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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: James F. Hopkins who wrote (1576)	12/13/1998 12:49:00 PM
From: Lee Lichterman III	Respond to of 99985

I concur with all your points. I feel G-span cut the rate knowing the dollar would drop, but this was an attempt to curb the trade deficit so the weaker dollar would help us market goods overseas (besides bailing out his buddies). It didn't work so far. I threw FLEX in only to show that not all the smaller caps were down in certain sectors although I realize it's affect on the market is minor. I could have also used one of the smaller internuts but those are mostly traded by the little guys. While seeing all this, I still haven't figured out how to take advantage of it since we don't know for sure what the grand plan is. If they are going to put this money to work to push the indexes back up one more time, will they continue to buy the big stocks so they can move the index the most as I believe would be most likely? If so, we would have to buy the most over priced issues with the most foreign exposure like IBM etc instead of the slaughtered little ones that are getting butchered. On the other hand, we could play it safer and go short the big guys during the push but what if G-span cuts the rate seeing what we see in the mean time? This is a tough scenario to actually play. It is safest to sit on the sidelines but no money will be made. Short term, I guess we could play puts on the smaller weighted issues and let them fall until the bigger move happens one way or the other. If they finally pull the plug on the heavy weights and we try to jump on once the move starts, then the premiums on puts will already be high. If they use the cash to make the hollow run in the indexes, you could try to ride along by either playing the SPOOs, OEX calls etc but make sure you hang that sign over your computer that reminds you were trading a very hollow bubble that is even shorter term than before. What amazes me most is with the severity of some of the drops in the companies that warned (KO, PG) and the oils, the indexes can be as high as they are. I was looking at some of the OEX components. KO is 4% as is Exxon,which means CSCO, INTC and IBM all are needed just to match their weighting and they didn't move enough to offset those drops. AT&T had a nice run that helped mask the drops but its chart is getting toppy and if it makes a normal pullback after the news that will be another 2.8% that will have to be covered up or else the other drops will become more apparent. Looking over the list, they are running out of sectors that have any hope at all in fundamentals to attract more buyers. The scariest thing I saw was GE at over 7% weighting. If any bad news comes out there, I don't think they will be able to save the index. Looking at GE's chart, moneyflow had been negative and the stochastic had pulled back some so there is room to go up and maybe it will be the target for masking bad news elsewhere. If another sector gets hit, I will watch GE close to see if they try to use its heaviest weight status to cover it up. Just writing this, helped me. That might be the golden egg. Should IBM, or telecom get hit, GE could be the one to pop in retrobution. However it is so tied to the banking sector it would be a risky play fundamentaly. If Brazil blows apart or any other bad banking type news hits, GE should take part which will blow the index to shreds. There has to be a way to make money on this, but haven't figured it out yet. Have to go to work now. Don't have time to look this over again so I hope it makes some sense. Good Luck all, Lee

To: James F. Hopkins who wrote (1576)	12/13/1998 4:09:00 PM
From: James F. Hopkins	Respond to of 99985

