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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (19388)	7/6/2004 8:47:18 AM
From: Steve168	Respond to of 78520

The Sell-Off Started on 7/1/2004! On Wednesday the Fed raised interest rates by 0.25%, the bulls who anticipated the “relieve rally” pushed the market a notch higher. However, my model detected “serious technical weakness” in the market and triggered a “final confirmation” of another sell-off. The market dropped like a rock on the next day. I think that was just the beginning, and the market indices will likely test 2004 lows, with the potential to break to new lows. Message 20273919 I issued a “Sell-Off” signal on 4/24/2004; the market promptly dropped 5-6% in 2 weeks. I issued a “Potential Short-Term Bounce” signal on 5/17; the market bounced up 5-6% in a month. The signals were issued when the probability is over 80%, without intention to pinpoint the exact top and bottom. You have seen the market went up 1-2% after my 6/15 bearish signal, so please don’t trade solely on my signals. My primary investment strategy is value investing. I prefer to buy stocks below book (or even cash) value and the companies have large market share in a growing market without debt. A good example was ALVR in late 2002 – it was trading below $2 with $3.5 in cash/share and no debt, it also met my other selection criteria. I accumulated it over the course of several months and it became my largest holding in Feb 2003. ALVR went to $17 in one year. I sold most of shares in Q1 2004. The problem with value investing is what to do when market is overvalued – as I believe it is now. It is ok to sit on cash with personal money but it is very hard to do so when you have a large portfolio. I have tested other strategies such as “Relative Value” and “Long/short pair trade”, but I haven’t achieved 70% winning probability to certify them as viable strategies in my arsenal. My secondary strategy is based on several proprietary technical analysis models that had 70% or higher winning chances. Technical analysis is the process of analyzing a security's historical prices in an effort to determine probable future prices. Contrary to popular belief, you do not need to know what a security's price will be in the future to make money. Your goal should simply be to improve the odds of making profitable trades. I have studied technical analysis since 1992 and found the winning odds are much better when applying technical analysis on the market index than individual stock –probably because individual stock price movement is subject to unpredictable earning surprises and human decisions such as big institutional holders buying/selling activities, while the market index can statistically cancel out some of those. So I focused on developing my own technical indicators on the market indices. One “long-term market top indicator” has been 90% accurate in the last ten years (I did not have this indicator 10 years ago but was able to back test with historical data). It gave a “Bull to Bear market trend change final confirmation signal” on 4/23/2004; the last such signal was in March 2002. Another “short-term market bottom/top indicator” is about 70% accurate. I announced the “short-term” model anticipated a “sell-off” in my 6/15 email, the market went up 1-2% after that, and triggered a “final confirmation” on 7/1/2004. The probability to go down is 90% now –highest in two years. To limit the risk of that 10% chance, I use up to 15% of the capital to trade on such signals. Since it is leveraged, I expect some volatility in the monthly return numbers. If NASDAQ goes up above 2070, I will have to re-examine the model signal, and the portfolio may suffer several percentage losses. Thank you for reading and I welcome any comments/questions, or simply drop a line to say you read my emails. Happy Investing and Good Luck! Steve