UP, to buy calls, and the reverse on puts..
I'm looking hard at sector %, and the overall picture of the chart...& of course the market too...
My examples are as follows, and your comments on option plays would be great!!!
Look at the following stocks...
CA-IMNX-ASMLF-KLIC-BAB-AFL-ICN-GDT...just to name a few...
I'm asking for options only positions....Jan has cheerfully given numerous critiques on these stocks, but
TOM talk about taking an option position in each, & why????
Thanks in advance...I can't tell you how much DW has helped me in the decision making process of buying & selling puts/calls....
My Warmest Regards, Jerry
A) Jerry Too many stocks to evaluate and I don 't want this thread to become a stock recommendation site.
Buy on pullbacks. Buy the calls or puts exactly as you would buy the stock. Keep it simple!!!!!!!!!!!!!!!!!!! My recommendation is to hold the options until expiration. I know that takes the John Wayne factor out of it but it results in some really BIG hits occasionally that generally make up for the lost premium in the one's that evaporate. It keeps you from getting crazy. Create a portfolio of calls as you would stocks. All it takes is one to really take off and the option to go from $5 to $50 and you're home free. Otherwise best to get a friend and pitch pennies in the back office. Instant gratification. T I looked at the first four and none would be good initial calls from here. If you have calls already stay until expiration.
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Q) Since Dorsey-Wright manages money for clients and it is likely that the money is managed in such a manner that is consistent with the P&F methodology espoused by Dorsey-Wright, I am curious as to what have been the returns generated for said clients? Allan
A) Allan each account is managed separately and within the confines of each account's risk tolerances. Some are bond and stock and some are stock but want to go to cash at risky times, others are aggressive. I would say if we piled the growth accounts together, and each has it's own risk tolerance we have a high 20's over the last year. Underperforming the S&P 500. Of course many of the accounts are not always fully invested and that was a mistake this last year. Some accounts are cornered with a Dow Strategy along with sector rotation. T
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Q) Last week when INTC was trading around 86, I bought some deep in the money calls (little did I know they would soon be at the money). It was on a pull back from 95 and 82 looked like a good stop loss. In reviewing the trade and looking at your daily trading tip dated March 6, I noticed that I should have recognized a high pole warning and avoided that play. Am I correct saying that I should not have pulled the trigger?
A) Yes you are correct. First off is the sector which was approaching 70%. Best plays in Semi stocks are when the sector is below 30%. Next you are right on the high pole. Keep your foot in the stirrup and hold on till expiration. Don't look at it again until the third Friday of that month.
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Q) Also, on this thread Jan said that one of your broker clients is constantly beating the market by using PnF combined with Value Line 1 & 2 rated stocks. However, he uses a certain p/e ratio to screen the value line stocks B/F applying PnF. What is the p/e ratio that he uses.
Thank you for taking time to help us. Steve
A) Steve I have interviewed him for my new book I am completing shortly. It's on surviving as a stockbroker in the 21st century. Much of the book is interviews with brokers I have known for years who are doing a fantastic job year in and year out. Each has a little different approach but all use the P&F with their stock work. This person you are talking about is the branch manager of Piper Jaffray in Topeka Kansas. Piper is a client of ours and they get out daily research as well as our professional version of the Charting system. Dennis Nelson is his name and is one of the best brokers in the U.S. as are many we deal with. I am sorry to say that many are not. The real craftsmen in our way of thinking reside in many firms in many states. If you wish some names let me know. Dennis' method will be explained in the book but his inventory of stocks he deals with is Value Line Rank 1&2 with certain growth rates and certain ROE's with a PE a fraction of the growth rate. He then fits it with sectors and P&F charts etc. He does do very well year in and year out. Many brokers do this using our work and many I would say are in the top 15% of all managers in the country.
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Q) What about dividends? Although yields are low, should we adjust for the payment date of them? Thanks, Teddy
A) Teddy I am not sure what you mean. If it is to adjust a chart for dividends the answer is no. T
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Q) Basic question for Tom-
If one religiously studies P&F and applies it reasonably well, what type of annual returns are reasonably
possible. To simplify, let's assume using VL 1& 2 rated stocks, employing sector rotation and buying and selling based on P&F signals what's reasonably possible? Thanks Craig.
