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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Backfill who wrote (13319)	7/28/1998 10:18:00 PM
From: Robert Graham	Read Replies (1) \| Respond to of 42787

What is bad about LU is the people who were trading it during this market rally: the enthusiastic public speculators. You can see what can happen to stock in "weak" hands like this when LU dropped from 108 to 92, and moved a good part of this amount in a heart beat, and moved 10 points even before it has a chance to move below its 5 day MA. This is 15% off which can be disaster for the ST trader but tolerable for the longer term trader. Now if you entered from the beginning of the run up then you still have made money. Remember that what determines the trading characteristics of a stock is not its balance sheet. It is the type of market participant trading in the stock. Now if you are a longer term investor, then the balance sheet would be more inherently important to your trading decisions. If you are a shorter term trader, the earnings growth of a company may matter depending on if the other participants in the stock closely follow the earnings growth of the company. The public speculator such as what we have been seeing in this market of late is not concerned at all about value and therefore the balance sheet. They just look for stocks to play with. They tend to be attracted to stocks that have a good "story", but this is not really a necessity. The value players in the market stayed in the defensive issues during this rally. Also note that the character of speculation for a stock changes when the stock moves up in a strong uptrend with no established earnings pattern compared with another momentum stock that is based on real earnings growth and momeuntum. The former tends to be more volatile with large swings in buying and selling interest compared to the latter. Program trading is observed with a quote feed that has T&S and charting capability likes quote.com. I track quotes or values on the following: TICK, TRIN, and a intraday chart of the DJIA, S&P Futures for current month, and 30 year treasury bond. Following the stocks leading the market of the day would also be helpful. Specifically, when the TICK moves allot from lets say -200 to 700 is when you know program trading is in action. The TICK can go the opposite direction but an equivalent amount. You will see by looking on the intraday chart that this will usually happen at junctures defined by the price action. This is at key interday resistances, or when a move exhausts itself and you see a few very small lines develop indicating indecision. Program trades can go off at other times such as when the TICK or TRIN is at their extremes. But in order to work, the program trader still has to wait for the market to "stall" before running a trade. What you can see by what the TRIN and other measures do at the juncture is that when the market is at a juncture, the program trader waits a little longer before running the trade. He wants to see how the market is biased at that point since the goal is not to go against the market, but to encourage the market to continue its bias in the form of further buying or selling induced by the program trade. Once the program trader is able to detect what the bias is and therefore where the market is heading from its juncture, the appropriate buy or sell program is tripped. If they guessed the market bias wrong, which is possible, then they just immediately reverse and perform the opposite program trade. When they guess the market bias wrong, it shows up as a small movement from the juncture that immediately encounters back filling instead of the expected follow through. After the fun is over with, you will see the S&P Futures move in the appropriate direction to lock in the profits they have generated for themselves. Bob Graham