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

To: browser who wrote (14931)	8/25/1998 2:33:00 AM
From: Smooth Drive	Read Replies (1) \| Respond to of 42787

Hi Chris, In furtherance of our PM, I recently got my hands on the general construction data requirements for Laszlo Birinyi's overbought and oversold indicator. In a nutshell, you start with 3 years daily info and create a 50DMA that looks back from any day one year and finds the highest and lowest close as a % from the 50DMA. This leads to the creation of a bottom, middle and top with overbought above the 50DMA and oversold below the 50DMA. For instance: As of 8/21/98, in the last year LU's close has been a max of 35.95% above its 50DMA and a max below it of 11.62%. This leads to the overbought and oversold being expressed as a % with 0 to 100% being the area from the 50DMA to the bottom, and 0 to 100% from the 50DMA to the top. I'm back testing in Excel and finding Birinyi's right when he said (in a 1997 presentation): "It's an overbought/oversold indicator. Again it just tells us the lay of the land and the geography. It tells us that Coke currently is very oversold. It doesn't tell us that it's going to go up 10%, it doesn't tell us that it's going to go back to the 50-day line. It just says look; this stock is flat on its bottom. On the other hand, a stock like Apple, or Texas Instruments is near the top end of its trading range. If you buy Texas Instruments here as an investment, as opposed to a day trade, you're really not likely to make any money. You're crossing against the red light. Yes, you might get lucky. But the stocks on the right side, especially those bumping up against the top end of their overbought perimeters, and I won't go into all that, but they are bumping up against their top end. There you're trying to fill an inside straight. And once out of every 12 times you'll be lucky." What I've learned from looking at his O/O indicator is that you really are betting against the house buying in the upper overbought areas, whether short, mid or long term. On hard trending stocks it can take just a few days/weeks to get decent entry points for shorter term trading. Here's a look at LU since June. OVER OVER OVER OVER SOLD BOUGHT DATE CLOSE BOTTOM 50DMA TOP SOLD BOUGHT 3DMA 3DMA 8/21/98 86.94 76.83 86.93 118.19 0.00% 0.02% 0.00% 4.41% 8/20/98 88.50 76.58 86.66 117.81 0.00% 5.92% 0.00% 8.42% 8/19/98 88.63 76.32 86.36 117.41 0.00% 7.29% 0.00% 8.69% 8/18/98 89.81 76.07 86.08 117.03 0.00% 12.06% 0.00% 6.72% 8/17/98 87.81 75.78 85.75 116.57 0.00% 6.71% 0.00% 5.85% 8/14/98 85.88 75.52 85.45 116.17 0.00% 1.39% 0.00% 9.30% 8/13/98 88.06 75.27 85.17 115.79 0.00% 9.44% 0.00% 13.24% 8/12/98 90.00 74.94 84.80 115.28 0.00% 17.06% 0.00% 16.59% 8/11/98 88.44 74.62 84.43 114.79 0.00% 13.20% 0.00% 19.52% 8/10/98 89.94 74.27 84.04 114.26 0.00% 19.52% 0.00% 24.92% 8/7/98 91.44 73.94 83.66 113.74 0.00% 25.85% 0.00% 27.02% 8/6/98 92.06 73.59 83.27 113.20 0.00% 29.39% 0.00% 23.51% 8/5/98 90.56 73.24 82.87 112.67 0.00% 25.82% 0.00% 23.70% 8/4/98 87.00 72.87 82.46 112.10 0.00% 15.33% 0.00% 27.10% 8/3/98 91.00 72.60 82.15 