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Thursday, December 09, 2010


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Yeah but is it ethical investing? Have two communications giants at the top who likely communicated all of yours to the gubberment. Perhaps they should be dogs or should we just let the dogs at 'em.


Funny how the gubberment thinks its OK to read our mail but now we aren't supposed to read theirs. Joe Leiberman, the spirit of McCarthyism lives on in you.


Someone asked about gold, there may be a terminal c wave building here in one of these two counts. Might be a complete wave (zigzag as in blue, which might be the better count) or the terminal c is a subwave of c, triangle forming?).

Account Deleted

ES Chart with an Ascending Triangle

Hank Wernicki

Something to think about : for the week the ES climbed about only 15 points

Monday to Friday

Why is all the effort and energy applied to calculate the trend / counts for the week

One can easily pick up the 15 points daying trading during the week

Which is easily accomplished ---- I did it this week

Comments ?



What is even more puzzling is WHY people don't simply trade a particular HIGH BETA sector like Coal, or Iron Ore, or Steel or Drilling?

Take a look at the chart of BTU, CLF, or WLT and you'll see what I mean.

I've been highlighting this sector for over 12 months now, and no one cares. Yet, the gains are dramatic.

But it really comes down to whether you are a TRADER or not, rather than someone that is interested in "calling" the market like so many newsletters, blogs, and theories.

Guy who is sick of hearing about beta

What is even more puzzling is WHY people don't simply trade a particular HIGH BETA sector like Coal, or Iron Ore, or Steel or Drilling?

Here you go, your new home:

You and everyone who posts there can congratulate yourselves on your beta. Your "mastery" of beta, so to speak.

I'm pretty sure that the aim of most everyone here who's trading is to create alpha.

Guy who is sick of hearing about beta

Also, there is absolutely nothing, return-wise, that beta can do that money management can't. I'm surprised mr. big time huge swinging d*ck trader hasn't grasped that reality yet in your 30 years of trading. I grasped it in far less time than that.


Wow, looks like someone struck a "nerve" and hit too close to home for yet another "paper-trader" wrapped up in some absurd wave theory.

Have a nice weekend DG!

Guy who is sick of hearing about beta

No, you didn't strike any nerves with me personally, I just find your arguments weak in general, however much they may apply to some specific individuals. Your arguments' weakness, combined with your own "my sh!t doesn't stink" attitude is what strikes a nerve.

Are you saying that money management and position-sizing can't replicate any level of returns generated by beta? Because that's just mathematically false, i.e. you'd be wrong. You can take a stock with a beta of less than one and generate the same level of returns of a stock with a beta of 2 simply by virtue of your position-sizing algorithm.

Are you saying that the primary goal of trading isn't the creation of alpha, not simply grabbing beta? Study after study is done to find alpha, not to find beta, including studies which deconstruct claims to create alpha into the underlying beta to debunk the alleged alpha generation. Are you saying those are incorrect assertions?

Your whole "high beta" crap might fly with some people, but I think it's complete tripe and anyone who measures returns in the proper way, i.e. risk-adjusted, will agree.

wrapped up in some absurd wave theory.

Maybe if I hadn't seen with my own eyes the fact that your real-time (as opposed to your after-the-fact) calls weren't any better than a coin toss, I'd think your opinion of anything had any value.

I've done things with wave theory that no one has ever thought of before and I'm doing just fine, thanks for asking. Yelnick once posted that SAC's best traders get about 55% winners and I'm at 62% with a winner-to-loser ratio north of 1.4X, trading every day. Stick that in your beta pipe and smoke it. Of course, I know every trade you've ever made was a winner, so such considerations like risk-adjusted returns are just for us mortals, but if you ever come down from the Mount Olympus of Trading, those are the things that concern people who actually put their money at-risk (get it? at-risk? risk-adjusted? You ever hear a paper-trader who worried about risk-adjusted returns as much as I do? Idiot.)

Account Deleted

Respected DG !!

Can u please give me your view on the following chart.Need your help on it.

The chart is in log scale Zero to 100.

Thanx in advance



It looks like a new long-term pattern began from a higher low and the rally has been the wave-A of this new pattern. At that level of detail, wave-A could have been a Zigzag.