A) Craig, I ask you, what you think your returns would be if you did not operate with a logical, organized way of thinking that was not tied to the irrefutable law of supply and demand? Forget returns and embrace the philosophy of combining fundamentals with Econ 101. Investors get too tied up thinking about returns and lose site of becoming good at what they are doing. Lets look at returns for a second. Just buying the S&p 500 elevates you to the top 20% of all money managers in the country. Ok, you have just jumped ahead of 80% of them. Keep in mind that for a money manager if the S&P 500 declines 20% one year (and it can) and he only declines 19% he will pat himself on the back because he oupterformed. You on the otherhand would not pat him on the back because you lost 19%. Over the last 60 years the average return on equities is 12%, in that area. If you can do lets say 14% for the next 10 years, you have knocked the cover off the ball. So think of how you might be able to increase those 200 basis points. One way might be to take 1-3 and do the Dogs of The Dow (average 20% or more for the last 20 years.) 1-3 SPDRS on the AMEX, and 1-3 sector rotation, buying high cap visible stocks in sectors that rotate below 30%. You'll do well and retire in style all while driving a straight line. T
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Q) Another question for Tom - QWST another telecommunications stock has been on a roll. What does he think about this stock? Thanks, Sam
A) Sam, QWST looks very good on the chart. Go for it. See for your self. Check the chart out. Learn to answer that question yourself. T
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Q) Hi I have a question for Tom. KIWT is changing its name to Level 3 Communications and has been on a roll the past two months. Now about $68. Vol for the day on Friday was over 1MM. Thing is the stock currently trades on the bulletin board. Can we use PNF for stocks on bulletin board. And is there a way to do an assessment based on PNF for this stock. Thanks, Sam
A) Sam I am not familiar with trading on the Bulletin board, enlighten me. to answer your question if it trades it can be P&F'd. The price of Asparagus can be P&F'd.
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Q) Question for Tom
What does momentum mean. I don't see a reference in Toms book.
What does it mean when daily momentum is positive.
What does it mean when weekly momentum is negative.
What does trend mean?
What does daily trend mean?
Weekly trend? Thanks, Pradip
A) We don't have anything called daily trend or weekly trend. Trend is simply if the stock is above the bullish support line or below it. Bullish or bearish. Momentum is not talked about in my book because it does not have anything to do with P&F's. Momentum for lack of a better word is simply two moving averages crossing. One short term and one long term. Daily, weekly and monthly. T
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Q) Question for Tom,
I understand that your weekly momentum stuff is proprietary but that it is close to the crossing of a 5 week and a 1 week moving average. Is that roughly correct?
A) It is exactly that but exponentially weighted. T
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Q) If I understood your book correctly, the "typical" length of time between RS Signals is usually around 2-2.5 years. This is why you suggest in your book that we look for stocks that have given a relatively new signal. It will increase our odds. Does this also hold true for weekly momentum. For example:
If there were two companies that looked good and were identical except for the length of time that momentum was +, would you evaluate them differently? For example, one has been + for a week, and the other for 12 weeks. Is my guess that the "typical" stock holds a direction for around 6 weeks correct. Longer? Shorter? Thanks, Bobster
A) Bobster, average time is 7 weeks. However given your scenario I would go for the momentum that had just turned given everything was equal. This is ancillary to the P&F chart however. Lets say there was a stock whose momentum weekly, had been negative for 20 weeks and just turned positive, this would be significant as long as the stock had a good P&F chart. Don't get too hung up on momentum. It was designed back in the 70's for us by Bridge Data to help us time our option positions. My philosophy on options has changed significantly having developed and managed an options department for Wheat First Securities for almost 10 years. As well as accumulating many scars doing it wrong over the years back in the John Wayne days. T
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Q) Another Q for Tom unless it is incredibly dumb. If it is, send me a private message and laugh really loud at me.
What the heck does Top, Medium, and Bottom mean on the right side of the DWA charts. If it means anything other than the obvious, how do we use this to make more $$$$.
A) Good question. It is a statistical bell curve with the top being the point where 98% of all observations have taken place i.e. right corner of the bell curve and the bottom being the opposite. Med means right dead center of the bell curve. I ask you to go back to Stat 101 to the bell curve and you have it. T
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Q) Jan - perhaps Mr. Dorsey can help up out on our joint project. I would be interested in his opinion on the Eurodollar and Y2K software sectors. Particularly interested in the Eurodollar issue.
A) The Euro dollar has broken down as bonds have. I look for lower prices in the Euro and higher rates.T |
