Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Point and Figure Charting -- Ignore unavailable to you. Want to Upgrade?

To: Ms. X who wrote (812)	2/18/1998 3:36:00 PM
From: Ms. X	Respond to of 34817

Tom Dorsey Q&A Part 4 Q) When is it a bad idea to buy options as opposed to buying stock? Do you ever use options to actually buy the stock? How about covered writes? Do you do those? I've heard covered writes don't make sense. A) Buying calls can in many cases be more productive than buying the underlying stock. The reason is a term called Delta. Delta is a term that describes how much an option will move in relationship to a one point move in the underlying stock. Deltas expand and contract with the movement of the stock. A deep in the money call will have a delta approaching 1 or a point for point move with the stock. If the stock declines, the delta will contract thus, causing the investor to lose less than one point for each point in the stock. Never buy more calls than you would ordinarily buy round lots of the underlying stock. This will prevent you from over leveraging. Over leverage is the primary cause of disaster in the options market. Covered writes typically don't work well because they cap off all upside above the strike price sold but leave all the downside minus the premium taken in. I do use covered writes but generally only when a stock has moved up to a resistance level, I sell the calls against the position expecting the stock to stall out for a short while. In many cases I have had to sit tight while my stock rose through the upper strike price. It's a judgment call. When you buy a call, hold it until expiration. ---- Q) Do you have a favorite trading tactic? What has worked best for you? A) I simply love to own stocks and quality ones at that. My idea of technology is Campbell's Soup. My objective is to build wealth and I feel much more comfortable buying high quality stocks. I guess that would be my favorite strategy. I do however use options periodically and hedges. I almost always try to keep it as simple as possible. Q) I would like to know what Tom feels are the assets which a stock trader should possess. A top 5 list would be fine. I am trying to do this for a living and have paid the bills so far, would like to know if my traits can carry me through years of market research. So far I really enjoy it (5 months of trading) Thanks, David A) David, this has been a good market for a trader. Things have been very easy. You must be willing and comfortable to go short as long. You must trust above all, I say above all, your indicators. You must never second guess them. When you begin to second guess them you are finished. Find a method that is comfortable for you and don't deviate at all from it. Keep it as simple as possible. Write down why you buy or sell every position so you can go back and see what went wrong and what went right. Never throw good money after bad i.e. continue to believe in a position and average down until your capital is gone. When a trade is over, don't look back to see what could have been, it's over. Don't tell anyone what your positions are, you will psychologically find yourself defending them if they do not work, once others are watching your positions. Don't try to catch the bottom 20% or the top 20%, be satisfied with the middle 60%. Happy hunting.

To: Ms. X who wrote (812)	2/18/1998 3:37:00 PM
From: Ms. X	Respond to of 34817

Tom Dorsey Q&A Part 5 Q) I have EVI May 75's that I have averaged down on for 2 months. My cost basis is 1.47 and they are bid 3/16 now. Should I hold for a possible surge up or should I sell into strength in the next rally and take what I can get out of the investment? A) No fix Glen. Simply light a candle each night. In the future never average down in an option. Always plan to hold the option to expiration as this will give you one or two great rides a year that more than make up form those that expire. Hold this to expiration and see if they call your name in the lottery. ----- Q) What do you think the outlook for the networking stocks going out 2-5 years and any specific technology/stocks that he feels may do very well. I am interested peripherally in the voice recognition and the storage aspect of same. A) We don't look out that far. We only look out as far as our headlights will allow. This question is best answered by fundamentals. ---- Q) I'm long on three small tech stocks: PTEK, MRVC and PCMS. I've been trying to decide whether to sell into strength, assuming we ever have any, or to buy more on dips or other opportunities. What does the crystal P&F ball see as support and buying targets on these little darlings? A) PTEK and MRVC are both trading at or below their bearish resistance line. We are always cautious and make sure our stops are in place under these conditions. Both have relative strengths that have reversed down. PTEK may have a stop to low for you at 20 decide your risk level. MRVC might break a spread double top at 31 which would also put it above the bearish resistance line. Stop of 20 here too. PCMS has pulled right back to support. You could buy more here with a stop of 16.5. Q) What is your favorite stock or stocks right now? A) Campbell's Soup, McDonalds, Proctor & Gamble, Clorox, Fanny Mae, Freddy Mac., tons of others, large cap. ---- Q) Hi Tom, Jan here, question from my Dad. He wants to know how he can make 300,000 dollars by next month. He did, he asked that. Big trip to Reno planned I guess. Should he get it in black jack or in the market? :-) A) Buy 20 contracts of March Soy Beans. (Very risky) ---- Q) How do you feel about Yuri? Do they get bought? Will they make it in the face of stiff competition from larger companies bringing newer and more cost effective product to the ATM CPE market. A) We don't think about things like that. We leave the heavy thinking to the CFA's who are trained in such things. Best to get a report from a brokerage firm that follows it and you can be sure the fundamental analyst has kicked all the tires. In the end watch the point & figure chart. ---- Q) How about ASND. Do they turn the ship around by focusing on another market segment in which Cisco dominates - namely the ATM/Frame market. ASND says they're shifting away from their traditional markets - the RAS market and that they expect to get well in the ATM space... can they truly make a go of this? A) ASND has made the turn technically. Fundamentally, I leave it to the CFA'S. ---- Q) Cisco... O.K. what about Cisco. Are they fully valued given John Chambers assertion that CSCO is a $20B in 2000. Or better yet... does Tom think Cisco is a $20B company by 2000. A) Don't know about associations of people or 20B by 2000. But stock looks good and I expect higher prices if that is what you are interested in.