From a trading perspective, though, it's in no-man's land because wave-B could retrace nearly all of wave-A, so going long is risky and the entirety of wave-A might not even be over, so shorting doesn't really make a lot of sense, either, although with a stop at the high, the potential risk-reward is favorable to shorts, but your entry won't be optimal.

Account Deleted

DG !!

Thank you for your analysis of the chart.But
Dont u think this is start of a new Impulse Wave from a higher low.Since the pattern from the start of the chart looks like a Triangle Can we assume the current wave to be a the start of a new 5 th Wave Extension with the current wave completing the first wave of that larger Degree Fifth Wave.Although I am no expert as compared to u in Elliot Waves but this is something that comes to my mind after studying the chart in reasonable detail.

Now just incase this yet another A B C then how much could the ideal B Wave retracement of the A Wave.I know this is quite a difficult question to answer but I am asking u this cos a whole new phase of Development has started in the company in the last 2 year period and is expected to last for another 5 years.With the company being taken over and now being headed by an emminent Indutrialist cum Politician of India oppurtunities seem humungous.

Thanx in Advance



The reason I don't think that is the start of an Impulse wave is because if you look at the first retracement of the initial thrust up from the higher low, it is very minimal. Then, look at the wave which went to the 100 level on your chart and how much it has been retraced. Almost the entire distance of the wave which created the new high has been retraced, meaning the momentum upward is decreasing, i.e. the market is weakening. One could possibly make the case that wave-ii of the initial wave up is a "missing wave" and that the rally to the 100 level is wave-i and the current decline is wave-ii. You would need more price behavior to make that decision, but the probabilities, in the overall context of where the markets around the globe are, is that the structure is Corrective. Of course, the caveat, as always, is that wave theory is a way of charting collective psychology, not individual companies. An individual company could be in an Impulse even while the rest of the market, as measured by indices, is not. But, as I've said many times, that's why I don't really do individual company analysis.

Also, you'd need a longer history to make the leap from a potential Triangle (although I agree that it looks like one) from the beginning of the chart, to a 5th wave. That Triangle could be an X-wave in between two Corrective patterns and the current structure could turn out to be a Triangle as well, to end a Complex Correction. That doesn't rule out new highs, i.e. if this current structure is a Neutral Triangle, wave-C of it should make a new high, it just means it won't be an Impulse.

It is difficult to say anything about how much wave-B would retrace wave-A, but the minimum would be 30%, either in time or price. Of course, since the maximum is any thing up to 100%+, in the case of a weak Flat, there's definitely not enough information to say at this point.

Mamma Boom Boom


This is an intermediate signal, with an expected time duration of 6 to 12 months. Also, it is a reversal of the buy signal I put out in May. Short term, I would expect sloppiness thru the balance of December.

What the heck is alpha / beta ?

Does it work ?


Wave Rust

It's just CAPM investment things

a stock's beta is supposed to be relative to volatility and its correlated to the overall market

alpha is just the excess of expected risk adjusted returns


wave rust



Think of beta as the ratio of a stock or indexes' movements relative to a 1% move in the S&P 500. If the stock or index moves 1.5% for every 1% move in the S&P 500, it's beta is 1.5. Generally.

The issue that Michael keeps bringing up is how great it is trading "high beta stocks". Well, shoot, the problem with that is that the beta on the upside is generally the same as the beta on the downside. Yeah, the stock can go up 1.5% (or 2% or 2.5%, whatever) when the S&P is only up 1%, but, duh, it also goes down 1.5%, 2% or 2.5% when the S&P is down 1%.

Of all the stupid ways to try to generate returns, beta is among the stupidest. It's for suckers who buy biotech mutual funds because they have great returns one year, not realizing that those returns come only from taking on additional RISK. Granted, Michael never seems to have a losing trade (well, I say "never", but when he actually gets up the nerve to make a real-time call here, his winning percentage is, shall we say, a bit south of 100%), so he doesn't care about RISK, only about "return". He claims everyone else is a "paper-trader" but if there is one thing that I would say characterizes paper-traders more than anything, it's lack of attention to risk (who cares about risk when you're not actually putting any money on the line?). All they think about is how much money they'll make once they perfect their strategies on paper and take them live. Anyway, I don't really care if the dude is a paper-trader or not, frankly, I just find it funny that he exhibits what I think is one of the main characteristics of a paper-trader, which is focus on returns. That he prefers beta to generate those returns is just the cherry on top of the ignorance sundae he keeps serving up.

