The first article of each calendar quarter will contain the best 10-12 questions posed by readers over the past 3 months. This is the second one in this Q&A series; the first one is here. This hopefully will encourage asking questions via the Comments section. Of course, the best questions are the ones where the answer will benefit many readers. Please keep the questions somewhat related to the article. Thanks!
Q - Hi Greg, do you do extensive research on business cycle and market cycle work or do you subscribe to anybody for the analysis? (Ed Hyman?) While at Stadion did you only use technical price derived analysis or was it a combination of fundamental models with technical entry models layered on top? I realize these are 2 questions in one. Thanks. Posted by: SD | July 05, 2015 at 01:59 AM On Secular Bears
A – I used to follow Walt Bressert’s commodity cycle (alpha beta) work and subscribed to the Foundation for the Study of Cycles but was never able to utilize them to actually trade – that was back more in the hobbyist and newbie days. Stadion is a technical shop for the strategies that I was involved in. They are most definitely a process driven shop.
Q - Hi Greg, what is your professional opinion on cycle research (Fourier, MESA, Hurst or J. Ehlers work)? Have you ever used any cycle analysis in your technical trading models or are you/were strictly a trend follower? Thanks Posted by: SD | July 06, 2015 at 01:03 AM On Technical Analysis Magic
A – MESA and J. (John) Ehlers are the same thing. John has been a good friend for well over 35 years – another engineer. J.M. Hurst’s book, “The Profit Magic of Stock Transaction Timing,” despite its horrible title is an excellent book on cycles. See previous question about my use of cycles; however, for past 20 years solely a trend follower. It was then I realized that I didn’t have to pay attention to anything other than the market itself.
Q - Where do we find these symbols? Posted by: CP | July 30, 2015 at 07:42 AM On Zahorchak Measure
A – Symbol Catalog on StockCharts.com. All of my breadth indicators begin with !BI, followed by NY for New York Composite. When we are finished there will be NA for Nasdaq and TO for Toronto.
Q - Is there a similar symbol available for the Canadian market? MM Posted by: MM | July 30, 2015 at 09:24 AM On Zahorchak Measure
A – Not yet, we are doing the entire book using NYSE breadth, then will also do Nasdaq and Toronto. See previous question.
Q - Interesting that today the Weekly is -1 but the daily is 8... Posted by: MM | July 30, 2015 at 17:50 PM On Zahorchak Measure
A – If you think about it, the weekly will only generate a signal after the close on Friday, while the daily can plummet or soar for 4 days until Friday.
Q - Question: No Zahorchak Measure for Nasdaq? Could only find NYSE. Posted by: PM | July 30, 2015 at 18:21 PM On Zahorchak Measure
A – See two questions earlier. First NYSE, then Nasdaq and then Toronto.
Q - Often financial innovation is often just leverage in thinly veiled disguise. - needs editing: take out one of the "oftens" Posted by: MM | August 17, 2015 at 20:08 PM On Lists of Market Wisdom
A – I have often been accused of using often too often. Plus, these are not my lists, they were created by others.
Q - Greg, I am reading "Investing with the Trend" as well as the articles here. I choose Figure 4-18 as the easiest to use if what I see there will be presented in the same way at all times. Using !BINYEAD(daily) the rule is: When the line rises >0, BUY when subsequent price exceeds the most recent previous high that occurred when the line was <0. HOLD the long position and SELL when the line moves <0. If that interpretation is correct the indicator becomes one used in determining the weight of evidence. Posted by: RW | August 18, 2015 at 00:04 AM On Advance Decline Difference Ind...
A – I think you can see from my Author Comments section that I was not impressed with this one. Remember, the goal of the book is to provide every breadth indicator known to man. Here is the text directly from my book: The only source for this was John McGinley’s Technical Trends service. Since the daily version in chart 4-18 did not seem to work very well, here, in chart 4-19 is the weekly version as it was originally designed to be used. Market bottoms seem to be well identified by the downward spikes in the indicator and whenever the indicator is above the zero line, the market is generally bullish. However, it does tend to stay bullish too long and does not seem be work well for tops.