111.69 0.00% 29.95% 0.00% 37.80% 7/31/98 92.38 72.28 81.79 111.19 0.00% 36.02% 0.00% 37.09% 7/30/98 95.25 71.91 81.37 110.63 0.00% 47.43% 0.00% 38.53% 7/29/98 89.00 71.51 80.91 110.00 0.00% 27.81% 0.00% 39.20% 7/28/98 92.25 71.20 80.56 109.53 0.00% 40.36% 0.00% 49.22% 7/27/98 94.38 70.82 80.13 108.94 0.00% 49.44% 0.00% 54.50% 7/24/98 96.25 70.41 79.67 108.32 0.00% 57.88% 0.00% 63.78% 7/23/98 95.19 69.98 79.19 107.66 0.00% 56.20% 0.00% 72.87% 7/22/98 100.63 69.59 78.75 107.06 0.00% 77.28% 0.00% 83.54% 7/21/98 102.13 69.10 78.19 106.31 0.00% 85.13% 0.00% 79.28% 7/20/98 102.25 68.60 77.63 105.54 0.00% 88.22% 0.00% 70.55% 7/17/98 94.88 68.06 77.02 104.71 0.00% 64.50% 0.00% 58.62% 7/16/98 92.75 67.64 76.54 104.05 0.00% 58.92% 0.00% 51.99% 7/15/98 90.50 67.29 76.14 103.52 0.00% 52.44% 0.00% 49.34% 7/14/98 87.94 66.98 75.79 103.03 0.00% 44.60% 0.00% 45.24% 7/13/98 89.38 66.75 75.53 102.68 0.00% 50.99% 0.00% 44.70% 7/10/98 86.13 66.52 75.27 102.33 0.00% 40.13% 0.00% 43.14% 7/9/98 86.63 66.31 75.03 102.00 0.00% 42.99% 0.00% 43.47% 7/8/98 87.19 66.05 74.74 101.61 0.00% 46.31% 0.00% 44.36% 7/7/98 85.44 65.79 74.44 101.20 0.00% 41.10% 0.00% 39.65% 7/6/98 86.38 65.57 74.20 100.87 0.00% 45.65% 0.00% 39.12% 7/2/98 82.50 65.35 73.94 100.53 0.00% 32.18% 0.00% 35.95% 7/1/98 84.31 65.24 73.82 100.37 0.00% 39.52% 0.00% 36.49% 6/30/98 83.19 65.06 73.62 100.09 0.00% 36.14% 0.00% 32.67% 6/29/98 82.31 64.86 73.39 99.77 0.00% 33.83% 0.00% 29.35% 6/26/98 80.50 64.63 73.13 99.42 0.00% 28.04% 0.00% 27.56% 6/25/98 79.75 64.42 72.89 99.09 0.00% 26.19% 0.00% 25.93% 6/24/98 80.13 64.24 72.69 98.82 0.00% 28.45% 0.00% 20.40% 6/23/98 78.50 64.05 72.47 98.52 0.00% 23.15% 0.00% 11.04% 6/22/98 74.75 63.85 72.25 98.23 0.00% 9.61% 0.00% 4.44% 6/19/98 72.25 63.77 72.16 98.10 0.00% 0.36% 0.00% 4.70% 6/18/98 72.94 63.69 72.07 97.98 0.00% 3.34% 0.00% 7.29% 6/17/98 74.63 63.58 71.94 97.80 0.00% 10.39% 3.25% 6.18% 6/16/98 73.94 63.49 71.84 97.66 0.00% 8.14% 3.25% 4.29% 6/15/98 71.00 63.47 71.81 97.63 9.75% 0.00% 3.25% 3.49% 6/12/98 73.00 63.44 71.78 97.59 0.00% 4.72% 0.00% 6.54% 6/11/98 73.13 63.32 71.64 97.40 0.00% 5.75% 0.00% 9.22% 6/10/98 73.81 63.15 71.46 97.15 0.00% 9.16% 0.00% 9.99% 6/9/98 74.50 62.96 71.24 96.85 0.00% 12.74% 0.00% 9.83% 6/8/98 73.06 62.75 71.00 96.53 0.00% 8.07% 0.00% 7.45% 6/5/98 73.00 62.56 70.79 96.24 0.00% 8.67% 4.04% 4.76% 6/4/98 72.00 62.37 70.58 95.95 0.00% 5.62% 4.04% 3.81% 6/3/98 69.38 62.19 70.37 95.66 12.12% 0.00% 8.34% 1.94% 6/2/98 71.69 62.06 70.22 95.46 0.00% 5.82% 4.30% 3.45% 6/1/98 68.94 61.85 69.99 95.15 12.90% 0.00% 4.30% 4.22% Interesting patterns develop with the BOO (Birinyi Overbought Oversold). Look how the overbought started rising around June 23rd, and then hit some big numbers starting around 7/15. Wouldn't have been a reeeeeal cool investment short term on 7/20. Then, because it's somewhat adaptive, the 50DMA rises and so does the %'s above and below. If it starts going sideways, the numbers adapt. As far as I can tell, this is Birinyi's invention. I'm also tinkering with some different MA's. I've put a 3DM here. Let me know if you want to see KO and CSCO. Take care, Eric