Need advice: shorting and securies lending

[Sniper]

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how does it perform when rates are rising? (late 90's & currently) or when rates are falling (after the bubble's burst)?
<snip buncha market-related junk>


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Most of that crap doesn't matter to a technician. That's why a lot of them trade that way, because it doesn't matter. Generally speaking, technicians trade breakouts or reversals. They don't much care why it's breaking out or reversing, just that it is. Therefore, interest rates, blah, blah are irrelevant. Any correlations you find will probably be coincidental.

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can you expand on this?

do you mean that technitians are market neutral? or that the trends they trade off of are such that general economic conditions don't apply? if so, how would that work? (i.e. if you are systematically long the market, you'd underperform when rates are rising vs. when they are falling)

thanks,
Barron

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Barron, at its most basic level, technical traders believe that price action (& volume) tell the whole story. It doesn't really matter why a stock is moving, just that it is moving.

Its more a focus on the actual supply/demand for a stock, rather than an evaluation of the company or economy, etc, since those factors influence the supply/demand relationship.

[DcifrThs]

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how does it perform when rates are rising? (late 90's & currently) or when rates are falling (after the bubble's burst)?
<snip buncha market-related junk>


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Most of that crap doesn't matter to a technician. That's why a lot of them trade that way, because it doesn't matter. Generally speaking, technicians trade breakouts or reversals. They don't much care why it's breaking out or reversing, just that it is. Therefore, interest rates, blah, blah are irrelevant. Any correlations you find will probably be coincidental.

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can you expand on this?

do you mean that technitians are market neutral? or that the trends they trade off of are such that general economic conditions don't apply? if so, how would that work? (i.e. if you are systematically long the market, you'd underperform when rates are rising vs. when they are falling)

thanks,
Barron

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Barron, at its most basic level, technical traders believe that price action (& volume) tell the whole story. It doesn't really matter why a stock is moving, just that it is moving.

Its more a focus on the actual supply/demand for a stock, rather than an evaluation of the company or economy, etc, since those factors influence the supply/demand relationship.

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but the supply/demand and price/volume relationship both relate back to fundamental economic motivations for purchase/sales of stocks.

in general people buy/sell more when news comes out that reflects the underlying value of the stock and/or market. "price action" is just a fancy word i think for price movement or how the price of a security has been moving and how it is thus expected to move. those again are both tied to a number of underlying economic/financial market relationships.

it seems that you cannot possibly concentrate on those without knowing just as much, if not more about economic goings on and expect to not be affected by market moves.

so i think that lays out the logic behind going from technical to fundamental trading (that price & volume and supply & demand are determined by news/economic expectations/inflation expectations etc. ) and how i don't think doing the former w/o knowing the latter is smart.

does that make sense, sniper (or anyone)? how would you counter my argument and what would i look for to prove that assertion wrong (i can think of a few thigns but that requires a ton of data)?

i'm also still eagerly waiting THE HUN's posting of his monthly returns.

Barron

[thehun69]

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Most of that crap doesn't matter to a technician. That's why a lot of them trade that way, because it doesn't matter. Generally speaking, technicians trade breakouts or reversals. They don't much care why it's breaking out or reversing, just that it is. Therefore, interest rates, blah, blah are irrelevant. Any correlations you find will probably be coincidental.

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Nicely put. I was super busy yesterday and couldn't get back to these boards, but that is essentially what I was about to say. I trade price action and the charts are visual representation of that information. For me, I don't really care about all the information, p/e, earnings, or even what the company makes. To me, I assess the price and the likelihood of it moving to a specific direction, place a trade, and using TA, I know EXACTLY when I am wrong (more or less). This is the way I have been trading when I picked up Martin Pring's book. Since then I've moved on to other indicators and styles. I wouldn't call myself a trend trader per se, as you have defined. I just trade the price action. Sometimes, yes, I do follow a specific trend, other times I'm going against the grain and picking a reversal, sometimes breakouts, and so on and so forth. I objectively assess the price action and then make a decisions as to what to do based on that. My returns will not correlate to anything fundamental.

