ParkTwain's Parlor

This morning I did pull the trigger with new long positions in CVS and XOM. Also remain long TTG and FTD. Assuming positive developments tomorrow morning, I may add to XOM and might pick up something like MHS and/or BAC.

I also like this 20-20 hindsight MarketWatch.com article (June 20, 2006) about Louis Navellier.

http://tinyurl.com/mre3v

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By Peter Brimelow, MarketWatch
Last Update: 12:01 AM ET Jun 19, 2006

NEW YORK (MarketWatch) -- A rip-roaring bull says everything is fine, and he has a great record, too.

Louis Navellier has sort of come out of the closet recently. Twenty years ago, he could easily have been accused of being a nerd, devoted to the quintessentially nerdy Modern Portfolio Theory approach, a highly quantitative system of comparing risk to reward in the small-cap area.

Then he became positively flamboyant, changing the name of his letter, from MPT Review to "Louis Navellier's Emerging Growth", and pontificating about exchange rates and inflation and other interesting but (from an MPT point of view) irrelevant issues.

It's easy to be irritated by this sort of thing. But nevertheless, Navellier is the top-performing letter over the past 20 years, according to the Hulbert Financial Digest, with a lifetime annualized gain of 20.6% since 1985 vs. 12.7% for the dividend-reinvested Dow Jones Wilshire 5000. See Dec. 27, 2004 column

On Friday, Navellier (probably understatedly): "Well, I'm sure a lot of you were relieved to see the big market bounce this week. I want to reiterate what is going on. One week ago Thursday was what is officially called "capitulation day" where the market goes down and then reverses suddenly on no news. All that happened this week is that the market tried to retest those lows from the previous week and it actually made new lows."

(This supports other letters' argument that June 8 was a "key reversal day.") See June 12 column)

Navellier's analysis: "This market went down on fears of inflation and fears of rising rates and also somewhat on fears of a weak dollar, which causes foreign investors to flee. Now inflationary pressures have moderated and we know that June 29th will be the last Federal Reserve rate increase. Finally, regarding the dollar continuing to slide, we've had phenomenal trade deficit numbers that show that it will not happen. In fact, the current account deficit is $22 billion better than was expected."

Navellier's conclusion: "The end of the quarter is called "window dressing season" where institutional managers put good stocks in their portfolios, and our stocks should benefit immensely from that. This is why several weeks ago I picked June 20th as the time to get in--it's the start of the last 10 days of the quarter when our stocks benefit from "window dressing." Then, of course, in early July, we'll have earnings pre-announcement season. From mid-July on, we'll actually have earnings season and everything will be fine.

"So we still have a phenomenal buying opportunity despite Thursday's big bounce. I want you to know that I think the coast is clear and that you have to jump back in - you just have to."

Navellier did indeed pick June 20 as a buying opportunity several weeks ago, but he also said then that May 29 would prove to be the market low.
It's also unclear that he actually makes investing decisions based on these sorts of Big Think considerations. He doesn't actually try to time the market. And, as he said in his June letter of the stocks he was selling: "We are only selling these stocks because of deteriorating reward/risk characteristics. That's it - nothing more than that.'
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[billyjoe]

Webs,
As Maynard G. Krebs would say .......WORK ????????

-----------billyjoe

[Websman]

It's good to know that someone else around here works a real job and has to use limit orders... lol

Keep up the great posts! I'm still in cash for now.

Let go my OMCL today after yesterday up and today down to where it started the previous day. It should still work its way up to about 21/sh in the near future, if the markets cooperate, as it fills a gap from early April 2004.

This morning I had put in a limit buy for TTG that did happen to fill after I left home for work. Then I got to watch it rise all day, about 7% worth. I love it when that happens. It better not do tomorrow what OMCL did to me today.

For Wed, I'm inclined to go long any of: LNT, CVS, BAC, AHS. Also still like MO, MHS, INTU, and OCN for new long positions.

I'm watching: AEA (earnings 7/26), ORCL, XOM (earnings 7/27), HRL (wanna see its RSI uptrending again), VMSI (earnings 7/28th), and ALB.

I was looking tonight at a multi-year chart of XOM. I expect blowout earnings on 7/27. It's bumped its head up against $65/sh three times beginning in about March 2005. You gotta think that with another qtr of record earnings this week, it's going to break out above 65ish with a vengeance this time around. Today's close was 65.74/sh.

I'm looking forward to a profitable August and beyond. The previous three calendar years brought especially good results in the market starting that month.

Several more nice-looking brkout setups

Brkouts or continuation of same and with improving technicals, especially rising RSI at about 70

LHCG
TTG - above 5.50, there's no resis through ~15/sh; strong current technicals
ALE - Yahoo's chart is bogus; all-time high is ~50/sh, closed today at 49/sh
CVS
AES
MHS

And the channeling monster of the day: SAFT

So many utils doing well right now

Quite a number of them in Fri's new 52-wk high list. I noticed a couple in my previous post, and here are a couple more: PPL and LNT. Defensive stocks like MO and CL are strong right now. But I heard a couple of money managers on WSJR w/ M. Bartiromo state that they expect an improving stock market in the 2nd half of this year. "Sell in May and go away" (for the summer).

