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Strategies & Market Trends : The Rational Analyst -- Ignore unavailable to you. Want to Upgrade?

To: Galirayo who wrote (160)	1/9/1998 3:01:00 AM
From: HeyRainier	Read Replies (3) \| Respond to of 1720

[ Rationale for EK short-sell ] The first consideration in opening a short position in EK was its trend: The 30 dma is below the 50dma, which in turn is below the 150 dma. All have generally negative slopes. Remember, the trend is your friend. I have come to make it a point to trade with the trend of a stock. Just this consideration alone can tilt the odds in your favor despite a potentially poor entry point, that is if you hold on long enough to let the trend develop and continue. The stock has been in a downtrend since early 1997, and has made little effort to change that trend..until this day, at least. The dates 2/19/97, 3/12/97, and 6/6/97 through 6/10/97 make up the downtrending resistance line that you can see that was being approached by the New Year's trading activity. In addition to the consideration of this long term downtrend resistance line, there is also another resistance line at work, and that is derived from a Trading Channel that EK has been in since early September until today. 9/5/97 and 11/10/97 make the upper boundaries of the Trading Channel (the resistance). 9/17/97 and 12/12/97 make up the lower boundaries of the Trading Channel (the support). We can see here now that two resistance levels are at work against EK. The very short-lived breakout from the Trading Channel, however, was punctuated with a bearish Hanging Man-like candlestick at the top of the upward move (please see scifi.co.uk for an explanation). Stochastics are at an overbought level: I don't place much reliance on overbought/oversold indicators, but I do pay attention to them in particular when they make a crossover as they fall out of overbought levels. We haven't reached this level yet, but the narrowing spread between the SlowK and SlowD is encouraging. In addition, I have filtered the stochastics reading with previously set highs for the RSI. RSI is also at a resistance level at current levels, and the last time these peaks were reached were on 5/1/96, 9/30/96, 11/12/96 through 11/19/96, 1/20/97 through 1/23/97, 2/18/97 (the high for the stock and the beginning of the downtrend), and finally a year later...to 1/2/98 through 1/7/98 (though we still don't know that it will close lower than these levels.) That's quite a historical precedent, and not once has it broken above these RSI levels. Combining the RSI resistance with an overbought stochastics reading, I'm expecting the next crossover on the stochastics to be the beginning of a short term downturn for EK. The possibility of a Failed Signal Looking at the Trading Channel I mentioned earlier, there was a brief moment when EK pierced above it, but was quickly met with selling on the following days, which brought the chart to close below the resistance level once more. This kind of movement can be considered a failed signal, though unfortunately the clarity of the movement is not ideal and can therefore be questioned. For further explanation of a Failed Signal, please refer to one of my earlier posts on this thread; I believe I made mention of it when I spoke about Bull and Bear Traps. Contrarian signal triggered on trend-following system This was a minor consideration in my decision, but a short-term trend following system I created, when backtested on EK, was shown to be ineffective and generated trading losses. That trend following system covered a short sale on 11/10/97, the day before EK dropped 4 points. That same system covered another open short sell on 1/7/98. Weekly Charts show heavy resistance The whole of the fourth quarter of 1993 established a resistance level at $65, as did the beginning of the third quarter of 1995. An intra-day Double Top The five minute intraday charts showed me a nice little Double Top formation, and told me that the short term upward move was over. Japanese competition and other economic considerations Price competition from Fuji is tough. Kodak is being forced to cut prices on their film just be able to compete effectively in markets where Fuji is a part of. A little reference to economic Game Theory might be able to also shed some light on the economic consequences of two players duking it out in a market. Lower bottom profits generally result for both groups. Possible concerns: 1. Ascending Triangle formations on both the S&P 500 and DJIA; DJIA is at the upward rising bottom boundary of the Ascending Triangle. An upward move may be likely, but a failure to hold up will be encouraging. 2. Positive MACD and Omega Research Expert Analyst indicator readings. 3. Positive effects of restructuring. This is a longer term consideration though, not a short term one, IMO. I would be interested in hearing some commentary on the above if anyone would like to share any observations. Regards, Rainier

To: Galirayo who wrote (160)	1/14/1998 9:57:00 PM
From: HeyRainier	Read Replies (3) \| Respond to of 1720

[ 8-10 New Price Low] Hi Ray, I've been thinking about the 8-10 NPL that you are such a strong advocate of. I was running through some books at the bookstore, and I saw a technical analysis book by Thomas DeMark. In it, he wrote a little section about price snapbacks that tended to trigger themselves after about a consecutive nine-day period, subject to a countdown that I did not take the time to read about. Seems that you've got a fan of your concept. Also, I've been speaking to Peg Coleman (who on occasion posts on this thread), and with her Mathematics background we started talking about Bollinger Bands and the statistical relevance of issues that fell out of the bands, two standard deviations out. It appears that quite a number of issues seem to snap back right after a BB breakout to establish a more balanced price equilibrium. Just look at the Dow on 1/09/98 when it fell out of its Bollinger Band. Or on 10/27/97, when it did the same. At least in this market environment when people believe on buying on the dips will this have an added probability of success for a snapback, IMO. Also, it appears that larger cap issues are subject to greater probabilities for success. But I was thinking of applying this phenomena to your 8-10 NPL scans, to see if perhaps a greater focus on stocks that fall out of their BBs have a greater potential to snap back as expected. What are your thoughts on this? Regards, Rainier