May 2004 Letters To The Editor
or return to May 2004 Contents The editors of S&C invite readers to submit their opinions and information on subjects relating to technical analysis and this magazine. This column is our means of communication with our readers. Is there something you would like to know more (or less) about? Tell us about it. Without a source of new ideas and subjects coming from our readers, this magazine would not exist.Address your correspondence to: Editor, STOCKS & COMMODITIES, 4757 California Ave. SW, Seattle, WA 98116-4499, or E-mail to editor@traders.com. All letters become the property of Technical Analysis, Inc. Letter-writers must include their full name and address for verification. Letters may be edited for length or clarity. The opinions expressed in this column do not necessarily represent those of the magazine. -Editor
EMAIL SPAM
Editor,
I received a piece of spam today that mentions your magazine. I am contacting you to enlist your aid in battling such spam.
Inasmuch as I resent every uninvited email contact such as this, and think that spammers ought to be banished from civilized society, I urge you to adopt the editorial position that this person and his company are no longer welcome in the pages of STOCKS & COMMODITIES magazine, and that he is also no longer entitled to use your logo in his ads. Such use by him reflects badly on your publication due to guilt by association. The only way to get rid of spam is to get rid of spammers, to cut off their food supply, and to punish them at every available opportunity.
If you decided to mention in your magazine that this person and his company are vile spammers and should be shunned, that would also go far in encouraging others not to use his services.
Thank you in advance for your consideration of this request.
Tom McClellan
The McClellan Market ReportWe also do not like spam. The last time I checked, our company email server was rejecting about 8,000 a day. In an effort to help others block spam, we have been reporting persistent spammers to SpamCop.net. We still receive some spam every day, but the flood seems to be under control.
We do not allow use of our copyrighted material or our trademarks without written authorization, and only then on a one-time-use basis. One of the purposes of copyright and trademark law is to protect people from those who try to sell something by unauthorized association.
While we cannot help publicize individual names or companies using spamming techniques, we would however like to encourage our readers not to respond to any email spam. Luckily, there are not too many spammers in our industry, but the potential for financial abuse is alarming. -- Jack K. Hutson, Publisher
ONLINE FOREX TRADING
Editor,
I purchased your magazine for the first time recently and have become interested in investigating trading currencies through an online real-time foreign exchange platform. Has your magazine done any articles on this type of trading together with reviews about the firms that offer it?
Are any ratings or rankings available to assess the strengths and weakness of the various companies offering these services to the retail public? How can I obtain such information?
Also, can you recommend any books/primers in trading the online currency markets in terms of beginning strategies and technical analysis for novices like me? Are there any currency daytrading schools that offer high-quality classes on this?
Would appreciate any guidance and help you can offer.
Craig, via emailNumerous resources are available for trading currencies. I recommend you go through some of our previous articles. I would especially like to draw your attention to our currency trading issues, August 2002 and December 2003.
Previous articles can be purchased from the Online Store at our website, Traders.com. Information on books, trading platforms, and more can be found in our Traders' Resource section on our website. -- Editor
40-WEEK CYCLE
Editor,
I have some comments in reference to Jay Kaeppel's January 2004 S&C article, "The 40-Week Cycle In The Stock Market."
I found the article thought-provoking and well presented. To summarize the article, the author showed that by switching the S&P 500 over the last 33 years using a 20-week bull period (followed by a 20-week bear period), a 7.8% buy-and-hold annual return could be improved to 8.4% while invested half the time. From this, he concludes that there is a marked tendency for the stock market to perform much better during the bullish phase of each 40-week cycle. He also states that this result would not be expected if the market truly were random.
I would like to address two main points:
1) The author does not explain where the parameters of the 40-week cycle come from. What is the significance of the 5/15/70 start date, and why 40 weeks rather than some other period? Did he evaluate other start dates and cycle periods?
2) Is the S&P 500 random or not?
To gain insight into the first point, I looked at two widely different cycle periods, 28 weeks and 52 weeks (as well as his 40-week period) and found that they also exhibit improved performance during their bullish periods. Although my source of S&P 500 data is limited to the last 21 years (the maximum available from Yahoo!), I feel the results are applicable to his 33-year results (both periods result in very similar 40-week returns). My data obtained over the last 21 years follows:
Period/weeks Bearish annual%
14/14 7.1
20/20 8.8 (Close to the 33-year results of 8.4%)
26/26 8.9I conclude from this variation of cycle period that there really isn't anything unique about the 40-week period, as the 28-week cycle is nearly as good, and the 52-week cycle is actually better. I didn't test other cycle lengths, but I suspect one can, with luck, even exceed these results.