For the coming week I'm inclined to be long any of: OMCL, FTD (earnings ~8/1), ORB, AHS (earnings rlse ~8/1), ORCL.

[IIC]

Good to see you are still among the living Park...However, it would be nice if you would post that you are taking a break instead of simply disappearing for 2 months...Best, Doug(IIC)

[RL]

Great to see you back look foward to your posts

Crawling Back in the Saddle

Yesterday's jolt in the markets got my attention. I have not traded since mid-May due to the obvious market weakness (I don't do shorting cause I trade in an IRA). Since then I had been holding less than 1/2 my trading funds in a couple of relatively low-volatility (uninteresting) securities since then. I started freeing up those funds today since they had recovered to a point of less than 10% loss position in total. One of these is LMIA (aerospace subcontracter to Boeing, etc.), which I intend to hold for a while longer. I also just changed jobs, so I've been preoccupied with that situation since late May.

I haven't done a full research pass recently on my preferred data set, but during July out of the corner of my eye I had noticed that AEPI has consistently been strong.

Here is a little screen that I sometimes run (free Java-based screener at Yahoo Finance) when I have been out of the market for a while: trading >50K per day, pps no more than 3% below its 52-wk high, Beta of >1.5, pps between $10 and $75/sh. After today's close here are the results (* = more interesting to me for near-term long trade), ranked in order of Yahoo-reported ROE:

TNP
Greek shipper, pps moved up in late June (news of 6/21?) now at all-time high pps

*ORCL
now trading >15/sh (3rd time since early 2002), chart shows decent strength since pps bounced back in late June

AD
acquisition target, announced 7/6/2006

*RDN
very strong 10-year chart, steady pps increase since it passed 2002 high of mid-50s/sh; announced earnings yesterday with positive mkt response, RSI uptrending again

*AHS
staffing service for health care providers, presently a nice ADX setup, rising RSI, new 3-1/2 yr high pps, next earnings rpt on 8/8

DP
being acquired by Siemens

FFFL
bank in WPB, Fla, flirting w/ new all-time high pps, earnings released earlier this week, looks like imminent brkout to me

AACE
acquisition target at 30/sh

IFCJ
acquisition target

BAY
in marked pps uptrend for the last 3 years!

N
Canadian nickel mining co could be either acquirer or the acquired

BAB
Brit Airways, an airliner, no thanks, but a good-looking chart for 18 mos

NWEC
So Dak. nat gas and elec util, chart shows upward stairsteps (or pennants) in its 18-mo lifespan of trading

*OCN
trading at 7-yr high and showed rel str since May 06 mkt weakness, could be time to buy NOW after pps consolidation since ~6/15

RSAS
acquisition target (EMC)

*ORB
satellite maker's pps recovered well during July, now almost back to year 2000 pps, strong technicals and chart right now

VOL
pps made big move during June (news?) to 9-yr high; WATCH

BMR
REIT, steady pps gainer since mid-2004, recent technical strength

Nice little article about using BBand width and Avg True Range in combination:

http://www.traderslog.com/volatility-analysis.htm

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Bollinger Bands approach volatility from the perspective of standard deviation. The Bands themselves are plotted a certain number of standard deviations above and below a specified moving average. The most commonly used settings are 20-days for the average and 2 standard deviations of closing price. The result is an envelope of sorts which in theory should contain most trading action.

ATR, on the other hand, focuses not on price, but on total price movement. It takes into account how far the market has moved each day, both up and down, and averages that out over a specified time period (14 days for example). What you get is a measure of how widely the market is swinging as it moves. Markets with small ranges will tend to have low ATR readings, while those with larger ranges will have higher ATR figures.

Because Bollinger Bands and ATR take different approaches to looking at volatility – close to close vs. trading range – they can be used together to provide a fairly comprehensive view of the markets. More importantly, they can be used in a complementary fashion when trading.

The way I use Bollinger Bands is to look at the width of the Bands – the distance between the upper and lower lines. When the Bands are wide apart, it is because there has been a lot of price movement. When they are close together, the market has been range bound. Ranges eventually give way to new trends, so I look for narrow Bands to give me an indication of a market ready to make a significant directional move. (Note: It doesn’t work the same way with wide bands signaling consolidation because of the way trends sometimes progress.)

What ATR brings to the mix is a sense of how aggressive traders are. High ATR readings often mean a lot of speculative trading. They often come about near turning points - especially bottoms – not during persistent trends. Take a look at a weekly or monthly chart of the stock market for the late 1990s and early 2000s with ATR plotted and you can see exactly what I mean.

The way we can use this in combination with the width of the Bollinger Bands is to look for a combination of narrow Bands and low ATR. It is these situations which are most likely to produce sustained moves when the market breaks the range. If ATR is running high, the break might be violent, but it is likely to be short-lived as eventually things will have to calm down. In contrast, a break coming from a low ATR reading is a move that can gradually build without too quickly getting overdone.

