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

To: robnhood who wrote (16967)	4/21/1998 2:35:00 AM
From: James F. Hopkins	Read Replies (1) \| Respond to of 94695

Russell; and BILL..Market Timing TIME..The Basic Lesson.. This is over simplified, but I hope it's enough to spark some interest in how I use divergence I hope thats the right term. With this I use the DOW 30..the 10TopCaps(head) vs the 20 bottom (tail)..looking for divergence..this can be done many ways, I found weighting the $dollar amount to each one via the Market cap of that one..will produce a fair idea of the real change of the "value" IN or OUT of the market much better than weighting by price, as large market cap means more votes and represents more dollars invested..were even a high price stock with just a small float does not represent a lot of dollars. ----------------------- From 1-16-98 to 4-20-98 DJI index up 16.75 % \|Head 10 up 11.37%\| Tail 20 up 19.51% Total CAP up 13.71 % --------------------- Frist note the Total market cap is up but less than the index by 3.04% how does that happen,, well the Tail 20 is up 19.51% while the Head 10 is up only 11.37% the smaller caps and less liquid of the Dow stocks has actully caused the index to pump up 3.04% more than the market cap has. if this were to correct..chances are it will swing just as far the other way..as that is what the market does..from over bought to over sold and back..so from 1-16 the index has to correct sooner or latter down 3.04% to find balance..it could go down as much as 6.08% then swing back up. ------------------------------------ There is a flaw here in that my time frame is not long enough.. to simply say the index is to high by 3.04% ..that just means from the 1-16-98.. market cap..which at that time was bouncing up off a bottom..to make this more comprehensive I would need to go back more. I have Data going back but it will take some work to get at it..I did not split the 10/20 prior to 1-16.. and would have to dissect the data. But the above gives a general idea of the divergence that is inside an index such as the DOW.. ------------------------------- Other variations of this can be used comparing the S&P100 to the S&P500..and useing percentages.. ------------------------------ The Small Cap Russel 2000 can be compared to say the S&P500 or even the NYSE composit..in any case it's the divergence percentage you want to mearsure. Looking at the Most liquid stocks vs the less liguid smaller ones. It is not unusual to see Small caps gain or even out run the big caps for a while.. the thing is if you see them going in opposite directions very far expect a reversal ------------------------------- Very often BIG Blue Chip stocks sell off some before a down correction, often un-noticed, because the Mid and smaller caps still going up makes the big picture rosy like. Then when the less liquid stocks do start to fall; the fall then becomes noticeable, and almost drastic, and can cause panic. During a fall or Bear market the BIG Blue Chips do not lose near as much in value as the Mid and smaller ones..and will start to recover first.. In fact after the last OCT27th ..had you had only the very big blues just before that happened..after about 2 weeks they were on their feet and made modest to fair gains while most of the rest of the market was going tohellina handbasket. ---------------------------------- Another note is to be able to look inside the index..not just for the amount of advancers vs decliners as the A/D can fool you or give a modest reading..if you don't look at VOLUME.. Inside the HEAD Today MRK was up 1-7/8 on 3.4M shares while T was down 1 15/16 on 7.5 M shares..while the price beteen them was only 1/16 ..and the ones gains offset the index fairly much to the others loss..we see quickly that a lot more dollars went out of the market between them two than the index or a simple A/D line would show. ----------------------------------- Using the TICK..for up volume vs down volume. beyond just saying we have a strong negitive or positive tick..and if gets here it means so and so..as that is to simple..and don't always work.. Again I look for some sort of divergence or unusal meaning connected to the tick..to tip me off..with todays strong down tick but the Market not droping as fast as the tick would lead me to belive I could sence it had to be large caps selling down.. This relitive way of looking at things I guess come from running boats..and docking barges..you deal with maybe a wind going one way ,the current another and , perhaps also bank suction, so each landing can be different. ( how many times have i seen a young throtle jocky try to walk a boat away from a shallow dock and rev up the engings full blast, to only pin himself harder to the dock via the bank suction ) and then him look around sort of silly and not know what is wrong. Tugs don't "power" off shallow water docks very good <G> you got to gently get her turned out then go, or the suction will work against you. ---------------------- All that to say think in relitive motion or terms.. ------------------------ And I want to add watch out for Journalist, and News Comintators who try to tell you what to think or "why" something did something They know how to write but most of them just got a good line and grab canned lines out of the air to explain things.. Take this, and I hate Reuters worse than the rest. ------- Monday April 20 6:29 PM EDT Blue-chip Stocks Bow to Profit-taking bold mine.. By Huw Jones NEW YORK (Reuters) - Blue-chip stocks fell Monday, bowing to profit-taking after racing to record highs last week, but the Nasdaq market stayed on course, setting another high with the help of fast-rising technology stocks. ------------------------------------- Whats wrong with it..well the BLUE-CHIP did not bow to profit taking.. that is pure garbage..The blue chips actually Peaked on APRIL 3rd..and thats when the profit taking started 17 days ago..and the profit taking ran untill the 13th.. since then they have not got back to the level they were on the 3rd, so they bowed to something else today..maybe it was asset reallocation, or conservation of capital..heck early today stop losses kicked in, you don't have stop losses going off and say your taking profits.. Problem with Journalist is they don't know much about the market..yet millions of people buy into their hype and half baked canned ideas..they learned how to write nice or look cute on TV but not how to think.. -------------------- Jim