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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (5843)	3/17/2002 7:27:23 AM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Stewart Taylor's Website and A Wyckoff Primer. cei.net I met Stewart in Dallas, a year and a half ago and thought he had some Practical Approaches to Trading and TA. He Had a Joint Presentation with Cycle researcher Walter Bressert, that was on the program that day as well. ---------------- *Wyckoff* Wyckoff is the study of price, volume, and the relationships between individual waves of buying and selling. The analysis is designed to identify periods of accumulation and distribution, and to identify the position of the market in its overall trend. It is often possible to ascertain the technical strength or weakness of the trend and the probably of the trend continuing or reversing itself. It should be noted that price/volume analysis is a judgmental process as opposed to a mechanical system. The analyst must be adept at utilizing his judgment and experience when interpreting the data being generated. Wyckoff Sequence The sequence repeats itself endlessly as large operators (strong hands) complete their buying and selling campaigns and small traders take poorly informed market positions. The sequence can be found in both short term (one minute charts) and long term (monthly and yearly) charts. cei.net optionetics.com you gotta love those people pondering things such as calendar ratio spreads optionetics.com

To: John Pitera who wrote (5843)	3/18/2002 4:08:29 PM
From: Raymond Duray	Respond to of 33421

Hello John, Speaking of VIX, here's something from today's TSC: thestreet.com Old Thinking on the VIX May Need To Be Nixed By Tony Saliba Special to RealMoney.com 03/18/2002 01:10 PM EST With March expirations behind them and Tuesday morning's Fed meeting in front of them, options traders begin the trading week in a wait-and-see mode. Implied volatility levels remain extremely low, allegedly indicating a strong degree of complacency amongst investors. But as I mentioned in my column last Wednesday (and developed in my Intrinsic Value newsletter this past weekend), I think volatility may be forming a new trading range. Various factors may be contributing to this state of affairs, including the massive influx of convertible bonds into the market. Traditional thinking about how to interpret the almighty CBOE Volatility Index (VIX) may have to be changed. Reader mail this week focused almost exclusively around my Wednesday discussion of volatility and the VIX. The questions were, as usual, sophisticated and to-the-point. I made strong headway in responding to them, but still have more to go. In order to better serve you, I discuss the topics in more detail below. In addition, I am planning to post various "market reports" on my Web site, including one on the VIX and volatility. I will also post one on how to read our proprietary numbers, so if any of you have additional questions on that topic, I respectfully ask you to hold off. Why Is Volatility So Low? Although volatility is extremely low with respect to recent ranges, the fact that it did not seem to respond to recent stimuli (i.e, the Enron scandal, war conditions in Israel and Operation Anaconda) seems to indicate that a structural shift may be occurring. There are several possible explanations for this, including the flight of speculators and daytraders from the market, the collapse of the great tech bubble of 1998-2000, or Fed-induced low interest rates combined with cheap credit vs. high stock valuations causing a virtual standoff in the marketplace. But it is likely that the real culprit is the ongoing avalanche of convertible bonds that have been dumped on the market since 2000. As their stock prices collapsed and bond ratings deteriorated, many companies have had to resort to issuing convertible bonds (a bond plus a warrant) in order to raise funds. There are several advantages to a company issuing zero convertibles that we don't need to get into here, but the important part as it relates to the option markets is the warrant that is attached to the bond. A warrant is simply a long dated option, and as arbitragers, hedge funds, and investment banks acquire convertible bonds, they will decompose and hedge the parts, including the warrant. This involves selling options, listed or otherwise, against the warrant, thus depressing volatility. The number of convertible offerings that have been coming to the market has been unprecedented, and it seems to be accelerating, so it is quite possible that implied volatility could ratchet down to a new, lower trading range. As readers know, we use implied volatility as one of our sentiment indicators, with low implied volatility indicating complacency (and the probability of a setback) and high volatility indicating fear (and the probability of a rally). Looking at a short-term chart of the VIX index below, we can see that the retreat in implied volatility has been very orderly, and that the various moving averages we use to measure mean reversion are also beginning to move lower, indicating that the market is beginning to accept lower volatility as "fair value." How Low Can It Go? The VIX has been moving steadily downward in recent months. If volatility ratchets back down to prebubble levels, does this mean that the VIX and other volatility indices will no longer be useful for identifying short-term market swings? Absolutely not. Once volatility settles into its new range (if indeed it is moving to a new range), it will be business as usual. Proprietary Numbers Overall, call sellers outnumbered call buyers by a 3:1 ratio, and put sellers led buyers 2:1. Nasdaq Unit Trust (QQQ:NYSE - news - commentary - research - analysis) call sellers led buyers 3:1. Continues......