November 1996
Letters to the Editor
Editor,
SUPERIOR ART
Just a quick note to congratulate you on the consistently superior art in your magazine. The August 1996 S&C cover was only one of the many great covers your artists have produced. If they have never been recognized with an award, they certainly deserve one.And good articles! I personally look forward to information that a very small-scale trader can apply. Due to the fear of becoming one of the many former small traders, I'd also like to see articles on what and who my competition is, and what their edge is.
PAUL M. KAPLANThank you for the compliments. From time to time we publish articles on real-life trading, such as "Using stops to your advantage" (STOCKS & COMMODITIES, March 1994), which divulged how a floor trader views the market and the price levels where stop orders accumulate, and "Real-world option pricing" (May 1996), which described how stock and index price changes are distributed in the real world and how the market prices options. The interviews published each month also provide insight into how professional traders and analysts view the markets and how they prepared themselves to begin trading.-- Editor
Alameda, CA
TRUE RANGE IN EXCEL
Editor,
In the September 1996 article "Standard error bands," author Jon Andersen uses an indicator called 55-day ATR/Bollinger. Using Microsoft Excel spreadsheet, I put today's high - today's low in one column to represent that day's true range, a 55-day average in the next column and divided the results by the difference between the Bollinger bands. The results were not what I expected. I would greatly appreciate a pointer or two on how I might accomplish this using Excel. Thanks!SHELDON CROWENThe true range is not the difference between the high and the low; it is the maximum of the following:
via E-mail1. The difference between today's high and today's low
2. The difference between today's high and yesterday's close
3. The difference between today's low and yesterday's close.In Excel, if you place titles in the first row and the date in column A, the high in column B, the low in column C and the close in column D, then the Excel formula for the true range is:
-- Editor=MAX(B3-C3,ABS(B3-D2),ABS(C3-D2))
SPECIALIZED DATA
Editor,
In general, the quality of S&C's articles is excellent. Reading the articles has motivated me to incorporate new indicators into the studies and trading systems I've been using.I am interested in researching several indicators requiring data I have found only in Barron's, such as NYSE member activity of floor traders and specialists, and economic series such as net free (borrowed) reserves and mutual fund cash-to-assets ratios. Do you know of a reliable data source from which to obtain this type of data series? I think your reviews of software packages are excellent, but I would like to hear more about data vendors in the future. Thank you very much.
STEPHEN REILAND
St. Louis, MOBarron's Web site provides daily updated market information, including the Market Week data and Market Laboratory statistics. The site, at Barrons.com, may provide the data series you are looking for.
As to coverage of data services, the Readers' Choice Awards in our annual Bonus Issue always starts off with award listings for seven categories of data services. While we don't often publish reviews of data sources, data is progressively becoming more accessible in more media, from compact disc to Web sites, and is sometimes furnished with software that we review. -- Editor
TRADING SIMPLY
Editor,
I have been a subscriber to your magazine since February 1986 and I save all the back issues. Over the years, STOCKS & COMMODITIES has presented many useful and informative articles that have helped me and many others too, I'm sure. However, with everyone using a computer these days, it seems that many of the articles over the past few years only show how complex the computer can make a system that in most cases is worthless. When I go back and read your earlier articles, they seem to contain much more useful information. Now it takes me about five minutes to glance through each issue to find something useful. I liked the July 1996 interview with Richard Mogey about cycles. Even with the multitude of expensive programs on the market, I still find, after 25 years of trading, that with some common sense, a stock chart and a few indicators, I can get well above-average results.Thank you for the many informative articles you have presented over the years. I'm ready for more!
