Dancing with the Trend


This will not be about punctuation.  Have you ever wondered why most of the media focuses on the Dow Jones Industrial Index?  Some would say it isn’t a good measure of the overall market, including me?  Yet, it does a reasonable job of representing the overall market.  Same goes for the S&P 500 Index.  Let me explain.

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Diversification and Multicollinearity


1. the act or process of diversifying; state of being diversified.

2. the act or practice of manufacturing a variety of products, investing in a variety of securities, selling a variety of merchandise, etc., so that a failure in or an economic slump affecting one of them will not be disastrous.

Relying on Webster doesn’t provide much help to investors wanting to learn about diversification.  Diversification is a free lunch!  I do not know who said that, but I certainly agree with it.  However, let me expound on some misunderstandings regarding diversification and a related concept known as multicollinearity.  Chart A (Diversification Works) and Chart B (Until it Doesn’t) speak for themselves and I have shown similar ones a few times before, but the message is always strong.

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Did 2016 Meet Your Expectations?

Welcome to 2017!  For those of use born in the 1940s or earlier, we’re delighted to be here.  In the US Equity markets, there were 3 fairly big pullbacks.  They stand out in the performance chart of the S&P 500, Dow Industrials, Nasdaq Composite, Russell 2000.  Looking at the data over the full year instead of just the final numbers can give you a clearer understanding; in the case of 2016, without the rally in the last 2 months, it would not have been a very good year.  Returns would have been in the 2-3% range instead of the annual returns shown on the right scale.

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New Year Nonsense

Each year for as long as I can remember pundits, experts, and talking heads are offering their projections (guesses) about the new year and what to expect from the market.  There are a few ‘techniques’ that seem to be used each year such as the January Barometer, the Super Bowl Indicators, etc.  Let’s review what they are then I’ll try to shoot them in the head to put them out of your misery.

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Wake Up so You Can Sleep!

Why is it that many will believe almost anything they hear or read?  You need to learn to only pay attention to the facts.  Let me offer a recent real-time event and some of the wild imagination used by the experts about what happened.  Malaysia Airlines Flight 370, a scheduled international flight operated by Malaysia Airlines, disappeared on 8 March 2014 while flying from Kuala Lumpur International Airport, Malaysia, to Beijing International Airport in China. The aircraft last made voice contact with air traffic control at 01:19 MYT, 8 March when it was over the South China Sea, less than an hour after takeoff. It disappeared from air traffic controllers' radar screens at 01:22 MYT. Malaysian military radar continued to track the aircraft as it deviated westwards from its planned flight path and crossed the Malay Peninsula. It left the range of Malaysian military radar at 02:22 while over the Andaman Sea, 200 nautical miles north-west of Penang in north-western Malaysia. The aircraft, a Boeing 777-200ER, was carrying 12 Malaysian crew members and 227 passengers.

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Market Breadth and Technical Analysis

Some of the following is from my book, “The Complete Guide to Market Breadth Indicators,” published by McGraw-Hill in 2005, with the Second Edition now available in Amazon Kindle format.

“The noblest pleasure is the joy of understanding.”  Leonardo da Vinci

Market Breadth

Market breadth indicators are those indicators that are sometimes referred to as broad market indicators.  Probably the simplest way to think of them is to realize they generally do not refer to, or use information relating to an individual issue.  Breadth will treat all stocks in an index equally.  The stock with the largest capitalization and the smallest are both equal in breadth analysis.  Most breadth analysis is total market related in that it deals with the complete market.  A rising tide raises all ships is the more picturesque way to grasp its meaning.

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Dancing with the One That Brung Ya!

My apologies to the late Darrell Royal, the University of Texas football coach who used this saying often when defending his continued use of the “wishbone T,” an offensive football formation that some were always questioning.  The saying has a valuable message that is applicable to many endeavors; simply, do not forget how you got where you are.  It is very appropriate to investing strategies that have long-term success.

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Hindenburg Omen

There are many who are now talking about the Hindenburg Omen so I thought I would explain what it is and where it now stands.  This is easy since I knew Jim Miekka (creator of the Omen) as he offered to assist me when I included some of his material in my “The Complete Guide to Market Breadth Indicators.”  Jim also made many other contributions to technical analysis, including a mathematical process to refresh the McClellan Summation Index.

The Hindenburg Omen is an indication of market tops and was created by James R. Miekka and dubbed “the Hindenburg Omen” by Kennedy Gammage of the Richland Report.  You’ll recognize Kennedy as the former provider of the McClellan Oscillator and Summation Index numbers on FNN and now, CNBC television.

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Article Summaries 8-2016 to 10-2016

Most blog authors on StockCharts.com are writing about the current markets and do an exceptional job.   I do not write about the current markets as I wanted to share my experiences after 40+ years as a technical analyst.  Not only experiences with trading and investing, but model building and money management.  I also share the details of all the Master’s degrees I have – those expensive learning experiences that hopefully I learned something from.  Since I rarely go back into the archives of other’s blogs that I read, I wondered if that is common or not.  Hence, after talking with Chip, a summary of my past articles might encourage new readers to take a look as most of the material is timeless.  That’s timeless, not worthless!  This is the sixth of the summary series and starts in August, 2016 and ends in October, 2016.  I’ll try to do future summaries whenever I have a dozen or so articles to include.  You can click on the article name for a link directly to the article.

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