Here’s a fun test, via famed market technician Dick Arms. It challenges your investing acumen, as well as your mental agility.
The following is an unknown stock or index, and the period covers recent history.
The test is quite simple: Is it a buy, sell or hold?
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UNKNOWN EQUITY, 2002 – 2008
click this for a jumbo version .PNG
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Here is what Dick has to say:
At first glance this chart certainly has the look of a great buying situation. We have a long decline, triple bottom, and then a breakout through both the descending trendline and the last point of resistance with big volume and a wide trading range. Since that breakout it has pulled back on much lighter volume, and has gone to just about the trendline.
That’s quite the hint.
Here’s the fun part of this chart reading experiment: If you notice the price scale in very small print at the left margin, you will see that it is inverted. This is an up-to-date weekly chart of the Dow Industrials.
Dick references Bob Evans of the Wyckoff school of Technical Analysis. One of the things Bob used to suggest was that if you were ever unsure of a given chart, simply turn it upside down! Doing so eliminates your bull/bear prejudices, and can be quite revealing.
Dicks technical service is subscription only, but over the years I’ve found him to be very insightful, and his books quite instructive. His latest is called Stop and Make Money: How To Profit in the Stock Market Using Volume and Stop Orders and I’ll se eif we can’t get an excerpt posted in the coming months.
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Source:
Stop and Make Money: How To Profit in the Stock Market Using Volume and Stop Orders
Dick Arms
Wiley, January 2, 2008
http://www.amazon.com/exec/obidos/ASIN/0470129964/thebigpictu09-20
Previously:
Nasdaq Trend Break
December 2006
http://bigpicture.typepad.com/comments/2006/12/nasdaq_trend_br.html
when I had access to Real Money, I religiously read Dick Arms’ column…
looks like more downside in equities here…
Even though you’d be stepping in front of a train… big pullback/correction in commodities across the board likely sometime pretty soon…
wait for it to begin and then ride ’em down…
(if they in fact do go down)…
Good thing the banks aren’t already f’d. Oh wait.
Really Scary Fed Charts: March
Look, the market needs to go up whatever the real world happens, people have to feel comfortable, it’s the psychology. and I heard some say, it is too late to sell.
Okay, I’m a little dense. Is the inverted chart saying the Dow will fall (the breakout) or continue it’s longer term uptrend?
Only an idiot would buy or sell based on an unknown chart, and only the chart. That’s like saying, would you drink this liquid because it smells nice and has a pleasant color?
Is this an idiot test … and by that I mean only an idiot would answer buy, sell, or hold? No wonder so many investors lose money if this is an example of technical expertise.
A really good book entitled “Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics) (Paperback)” by Charles P. Kindleberger describes world wide panics and manias covering several hundred years, including Y2K and the run up to the current one.
Comparatively, this one is rather tame, in spite of the rantings of panic mongers and masters of pessimism.
This is a dumb question: Which service like Stockcharts or Bigcharts can you use and what instructions do you use to invert a chart easily? I’m tired of printing them and turning them upside down for the other perspective, and been doing it for years when in doubt.
OldVet: why not just use an inverse etf chart?
cinefoz: TAME!?
I would take the 4th option. Pass.
I wouldn’t short. It has broken its downtrend.
I wouldn’t buy. It has too many resistance levels on the way up.
I must admit flipping the chart upside down is quite an interesting addition to one’s toolbox of technical analysis techniques. But at the end of the day I have to ask the question of who, other than Wall Street ass hats, bases their buy and selling decisions on technical analysis alone. Three different technicians can look at the same chart and see three different things and all three of them are wrong, complicated by the random nature of the market in the short term.
good one barry. Even upside down I was pretty sure I’d seen this chart before. We need a little rally here, the bears are getting a bit bold. Then another dose of chew’em up and spit ’em out. The trend is down.
That was cool. I thought the chart was a buy and then when I looked at the scale I realized what it was. Fun stuff.
cinefoz, Got brain in gear and searched out language at Stockcharts: “You can create an inverse chart by first entering the “$ONE” symbol, a colon character, and then your chosen symbol in the “Enter Ticker” box. For instance, “$ONE:INTC” will create such a chart.”
I don’t use charts to buy and sell normally, but perspective is a useful tool in short run, no?
thanks old vet…
I know this is just a fun thing, but it raises an interesting thought. Is it right to expect an inverted chart to behave as we would if it were not inverted?
At the core of chart reading is getting a picture of the emotions and intentions of fellow owners and potential owners, essentially fear and greed weighted by buying power. I’ve read a number of studies showing that human fear/greed behavior and risk aversion aren’t mirrored in a way that would support using a flipped chart in the same way as the original.
That said, chart reading is also about setting stops and managing risk, and the inverted dow chart appears to present some pretty good entry/stop points.