To: Ms. X who wrote (812)	2/18/1998 3:39:00 PM
From: Ms. X	Respond to of 34817

Tom Dorsey Q&A Part 6 Q) What will happen to the oil service and oil stocks if we bomb Iraq? A) Who knows??????? Probably what you least expect. ---- Q) Jan again, I'd like to propose a question: Can you please describe what happened to the market in October. We were going along fine and then, Bam! Everything went to hell in a handbasket. I know the answer can be simple or long. Maybe we can give these folks a medium version of what happened. Also, you saved your clients in '87 before the crash. Can you tell us how you did that. Thanks. A) October set up just like all other tops. We saw the NYSE Bullish Percent rise to 76%. High by anyone's standards. It reversed down and that suggested we lost the ball. The sector bell curve was the highest reading we have ever had suggesting high risk. When you get that picture again, take it to the bank that the risk is too high to buy stocks. There can be a multiplicity of reasons on a fundamental basis to cause the indicators to set up like that but finding the exact sequence of events that caused it is a futile attempt. The indicators guide us. It's OK to be wrong in the market but not OK to stay wrong. 1987 set up in the same fashion. The first sign of trouble came in April with the reversal in the utility index bullish percent. It crashed form 70% down to below 30% in a heart beat, and the NYSE Bullish Percent reversed down also from 76%. Major sign of what was to come for rates. By August the NYSE BP reversed up again only rising to 68% when the Dow Jones went to a new High. Early in Sep. the NYSE BP reversed down for the second time that year going back to Bear Confirmed and that was the sign we all get out. We have a situation where the Dow Jones has made new highs now with the NYSE BP much lower than the last high in October. Will it play out the same way again? I don't know, we don't predict. We follow the indicators which takes much of the emotion of investing out of the equation.

To: Ms. X who wrote (812)	2/18/1998 3:42:00 PM
From: Ms. X	Read Replies (6) \| Respond to of 34817

Tom Dorsey Q&A Part 7 Q) Can you talk about the effects each of the following may have on the market ? 1) If the US were to bomb Iraq. A) Probably make a new high. Hell, it's in the TV Guide now when we attack isn't it? ---- 2) If President Clinton is found guilty of the charges involving Monica Lewinsky and he is (1) impeached or (2) resigns. A) I can only remember disaster when John F. Kennedy was killed. the market went down for a day and then straight up. It really depends on what the economic circumstances are at the time. The market will do what it wants. ---- Q) How much of an effect will Asia continue to have on the US stock market and have we seen the worst of its effects on US companies already ? A) The first half of the hurricane has come through. We are currently in the Eye. The back half is probably still coming. They are printing money like crazy and you know what this means. Inflation. ---- Q) Do you see any chance of the US entering a period of Deflation ? Can you explain what deflation really means both to Main Street and to Wall Street ? A) It think deflation is out of the question. Our money supply is rising at an alarming rate. Inflation is a case of an increase in the money supply. In my humble opinion, forget deflation. Inflation is the problem coming up. ---- Q) His ideas for sectors about to rotate positive or negative. And those with the most potential coming up. A) Leisure, Latin America, Non Ferrous Metals, Oil, Oil Service, Steel/Iron, Waste Mgmt., Healthcare, Biomedics/Genetics, Textiles Apparel are all below 50% and that 's about it. We are beginning to skew to the overbought side of the equation now. It's going to get tougher. ---- Q) Do you know of any PC software that graphs P&F charts from the Worden brothers' Data source? I have been a long time fan of P&F but am tried of plotting by hand. Thanks. Ken A) Ken go to our net dorseywright.com it is as cheap as having to download all these stocks anyway. Or the best we know of is RTR Software in Raleigh North Carolina. They have the best system for those that want to download each night, etc. ---- Q) For Tom Dorsey: What is the meaning of life? A) To strive to be the absolute best at every endeavor you undertake. When you find a goal, the key to reaching it is to make sure every step you take is in that direction. Try to do something special, what ever it is. Be the person in your profession, your peers come to for answers. Teach someone else to be as good as you are at your particular specialty. Make sure you leave something behind. Always try to give back to your profession, others need the same opportunities you have had in the past.