You had made another point that truly defines the fundamental style, but one issue that is the central flaw of fundamental analysis. Now before I start, I am not saying fundamental analysis doesn't have its place, (If a company tommorow came out tommorow and stated that their software causes debilitating cancer, yeah that stock is going to tank due to a fundamental reason, but those events are impossible to predict) but trading off of it, in my mind is extremely difficult. The fact is this: you had stated: “but the supply/demand and price/volume relationship both relate back to fundamental economic motivations for purchase/sales of stocks.” That statement is incomplete. It should read that price/volume relationship both relate back to PEOPLE'S EXPECTATIONS of fundamental....
That is the issue. It is impossible to guage what everyone's reaction is going to be to a specific piece of news. What are there expectations? A piece of news comes out that company X, came out with $4 Billion in revenue this past quarter, and the quarter before it only generated $2 Billion. Well, the fact is, yes that seems like good news and it should move the stock up. That is if you think that this was an improvement on what you had expected the company to do. For others they think this is horrible news because they had expected the revenues to be at $6 billion. Yes, this is a simplistic example, but it summarizes the flaw of fundamental analysis. You can't possibly predict the expectations of every investor in that stock. Technical analysis doesn't predict that. Technical analysis assesses what traders are doing right now in the market, how does this information relate in the context of what they've done in the past, and given that information and the patterns that people have traded in the past in relation to where the price is now, what is the most likely direction the stock will take. Technical analysis predicts based on traders actions, and now what they "might do" or what they "should do because the stock is overvalued". Technical analysis (at least the tools that I use) assess what IS happening and not what should be happening. Trading is about questions. When a stock moves, fundamental analysts asks "why", as in why is the stock at this price, it should be at that price. Technical analysts as "what", as in "given the the stock is now at this price.. WHAT should I do.

At the end of the day, given this long post, I advocate people to trade with the analysis that they feel most comfortable with. The majority, or at least those who post, here, use FA to trade off of. That is fine. It's what people here feel most comfortable with. Me, I'm a technical analyst type of guy. I trade off of probabilities, which is why I am puzzled why most of the posters at 2+2 don't trade off this way. It is all about EV. It is much easier to quantify EV off of a TA based strategy than a FA based strategy.

THE HUN.

[CrushinFelt]

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in general people buy/sell more when news comes out that reflects the underlying value of the stock and/or market. "price action" is just a fancy word i think for price movement or how the price of a security has been moving and how it is thus expected to move. those again are both tied to a number of underlying economic/financial market relationships

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Maybe in the long term. But in the short term (i.e. daily/weekly data) there aren't any good indicators for price movement. This is the time window in which most technicians trade (month time-frame maximum usually).

Therefore, technicians basically just use reversals, momentum, fibonacci levels, etc. as short-term indicators of future short-term movement and have nothing related to economic or financial data in their models.

[DcifrThs]

first off, nice post and thanks for the reply.

the sentence you quoted from me was obviously misstated as the expectations of #s is what drives asset prices. personally, i have no experience trading individual stocks. i have traded mkt indices and look at the underlying fundamentals of the domestic & global economy to make my bets. i'm much more interested in global macro stuff & far reaching financial markets vs. digging into price moves for individual stocks. thats just me and obviously you enjoy & profit from the latter. i'm just learning about it now here so thanks again for the reply.

the thing i like about fundamental analysis is the wide ranging thinking about how everything fits together & why. i don't know how many trades you make but FA allows for very few position changes to take place and involves a "wait and see" kind of approach. for instance, back in feb when the mkt experienced the 5% or so drop and the S&P fell to 1395, i thought that was a significant buying opportunity as fundamentals didn't change much, and despite being short bonds after the runup, the value there looked promising (i.e. interest rates could move up w/o significantly being a huge risk in the near term). thats just an easy "gimme" small example obviously but it's the kind of thing you can wait and see with. i dont' know if that makes sense or if you taket he same type of approach w/ the technical analysis of price moves. it could be that you have the same analytical approach (wait and see + thinking about how everything fits together) but on a vastly more micro scale.

onto some points.

