Blue Monday?

The almost 200-point drop on Friday in the Dow reminds me of the Friday
before Black Monday. It makes me wonder what to expect, tomorrow.

Back then, the Dow had soared to new heights and a lot of what I call "chump
money" was in the market. This is money that was not invested rationally
but rather transferred from other accounts by people who didn't really
understand the risks but heard from friends about the incredible returns
that they had made in prior years.

This time, I expect, there is less chump money since returns have not been
spectacular (though they have roundly beaten alternatives in 2003 and 2004).
So far, the trend seems to be that people are holding their 401K and other
retirement positions longer than before.

Still, it gives me pause that people have had the weekend to ponder the
risks. I don't know if I expect a selling panic or a major recovery. I
guess we will all know, soon enough. Perhaps nothing of note will happen at
all.

-herb

Re: Blue Monday?

In article
<R0x8e.85459$>,
"Herb" <> wrote:

> Still, it gives me pause that people have had the weekend to ponder the
> risks. I don't know if I expect a selling panic or a major recovery. I
> guess we will all know, soon enough. Perhaps nothing of note will happen at
> all.
>
> -herb

I was wondering myself. My gut is that there will be a move
toward recovery, and that the market is seen as oversold. But we
all know how much a gut feeling is worth.

--

"Did you notice that [Candaq and Gardner] never miss one of my posts and I
never read theirs, I have to wonder just who it is that's envious." -Ed, in
news:<9cn26l$6di6$>.

Re: Blue Monday?

Herb wrote:
> The almost 200-point drop on Friday in the Dow reminds me of the Friday
> before Black Monday. It makes me wonder what to expect, tomorrow.
>
> Back then, the Dow had soared to new heights and a lot of what I call "chump
> money" was in the market. This is money that was not invested rationally
> but rather transferred from other accounts by people who didn't really
> understand the risks but heard from friends about the incredible returns
> that they had made in prior years.
>
> This time, I expect, there is less chump money since returns have not been
> spectacular (though they have roundly beaten alternatives in 2003 and 2004).
> So far, the trend seems to be that people are holding their 401K and other
> retirement positions longer than before.
>
> Still, it gives me pause that people have had the weekend to ponder the
> risks. I don't know if I expect a selling panic or a major recovery. I
> guess we will all know, soon enough. Perhaps nothing of note will happen at
> all.
>
> -herb
>
>
>
For what it's worth, both Dow and S&P500 weekly closing values have
dropped below their 39-week Moving Averages this Friday. According to
Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal to
sell and move either into cash or into something else doing better.

However, I think Ed said once that a mutual fund based on this timing
advice had not done very well over the years.

TA fans will probably be selling. B&Hers may be rebalancing and so buying.

Re: Blue Monday?

I predict a 90% likelihood that the DJIA change at Monday's close will be
>= -50. In other words, no panic: it will drop no more than 50 points and
may very well rise.

I base this on the oscillations we've seen in the last year or so. The
recent drop is due to oil price problems and a healthy dose of skittishness.

All reinforcing the proposal that we'll have at least five more years of a
flat market. Which is better than another bubble that then bursts, AFAIC.

Re: Blue Monday?

I see some great value buying ops with great EPS and high yield firms with
very low PEs. The fanatics will sell and I'll get more at a great price!


"Herb" <> wrote in message
news:R0x8e.85459$
> The almost 200-point drop on Friday in the Dow reminds me of the Friday
> before Black Monday. It makes me wonder what to expect, tomorrow.
>
> Back then, the Dow had soared to new heights and a lot of what I call
> "chump
> money" was in the market. This is money that was not invested rationally
> but rather transferred from other accounts by people who didn't really
> understand the risks but heard from friends about the incredible returns
> that they had made in prior years.
>
> This time, I expect, there is less chump money since returns have not been
> spectacular (though they have roundly beaten alternatives in 2003 and
> 2004).
> So far, the trend seems to be that people are holding their 401K and other
> retirement positions longer than before.
>
> Still, it gives me pause that people have had the weekend to ponder the
> risks. I don't know if I expect a selling panic or a major recovery. I
> guess we will all know, soon enough. Perhaps nothing of note will happen
> at
> all.
>
> -herb
>
>
>

Re: Blue Monday?

