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Fear and Volatility

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positivecashflow

positivecashflow

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One positive for the bulls this past week was a large gain in the fear indices. The CBOE Market Volatility Index ($VIX) closed at 13.29, a gain of 18.34 percent. The Nasdaq Volatility Index ($VXN) also gained ground, closing at 18.58, up 10.60 percent. Though still near yearly lows, both indices have come off these lows, showing some signs of fear. This is positive because history shows some fear needs to be present for stocks to continue rising.
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Do you agree?
 
DOW JONES INDUSTRIALS
Last Trade - 15:47 13 Jan 2005
Change:

DJI 10,486.32 -131.46 (-1.24%)

Hmmm. Market commentators over there right now are saying uncertainty and fear of negative factors (oil - again, shaky economic numbers) has driven the market sharply lower of late.

"For every 'pro' there is an equal and opposite 'con'" - Olde Proverbe. ;o)

AJ
 
I think you will be surprised as to where the DJIA goes.

The recent rally to 10'900 has broken the last 2 highs indicating a strong long term position, combined with this the market rallied on a very strong angle and the recent pull back has just pushed it back to a more stable angle.

Its normal in any bull market to have a correction like this which last for about 3 weeks, seeing it has been 3 weeks and is right on support let alone the 45 degree angle you should see it swing much higher from here on in.

The peak of 10'700ish in early 2004 was a 50% target level from the low in 2003 seeing the market since broke this level (combined with the breaking of previous highs) the next target is the 66% level at around 11'900. Also the low caused from the decline in 2004's first target is the 25% level seeing it broke the 10'700 high, which means its first target is 11'900ish as well. Provided the market keeps the current angle it should be at these levels by July this year. After this though you will see selling pressure as its historical not possible for the markets to be in a strong enough position to go from 2003 lows and smash 2000 highs and keep going. You should see a bit of action as per 1960/1970.

You will have evidence of this accurate prediction when you see markets in the US rising in the next few days ;)
 
Hello Cosmos,
Welcome to the Aussie Stock Forums! Have read your last two posts, nice observations seem very clear and exact. Keep em coming!!
 
Cosmos said:
let alone the 45 degree angle you should see it swing much higher from here on in.
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How do you know its a 45 degree angle? the x & y axes are not related; ie one is time and one is price.

The angle would depend entitely on the scaling of each axis and therefore entirely arbitrary.

As for your prediction, tell us exactly how you are going to trade this prediction...ie entries exits stops etc

Cheers
 
Well like most predictions there are absolutely useless and not tradable as you can only trade the market today and not tomorrow unfortunately however it does give you an edge in the futures market provided your predications are accurate… :confused:

In any bull market the best way to trade it is to leverage yourself (namely CFD’s in stocks) and buy the stocks in the strongest position. A lot of traders tend to buy the down and outs like Lucent Technologies (LU) and Alcoa (AA) although they may rise they will not be leaders.

The best way to trade this market is to buy stocks in the strongest position (weekly chart) as soon as the market looks like bottoming (like what I posted yesterday) you can buy these and they will lead the way making the best and most consistent gains with your stop losses never been threatened. Such stocks/funds include Nasdaq-100 Trust (QQQQ) Alexander & Baldwin Inc (ALEX) and Altria Group Inc (MO). Some of these are very high historically, but that’s ok as they are not at high levels for no reason. Its stocks like Yahoo that you have to be careful of, this stock has been trending up for a long time and is likely to end up like Ebay, but always watch the volume to get a warning of this change of trend in advance before the price moves accordingly.

Other stocks that will probably turn and come strong in this later part of the bull market and possibly lead the next are Oracal Corp (ORCL) and Ford Motor Company (F), these stocks are holding above their lows on the weekly chart for the last 3 years and obviously the path of least resistance is up.

However you must be careful, some stocks like Sirius Satellite (SIRI) will probably never repeat this run for another 20 years, it may still rise but not at the same pace.

As with regards to Waynels post, you are correct in the fact that both time and price are 2 different factors but this does not mean they cannot be scaled the same. As you may know every function has at least 2 factors, i.e. Y=X, you cannot find one with out the other! It is also a well know fact/theory that price and time have a relationship in the markets which determines how fast and slow the markets move at certain times, however this is another topic for another day!

Cheers

Cosmos
 
>>>>As with regards to Waynels post, you are correct in the fact that both time and price are 2 different factors but this does not mean they cannot be scaled the same. As you may know every function has at least 2 factors, i.e. Y=X, you cannot find one with out the other! It is also a well know fact/theory that price and time have a relationship in the markets which determines how fast and slow the markets move at certain times, however this is another topic for another day!<<<<

I look forward to the the anwers to this often asked , always evaded question.
 
Im confused

buy the strong but not the strongest

buy the weak but not the weakest

"looks like bottoming" - define that for us

this all sounds a bit like a 'dogs of the dow' regurgitation, except with less quantifiable foundations and objectives
 
Money tree, I keep things professional, I cannot reply to your post and be professional at the same time, the contents of the wording and the implied meaning you will have to figure out for yourself.

As for your post Waynel, it takes a lot of work to prepare such evidence and I wouldn’t be bothered doing it unless I knew that if I did in fact do it you would treat it with respect and from your post I gather other people in the past have thought about this to.