Anyway, yes, to Wave Rust's point, it is a dry topic, but once you get outside the realm of trading for yourself and start managing other people's money, alpha is one of the most important attributes you can bring to the table. People will shower you with cash if you can create it, to the point where you will be turning away people/institutions who want you to manage their money for them. Beta they pick up by buying an index ETF for ~50-100 basis points. Alpha is what gets you the penthouse apartment on Park Avenue.

"Alpha is a risk-adjusted measure of the so-called active return on an investment. It is the return in excess of the compensation for the risk borne, and thus commonly used to assess active managers' performances. Often, the return of a benchmark is subtracted in order to consider relative performance, which yields Jensen's alpha."

Even if you are only trading for yourself, measuring your alpha will tell you if you are actually bringing any SKILL the table.


Wouldn't it be easier to buy a 2x or 3x leveraged fund to get the 2.0 or 3.0 beta returns. I would not have to worry about stock picking.

Hank Wernicki



The RUT has been on a tear. It's not far from it's record highs --abt. 856; it's 776 now. At the pace it's been going, that'll be another month.

low, yr. 1998 -> high, yr. 2000
low, yr. 2002 -> high, yr. 2007
low, yr. 2009 -> high, yr. 2011?

There's been 3 higher lows ('98, '02, '09) and 2 higher highs ('00, and '07), while its heading towards a possible 3rd higher high.

The market has been relentless since March 2009 -- as we all know. I've also been looking for this "rally" to fizzle out, but every bearish critical juncture ends up being a springboard.

Maybe after the 3rd record high is reached and a symmetric pattern of 3's is completed, there'll be a change in pattern. If so, since that pattern encompassesis the rallies and "crashes" that have occurred since the '90's, a new pattern that emerges would also be of at least that degree.

Just some thoughts... in any case, at least for small caps, the evidence is that a bull market has been in force (with some major corrections) since the '90's.

I don't know how this fits with EW, but this rally doesn't seem to be a correction, but instead a resumption of the major trend.

@Mamma: can you describe your -- SELL -- in greater detail? You've been correctly bullish, so you've earned credibility.


Wouldn't it be easier to buy a 2x or 3x leveraged fund to get the 2.0 or 3.0 beta returns. I would not have to worry about stock picking.

Yeah, but that strategy doesn't have the added bonus of being able to act like a condescending jackhole to everyone else on the blog like trading "high beta stocks" does.

Then, they claim that these stocks are "easier" to trade than something everyone follows, like the S&P 500. The problem with that argument is that the correlation between CLF (one of the ones he's always mentioning) and the S&P 500 is 0.77 YTD, so they move in the same direction nearly 80% of the time. So, how is trying to make directional trades on the S&P 500 harder than trading CLF directionally if they move in the same direction that often? It isn't. If you can't predict (or recognize or whatever term you want to use for getting in a trade in the direction which will make you money) the direction of the S&P 500, you won't be able to do so with CLF, either, and if you can predict, or whatever, the direction of CLF, you can do the same for the S&P 500, 77% of the time. Just for comparison, ABX is about 40% correlated to the S&P 500, INTC about 60% and ALL about 74%, so CLF is certainly in the category of highly-correlated if it's more correlated than Allstate.

Anyway, hopefully these posts will serve as the definitive debunking of these arguments about "high beta stocks", which I'm sure won't be the case, because these posters repeat the same talking points over and over again without ever proving any of it statistically, as if we are just supposed to take some random internet poster's word for it. If someone wants to trade them, fine, but haranguing others because they don't care to trade them, as if trading them were, in and of itself, a superior trading strategy, is ludicrous.

Mamma Boom Boom

>@Mamma: can you describe your -- SELL -- in greater detail? You've been correctly bullish, so you've earned credibility.<

Not really, it's proprietary. I can tell you this much, it's a very accurate, intermediate, model. And has been back tested over 30 years. Only problem is, today we don't truly have markets, we have 'interventions'.

Account Deleted

QQQQ Weekly Chart analysis


@Mamma - agree. When the bear trap is about to snap shut, it's become a signal to go long the inevitable "intervention". I "guess" the RUT will make a record high (perhaps by Spring -- 2 years after the low?), but I'm not long now... we're overextended... vix very low... way above the moving averages. Keep us updated on your signal.


