Monday, May 21, 2007

The Indexes Change Places

I've noticed - anecdotally, of course - an interesting trend recently. It occurred to me when I went to the Maker Faire in nearby San Mateo, which is basically a get-together of do-it-yourself types. And I don't mean Bob Villa. I'm talking about people who make their own stuff, from robots to housing to computers to clothes.

As I milled around - and this was a very crowded event - I noticed how many nerds, geeks, and Melvins (my term) there were. And I was transported back to 1980, when I attended the West Coast Computer Faire (there's that olde English spelling again....) as a youngster.

It seems to me there is a backlash going on amongst nerd-dom with respect to computers. In 1980, you had to be pretty hip and with-it (ahem....) to really be into personal computers. Nowaways, anyone with a room temperature IQ has one. Sort of the same with cell phones.........if you had a mobile phone in, say, 1986, you were hot stuff. These days, even homeless people have them.

Another thing I've seen supporting this trend is the recently bestselling book The Dangerous Book for Boys, which features not the latest information on PlayStation 3 but instead discusses kites, marbles, and handy Latin phrases. If this cultural counter-trend has anything to it, I find it all quite charming.

As long as I'm ignoring charts, I'll also say that I just finished The Wisdom of Crowds by James Surowiecki. On pages 224-228, he writes:

In 1995, the finance ministry of Malaysia suggested that [short sellers] needed to be punished [with] mandatory caning....Napoleon deemed the short seller "[an] enemy of the state." Short selling was illegal in New York State in the early 1800s while England banned it outright in 1733 and did not make it legal again until the middle of the nineteenth century...shorting was denounced on the [U.S.] Senate floor as one of "the great commercial evils of the day"' reason why there isn't more short selling is that most people are not psychologically built to endure constant scorn.

We poor bears! Hated throughout history.

I noticed MarketWatch was touting the idea that the S&P was at a new high. Not quite. With their tortured logic, the S&P's high today was higher than the highest closing price. Well, yeah, that's true. But that's comparing apples and oranges. Who cares?

According to my data, the highest price reached by the S&P on an intraday basis was 1552.87 on 3/24/2000, and the highest closing price was 1527.57 on the same day Today's high was 1529.87 and the close was 1525.10. It's a pretty sure bet there will be a new high on the S&P 500 tomorrow, but let's at least wait for it to happen before touting the news, shall we? Anyhoo, here's the $INDU:

The indexes, until recently, have had all their firepower in the Dow 30. That was not the case today. The Dow actually inched down in price, whereas the Russell 2000 blasted higher by 1.21%. It seems the small caps are finally playing catch-up.

The Chicago Mercantile Exchange (CME) inched down today and continues to shape a nice topping pattern.

I like to look for stocks that are far away from their supporting trendline and seem to be flipping around to a downward direction. CSX fits this.

ESS looks like it is inching up toward its neckline, which could make for a relatively low-risk head and shoulders pattern to play on the short side.

JC Penney also is forming its head and shoulders cleanly. Of course, one must be cautious to trade incomplete patterns, as a single price bar would render it moot.

KRC is another homebuilder with a similar pattern forming like ESS.

On a final note - one frequent commenter, Gary, has mentioned the Commitment of Traders many times in the comments section. I was intrigued and did some basic research, but I find this data difficult to interpret. I guess I'm a sucker for easy-to-read graphs. I would appreciate his illuminating this issue in the comments section to give us a bit of a tutorial on the subject, since it sounds interesting; thanks in advance.


Gary said...

Tim just go to my blog and read the posts. Also if you would like complete historical data all you have to do is e-mail a request. The details are on the lower right side of the home page.

Anonymous said...

'Melvin' was used as a term for nerds in "Two Guys Naked In A Hot Tub" in season 3 of South Park. I'm not sure why I'm telling you this.

Holdem or Foldem 德州牌手 said...

"The cots work best when extremes are made. Trying to use it everyday or week is kind of futile. I got tons of back data and tested the heck out of it. Open Interest is definitely the key."

Just agree the words copied from a forum.

Gary said...

Agree Holdem. The COT is not a timing device for day trading. It is a very, very good tool for spoting windows for probable trend changes though. The best I've ever found.
How about taking the comments section off of the pop up window setting so that I don't have to turn off my pop up blocker everytime I want to read the comments.


Gary ,

Your blog makes it seem too simple , just COT and ticker sense , I wish I would have found you sooner ...I wouldn't have spent 6 years of college and 31 years of weekend seminars and thousands of hours of technical training...Darn...So what buy now and hold til you tell me ??

Brilliant !!!


I will bet you your book that the market is lower by memorial day ???

Tim Knight said...

"How about taking the comments section off of the pop up window setting so that I don't have to turn off my pop up blocker everytime I want to read the comments."

You don't have to do that. Just click the TIMESTAMP of the posting, and the entire day's posting and all comments will appear.

JakeGint said...

Hey, Tom, what're ya in competition, here? I thought this was a relatively friendly place.

Or is that just for non-advertisers? (ggg)

It took you six years to get through college and you want us to join your sheet? I dunno, man....

Gary said...

I don't have a book. I think you may have me confused with someone else. Investing can be as simple or as hard as you want to make it. Take the turtle system for instance. Very simple but very profitable. All you needed was the disipline to follow the system. If you will take the time to study the system I think you will agree that it is a great system to give the small player an edge in the market and that's the best anyone can do. There is no holy grail. The COT report isn't 100%, nothing is. But it does historically give an investor odds of producing a winning trade 75% of the time. Casinos make tons of cash with only 60% odds. I don't know how you can get much better than that. It is personally the best system I have ever found. You will have to be willing to have an open mind when you look at the data otherwise you will let your personal bias control your decision making. Until I decided to let the COT control my bias I consistently lost money. Investing is a tricky game we're fearful when we should be greedy and greedy when we should be fearful. I've just decided some time ago to let the big money make my investing decisions for me.

Gary said...

I would also suggest you read all of the posts. There aren't that many and it will only take 5-10 minutes. I'll be happy to have a friendly debate about any of the topics I've posted there. Isn't that the point of these blogs to find new info, opinions and to learn different lines of thinking so we can become better investors?

Controlled Trader said...

Interesting finding from bespoke guys.

Another Record Level...In Short Interest.


Gary ,

Your book is your personal portfolio record ..many people on "Wall Street" refer to their personal portfolio holdings as their "Book" ...


JakeGint said...

I'm sure Controlled Trader promises to take a shot at learning how to make an html link, but in the meantime, I think his above attempt to draw attention to Bespoke's short interest commentery is worthy of an assist.

JakeGint said...

There you go again with that inside baseball, Tom.

Jeff said...


Thanks for being the single best contrarion I've ever seen in my 15 years of trading. Keep up the great analysis.