As for evaluating whether the S&P 500 is random, I suggest that a review of Dennis Meyers' October 1996 article in S&C, "The Siren Call Of Optimizing Trading Systems," shows that it is possible to switch a truly random fund (computer created) and obtain results more favorable than expected by chance alone. Meyers concludes, "From this exercise, we can see that optimized systems, with their hypothetical trades and results, prove nothing about their chance for future profits." This suggests that in the future, the 40-week cycle may not repeat, although some other period probably will. My own studies of the S&P 500 using "OR" switching (as discussed in my own article, "A Mutual Fund Trading Method" from the June 2003 S&C) indicate that it and the DJIA are very close to random, at least from a "coin-flipping" point of view. Thus, I conclude that the 40-week results on the S&P 500 is basically fortuitous.
Norman Brown, via emailThank you for your feedback. In the article, the author is merely presenting his findings. The results are all displayed, making it difficult to state that he is incorrect. -- Editor
BETA INDEX
Editor,
In January 2004, the NYSE discontinued the NYSE high beta index or $Nhb. I found this index useful and would like to reproduce it; however, I have not been very successful in finding how the index was calculated. Can you help?Steve Gibbons
Coppell, TXThe NYSE high-beta index ($Nhb) measures a basket of high-beta stocks traded on the NYSE. Typically, its performance is based on the S&P 500, which is assigned a beta of one. I have not come across anything that states how this is calculated, but it appears you may have to identify the high-beta stocks and measure their performance against a benchmark index such as the S&P. Perhaps some of our readers will have a better insight. -- Editor
ARCHIPELAGO
Editor,
I enjoyed David Penn's March 2004 article on electronic trading, "DAT To The Future." Always like to see market structure stories in the magazine. Anyhow, I'm writing on behalf of Archipelago. I noticed that Archipelago was lumped in with the ECNs in your article, and I wanted to point out that Archipelago is now a stock exchange, and no longer has an ECN business. This has been the case since April 2003, when all stocks started trading on the exchange platform. All of this was able to happen after they purchased the equities trading arm of the Pacific Stock Exchange in October 2001.
Archipelago is now the largest electronic stock exchange in the US. They have the advantages of both the NYSE (an auction market versus the Nasdaq's dealer market), and the Nasdaq (all electronic versus floor-based). I realize that this is complicated, but I'd be happy to discuss the evolution of Archipelago, as well as where the company is headed. I'm open to answering broader market structure questions that you may have as well, or to getting you on the phone with an Archipelago executive.
I appreciate your time, and keep the market structure stories coming.
Nevin Reilly, via emailThank you for correcting this point. -- Editor
THE REVERSAL DATE INDICATOR
Editor,
After reviewing John Crane's February 2004 article "The Reversal Date Indicator" in detail several times, I have finally concluded that this is not really an article after all, but merely a "come-on" to entice the reader to buy Crane's latest book.
There is no way that a reader can make use of this article and this trading technique. First of all, instead of explaining how to establish the mysterious "reversal date," there is simply a statement that "point B" is it. Even more mysterious is a "point A" referred to in the chart -- even without any explanation whatsoever on how to establish it! If this is really a sales enticement for Crane, why couldn't you just put it in the advertising section? Instead, you have legitimized this as a trading technique without revealing how or when it works!
Jack Weinberg
Thornhill, ON, CanadaThe techniques discussed in this article -- the action/reaction lines -- are a combination of Roger Babson's action/reaction theory and Alan Andrews' pitchfork, both of which are classics. There is enough information in this article for readers to be able to apply the technique to securities they are interested in trading. It's unfortunate that you find it to be a sales pitch. -- Editor
TRADERS' TIPS: A VOTE AGAINST
Editor,
First, I want to say how much I enjoy S&C. Not a month goes by that I don't end up cutting out an article for further review and testing.
I also want to say that I agree with R.B. Millar's comments in the March 2004 issue of S&C about the Traders' Tips section and how it's not necessary to print the code. I use eSignal for my datafeed and Ensign for my charts. I have no interest in MetaStock code, AmiBroker code, and so on. Even if I were interested in the Ensign code, I am not about to retype all the code (including my typos) from the magazine. What you need to do to save yourself the cost of printing those extra pages is put the code on your website so it can be downloaded error-free for those who are interested, saving everyone time and money.
B. Dean, via emailA reminder to readers: The Traders' Tips code is -- and always has been -- posted at our website for downloading or copying and pasting, as well as being posted at the websites of the contributing Traders' Tips writers. -- Editor
TRADERS' TIPS: A VOTE IN FAVOR OF CODE
Editor,
I am thinking of subscribing to your magazine. One reason I am considering doing so is because of the monthly code examples you publish.