Q - Thanks for the info. It would be very helpful to include link-able charts. I can't get the indicator to look like yours. Thanks Posted by: BJ | August 28, 2015 at 12:30 PM On Advance Decline Misc. Indicators...
A – A good suggestion, but will have to wait until the Kindle version is released. Plus if the indicator was created by the SharpCharts workbench, they would not have a !BI symbol. Thanks.
Q - !BINYZMDW I have since you posted the article I read the book but have been having trouble with your indicator. Based on his book we should be in cash right now. Am I interpreting the book correctly? I would like to know how the calculations for this indicator are arrived at. Posted by: MO | September 03, 2015 at 13:06 PM On Zahorchak Measure
A – The book did not include an indicator. The Zahorchak Measure is my attempt to recreate via an indicator his method. You can consider it something like Stochastics and RSI, when at the top and starting down that means the market is deteriorating technically. Also when at the bottom and rising it is starting to trend upwards. Also I have since published Zahorchak Measure II which gets into the details.
Q - Thanks very much for sharing. Will certainly monitor both versions of Zahorchak. Some additional thoughts that your article generated would be:
1. What index is a good proxy of the market? Dow Industrial, S&P 500, $NYSE or $WLSH ?
2. Assuming that you are using StockCharts' $NYAD as your NYSE Advance Decline line for the Zahorchak calculations.
Would there be any material improvements with using StockCharts’ Common Stock Only NYSE Advance Decline line as defined by symbol " !ADLINENYC " Cheers ... P – Zahorchak Measure II
A – I used to use the NYSE, but for past 10 years have used the Nasdaq Composite. I like to say it has large caps, mid caps, small caps, micro caps, all the styles, and all the sectors except financials, and even includes a lot of dogs. It is a very good index for the entire market. Plus you could say it is a high beta index as it tends to move up faster than the other markets and down faster, which as a trend follower is what you want.
Q - In your book "Investing with the Trend" you seem to prefer the NASDAQ as a better overall indicator of the broader market. In this blog all of the examples are based on the NYSE. Is there a way to change the Index that these indicators are using or will we see the other indexes in your blog over time. Thanks for all the great books, articles, interviews and this blog. I am a more disciplined and successful investor as a result.
Regards, B – Zahorchak Measure II
A – In reworking the book, I am focused solely on the NYSE breadth. Once completed with NYSE, will then do Nasdaq and Toronto. The symbols will remain the same except for the 4th and 5th letter. !BINY for NYSE, !BINA for Nasdaq, and !BITO for Toronto.
Q – Why is rebalancing not a good procedure? M – Risk is More than a Four Letter Word
A – Rebalancing is an okay procedure for a buy and hold strategy, but is not what technical analysis is all about. It is basically periodically selling the holdings that have performed well and buying more of the ones that did poorly. Seriously, does that sound like something a technical analyst would do? We buy strength and sell weakness.
Q – Your articles are always thought provoking and substantive. Dead on with this risk article. In Socratic fashion, here’s some other thought provoking risk questions I hope you address in the future as they are macro risk considerations. When does the market cease to be a market? What is the tipping point? When does the US Federal Reserve cease to be the central bank (tip to Bowley)? JP – Risk is More than a Four Letter Word
A – A couple of interesting questions and definitely thought provoking. That is the nice thing about being a technical analyst – you don’t have to deal with those macro risk considerations. If they affect the market, then prices will move accordingly and as a trend follower, I’ll just do my thing. I would image those who try to tackle these types of concerns are talking heads, hobbyists, story tellers, and television experts. Good questions, but just not for me.
Q - I liked this article. I've learned that it's usually a good idea to test your own beliefs, because I think we can all be easily fooled. One aspect that I still wonder about is if some of these technical indicators might be self-fulfilling prophecies That is, if enough people believe in the recent 'death cross' as being a bearish signal, could that cause enough early selling to cause a correction? JB. Technical Analysis Magic II
A – That is something I have also thought about however, I don’t think the number of folks who watch that sort of thing versus the giant funds and institutions that don’t will make a difference. Those who watch charts are greatly less in number than those who don’t. And do you know what? That’s just fine with me.
Thanks for all the great questions and “keep ‘em coming.”
Trade by Questioning Everything,