RONALD W. BROYLES
Fort Myers, FLIf you can find at least one useful trading idea from each issue, then I believe your five minutes haven't been wasted. Our magazine serves a readership with a broad range of computer skills and trading experience. Different trading systems suit different traders, and what isn't useful to one trader may be very useful to another. I agree that the basics of charting, supply and demand, and trend formations should never be forgotten. -- Editor
KONDRATIEFF WAVE CYCLES
Editor,
Thank you for the thought-provoking interview with Richard Mogey in your July 1996 issue. I have followed Mogey's outstanding work with the Foundation for the Study of Cycles for some time and am always interested in learning more about his methodology. One part of Mogey's discussion did surprise me, however. What I refer to is his seemingly fundamental-based rationalization for why the Kondratieff wave (K-wave) would not work this time around.In essence, Kondratieff's wave was simply a fixed-period cycle of inflation and deflation. To me, a fixed-period cycle is simply that (given some reasonable margin for error). This is irrespective of the gold standard, the budget deficit or any explanation that may claim or disclaim its effectiveness. For example, CPI inflation (as measured by a 12-month rate of change) is influenced by a 64-month cycle (Figure 1). The most recent cycle peak was April 1996. Although the CPI index did not do anything too extreme in April, you will recall that April saw dramatic grain and energy price peaks, and in California, consumer panic and public hearings about gasoline price increases. With sufficient research and luck, I might eventually arrive at some justification for why human behavior follows this pattern. However, simply being aware of the historical pattern allowed me to forecast the 1996 inflation mini-panic and the coincident 64-month stock market cycle low. While I would certainly be curious as to why this pattern occurs, not knowing is not going to stop me from using this little tidbit while I look for a fundamental reason for it.
Bearing this in mind, I would argue that Mogey's forecast of an eventual economic restructuring/debt liquidation is actually supported by the ±54-year K-wave. First, the best cyclic fit for a K-wave cycle low is not the depression of the 1930s, but the period of deflation after World War II. I choose to call September 1949 the cycle low; this is the deflationary low point of the 12-month CPI inflation rate falling in this time frame (Figure 1).
FIGURE 1: KONDRATIEFF CYCLE. This chart sent in by a reader plots a Kondratieff wave against CPI inflation. My work with cycles in the stock market has taught me that every long-term cycle low does not result in a devastating event. I believe this to be true with the K-wave as well. Just because the depression of the 1930s exhibited more deflation than the post-war period does not mean that one should assume that it represented the bottom of a (too-short) K-wave. The depression of the 1930s no doubt influenced one or more cycles, including cycles longer than 54 years. However, it seems a reach to call it a Kondratieff depression when the post-war deflationary period exists, which fits so closely to the ideal time frame (50-plus years since the mid-1890s) for a K-wave cycle low.
Erroneously calling the 1930s depression a K-wave cycle low might also be responsible for the behavior of the "Chicken Littles" of the 1960s and '70s, which Mogey discusses. Based on a post-war cycle low, the Kondratieff cycle was peaking in the 1970s, not bottoming. Note in Figure 1 how well the sine wave representation of the K-wave (bottom of chart) matches the CPI inflation rate (top of chart) when the post-war low is used as a starting point. Based on the previously mentioned assumptions, the next cycle low is calculated to be around 2003.
I continue to believe that the message from Nikolai Kondratieff (and now from the 64-month CPI cycle as well) is that deflation is dead ahead. Time will tell.
N. CHRISTOPHER CHEATHAM
Los Angeles, CAAt press time, Richard Mogey was not available for comment. The Foundation for the Study of Cycles is located at 900 West Valley Rd., Suite 502, Wayne, PA 19087, 610 995-2120, Internet: https://www.cycles.org/~cycles/. -- Editor
SUBSTANCE OVER FORM
Editor,
I wanted to compliment you on S&C's home page. So many of the Web pages I see are mostly form with negligible substance. It's nice to see a Web page with good information, easy navigation and minimal bandwidth-soaking graphics. Maybe eventually others will catch on to how annoying it is to wait five minutes for a bunch of pointless graphics to load, only to find out that's all there is. I am a recalcitrant OS/2 user and am amazed at how people are so taken with little navigation gimmicks that often don't work.Of course, you probably won't win any awards without slavishly following the overly flamboyant style used by most Web pages today. But then again, maybe understatement should be an award of its own, given the fluff that constitutes an award-winning Web page these days.
MOTT QUERY
via E-mail
ERRATA
In the September 1996 Traders' Tips, the subtitles in the MetaStock program code should not have contained any hyphens. For example, "21-period moving average" should have read "21 period moving average."