At the same time, we can use the changes in ATR to give us an idea of how sustainable a trend is going to be. If ATR rises quickly, that’s a good sign that the move may not last very long. A great scenario is when ATR actually declines during a trend, especially as the Bollinger Bands are widening out. This situation isn’t all that common, but when it happens, the moves can persist for a long time.

As useful as volatility indicators can be in terms of picking out “trend-ready” markets and those likely or unlikely to maintain the current price action, they are not that helpful when it comes to determining direction. The width of the Bollinger Bands can tell us when a break is likely to happen, but they won’t tell us which way. For that we have to use other tools. In my case, I focus on trends and chart support and resistance points. Other people have their own favorite tools.
//

I guess I visualize support and resistance as "membranes" that can be "thicker" (more volume was transacted over some range of trading sessions) or "thinner" (less volume was transacted over some range of trading sessions). A thicker membrane is more resistant to the price passing through it the next time a testing occurs. There is also a decay factor for the integrity of a support or resistance membrane. Even a strong membrane seems to decay over time, even when it has not been tested during that time, and even when all other market factors tend toward invariant.

When looking at the integrity of a stock's support/resistance levels, one also has to determine how sensitive (i.e., how statistically correlated) a given stock is to other market factors. If its price behavior tends to be meaningfully correlated to some other subset of the market's stocks, its industry sector, or other external market factor, etc., then the predictability of the integrity of the given stock's support/resistance levels likewise must be examined with respect to the integrity of support/resistance levels for those other stocks.

[spikefader]

Grebnet, that is a cool site!

I'll say! Bookmarked! Thanks Greb!

[spikefader]

I love it when TA specialists state confidently that a 50DMA will provide resistance (or support). Not if there wer never any significant previous actual transactions at that price! The DMA is a statistic. It can at best *imply* that a point or range of support or resistance *might* exist. But that implication can be misleading. To remedy, just *look at the price-volume chart*! You can see where the actual volume took place. A statistic does not have a memory of a previous buy or sell transaction!

That's an interesting viewpoint, and worthy of contemplation. It does seem logical that actual volume at a particular support or resistance location should make a difference. Personally, I attach weight to volume by price, especially at price support and resistance areas. Daily volume also weighs in. I think it's a definate edge to appreciate it from that perspective.

But of course, at the end of the day it's entirely about perception.......and price discovery mechanics may act completely detached from our logic....and strong support or resistance may actually be demonstrated at prices where there is low actual volumebut perceived significant resistance, whether it's a moving average, a trend line or a channel or whatever. The volume in many cases is irrelevant and perception is everything.

One of the most enlightening discussions about trading that I have read so far is Jack Schwager's interview (in "Market Wizards") with Bruce Kovner. Here are some Kovner quotes from that interview:

"The first rule of trading--there are probably many first rules--is don't get caught in a situation in which you can lose a great deal of money for reasons you don't understand."

"Tight congestions in which a breakout occurs for reasons that nobody understands are usually good risk/reward trades. ... If everybody believes there is no reason for corn to break out, and it suddenly does, the chances that there is an important underlying cause are much greater. ... The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of nonspeculative activity, the greater the significance of technical breakouts."

"The fact that there are billions of dollars out there trading on technical systems that use moving averages or other simple pattern recognition approaches helps produce many more false signals. I have developed similar systems myself, so that I can tell when the other systems are going to kick in. If it is clear that prices are moving because these billions are kicking into the market, it is a lot less interesting than if a breakout occurs because the Russians are buying."

"Whenever I enter a position, I have a predetermined stop. ... The position size on a trade is determined by the stop, and the stop is determined on a technical basis."

"One of the jobs of a good trader is to imagine alternative scenarios."

"I get a 'guru report' every day. ... I try not to be too much as a wise guy because during major price moves, they will be right for a portion of it. What I am really looking for is a consensus that the market is not confirming. I like to know that there are a lot of people who are going to be wrong."

"I like Marty Zweig. He uses excellent risk control. Unlike some other gurus, he doesn't believe he is predicting the future; he is simply observing what is happening and making rational bets."

"The general rule is: The less observed, the better the trade."

"Whenever a trader says, 'I wish' or 'I hope,' he is engaging in a destructive way of thinking because it takes attention away from the diagnostic process."

If you discount the value of moving averages, why do you care about Bollinger Bands?

I don't look to BBands to identify support and resistance. You know the importance of an indication of a pending major change in price volatility, which is what BBand width can do.

The point of my comment about moving averages was to critique their use to identify points or zones of support and resistance, not the general point that they are "merely" statistics. Identifying points or ranges of support and resistance is best accomplished by identifying the combinations of price and volume that indicate decisions of market participants that move the price to or from a "boundary." A moving average doesn't give you that information, for one reason, because it doesn't reflect the volume aspect of the transactions at all.