(I guess that'd be "bull trap")

Mamma Boom Boom

>I "guess" the RUT will make a record high (perhaps by Spring<

I wouldn't wait.



I had my I pay, you speak dinner with my two buddies in CA last week. Both teach economics at universities in the area and one has run money for about 25 years. What I really like about these guys is that they have gone through the cycle of knowing everything, to thinking they know nothing, to just being wise. Makes for great conversation if you listen.

Surprisingly, both were pretty much singing from the same sheet:

Stocks will out perform bonds next year.
Lots of small gains and setbacks for stocks, but net positive on the year.
The big one was that the Gub and the Fed, with all their intervention, had bought the economy another 18 months of life. We either lift off during that time frame (job creation, gdp growth, capacity utilization) or the game is up. In other words, if we are not really rolling a year and a half from now, we are going to head down hard. No chance in their view for additional stimulus and debt growth by then. That analysis really jives with some of Bernstein's comments and particularly Sy Harding's take on when the bull will end (2012).

It is the old inverted ketchup bottle with the 3 year old spastically tapping away on the bottom.

The saddest part of the conversation was their views on CA. Both were born and raised in CA, so they have had a pretty good perch to watch. Hordes of people cannot read or write and are just a dead weight on the economy. Weak, elect me government, just adds to the problem. The system can't take the load placed on it. They see California in a death roll for many decades. Neither will retire there.

They also expressed a fear that Sarah P comes out for the Republicans in 2012. Wow, what a thought. I have never met a smart, educated woman that can even stand to have a conversation about her.


Wave Rust


"I have never met a smart, educated woman that can even stand to have a conversation about her"

I have met many. But I well remember how evil most educated elitist people thought Reagan was before he decided to run.

They get the Mom thing and the overachieving thing too. Commen sense and picking the right people to run the government is the key to some success as a pres. Not foreign policy experience, or legal experience, etc. imho.

Using the power of the American presidency properly and sparingly is the key to effectiveness.

Joe the plumber could probably do just as poor a job as Oblahblah, or as well as Reagan on his best days.

wave rust

Wave Rust

markets need a rest.

2 weeks is probably enough

heck 3 days could be enough.

ruthlessly relentless is the pronounced characteristic of a very young bull market. This one is still in diapers and nursing at his momma's udder.

this is by far the hugest bull market ever. bar none. not parabolic, just relentless.

nearly 20 months straight up and not even a 2% correction,,,, and yet, people still sit around calling for tops over and over.

But that's the way it is in wave 1 and wave 2 and early in wave 3.

wave rust


>I "guess" the RUT will make a record high (perhaps by Spring<
>>"I wouldn't wait."<<

I'll follow your call...


nearly 20 months straight up and not even a 2% correction

Is that a typo? We've had multiple corrections of more than 2%.

Wave Rust

thanks DG

i shouldn't stop in the middle of writing a comment.

i wanted to write that the Dow hasn't had a 20% correction,

the corrections have been 2% to 8-9% and one of 15% ,,, and very brief at that. Brief is : how long does it take to get to the low for the correction.

my intent was to point to the ever growing time before a 20%'er comes. imho, the longer that takes to arrive, the greater the long term bull becomes. the 20%ers mark important segments of structure for me.

It seems to become an expanding vector formation with price running at the top of the vector or triangle and time's line rising slower.

So the overbought argument never seems to work for very long and doesn't sink the indices like the bearish people expect.

bull markets get oversold very fast and thats why the divergences are huge. thats why most trading systems get screwed up by the disparity of traditional quant and math indicators that controls the buy/sell decision.

the only reason i emphasize this disparity is because it used to happen to me and I couldn't figure the reason. it was too simple. :)) it's not how overbought a young bull gets but how fast the bull gets oversold with so little price damage to the indices. I can remember setting a 60% rsi level as oversold as well as the same 60% for a stoch. reversals from there lasted for a long time.

a 3rd wave is even worse. they hardly ever get oversold with significant price damage, like a 20%er.

thanks again for the good eye on my numbers, DG.

Hey, Merry Christmas and Happy Hannukah to everyone here.

wave rust

excuse my ignorance for any other seasonal celebrations for others here, that I don't know about.

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