Go to Jeff Salisbury LWGate Home Page.From: "Curt Corley" <cjcorley@hiwaay.net>
Subject: [CANSLIM] The ultimate "M" meter
Date: Thu, 22 Aug 2002 02:16:58 -0500
Previous Article (by Subject): Re: [CANSLIM] The effect of expiring options "Tom Worley"
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I=92ve been lurking here for a few days, and I would like to put in my =
two
cents=92 worth about the question of whether we=92re in a bull or a bear
market. I=92d also like to give my personal opinion of what the =
ultimate
=93M=94 meter is. But first, I want to get some definitions down to =
make
sure we=92re speaking the same language here. I will use the =
definitions
that are put forth by the Dow Theory and which, IMHO, are best described
in the book =93Technical Analysis of Stock Trends=94 by by Robert
<http://www.amazon.com/exec/obidos/search-handle-url/index=3Dbooks&field-=
a
uthor=3DEdwards%2C%20Robert%20D./102-0711160-4510545> D. Edwards, John
<http://www.amazon.com/exec/obidos/search-handle-url/index=3Dbooks&field-=
a
uthor=3DMagee%2C%20John/102-0711160-4510545> Magee, W.
<http://www.amazon.com/exec/obidos/search-handle-url/index=3Dbooks&field-=
a
uthor=3DBassetti%2C%20W.%20H.%20C./102-0711160-4510545> H. C. Bassetti
(Editor). =20
=20
What=92s a bull/bear market?
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D
In =93TA of Stock Trends,=94 the authors state that a primary trend is =
the
general direction of price movement over a year or more. A bull market
is a primary trend containing higher highs and higher lows in price. A
bear market is a primary trend containing lower highs and lower lows in
price. Within the primary trend are secondary trends. Secondary trends
last from 3 weeks to many months, and they do not (repeat not) qualify
as bear or bull markets. The secondary trends are merely the
corrections within a bull market and the rallies within a bear markets.
In addition to the primary and secondary trends, there are minor trends
that usually last less than 6 days and rarely as long as 3 weeks, but
they are of little importance here. The main thing that I would like to
get across is this: Using the definitions just described, you can=92t
talk about bear and bull markets unless you=92re talking about a time
frame of about a year.
=20
What do we use for an =93M=94 Meter?
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D
Now that the definitions are out of the way, we can talk about how to
get in and out of bull markets easily using our =93M=94 meter. If =
you=92re
having CWs (i.e., CANSLIM Withdrawals) during a bear market, you might
try CANSLIM=92ing during a rally within the bear market. You can use =
our
=93M=94 meter to detect rallies as well. The =93M=94 meter is so simple =
that I
feel like a few of you are not going to believe me and will tell me to
pack sand =96 but, oh well, here it goes. The =93M=94 meters are moving
averages. =20
For a good explanation as to why this works, visit
http://www.401k-maximizer.com/. =20
=20
How do we use the =93M=94 Meter?
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D
The index you choose to graph will depend on the kind of security =
you=92re
investing in. For general growth stocks, the QQQ ticker symbol (NASDAQ)
is a good one to use. For especially small cap growth stocks, you can
choose one of the Russell indexes, such as the Russell 2000. To get a
feel for whether you=92re in a bull/bear market, plot the index against =
a
200-day moving average. To get a feel for whether you=92re in a
rally/correction, plot the index against a 50-day moving average. The
reasons we choose a 200-day average for bear/bull =93M=94 indicator are
because it is: (1) a length of time that approximates the number of
trading days in one year =96 the minimum time frame for a bull/bear
market, and (2) it is an indicator that is highly watched by many
elephants. The reasons we choose a 50-day average for the
rally/correction =93M=94 indicator are fairly the same: (1) it=92s a =
highly
watched indicator, (2) it is a time frame that makes a good compromise
between getting you in and out of a rally without whipsawing you in and
out.
=20
Defense of the =93M=94 Meter
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D
Try plotting a 3-year graph of QQQ against a 200-day EMA moving average.
Imagine yourself getting in on that market when the prices crossed above
the 200-day MA and getting out of the market when the prices crossed
below the 200-day MA. You might have gotten whip-sawed 3 or 4 times
between April and September of 2000 (allowing you to participate in the
rallies of June and August). But you would have stayed out of the bear
market since September.
