We haven't heard from Sir Interest Rates since he was seated at the Roundtable of Knights Who Think for Themselves on August 1, 2003. I'm not quite sure I fully understand this submission. But it certainly is original and fascinating. And it's definitely worth a bottle of Veuve Clicquot Ponsardin. -DW
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Don, I never agree with you until you agree with me...and here's why.
Back in late October 2001, October 26th to be exact, I was going through previous Worden Reports to find ideas that might help me.
One Report from August caught my attention. In the Report of August 3, 2001 Sir Happy Man shared his methodology. I looked at a couple of the stocks that he followed, and the charts looked interesting. I put his list of 18 stocks in a Watchlist and changed the beginning tracking date to 12/22/2000, a date that, for some reason I don't remember now, I had been using for analysis early in the year.
I opened the Watchlist and sat there stunned...not breathing...my mouth dropping open.
The percent change of the Watchlist, from 12/22/2000 through 10/26/2001 was 348.72%!!! The smallest "buy and hold" performance was 47.98% and the largest was 1,239.35%!!! In fact, 15 of the 18 were up more than 100% and two were up over 1,000%!!! And all that happened "buy and hold" over 10 months that included an enormous market collapse!!!
I threw out all I had learned about investing and started all over with a blank slate.
For an exhausting 8-plus hours a day for a week, I analyzed those stocks. Their first general commonality that I noticed was the crossing of their 40 bar EMA / SMA about 12/22/2000. So, starting from the SMA crossover condition, and calling the date of crossover the "Pivot Date" (different for each symbol) I set up a table in my word processor.
It had the columns of Symbol, Company, Pivot Date (some even reaching back two or three years for the beginning of a similar trend), Price, 8-bar SMA, 40-bar SMA, BOP, Wilder's RSI 14,1, Stochastics 50,10,10, Exponential, Stochastics Rate of Change 5 bar, Money Stream, TSV 10 bar and TSV 18 bar. From statistics, I remembered that usually, at the most, 8 variables are enough to "explain" what is happening. So, these 8 were chosen as a start.
I analyzed each symbol for what was happening for the prior days, weeks and months and typed my observations related to the item heading in each column. I did that with the chart set for Arithmetic scaling and with it set for Logarithmic scaling. A lot of observing, typing, analyzing...but patterns began to emerge.
In my first attempt to use what I learned, five stocks were up in less than three weeks from about 19% to 70%. (Not all subsequent efforts yielded the same results.)
What I use now is almost totally different than in that initial analysis, but the methodology is the same--any and every indicator, concept, and decision-making tool that I might consider is tested against what I know. If it does not show that it will improve my results, I ignore it.
My analyzing/investing/trading journey since October 2001 has been "scenic", often demanding and exhausting. Falls, wrong turns, emotional obstacles and dead ends have been aplenty, but have proven valuable in building character and in keeping me young! The journey continues. I look forward to the next scenic mountain top vista, sun bright, skies blue, mounted on my white steed pawing the air, with family crest held high and grateful to all who helped me get there!
So, as a result, I humbly say that I never agree with you, Don, until you agree with me!!! If you and I agree at the outset, fine, we are in agreement. If what you write is new to me and I test it and find that it helps me in my journey, then it's mine and I agree with your concept or conclusion!
Thanks, King Arthur, for being a great teacher to all of us!!
Ervin (aka, Sir Interest Rates)
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"Down & Down I Go Round & Round I Go"
Robbie Williams
Now this was a genuine declining day. Nobody will argue about that. All eight Important Averages were down at least one percent. Half of them were down over two percent. These are big moves for averages, even volatile averages like the Russell-2000 (down 2.16% today). The Dow, whose volatility is moderate, feels more at home with moves of 0.45%, but today it was down 1.92%.
Breadth confirmed what the averages had to say. Of the 17 Breadth Groupings we monitor, all were Down Decisively. (In fact, SUPER Decisively, but don't ask me to quantify that. SUPER is descriptive enough.)
The Dominant Price-Volume relationship was PriceDown with VolumeDown (1602 stocks). This is the typical dominance in bear markets. Bear in mind that PD/VU is often less bearish in a bear market decline, because it often indicates a very oversold market. But a PD/VD dominance, like we have today, actually indicates the market is not oversold and probably has further to go on the downside.
Any redeeming social value for bulls in today's market?
Surprisingly--yes. None of the four Major Averages violated its intraday low for the year. That low was set just two days ago. What has happened is that the market has formed a small lateral congestion area. Big as today's red numbers were, we had no significant milestones on the downside. The market does not seem to be in a free fall. It is still possible a base from which to launch a bounce is forming.
Of course, come Monday or Tuesday, the market may drop to new 2008 lows, and then continue on down feeling for a new spot to set up camp for a counter charge. But as of now, the chances are just as good that we are in that camp right now.
But in either case, we are in a bear market and the final bottom is probably pretty far down a mountain trail. It's just that my immediate concern is being careful not to get caught in an ill-fated, short-to-intermediate-term dash in either direction. When the market puts on a big show of weakness and throws bright red numbers at us, as it did today, I feel that maybe we're being conned. On the other hand, yesterday, when it pretended to be stronger on the upside than it actually was, I also felt conned.