David Wilkinson wrote:

> Herb wrote:
>
>> The almost 200-point drop on Friday in the Dow reminds me of the Friday
>> before Black Monday. It makes me wonder what to expect, tomorrow.
>>
>> Back then, the Dow had soared to new heights and a lot of what I call
>> "chump
>> money" was in the market. This is money that was not invested rationally
>> but rather transferred from other accounts by people who didn't really
>> understand the risks but heard from friends about the incredible returns
>> that they had made in prior years.
>>
>> This time, I expect, there is less chump money since returns have not
>> been
>> spectacular (though they have roundly beaten alternatives in 2003 and
>> 2004).
>> So far, the trend seems to be that people are holding their 401K and
>> other
>> retirement positions longer than before.
>>
>> Still, it gives me pause that people have had the weekend to ponder the
>> risks. I don't know if I expect a selling panic or a major recovery. I
>> guess we will all know, soon enough. Perhaps nothing of note will
>> happen at
>> all.
>>
>> -herb
>>
>>
>>
> For what it's worth, both Dow and S&P500 weekly closing values have
> dropped below their 39-week Moving Averages this Friday. According to
> Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal to
> sell and move either into cash or into something else doing better.
>
> However, I think Ed said once that a mutual fund based on this timing
> advice had not done very well over the years.

Neither has Fabian's investment newsletter.

As I've posted here before, when Fabian's newsletter got put to the test
in the bear market that started in 2000, he got repeatedly whipsawed by
short-term rallies that he mistook for new bull markets.


--
Steven D. Litvintchouk
Email:

Remove the NOSPAM before replying to me.

Re: Blue Monday?

Herb wrote:

> The almost 200-point drop on Friday in the Dow reminds me of the Friday
> before Black Monday. It makes me wonder what to expect, tomorrow.

On a day-by-day basis, the stock market is a crapshoot. I don't really
know or care how it does from one day to the next.

For very conservative investors who cannot tolerate the downside risk,
funds that do hedging such as BPLEX and HSGFX, have withstood the
downtrend and can let you sleep nights.


"The mathematical expectation of the speculator is zero."
-- Louis Bachelier


--
Steven D. Litvintchouk
Email:

Remove the NOSPAM before replying to me.

Re: Blue Monday?

"sam grey" <> wrote in message
news:
> In article
> <R0x8e.85459$>,
> "Herb" <> wrote:
>
> > Still, it gives me pause that people have had the weekend to ponder the
> > risks. I don't know if I expect a selling panic or a major recovery. I
> > guess we will all know, soon enough. Perhaps nothing of note will
happen at
> > all.
> >
> > -herb
>
> I was wondering myself. My gut is that there will be a move
> toward recovery, and that the market is seen as oversold. But we
> all know how much a gut feeling is worth.

Don't underestimate the value of guts. I think tomorrow's action will tell
us whether or not the market has support at current levels. My gut tells me
it should.

-herb

Re: Blue Monday?

"David Wilkinson" <> wrote in message
news:d3unc1$s86$

[snip me]

> For what it's worth, both Dow and S&P500 weekly closing values have
> dropped below their 39-week Moving Averages this Friday. According to
> Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal to
> sell and move either into cash or into something else doing better.

So Dick sells when the price has gone down. Does he buy, only when the
price has gone up? Doesn't sound too effective to me unless you avoid a
crash or stumble into an incredible rally. On the margin, it would seem to
be a losing game.

-herb

PS: What is doing (as opposed to has done) better?

Re: Blue Monday?

"Elle" <> wrote in message
news:OkC8e.9848$
> I predict a 90% likelihood that the DJIA change at Monday's close will be
> >= -50. In other words, no panic: it will drop no more than 50 points and
> may very well rise.

Just for fun, I'll take that bet. I think tomorrow's Dow will move more
than 50 points.

-herb

Re: Blue Monday?

"Steven L." <> wrote in message
news:QGG8e.9994$
> Herb wrote:
>
> > The almost 200-point drop on Friday in the Dow reminds me of the Friday
> > before Black Monday. It makes me wonder what to expect, tomorrow.
>
> On a day-by-day basis, the stock market is a crapshoot. I don't really
> know or care how it does from one day to the next.

Steven:

It's hardly day-by-day. After reaching new highs for the year, the market
has hit new lows over many days. The basic question is: are people putting
money in or are they taking it out? It's hard to say, obviously, but
tommorw may give us a hint.

-herb

Re: Blue Monday?

Herb wrote:
> "David Wilkinson" <> wrote in message
> news:d3unc1$s86$
>
> [snip me]
>
>
>>For what it's worth, both Dow and S&P500 weekly closing values have
>>dropped below their 39-week Moving Averages this Friday. According to
>>Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal to
>>sell and move either into cash or into something else doing better.
>
>
> So Dick sells when the price has gone down. Does he buy, only when the
> price has gone up? Doesn't sound too effective to me unless you avoid a
> crash or stumble into an incredible rally. On the margin, it would seem to
> be a losing game.
>
That's the dilemma with timing using Moving Averages. Is a drop below
the MA just a whipsaw that will be corrected soon or the start of a
downtrend? If the former then hang on or buy more; if the latter then
sell. With hindsight you can see what you should have done but in real
life you just don't know.

Siegel did an objective test with the Dow-Jones index. A Buy and Hold
strategy from 1946-2001 gave an average annual return of 11.5% (SD =
16.2%) while the MA200 strategy gave 9.3% (SD = 15.1%), net of
transaction costs, which is rather worse overall but slightly less
risky. However, there were quite a lot of bull markets in this period.