=20
Are we still in a bear market?
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D
Truth is: nobody knows yet, because enough time hasn=92t passed. =
That=92s
the way it goes. In a reversal like this, you never know whether it=92s
rally or the start of a new bull market until enough time has passed
(like the saying goes: Hindsight is 20/20). But whether we=92re truly =
in
a bull market or bear market is irrelevant to me. All I care about is
our meter. And the meter says this. Yesterday (Aug. 21) QQQ finally
crossed above the 50-day EMA, but it=92s still a long way from reaching
the 200-day EMA. I might get into stocks slowly and cautiously right
now, but I=92m certainly not ready to jump in with both feet.
=20
- -- Curt
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<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>I’ve been lurking here for a few days, and I =
would
like to put in my two cents’ worth about the question of whether =
we’re
in a bull or a bear market.<span style=3D'mso-spacerun:yes'>=A0 =
</span>I’d
also like to give my personal opinion of what the ultimate =
“M”
meter is.<span style=3D'mso-spacerun:yes'>=A0 </span>But first, I want =
to get some
definitions down to make sure we’re speaking the same language =
here.<span
style=3D'mso-spacerun:yes'>=A0 </span>I will use the definitions that =
are put forth
by the Dow Theory and which, IMHO, are best described in the book =
“Technical
Analysis of Stock Trends” by </span></font><span =
class=3DSpellE><font
size=3D2 face=3DVerdana><span =
style=3D'font-size:10.0pt;font-family:Verdana'>by</span></font></span><fo=
nt
size=3D2 face=3DVerdana><span =
style=3D'font-size:10.0pt;font-family:Verdana'> <a
href=3D"http://www.amazon.com/exec/obidos/search-handle-url/index=3Dbooks=
&field-author=3DEdwards%2C%20Robert%20D./102-0711160-4510545">Robert
D. Edwards</a>, <a
href=3D"http://www.amazon.com/exec/obidos/search-handle-url/index=3Dbooks=
&field-author=3DMagee%2C%20John/102-0711160-4510545">John
Magee</a>, <a
href=3D"http://www.amazon.com/exec/obidos/search-handle-url/index=3Dbooks=
&field-author=3DBassetti%2C%20W.%20H.%20C./102-0711160-4510545">W.
H. C. <span class=3DSpellE>Bassetti</span></a> =
(Editor).</span></font><font
size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;font-family:Arial'><span
style=3D'mso-spacerun:yes'>=A0 </span><o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>What’s a bull/bear =
market?<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>In “TA of Stock Trends,” the authors =
state that a
primary trend is the general direction of price movement over a year or
more.<span style=3D'mso-spacerun:yes'>=A0 </span>A bull market is a =
primary trend
containing higher highs and higher lows in price.<span
style=3D'mso-spacerun:yes'>=A0 </span>A bear market is a primary trend =
containing
lower highs and lower lows in price.<span style=3D'mso-spacerun:yes'>=A0 =
</span>Within
the primary trend are secondary trends.<span =
style=3D'mso-spacerun:yes'>=A0 </span>Secondary
trends last from 3 weeks to many months, and they do not (repeat not) =
qualify
as bear or bull markets.<span style=3D'mso-spacerun:yes'>=A0 </span>The =
secondary
trends are merely the corrections within a bull market and the rallies =
within a
bear markets.<span style=3D'mso-spacerun:yes'>=A0 </span>In addition to =
the primary
and secondary trends, there are minor trends that usually last less than =
6 days
and rarely as long as 3 weeks, but they are of little importance =
here.<span
style=3D'mso-spacerun:yes'>=A0 </span>The main thing that I would like =
to get
across is this:<span style=3D'mso-spacerun:yes'>=A0 </span>Using the =
definitions
just described, you can’t talk about bear and bull markets unless =
you’re
talking about a time frame of about a year.<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>What do we use for an “M” =
Meter?<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D=3D=3D=3D<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>Now that the definitions are out of the way, we can =
talk
about how to get in and out of bull markets easily using our =
“M”
meter.<span style=3D'mso-spacerun:yes'>=A0 </span>If you’re having =
<span
class=3DSpellE>CWs</span> (i.e., CANSLIM Withdrawals) during a bear =