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Technical analysis doesn't predict that[people's expectations/reactions]. Technical analysis assesses what traders are doing right now in the market, how does this information relate in the context of what they've done in the past, and given that information and the patterns that people have traded in the past in relation to where the price is now, what is the most likely direction the stock will take.

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EV vs. probability here is a mistake i don't think you make trading but just want to point out that the way the above quotation is phrased, it looks to the reader as if you are talking in probabilities, which for obvious reasons isn't complete.

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Technical analysis (at least the tools that I use) assess what IS happening and not what should be happening

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this is nitty also but reflects a common sentiment in the market and something my former CIO loved to poke fun at.

he would always say:

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there IS NO IS!!! there is only what WAS and what WILL BE

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"technicals" has taken on a much more refined meaning for me thanks to your post. do you have or would recommend any reading that digs a little bit (but not too much) deeper into it?

thanks,
Barron

PS- i'd still be interested in seeing your return stream if you'd be kind enough to post it. obviously it appears that, after your good explanation, individual monthly correlations are likely to be coincidental rather than fundamental in nature so i won't look into that. i am still interested in what it looks like from your perspective (via your results). hope you are comfy w/ that

[thehun69]

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Technical analysis (at least the tools that I use) assess what IS happening and not what should be happening

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this is nitty also but reflects a common sentiment in the market and something my former CIO loved to poke fun at.

he would always say:

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there IS NO IS!!! there is only what WAS and what WILL BE

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Assessing what is, from an objective perspective helps define opportunities as high or low risk. What IS happening will give you a good indicator of the most likely event following. I'll give an example that is paraphrased from the book Chart of Charts (this is a very old book on Japanese Candlesticks, which I would highly recommend you get into, not that book per se, but others that I'll list below). Say you have two fighters. Both of them are the same in various aspects, height, weight etc. In the past 10 matches, fighter A has beaten fighter B 7 out of the ten times. Fighter A will fight Fighter B on Sunday. Which way will you bet? THE FA will spend the next 72 hours or so working out weight class studies, fighting strategy analysis, and so forth. THE TA says, I've looked at the history between these two and Fighter A just PWNS Fighter B time and time again, I don't care why, he just does. The TA focuses on what is, what is, is the fact that Fighter A for whatever reason just wins. That is all that matters. Why does he win? Who knows? But is it really important? This relates to our discussion of WHAT IS. Let's say you have a stock and everytime (or the majority of the time) it climbs to 50 (and that is not the all time high of the stock, let's say that the alltime high is 80, this is irrelevant, but I don't want the arguement to get off track saying that it is pulling back from alltime highs), it pulls back to 42 or 40. Today the stock trades at 50, and we are getting close to the end of the day with the high at 50.11 and the stock currently trading at 49.75. I would look for tommorow for the start of the pullback all the way to 40. I'm more of an aggressive trader so I would start the short today, but others may want to wait for more of a confirmation, say the stock moving to 49.50 and really pulling away from 50 before they commit any chips. That is what I mean by focusing on what is. What IS happening is that the stock has hit 50, just above, and pulled back. I can see the history of the price action by looking at any price chart and I know that typically it pulls back from this point. So, in the context of where the price is, to what usually happens when it is in that price range, I decide that the most likely direction for the stock to go is down. I will know that I'm right or wrong as the price action develops. I would put a stop at around 51, because after that time I would assess that 50 is no longer a resistance and that it has broken through that mark and going higher. So, here risking $1 for a gain of $8-$10. Now this is a simplistic example, but there are many of these examples in the market all the time, and that is just one aspect of how I look at things. That is the importance of WHAT IS happening.

Books I would reccomend are:

Anything by Steve Nisson (he writes about Japanese Candlestick trading)

Market Momentum by Martin Pring - this is the only primer you will need for understanding indicators

THE HUN.

