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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: CatLady who wrote (12051)	12/21/1997 6:41:00 PM
From: Investor-ex!	Respond to of 94695

CatLady, Are these recent divergences in direction and magnitude between DJ30, SPX, OEX, NDX, etc. high or normal by historical standards? There have been many past episodes where the major averages have diverged. In these instances, usually the small caps and/or the NASD retrace while the DOW & S&P mostly mark time, i.e., there is a "flight to quality", usually to capture large cap dividends (which, incidentally, are pitifully low these days). However, it's rather unusual to see the DOW and S&P RISING and testing new highs while everything else is re-testing recent lows. As usual, I have a rather facile explanation for all this. If one believes the reports that the Fed may have intervened in the S&P 500 futures market in late October to support the US market, and I do, then this divergence makes a bit more sense. Since most (all?) of the DOW stocks and all of the OEX are in the S&P 500, it follows that these indexes have moved, more or less in tandem, up from their lows. Other indexes did not have the direct benefit of this "artificial momentum thrust", and therefore have languished, returning to their previous October lows. In effect, the Fed singled out the NYSE large cap segment of this over-priced market for support, giving these companies much more of a patina of security than they would otherwise deserve. This support is now somewhat self-reinforcing at this point, as was likely the Fed's hope when they intervened in the first place. However, this effect has already worn off the other indexes because they were only peripherally affected, initially moving in sympathy with the futures market. In time, I believe the effect of Fed support will wear off the DOW et al too, barring further intervention. In other words, all things being equal, I think it is much more likely that the DOW and S&P retrace to their October lows than make and sustain new highs. How's that for a nice wacky theory for what has been a very wacky market. :-D

To: CatLady who wrote (12051)	12/21/1997 7:45:00 PM
From: kas1	Read Replies (1) \| Respond to of 94695

Yup, all the indeces I know of are weighed by market cap. This does something very interesting when combined with the popularity of index funds. The expensive stocks get more money than the cheap stocks from the index fund, and thereby become more expensive! Talk about Ponzi schemes! BTW, Bill H. and I are both cat fans, so you will fit in well on this thread. :-)

To: CatLady who wrote (12051)	12/21/1997 11:59:00 PM
From: James F. Hopkins	Respond to of 94695

HJi CatLady; I'm far from having a handle on most of the indexes.. it would be a chore for me to say get the OEX down like I have the DJI..and I haven't had time yet. I'm just suggesting you be care full with any of them..if your charting them. Even just two stocks in a basket could chart in a way that defeats TA. The thing is I'm sure all indexes deverge and converge "at times" IE showing higher or lower than say the mean of the basket.. and the trick would be to find out which way and how much, then you have a leading indicator..the more they differ the stronger the indicator. Still I'm a long way from compleating my study on it. So far just the DJI..and I don't rely on it alone I also look at the currency moves..and try to anticipate bond buying..as big moves in the bond market can out weigh what my indexes say. This is just to get the likly trend of the overall market.."the trend is your friend" ..if you read it right no matter if a stock signals a buy..I will hold off if the general market looks negitive..or the other way around. Like now I see some that are top heavy..but I'm on hold as to shorting via puts..as the market kinda looks up..but I need verifacation of that as the indicator is not all that strong. Jim Ps just don't count on indexes alone, as they are not always an honest indicator. Certain issues in the basket can change the index ( with little volume )..were the heavy volume is going slowly the other way from what the index would have you belive. This is also noticable when indexes at times go aginst the tick or the tick turns up before the index does etc. Jim