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FROM AN EXPERIENCE
Came across an interesting
pamphlet on Crises and Panics by James L. Fraser. It’s an interesting if brief
history up through the early 60s. I thought I would share his comments on
identifying traits and causes of panics/crises. I am paraphrasing a bit and not
completely quoting him on each bullet point here. Bear in mind, this was
written in 1965.
Traits:
1) Extravagance of living, first
by a few, and then by many…
2) General belief in
impregnable prosperity…
3) Lavish private
expenditures, which appear to be natural offshoots of immense federal projects…
4) An appetite for
speculation
5) Easy money and
availability of credit
Indications of impending
crises:
1) Rising prices
2) Increased activity of
established businesses seeking more production, more sales…
3) Active loan demand
4) Strong increase in labor
employment
5) Extravagant public and
private expenditures
6) Speculative mania, together
with dishonest methods, fraud
7) Labor strikes and
increased general violence / social instability
Excessive pride of opinion, especially an
“American First” attitude
Causes:
1) Great failure of
confidence at crucial moment(s)
2) Magnificent abuses of
credit
3) Readjustment of conditions
to changes in values/prices
4) General fall in prices
5) Changes in the monetary
unit / revaluation
6) Contractions of or lack of
money
7) Over production or under
consumption
Psychological tendencies which covers a
multitude of ideas, of which only a few ever hit the public press.
I also found his comments on
“The Permanent Crisis 1960-?” interesting:
“Homer said ‘After the event,
even a fool is wise.’ I suppose before the event, even a wise man looks foolish.
Today, with strong opinions and solutions being voiced daily, a wise man tries
to look for facts and thoughts which are forgotten in the heat of backing the
opinion of the moment. Social control is exercised now more than ever before. We
have a service-oriented economy, supported by the Federal Government as a prime
mover in all walks of life. This is social action. We may not wish it or like
it but we have it.”
The rest of the pamphlet is
also a great read, and reminds one of a quote from my favorite book of the good
book (this is for Gibbons):
That which has been is what
will be, That which is done is what will be done, And there is nothing new
under the sun. Is there anything of which it may be said, “See, this is new”? It
has already been in ancient times before us. There is no remembrance of former
things, nor will there be any remembrance of things that are to come by those
who will come after.
NIFTY FUTURES - LEVELS TODAY (08-08-2012)
NEARBY RESISTANCES NOW @ 5451
NEARBY SUPPORT NOW @ 5307
Day’s Resistance @ 5359-82-92
Day’s
Supports @ 5340-22-07
Below 5358 for 5 minutes, NF
slides to
5340-23-08
Suppose if cuts 5359 & trades above the
level for 5 minutes see a hike upto 5380-91
Magic figures of Nifty
Above 5354 targets are 5396 - 5420 - 5443
Magic figures of Bank Nifty
Above 10817 targets are 10891 - 10946 - 11001
Sell INDIABULLS @ 216;
Sell HINDPETRO @ 324.50; T
– 319.95
To know more and earn everyday in stock market just subscribe us through e-mail
ALL THE BEST
SPAIN WILL NOT SEEK BAIL OUT: EU SOURCE
Spain will not seek euro-zone financial aid beyond an agreed rescue for its banks if more conditions than
those already agreed for recapitalising lenders are attached, an EU source said
Tuesday.
Prime Minister Mariano Rajoy
is under pressure to call in financial assistance for the Spanish state, not
just its banks, but is holding off awaiting a European Commission assessment of
new spending targets drawn up for 2013 and 2014.
The Spanish government said
on Friday it planned savings of 102 billion euros ($125 billion) by 2014 as it
stepped up efforts to bring its strained public finances back within 3.0
percent of gross domestic product, the normal EU limit.
That assessment is unlikely
to be complete until mid-September. Eurozone finance ministers are due to meet
on September 14-15 in Cyprus ,
itself in dire financial straits and possibly in need of aid following talks on
loans from ally Russia
“If the Commission considers
that the [Spanish] budgetary plan is satisfactory, there will not be a need for
further conditions,” the EU source said of Rajoy’s position, referring to terms
for any subsequent loans from the European Financial Stability Facility or
mooted European Central Bank intervention in short-term bond markets.
In June, Spain
Last month, Brussels gave
Spain an extra year to balance its books, saying it must bring down its public
deficit to 6.3 percent of GDP this year, 4.5 percent next year and then 2.8
percent in 2014.
After Spanish borrowing costs
skyrocketed in the interim, ECB chief Mario Draghi last week raised the
prospect of direct intervention in the bond markets so as to bring down
eurozone borrowing costs — but contingent on government support and subject to
conditions.
“I want to know what these
measures are to see if they are adequate,” Rajoy said afterwards. “Then I will
take the best decision for the general interest of the Spanish people.”