market, you
might try <span class=3DSpellE>CANSLIM’ing</span> during a rally =
within the
bear market.<span style=3D'mso-spacerun:yes'>=A0 </span>You can use our =
“M”
meter to detect rallies as well. <span =
style=3D'mso-spacerun:yes'>=A0</span>The “M”
meter is so simple that I feel like a few of you are not going to =
believe me
and will tell me to pack sand – but, oh well, here it goes.<span
style=3D'mso-spacerun:yes'>=A0 </span>The “M” meters are =
moving
averages.<span style=3D'mso-spacerun:yes'>=A0 =
</span><o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>For a good explanation as to why this works, visit <a
href=3D"http://www.401k-maximizer.com/">http://www.401k-maximizer.com/</a=
>. <span
style=3D'mso-spacerun:yes'>=A0=A0</span><span =
style=3D'mso-spacerun:yes'>=A0</span><o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>How do we use the “M” =
Meter?<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>The index you choose to graph will depend on the kind =
of
security you’re investing in.<span style=3D'mso-spacerun:yes'>=A0 =
</span>For general
growth stocks, the QQQ ticker symbol (NASDAQ) is a good one to use.<span
style=3D'mso-spacerun:yes'>=A0 </span>For especially small cap growth =
stocks, you
can choose one of the Russell indexes, such as the Russell 2000.<span
style=3D'mso-spacerun:yes'>=A0 </span>To get a feel for whether =
you’re in a
bull/bear market, plot the index against a 200-day moving average.<span
style=3D'mso-spacerun:yes'>=A0 </span>To get a feel for whether =
you’re in a
rally/correction, plot the index against a 50-day moving average.<span
style=3D'mso-spacerun:yes'>=A0 </span>The reasons we choose a 200-day =
average for
bear/bull “M” indicator are because it is: (1) a length of =
time
that approximates the number of trading days in one year – the =
minimum
time frame for a bull/bear market, and (2) it is an indicator that is =
highly
watched by many elephants.<span style=3D'mso-spacerun:yes'>=A0 =
</span>The reasons
we choose a 50-day average for the rally/correction “M” =
indicator are
fairly the same: (1) it’s a highly watched indicator, (2) it is a =
time
frame that makes a good compromise between getting you in and out of a =
rally
without whipsawing you in and out.<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>Defense of the “M” =
Meter<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>Try plotting a 3-year graph of QQQ against a 200-day =
EMA
moving average. <span style=3D'mso-spacerun:yes'>=A0</span>Imagine <span
class=3DGramE>yourself</span> getting in on that market when the prices =
crossed
above the 200-day MA and getting out of the market when the prices =
crossed
below the 200-day MA. You might have gotten whip-sawed 3 or 4 times =
between
April and September of 2000 (allowing you to participate in the rallies =
of June
and August).<span style=3D'mso-spacerun:yes'>=A0 </span>But you would =
have stayed
out of the bear market since September.<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>Are we still in a bear =
market?<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>Truth is: nobody knows yet, because enough time =
hasn’t
passed. That’s the way it goes.<span =
style=3D'mso-spacerun:yes'>=A0 </span>In
a reversal like this, you never know whether <span =
class=3DGramE>it’s</span>
rally or the start of a new bull market until enough time has passed =
(like the
saying goes: Hindsight is 20/20).<span style=3D'mso-spacerun:yes'>=A0 =
</span>But whether
we’re truly in a bull market or bear market is irrelevant to =
me.<span
style=3D'mso-spacerun:yes'>=A0 </span>All I care about is our =
meter.<span
style=3D'mso-spacerun:yes'>=A0 </span>And the meter says this.<span
style=3D'mso-spacerun:yes'>=A0 </span>Yesterday (Aug. 21) QQQ finally =
crossed above
the 50-day EMA, but it’s still a long way from reaching the =
200-day EMA.<span
style=3D'mso-spacerun:yes'>=A0 </span>I might get into stocks slowly and =
cautiously
right now, but I’m certainly not ready to jump in with both =
feet.<o:p></o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=3DMsoNormal><font size=3D2 face=3DArial><span =
style=3D'font-size:10.0pt;
font-family:Arial'>-- Curt<o:p></o:p></span></font></p>
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