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

To: Chris who wrote (13571)	8/2/1998 2:37:00 PM
From: Robert Graham	Read Replies (3) \| Respond to of 42787

According to "Chips Charts", it looks like the Technology, Finance, and Health Care sectors are still at or above their 50 day MA. I will look at specific stocks later today to verify what the performance of Finance and Health Care is in the current market. I am looking into the use of Point and Figure charting to track industries and sectors. This approach appears to have advantages over the bar charts for following indices. I also have been reading about the Wyckoff approach to charting the markets. This is a more complete and thought out approach to the markets than most I have come across that focuses on the important price and volume relationships during different phases of the market. Definitely worthwhile reading. Wyckoff used bar charts, point and figure charts, and a chart of his own devising called "wave charts" that he used to track the leaders of important industries and the markets that gives buy and sell signals before the composite and industry averages do. Wyckoff used the point and figure charts not only to monitor industries, but also individual stocks. His thinking was that while the bar charts gave good direction and timing information, the point and figure charts gave a good prediction of the extent of a move which price objectives can be set from. This is a market that in the past I would refrain from participating in. The market is technically deteriorating with important stocks each week biting the dust, and the likelihood IMO is that it will go lower. There may be another false rally that will not make the previous high. This would be the time to unload long positions, unless something significantly changes in the market between now and then which I doubt will happen. I have been seeing recently the approach that since there is not much out there to play, the trader lowers their standards and they are willing to play stocks that are not technically sound and have encountered a sell off. This type of trader is attempting to play anything they can see that they think may work, like playing bounces off of 50 day MAs in hope of an actual trend reversal. This trader may even make this type of play even with no experience in this area. This is one of the more self-destructive traders out there. They lack discapline and they are driven not by their choice to trade, but by their need to trade. I suspect they may actually like placing themselves in risky positions for the thrill of it which has nothing to do with making money. Watch out for this type of trader and make sure that you are not getting sucked into this reactive approach to trading. The market is changing and starting to behave differently. This is a signal to back away and watch to see how the market is changing so you as a trader can make plans intelligently instead of running into the market driven by the need to trade or "fear" of missing out on profits. My focus will be on stocks that have demonstrated strength in this market and are on the move up. Initially I used CMGI as an example, but I meant to use it as an example of a stock on the move up that is also news driven besides responding in a very short term way to a technical condition. In this case it is a bounce of a support and its associated upward momentum. I personally would refrain from playing the 50 day MA bounces in this market unless you are very risk tolerant, you know how to read the tape, and you have demonstrated success with this type of play before. This is no market to learn in. There is no net down below to catch you. This is a "game" to be played very seriously and with a good understanding of the risk to profit profile of a trade which in part depends on your experience with such a trade. Stay with what you understand and have had proven success in. If there are not plays available to meet this criteria, then simply do not trade. If you do not at least have a good understanding of the risk profile of a trade, then by all means refrain from making the trade. This type of awareness and discapline is what makes the difference between the ameature player who is essentially gambling, and the more experienced trader. Oh, and this business of holding when the stock quickly moves past your mental stop loss hoping for a reversal is suicide with short positions. I find many play it fast and loose this way with their long positions using the only reason as the stock starting to move down quickly on them. I cannot tell how how much of an ameature approach this is! IMO if you want to survive now as a shorter, never approach short positions in this way. Otherwise you will end up having your head handed to you. Those that have had experienced this know what I am talking about. It indeed can be a painful experience. Learnings how to short on paper is a very good first step. Keep in mind that even though this is a bull market that is quickly turning into a bear-like market, as long as it does not break down from this point, this market will still have some of the characteristics of a bull market. Shorting in a bull market is very different than shorting in a bear market. In this market, there is still traders that are prone to step up to buy during the stock's initial sell off. When they will move in to buy in part depends on the stock that you are shorting. When the sell off happens, it moves very quickly. It looks like it will continue going down. Do not be deceived. This is when it can reverse. Also in this market there is still the possibility of significant up days that may develop into a short term fake rally. This is a volatile market. You do not want to get caught on the wrong side of the trade. It is not the same shorting a stock thinking: "Gee, I just will cover when my magic price is hit". A good bounce can cost you more than you expect on an individual trade. Shorting is a game that is very different from going long, even though it is a play that can be learned by many. Anyone who tells you it is the same as going long has little or no experience shorting stock, and has not kept there eyes open to what actually occurs around them in the market. The only type of shorting that seems to be with relatively low risk, a good way to learn, is by playing a sell off on a stock with poor and deteriorating technicals that is driven by recently release bad news. In this way there is less liklihood of people stepping up to buy the stock since the trading activity has already been poor on the stock for a period of time. It helps if the stocks has already encountered a sell off for similar reasons in the not too distant past, and the hold outs from the previous sell off are selling their stock too. But beware of companies that have "glamour" type of status like DELL. The fundamental picture can be negative, the technical picture becoming more negative, but there seems to be peple just waiting for the right price to buy this stock. So during its sell off, there will be places that people will step in and buy the stock. DELL would not be a good stock to short for this reason. Bob Graham