On Monday Spanish stocks
leapt upwards, and after speaking with US President Barack Obama in a telephone
call later in the day, Rajoy “stressed the efforts the government and Spaniards
have undertaken to reduce the public deficit and come up with an ambitious
programme of structural reforms,” according to a statement from his office.
JUST 21% INDIAN MBA's ARE EMPLOYABLE
The employability of
management graduates in India
According to the MBAUniverse.com–MeriTrac
employability study 2012, which covered 2,264 MBAs from 29 cities and 100 B-Schools,
beyond the Top 25, only 21 per cent are employable.
The previous study of 2007 by
MeriTrac had placed employability index at 25 per cent.
However, the number of MBA
seats in India has grown almost four fold — from 94,704 in 2006-07 to 3,52,571
in 2011-12 ¿- resulting in a five-year compounded annual growth rate of 30 per
cent, but their employability rates have fallen, the study said.
The students were tested for
verbal ability, quantitative ability and reasoning by using internationally
standardised tests on behalf of recruiting companies.
The index of employability, at
21 per cent mark leaves scope for improvement considering that organisations
hire from this talent pool for strategic roles and this is the managerial pool
that companies bank on, the study pointed out.
“This report clearly brings
out the employability gaps across various competencies and highlights the need
for scientific examinations and tests to align the candidate skills to
employability metrics,” MeritTrac Services India CEO and Director S Murlidhar
said.
Overall average percentage
score obtained by MBAs in verbal ability, quantitative ability and reasoning
was 52.58 per cent, 41.17 per cent and 37.51 per cent respectively.
While performance on verbal
ability seems to be satisfactory, reasoning is an area where there is scope for
improvement. Considering that the elements of the reasoning test are crucial to
making sound management decisions, this is a result which warrants closer
attention, the study noted.
“Questions are asked about
the talent coming out of MBA colleges, and whether they create a workforce
responsive to the needs of the economy like understanding of business and on-the-feet
thinking. So, decision-making skills are being valued more than ever,”
MBAUniverse.com Chairman Amit Agnihotri said.
10 WAYS OF TRADING: WILLIAM J.O'NEIL
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1) Do not diversify broadly, instead
focus on the leading stocks in the best industry groups.
2) Cut any loss when the stock
is down 7%/8% from your buy point.
3) Buy stocks that are going up
in value, not down.
4) Add to a position as the
stock goes up in value from your buy point not at lower prices.
5) Buy stocks near their highs
for the year not their lows.
6) Study price charts to
discover how the best stocks behaved historically in price action.
7) Trade in the right direction
based on the trend of the general market.
8) Buy the best stocks in the
market as they break out of properly formed bases or when they bounce off their
50 day moving averages.
9) Do not be influenced by
others, trade your plan.
10) Buy stocks with the best
earnings and sales growth at the right time using charts.
RICHARD DONCHIAN RULES
Richard Donchian is known as
the father of trend following. His original trend following ideas form the
basis for all trend following success that has followed. Below in an excerpt
from an article written in 1995 about his 5 and 20 day moving average system:
Title: Donchian’s five- and 20-day
moving averages.
Author: Richard Donchian
Publication: Futures (Cedar Falls , Iowa
Date: November 15, 1995
Publisher: Oster
Communications, Inc.
Volume: v24 Issue: n13 Page: p32:
ISSN: 0746-2468
………………………………………………………………………
On Wall Street there are two
conflicting adages:
1. “You’ll never go broke
taking a profit.”
2. “Cut your losses short and
let your profits ride.”
Experience has shown that in
commodities trading, the first of these “old saws” is dangerous and misleading,
while the second may well be regarded as the one lesson the inexperienced
commodity trader should learn if he wishes to have a better-than-even chance to
come out ahead.
Every well-designed, trend-following,
loss-limiting method for trading in futures (or stocks) rests on the basic
principle that a trend in either direction, once established, has a strong
tendency to persist, at least for a time. Among the many trend-following
approaches now in use are the Dow Theory, point-and-figure chart techniques, swing
methods (other than the Dow Theory), trendline methods, weekly-rule methods and
moving average methods. We’ll focus on moving average methods and, in
particular, the comparatively simple five- and 20-day moving average method.
The Method
The rules for the five- and 20-day
moving average method break down into two categories: general and supplemental.
General rules:
1. The extent of penetration
of the moving average is broken into units, depending on price level. For
commodities selling over 400 (wheat, soybeans, silver), for example, a
penetration of 40 cents is required (Donchian had six price classes in the days
before interest rates and stock index futures).
2. No closing penetration of
the moving averages counts as a penetration at all unless it amounts to at
least one full unit (39 cents in Rule 1 was not enough for penetration – it had
to be 40 cents to count).