Hi Lee; At the bottom of this is my holy grail That was another good post, you sure have a way making your points clear. I guess we are all looking for a holy grail , even though I have the opinion there is not one, I still tend to look for it. The thing about strategy is what may work for one person can mess up the next. It has to match the personality, if you have the nerves of a cat burglar then really get into the most volatile sector but don't take your eyes off the ball for a minute, or get distracted by out side noise. It's not selling yet but the new internut index will be a snap to hedge with for them that can focus only on the internuts. ------------- An other less risky system is playing short term divergence between the MDY and SPY hedging one against the other. Don't leg in but you can leg out. Like go long one, short the other as to your best guess at the same time, but close the loser early then hold the winner. This is the trend is your friend style. Over the long term the MDY can't out perform the SPY, it's the way they are made up. The spy gets new runners and there is no limit to their cap size , the stocks in the MDY may run but at some point they graduate, ( hence it losses it's best runners ) the shear mechanics of this for a long term player would be to just go long the SPY and short the MDY, quicken.excite.com But most people don't have that kind of patience. quicken.excite.com Now being the MDY is doomed to under perform the SPY over the long term as it's best runners get cut out since 1995 short it and long the SPY gave you a spread of about 50%. With equal allocation the short side on MDY and long SPY cost you very little actual cash outlay and can be done on margin. This is a lay up, as when the market moves down the MDY short makes you more money than the SPY long cost you. While short term if your a trader you might find the MDY will out run the SPY, but if it does so very much; you can count on a market correction before long. In as much as the indexes are made in such a way, if you hold most of your money in a widow and orphan fund such as PPT, quote.yahoo.com and don't let this chart of this high quality bond fund fool you, as she has been paying monthly dividends all along and to get the picture you have to add the compound interest to her gains. While she has not beat the S&P she has not done bad, and is not near as volatile. In fact using her as a core holding, to margin a hedge against can let you go long the SPY and Short the MDY both without laying out any cash. -------------------- There are several widow and orphan funds and a little diversity there is wise. As you don't want just one of these core holdings that give you the margin ability to by chance take such a dive you have to make a margin call. But if your conservative there is not much chance if any of that. ---------------------- The lay up is 100K in widow and orphan funds, 100K short the MDY ( gives 100K in your account ) then 100k long the SPY. 5k money market. The only time you pay margin interest is when the MDY out runs the SPY..this does happen but you can go to sleep on it the reality of it is you are hardly ever on margin, any down turns in the market are offset with the short on the MDY, and you can leg out of the SPY if it looks really bad to the down side. Keep in mind you want as base, holdings of funds that pay a dividend that exceeds margin rates, who have a long term track record that is not very volatal no matter what the market has done. PPT PDF DNP are a few, FAX got hit last year but she is a buy now, however you can see why I would spilt the 100K at least 3 ways in the more solid and stable issues. quote.yahoo.com again don't let the chart fool you, had you run a DRIP on these the interest would have compounded your gains nicely. Then with a hedge 100K long spy 100K short MDY, At no real cost to you, in the last 5years you picked up 50K profit on the hedge. Plus the gains in the funds, plus the dividends..and had a good hedge all along. And could have gone to sleep and not worried about jumping in or out or some sort of sneaky melt down. The MDY will always lose the most on strong down turns, and there lies the beauty of it. I just wish I had seen it 5 years ago. It's a lay up if there ever was one, and can give even a moron plenty of time to leg out of any long side in a down swing. As long as the core holdings hold price within 5%; or their yearly yeald as a grope , then forget the knee jerks and rest easy. If your not too greedy it's hard to beat. In the last 5 years it would have retuned an easy 125% on your origal money, and had a sort of insurance built in, had you reinvested pofits each year you could have run it to 175% easly beating the S&P 500 which is up 150% , ( with dividends reinvested ). Ya a lot of people don't know the SPY tracking the S&P index adds dividens to it's index on a regular bases. With the lay up, you stick the dividends back into the core holdings and as they grow both in price and via DRIP you keep them moving up , also the size of the hedge moves up too as they do. If your nimble, leg out of the long SPY on down turns, and leg out of the short on stong rallies. If your not nimble just let them both run, and don't move if the core don't fall 5% or more. Belive me if that happens the MDY short will have gained much more and offset the loss in both the SPY and the core. Actually the MDY is not 5 years old, so some of this is hypothetical, but it's also conservative as since 1995 the MDY & SPY spread hedge is just about 75% not the 50% I used. This system if used just the last 3 years beat the S&P hands down. Also it beats most 99% of the equity mutual funds you can find. A super conservative long term approach would be to have not put the profits back into it, but just let the profits buy gold coins, "only the profits " and as gold fell you would have got it cheaper each time, this would have been less profitable but what a hedge you would have built. End of holy grail. Jim

To: James F. Hopkins who wrote (1576)	12/13/1998 11:40:00 PM
From: Jack T. Pearson	Respond to of 99985

James, Your post was most interesting, but I find it hard to believe that inflation will be a significant factor in the next year. Maybe it will begin to pick up in 2000. The cameras you claim doubled in price are a new generation with higher resolution and better linearity. Higher performance products usually command higher prices when they are introduced. Same thing happens in PCs. The problems in SEA was a major contributor to the recent rapid drop in commodity prices, but the long term trend in commodity prices was down before those problems appeared. The shift from national economies to a world economy has greatly reduced the ability of manufacturers to hike prices. As SEA recovers, I suspect they will put increased pressure on prices of many products. I'll worry about inflation when I see insufficient capacity to satisfy demand. But I won't worry about the prices a few early adopters pay to have the latest digital camera with twice the resolution and a lot of new features. Jack