[DcifrThs]

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Technical analysis (at least the tools that I use) assess what IS happening and not what should be happening

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this is nitty also but reflects a common sentiment in the market and something my former CIO loved to poke fun at.

he would always say:

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there IS NO IS!!! there is only what WAS and what WILL BE

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[/ QUOTE ]

Assessing what is, from an objective perspective helps define opportunities as high or low risk. What IS happening will give you a good indicator of the most likely event following. I'll give an example that is paraphrased from the book Chart of Charts (this is a very old book on Japanese Candlesticks, which I would highly recommend you get into, not that book per se, but others that I'll list below). Say you have two fighters. Both of them are the same in various aspects, height, weight etc. In the past 10 matches, fighter A has beaten fighter B 7 out of the ten times. Fighter A will fight Fighter B on Sunday. Which way will you bet? THE FA will spend the next 72 hours or so working out weight class studies, fighting strategy analysis, and so forth. THE TA says, I've looked at the history between these two and Fighter A just PWNS Fighter B time and time again, I don't care why, he just does. The TA focuses on what is, what is, is the fact that Fighter A for whatever reason just wins. That is all that matters. Why does he win? Who knows? But is it really important? This relates to our discussion of WHAT IS. Let's say you have a stock and everytime (or the majority of the time) it climbs to 50 (and that is not the all time high of the stock, let's say that the alltime high is 80, this is irrelevant, but I don't want the arguement to get off track saying that it is pulling back from alltime highs), it pulls back to 42 or 40. Today the stock trades at 50, and we are getting close to the end of the day with the high at 50.11 and the stock currently trading at 49.75. I would look for tommorow for the start of the pullback all the way to 40. I'm more of an aggressive trader so I would start the short today, but others may want to wait for more of a confirmation, say the stock moving to 49.50 and really pulling away from 50 before they commit any chips. That is what I mean by focusing on what is. What IS happening is that the stock has hit 50, just above, and pulled back. I can see the history of the price action by looking at any price chart and I know that typically it pulls back from this point. So, in the context of where the price is, to what usually happens when it is in that price range, I decide that the most likely direction for the stock to go is down. I will know that I'm right or wrong as the price action develops. I would put a stop at around 51, because after that time I would assess that 50 is no longer a resistance and that it has broken through that mark and going higher. So, here risking $1 for a gain of $8-$10. Now this is a simplistic example, but there are many of these examples in the market all the time, and that is just one aspect of how I look at things. That is the importance of WHAT IS happening.

Books I would reccomend are:

Anything by Steve Nisson (he writes about Japanese Candlestick trading)

Market Momentum by Martin Pring - this is the only primer you will need for understanding indicators

THE HUN.

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um, wow. i don't think i've ever seen anybody miss the point of my former CIO's quotation quite like you just did.

but first, a tangent on the FA vs TA in terms of the fighters. Fighter A HAS BEATEN (in the past) fighter B 7/10 times. they WILL FIGHT (the future) on sunday. first off, a FA will definitely (at least i would assuming no other info) bet on fighter A given 1:1 odds. the past has indicated that there is a significant probability that fighter A will win.

BUT (with more info assuming we know the past events), what if fighter A has had a fight profile profile of :

win
win
win
win
win
win
win
lose
lose
lose

that is in favor of me putting off my bet on fighter A vs. a fight profile of:

lose
lose
lose
win
win
win
win
win
win
win

in the latter case, i'd think fighter A would be a FAR better bet than in the first case where he/she lost to fighter B the last 3 times they fought.

i'd then research what changed between fight 7 and fight 8 in the first case. did fighter B drop in weight? did the fighting style change? if absolutely nothing changed and fighter B suddenly beat fighter A 3 times in a row, i still wouldn't be so quick to bet on fighter A. maybe fighter B just figured out how to win.

back to the point:

you have given the summarly of technical analysis looking in the past and mistaking it for the present. LTCM blew up in part b/c of the exact same logical mistake you just made. the past is the past. the future is the future. DONT MISTAKE THE PAST FOR THE PRESENT OR THE FUTURE!!!

do you know what the single biggest mistake in investing is? it is the tendency of investors to extrapolate the recent past indefinitely into the future. THERE IS NO IS!! there is only was and what will be.

you even say it yourself:

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What IS happening is that the stock has hit 50, just above, and pulled back. I can see the history of the price action by looking at any price chart and I know that typically it pulls back from this point