Basic Rule A: Act on all
closes that cross the 20-day moving average by an amount exceeding by one full
unit the maximum penetration in the same direction on any one day on a
preceding occasion (no matter how long ago) when the close was on the same side
of the moving average.
For example, if the last time the closing price of
cotton was above the moving average it stayed above for one or more days, and
the maximum amount above on any one of the days was 64 points, then when the
closing price of cotton moves above the moving average, after having been lower
in the interim, a buy signal is given only if it closes above the average by
more than 64 points (the unit in cotton is 0.10).
This principle – the
requirement that a penetration of the moving average exceeds one or more
previous penetrations – is a feature of the five- and 20-day method that
distinguishes it from other moving average methods.
Basic Rule B: Act on all
closes that cross the 20-day moving average and close one full unit beyond (above
or below, in the direction of the crossing) the previous 25 daily closes.
Basic Rule C: Within the
first 20 days after the first day of a crossing that leads to an action signal,
reverse on any close that crosses the 20-day moving average and closes one full
unit beyond (above or below) the previous 15 daily closes.
Basic Rule D: Sensitive five-day
moving average rules for closing out positions and for reinstating positions in
the direction of the basic 20-day moving average trend are:
1. Close out positions when the
commodity closes below the five-day moving average for long positions or above
the five-day moving average for short positions by at least one full unit more
than the greater of
a) the previous penetration on the same side of the five-day
moving average or
b) the maximum point of any previous penetration within the
preceding 25 trading sessions. If the distance between the closing price and
the 20-day moving average in the opposite direction to the Rule D close-out
signal has been greater within the prior 15 days than the distance from the 20-day
moving average in either direction within 60 previous sessions, do not act on
Rule D close-out signals unless the penetration of the five-day average also
exceeds by one unit the maximum distance both above and below the five-day
average during the preceding 25 sessions.
2. After positions have been
closed out by Rule D, reinstate positions in the direction of the basic trend
a)
when conditions in Rule D, point 1 above are fulfilled,
b) if a new Rule A
basic trend signal is given, or
c) if new Rule B or Rule C signals in the
direction of the basic trend are given by closing in new low or new high ground.
3. Penetrations of two units
or less do not count as points to be exceeded by Rule D unless at least two
consecutive closes were on the side of the penetration when the point to be
exceeded was set up.
Supplementary General Rules
1. Action on all signals is
deferred for one day except on Thursday and Friday, For example, if a basic buy
signal is given for wheat at the close on Tuesday, action is taken at the
opening on Thursday morning. The same one-day delay applies to Rule D close-out
and reinstate signals.
2. For signals given at the
close on Friday, action is taken at the opening on Monday.
3. For signals given at the
close on Thursday (or the next to last trading day of the week), action is
taken at the Friday (or weekend) close.
4. When there is a holiday in
the middle of the week or a long weekend, signals given at the close of
sessions prior to the holiday are treated as follows:
a) for sell signals, use
weekend rules; and
b) for buy signals, defer action for one day, as is done on
regular consecutive trading sessions.
A word of caution
The five- and 20-day moving
average method, and most other trend-following methods, for that matter, are
not good to follow unless you are prepared to include in your program a
sufficient number of futures to provide broad diversification. Risks are
increased to an inordinate degree if you try to follow the method in one or just
a few selected contracts.
The commodities that are in a
pronounced trend and are not giving, new signals are frequently the ones in
which the best results are attained. Therefore, in starting a new program it
might be advisable not to wait for new signals but to take positions in the
direction of prevailing trends in those not giving new activation advice. Because
the markets are moving so wildly, however, it might be best to
a) go in the
direction of the trend only after one or more days of counter-trend movement, plus
a day move in the direction of the basic trend, and
b) to use an arbitrary stop
on positions taken without waiting for new signals.
Remember, five and 20 days
are not necessarily the best lengths for moving averages. And, most probably, the
action rules themselves, as outlined above, could be refined and improved. Also,
it may be that exponential moving averages, weighted moving averages, moving
averages based on highs or lows or daily means, or some combination of all
these, would produce superior results.
In this field of technical
study it is probably safe to state that the beginning of wisdom comes when you
stop chasing rainbows and admit that no method is perfect. When you find
yourself willing to settle for any comparatively simple method that in tests
over a long period of time makes money on balance, then stick to the method
devotedly, at least until you are sure you have discovered a better method.
………………………………………………………………………
Richard Donchian worked at
Shearson Lehman Bros. while developing his technical analysis and trend-following
methods that today many traders use as the base of their systems. He also
launched the first managed futures fund in 1948. Donchian died in 1993 at the
age of 87.
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