Just as you said in the March 2004 Letters to S&C column, I do like to browse code, and I like to compare how different programs handle programming problems code-wise. I'm certainly not going to take the time and trouble to download all the various coding submissions and look them over, whereas it is convenient to have them in the magazine. In addition, the commentary embedded in the code is very helpful.
Don't ruin a good thing. People who don't like code don't have to read it. I can't imagine that your subscription price would go down because you saved a few pages by not printing the code.
Just my thoughts.
Geo Crosby, via email
SELF-DIRECTED TRADER
Editor,
I just want to say I appreciate your contribution of knowledge and experience to the magazine, making it one of the best magazines on stocks I have ever read. I enjoy picking up my copy at Barnes and Noble along with a cup of coffee (like a true Seattleite).
Just two years ago, I couldn't spell the word "stock." Now, with the help of S&C and other sources of education in books and online, I am trading options on equities and I'm in the process of setting up an account to trade options on commodities. I still have a long way to go, because unlike my friends, I don't want someone to tell me when to buy or sell. I want to know why it's time for me to trade. I'm learning to disregard repetitive and costly newsletters when, with a little research, I can come up with the same results.
I'm a swing trader and would like to know what I need to learn to become a better informed trader. How does one become good enough to comfortably trade large amounts of money? What I'm looking for is clear direction for further education. Thanks again for the great job!
P.S. I really enjoyed the complimentary publication, Traders.com. It works well in this format.
Ronald Defilippo, via emailWe might suggest reading some of the interviews with traders we've published in S&C. Many of them tell about the path they took to becoming larger traders. -- Editor
WORKING MONEY MAGAZINE
Editor,
I hope you will publish Working Money magazine again. It was the best of the personal finance magazines.
Michael Choe
Austin, TXWhile we no longer publish Working Money in hardcopy format as a standalone magazine, all our Working Money articles are now available as an online subscription at www.Working-Money.com. Contact our circulation department at circ@traders.com or 800-Technical for details.
In addition, we include a sampling of Working Money articles each month in STOCKS & COMMODITIES.
Thank you for your interest. -- Editor
COMMENTS ON WORKING-MONEY.COM
Editor,
I just thought I would write and say that I enjoy the articles offered at your website for Working-Money.com. I don't always completely understand what's written, but generally I like the articles.
Don Shaw, via emailJust to let readers know, Working-Money.com is one of our online publications. A subscription to Working-Money.com is $64.95 for one year and offers new articles weekly. Articles range from beginning articles on technical analysis to more general articles on finance and investing. -- Editor
ERRATA: STOCHASTIC OSCILLATOR
Editor,
"Trading Stochastic Pops" by David Steckler, which was reproduced in your 2004 Bonus Issue, was a good article. But Steckler makes a grave error in attributing the stochastics indicator to J. Welles Wilder. Wilder did some fantastic work, including developing the relative strength index (RSI). However, the inventor of stochastics was George Lane, and it was the very first momentum indicator.
Welles Wilder modeled his RSI after stochastics. Stochastics is so popular that many other momentum oscillators have been designed from it. I have attended George Lane's school, and there is much more to stochastics than I have seen printed elsewhere.
Jim Cammack, via email
ERRATA: 50-50 STRATEGY
Editor,
I enjoyed reading "The 50-50 Strategy" in the March 2004 STOCKS & COMMODITIES. I believe I found an error, however, and would like you to verify my observation. On page 65, a bullish price reversal is stated to be "a three-bar formation composed of a middle price bar (or candle) with bars on either side having lower lows." I believe that this is in error, and should have read that the surrounding two bars should have higher lows. I would like to use this strategy in my trading and am concerned that my interpretation is correct.
Werner Renfftlen, via emailCharles Schaap replies:
You are correct. There is a typo. The three-bar reversal from a low is composed of three consecutive bars, with bars 1 and 3 having higher lows than bar 2. Go long on bar 3 when price rises above the high of bar 2. To be safer, you can wait for a close above the high of bar 2.
I am glad that you enjoyed my article. Thanks for writing, and trade well.
ERRATA: TRADERS' RESOURCE
In the April 2004 S&C, in the "Courses & Seminars" Traders' Resource section for that issue, we printed the wrong phone number for Market Traders Institute. The correct phone numbers are 866 260-9832 or 561 237-2845. Additional contact information for this company as well as other course and seminar providers is available from our website's Traders' Resource area at https://technical.traders.com/Products/company.asp?act=101736.
ERRATA: UP/DOWN/IN/OUT INDICATOR
In our website review of MrSwing.com in our March 2004 issue, we stated that the up/down/in/out indicator formula was developed for MrSwing.com, which is what the website indicated. However, it has been brought to our attention that the formula was actually developed by Teresa Lo of TrendVue, and that this indicator is scheduled to be removed from MrSwing.com.
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