However to prove that there is a relationship between price and time I feel I need to prove to you:

1. That a mathematical relationship exists
2. That price respects this formula
3. That it has worked for a few years

This is from around 1965 to the present:

1900.jpg


As you can see the model matched the data nicely and when in 2000 prices got ahead of time the function (consistent factor… been time) was respected and the market corrected and now we are behind time so once again prices are respecting this and the markets are going forward. If you trace it back further you will find the period in 1970ies was a correction back to the model after a very long period of bull markets from the 1932 low.

This brief example proves the relationship, however I will prove it to you in more detail in coming weeks.
 
Hi Cosmos,
Just a quick word, the last picture you tried to post didn't show, would be great to see it if you can have another go at it. Sounds very interesting so far.

BTW, do you use Gann or Fibonacci as the basis of your analysis?
 
Hi Richkid,

Bit of all, mainly gann though.

You must remember a lot of these theories are "in general", but I will reply properly to your post tommorow.

Cheers
 
Heya Cos,

>>>However to prove that there is a relationship between price and time I feel I need to prove to you:
1. That a mathematical relationship exists
2. That price respects this formula
3. That it has worked for a few years<<<

Perhaps I'll dip my hand a little.

I in fact agree withyou on these particular points. There is a definate relationship between time and price.

My challenge is about the actual geometric angle of such.

a/This depends on the scaling of the x & y axes and therefore is arbitrary.

b/For each market the relationship between time and price is different. e.g. lets look at say GOOG and MER... or euro futs and silver futs.

>>>unless I knew that if I did in fact do it you would treat it with respect<<<

You can be sure I will treat any serious hypothesis with respect, and, as pointed out I do agree with part of what you say already.

But you must agree there is a lot of bull**** out there with regards to trading, and, we traders who have been around a while, will apply the blow torch to the belly of any assertions until demonstrably valid.

We have had some great (and respectful ) debates on this forum in which all can learn from...even the old hands.

I hope you stick around and participate and look forward to your input....and don't worry about cynical old turds like myself...I just like a good debate, it's how I learn most.

Cheers
 
Cosmos said:
Hi Richkid,

Bit of all, mainly gann though.

You must remember a lot of these theories are "in general", but I will reply properly to your post tommorow.

Cheers
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Looking forward to it Cosmos, thanks for the graph too, came up clear. Also just ignore any inane, tactless posters and they'll go away. People like WayneL on the other hand will take theories apart but it's never personal just professional criticism at a constructive level (he's also got a decent sense of humour so lol whenever possible). Newbies like me look to learn as much as possible from you old timers debating!

As for Gann, the only people I know of who appear to trade it successfully are David Bowden's mob, safety in the market SITM, but again, I don't know if they make most of their money on gullible investors (SITM costs several thousand dollars and have many products and courses) or on successful Gann trading. Every now and again they boast about how they picked a certain price or bottom but they only tell you about the successful predictions. I get the impression that only a tiny group of people are able to TRADE Gann successfully while the majority struggle to make it profitable, just observations from debates I've heard. Just my thoughts, could be wrong.
 
Hi Richkid, I had your reply all typed up and then my PC crashed earlier today so here is a shortened version.

With regards to people who are a little arrogant WayneL is not one of them but I know what you mean, the best thing is I have pulled these theories apart and looked at them from every angle so I know how to cover and prove every aspect.

Yes SITM do make money, however they do not make money by using Gann's techniques exactly, its more money management they use.

As for the predictions I do a free monthly (can be later and earlier) newsletter when I have time and the likes of the November low last year I called within 100 points and to the day and my latest report you can find here:

JAN.pdf


It’s not hard to make a prediction and have it accurate; you only need the simplest understanding.

The reason my must people don't make a success out of Gann's way is because they look for a secret..... as soon as they find the word Astrology in his works they think they have found it and go down that path and become destroyed as the key facts to Ganns trading are not found here. It’s Mathematics.

Apart from this Gann's ways are not new, the thing that made Gann special was that he understood the markets and was a good trader.

Such and example of this today, many people will look at F (Fords) chart and note the low highs and say its going down, but Gann would look at it (on the weekly chart) and note the bottoms at the same level and see the fact that its holding nicely above the March 2003 low and that price should continue to rise.

Anyway I have to go now, but that gives you a brief insight.


Cheers


Cosmos
 
That's great Cosmos, thanks, something to ponder. You made a very valid point about money management. In fact SITM stress that a lot- I subscribe to their free newsletter, some interesting swing charts.

Money mgmt is probably what helps differentiate those who just know everything about a type of analysis from those who can use it to trade profitably.

btw, that link didn't come up (to your newsletter), might have been a coding error. Thanks also for having tried to write up a detailed reply, hate it when systems crash. I note on this site that you only have a few minutes to type a post if you're logged in temporarily or you'll lose it when you submit it- so always copy your reply before hitting submit, then you can paste it when you relogin if there was a problem.
 
Hi Again,

This link works:

http://www.sciencesoftware.com.au/JAN.pdf

Its only logical, if you have some idea how to trade and you wait until the bottom has formed you buy in set your stop loss at the bottom and only trade 1/5th of your capital on any one trade you are going to come out in front.

Consider this...

Start with $2000, using CFD's
Make 300% per year (this equates to a 12% move in a stock)
After 17 years you have $2b

Trying to juice just 12% a year safely from a stock can be done blindfolded, you just need the confidence.

Cheers
 
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