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the point of the quotation is to not mistake those two.

glad we cleared that up.

one additional question i now have is that if every time a stock hits 50 and pulls back is clearly visible in charts, why do you think you are special in your ability to see that? wouldn't everybody else see that also?

clearly the flip side is that, well, apparantly they didn't the past X times b/c it kept happening. therefore, i won't expect other investors to magically now long at 50, so i'll put my stop at 51 and short at 50 down to mid/low 40s.

that is your TA apparantly and it seems to make some logical sense. one thing i think is funny though is that you say you aren't in the business of predicting people's expectations (or something similar) but you then go ahead and do just that!

you are predicting that in the future (tomorrow), the stock will fall from near 50 because every time it has hit 50 it pulled back (the past). you are in the business of predicting people's actions based on the past!

if that works for you, that's great. do you track your results? if so i'd LOVE to see how this all plays out. how often to those "supports" fail? when they do, what is the cost?

so i'll ask again for you to post your monthly returns. hopefully you've been doing this for a while so we can get a good sense of how the strategy plays out over time. would you please post them? if not, why not?

imo you are playing a very dangerous game. this does indeed go back to my original post minus the fundamental stuff. a trend (or historic relationship) is very attractive until it is no longer attractive (see US 10yr 17 year trend in reducing volatility & expectation following the trend that the 10yr wouldn't break the 5% rate mark OR the JPY carry trade in 1998).

so, as a FA, i'd love to dig into your returns and see what the stream looks like from a risk/reward standpoint. it would be even better if you had a complete file of your positions, the factors that led you to do X and the results. then we could see how the historical relationships you use to predict the future price action play out. maybe there is something to this technical analysis. personally, though, i think humans are too fickle to depend on something like that. i could very well be wrong though so if you can help me see that via data i'd appreciate it.

thanks,
Barron

[DesertCat]

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You had made another point that truly defines the fundamental style, but one issue that is the central flaw of fundamental analysis.
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A piece of news comes out that company X, came out with $4 Billion in revenue this past quarter, and the quarter before it only generated $2 Billion. Well, the fact is, yes that seems like good news and it should move the stock up. That is if you think that this was an improvement on what you had expected the company to do. For others they think this is horrible news because they had expected the revenues to be at $6 billion. Yes, this is a simplistic example, but it summarizes the flaw of fundamental analysis. You can't possibly predict the expectations of every investor in that stock.

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Predicting other peoples expectations has zero to do with fundamental analysis, nada, zip, nothing. Fundamental analysis involves determining a reasonably accurate estimate of true (intrinsic) value, buying at large discounts to that, and selling when it approaches intrinsic value.

Warren Buffett has never cared what other people think or their expectations are about his positions.

[yellowbastard]

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Take another look. It's raw cash flow is way higher than reported earnings. Actual free cash flow is unclear, I'm not sure what they need for maintenance capx and what is invested in new billboards.

I'm not saying it's not overpriced, but it's an odd duck. They apparently seem to want to run it with as little equity as possible and max out the debt, they just payed a big one time dividend. It's possible the divi has confused some investors about it's yield. But it's not unreasonable for a consistent cash flow business like billboards to carry lots of debt, but you have to do some analysis to determine if the valuation and debt/equity ratios are truely out of whack.

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It's interesting that the firm is financed with so much debt. I looked at their main competitor Clear Channel (CCO) and they are mainly financed with debt as well. CCO is also trading at 64x earnings and actually has negative FCF for the last fiscal year. Why do you think these stocks are so expensive? Both CCO and LAMR have histories of red ink. True LAMR just paid a big dividend and investors could be confused but CCO has not. It doesn't make much since.

[pig4bill]

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Books I would reccomend are:

Anything by Steve Nisson (he writes about Japanese Candlestick trading)

Market Momentum by Martin Pring - this is the only primer you will need for understanding indicators

THE HUN.

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He said he wanted lightweight reading. Those two guys write fairly heavyweight stuff. For fluffy T/A I like The Visual Investor by John Murphy. His Technical Analysis of the Futures Markets is the bible, one of the first books on modern T/A.