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Strategies & Market Trends : Trend Setters and Range Riders -- Ignore unavailable to you. Want to Upgrade?

To: TWICK who wrote (23496)	10/24/2002 11:36:57 AM
From: Connor26	Read Replies (1) \| Respond to of 26752

just an fyi on a newsletter i got in e-mail Yesterday was a good old-fashioned rip-roaring bullish day. After a sharp morning sell-off -- which hit the stops of the skittish short-term bulls, and emboldened the large "I-Told-You-So" bearish contingent -- the market viciously reversed course and ramped straight into the close. This leaves us with "tails" down on the intraday charts, right at the crucial 20 period moving averages. These moving averages are important, simply because millions of traders world-wide look at them. A tail below, and a strong close above, has many traders seeing this action as very bullish. It's also a very bullish thing for a market to get overbought, and stay overbought. Technicians like to throw around the terms "overbought" and "oversold" -- especially lately, as this has been happening a lot -- and really there is nothing fancy about this term. It means exactly what it sounds like. These refer to markets that have experienced an abundance of buying or selling. Back in the bear market, the selling waves would take the market down quickly to oversold status, but the markets would just continue to go down even from that point. Often this bear market stretched the boundaries of technical analysis to the limits. I vividly recall that the July 24th low was about as ridiculously stretched to the downside as a market can get. Now the markets are overbought, and every chart-watcher in the world is expecting a retracement of the gains. Yet it's not happening. Instead, we had a bullish breakout yesterday off that morning pullback. Overbought is staying overbought, and that's a very bullish development for more gains. Another interesting bullish development is the Nasdaq is leading the market to the upside. Yesterday the QQQ -- the popular index proxy for the Nasdaq 100 -- staged an authentic intra-day breakout to the upside, triggering a continuation buy signal on our short-term timing models. The longer-term daily and weekly models are actually on a major buy signals. So I jumped at the chance to go long the QQQ for our options service for new subscribers that don't have enough long exposure, even though the markets are already extended to the upside. The intermediate-term, daily uptrend is just too strong to overcome here, and until proven otherwise, the bullish momentum should just be trusted, not fought. Also, as long as bonds can't even mount a rally, then the pullbacks in the stock market will not amount to much -- and so far bonds can't manage to get off the canvas. Even at the peak of yesterday's selling, bonds were only up slightly. Bond futures (USZ2) remain the thing to watch during the trading day. Mr. VIX I got an e-mail the other day addressed to "Mr. VIX", which was a gentle way of ribbing me for relying so heavily on one technical measurement of the market. It's true, I rely on the VIX, but it's for a simple reason: it works. It always has, and it always will. Because the VIX reflects the true nature of market sentiment, based not on what people are saying, but on what they are doing with their money. The main reason the VIX works so well is because it is the only major market trait that is anti-persistent. A few months ago, I did a detailed discussion of this anti-persistency, and how the Hurst exponent of the VIX is less than .50. This means that it is a data series that is not correlated with trending movement. It tends to reverse direction. Every other market trait -- such as the price of the S&P 500 -- tends to trend strongly. This is incredibly valuable information to have, and you can carve an entire market timing strategy out of this anti-persistency. The anti-persistent ebb and flow of the VIX -- marking the advance and decline phases for the market -- allows some pretty accurate market forecasting. If we are in a period of a high VIX, such as now, then the odds strongly favor that we will enter a period where the VIX moves lower. And a declining VIX is strongly correlated with rising markets. A VIX declining from 50 -- as this recent market is doing -- has the potential to be correlated with a very strongly rising market. Single-Stock Futures, Again Many people sensed my excitement about the coming launch of Single-Stock Futures. The more you know about these very cool new trading instruments, the more you are going to share my excitement. But naturally at this point, people have an overwhelming number of questions about how these will work, and what exactly they are. I'm urging you to get out in front of the launch of these futures, as we're coming up quickly on November 8th. I predict that the entire trading community will migrate to trading these futures contracts within one year. There is absolutely no reason to trade common stock once there is a futures contract available. And get this: you will be able to trade Single-Stock Futures out of your regular equity account. No special futures broker will be necessary. This one fact alone is going to supercharge the trading in Single-Stock Futures. They are also going to trade electronically 23 1/2 hours per day. This is where the action is going to be!