That’s neat and raises some interesting questions, but for most investors the long term outlook (20 years plus), well it is for me anyway, is of a rising market and so we assume that over the long term the chart will rise. Flipping the chart doesn’t change this.
baboon – Many people were underwater from 1966 thru 1982. By 82 they were back to even. ROE zilch. There is no guaranteed hamburger next tuesday.
The markets always trend up over long periods of time. The corollary would be, the purchasing power of your dollar declines over long periods of time.
1966 Dow 1,000
1982 Dow 1,000
1982 Dow adjusted for inflation 300.
Buy, sell or hold?
Cry, yell and fold?
“The markets always trend up over long periods of time. The corollary would be, the purchasing power of your dollar declines over long periods of time.
1966 Dow 1,000
1982 Dow 1,000
1982 Dow adjusted for inflation 300.
Buy, sell or hold?
Cry, yell and fold”
For completeness what would the total return (i.e including Divs) be 1966 vs 1982 inflation adjusted? I read somewhere recently that 2/3 or 1/3rd (cant remember excactly) or total longterm returns come from divs.
I guessed Hillary Clinton’s intrade odds. Boy was I off.
Question:
I’m trying to determine a fair value for gold. I have not worn a fiduciary uniform on a regular basis since 1982. Can someone help me out and tell me what a custom made and fitted high quality mens suit goes for these days?
Abi,
Using my Union Carbide 1971 reprint of compound interest tables and assuming an average 4% dividend yield calculated over 16 years, the ending value (1982) on the Dow including dividends is 1,871. Adjusted for inflation and not including taxes paid, the real value of the Dow in 1982 would have been around 625.
Only an idiot would infer from Barry’s post that this one chart should be the entire basis for a trade.
I worked for a “black box” trend follower in 1998 that went long the JGB at negative yields during the peak of the yen carry trade unwind…
It didn’t work out very well…
March 4 (Bloomberg) — Yields on five-year Treasury Inflation-Protected Securities fell below zero for a third day on investor speculation that inflation will quicken as the U.S. economy slows.
Yields on the securities, known as TIPS, dropped to minus 0.036 percent on Feb. 29, according to Barclays Capital Inc., the biggest dealer of the securities. It was the first foray below zero since five-year TIPS were first sold in 1997, according to the firm, one of the 20 primary dealers that trade directly with the Federal Reserve.
“Demand has increased as investors are becoming more aware of inflation pressures,” said Michael Pond, an interest-rate strategist at Barclays in New York. As prices of commodities like gold and oil rise, “investors are pricing in relatively high inflation even though growth is slow and the Fed is likely to continue to move the fed funds rate lower.”
The 2 percent inflation-indexed security due in April 2012 fell 2 basis points to minus 0.04 percent today, according to Barclays. Five-year TIPS yield about 2.35 percentage points less than similar-maturity Treasuries, reflecting the rate of inflation investors expect over the life of the securities
ross-
anything less than $1g is not custom made and/or fitted…
It may say it is………but no
Ciao
MS
MS,
Thanks. That was what my intuition said. In 1970 or abouts, they were $100 to $150 each.
The reason I was asking is that an old gold bug friend of mine from ancient times used to swear that an ounce of gold should buy a handmade suit.
Assuming a dollar is worth 2c to 3c pre Federal Reserve Act and dividing into either $20/oz 1920’s or $35/oz 1930’s I get a fair value for gold between $665 and $1,750 /oz.
I guess we are still at the lower end of the range. I realize it is a moving target.
Just a thought…
Its a thought experiment designed to make you consider your own biases and leanings.
If you would buy this chart, then why would you buy the exact opposite of it?
The Dow is a sale both here and in China…..
I have always kept a pocket sized mirror at my desk to do exactly that. I look at every potential entry as a reflected mirror image (it works well on chartbooks, computer screens, whatever. You don’t have to manipulate anything. KISS principle!). I find the inverted perspective invaluable. Sometimes it confirms great ideas while nixing others. Excellent tool.
Nuff said….
looks like a pretty good buy to me. I’d buy a small position and put a stop at 12750
Behold the advanced wonders of the Microsoft operating system!
1) Take a screenshot.
2) Open MS Paint and type CTRL+V to paste.
3) From the “Image” menu, select “Flip” vertical.
Try to do that, Apple Guy!
Um. PC Guy. I really hate to break it to you but Macs come with Preview to flip images, vertical or horizontal. It’s been a standard feature on Macs for years. Macs also come with a built in screen cap feature to create quick jpgs of anything on your monitor.
Hold down the keys of apple shift 4
which brings up the cursor. Click, drag, release. voila. jpg.
Any one of the posters who maded comments like “Who the hell would make a buy or sell decision based on the looks of the chart is an idiot”…..IS THE IDIOT.
Everything you want to know about SUPPLY and DEMAND can be inferred from the CHART.
period.
If you spend your time looking at P/E ratios, Book Value, Cash Flows……you’re the IDIOT. It’s all for naught. Let the chart the do work for you….There are people with bigger brains and/or more information than ‘you’….already buying and selling ahead of the known facts.
AT