If you look at a period that includes the great crash, 1926-1945, B&H
give 6.3% (31.0%) and MA 9.4% (22.7%) which is better in every respect.

Obviously it depends what happens to the market in the period
considered. For the whole 1886-2001 period he gets 9.8% (21.8%) for B&H
and 8.9% (17.4%) for the MA strategy. MA gets slightly less return at
slightly less risk, making it pretty well a draw.

Incidentally there were 325 switches in that 115 year period making
about 3 a year. This means going from 100% invested to 100% cash or vice
versa each time and I suspect that real life costs and spreads would
turn out more than the small ones Siegel assumed and that the MA
strategy would be rather worse than he indicated.

He does the same evaluation for the Nasdaq from 1972-2001 and shows B&H
gives 11.9% (27.2%) while MA gives 15.2% (20.5%), much more gain with
much less risk. If he had included the adverse period following 2001 it
would probably have looked even better for MA.

A possible interpretation is that if you think there is a bubble then
use MA, otherwise you might as well stick to B&H.
>
> PS: What is doing (as opposed to has done) better?
>
>
>

Re: Blue Monday?

Herb wrote:
> "David Wilkinson" <> wrote in message
> news:d3unc1$s86$
>
> [snip me]
>
>
>>For what it's worth, both Dow and S&P500 weekly closing values have
>>dropped below their 39-week Moving Averages this Friday. According to
>>Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal to
>>sell and move either into cash or into something else doing better.
>
>
> So Dick sells when the price has gone down. Does he buy, only when the
> price has gone up? Doesn't sound too effective to me unless you avoid a
> crash or stumble into an incredible rally. On the margin, it would seem to
> be a losing game.
>
> -herb
>
> PS: What is doing (as opposed to has done) better?
>
>
>
If I sort my Unit Trust results table for the best returns over the last
3 months I get UK and European smaller companies as doing best. Whether
this will continue is anyone's guess.

Re: Blue Monday?

If the futures hold, it looks like it will be another big
sell-off day.

Oh well. Traders, cover your positions! BnH'ers, um, buy n' hold!

--

"Did you notice that [Candaq and Gardner] never miss one of my posts and I
never read theirs, I have to wonder just who it is that's envious." -Ed, in
news:<9cn26l$6di6$>.

Re: Blue Monday?

"Herb" <> wrote
> "Elle" <> wrote
> > I predict a 90% likelihood that the DJIA change at Monday's close will
be
> > >= -50. In other words, no panic: it will drop no more than 50 points
and
> > may very well rise.
>
> Just for fun, I'll take that bet. I think tomorrow's Dow will move more
> than 50 points.

More than 50 points _down_ is what you're betting, right?

Re: Blue Monday?

"David Wilkinson" <> wrote in message
news:d3vmdn$i07$
> Herb wrote:
> > "David Wilkinson" <> wrote in message
> > news:d3unc1$s86$
> >
> > [snip me]
> >
> >
> >>For what it's worth, both Dow and S&P500 weekly closing values have
> >>dropped below their 39-week Moving Averages this Friday. According to
> >>Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal to
> >>sell and move either into cash or into something else doing better.
> >
> >
> > So Dick sells when the price has gone down. Does he buy, only when the
> > price has gone up? Doesn't sound too effective to me unless you avoid a
> > crash or stumble into an incredible rally. On the margin, it would seem
to
> > be a losing game.
> >
> That's the dilemma with timing using Moving Averages. Is a drop below
> the MA just a whipsaw that will be corrected soon or the start of a
> downtrend? If the former then hang on or buy more; if the latter then
> sell. With hindsight you can see what you should have done but in real
> life you just don't know.
>
> Siegel did an objective test with the Dow-Jones index. A Buy and Hold
> strategy from 1946-2001 gave an average annual return of 11.5% (SD =
> 16.2%) while the MA200 strategy gave 9.3% (SD = 15.1%), net of
> transaction costs, which is rather worse overall but slightly less
> risky. However, there were quite a lot of bull markets in this period.
>
> If you look at a period that includes the great crash, 1926-1945, B&H
> give 6.3% (31.0%) and MA 9.4% (22.7%) which is better in every respect.
>
> Obviously it depends what happens to the market in the period
> considered. For the whole 1886-2001 period he gets 9.8% (21.8%) for B&H
> and 8.9% (17.4%) for the MA strategy. MA gets slightly less return at
> slightly less risk, making it pretty well a draw.
>
> Incidentally there were 325 switches in that 115 year period making
> about 3 a year. This means going from 100% invested to 100% cash or vice
> versa each time and I suspect that real life costs and spreads would
> turn out more than the small ones Siegel assumed and that the MA
> strategy would be rather worse than he indicated.
>
> He does the same evaluation for the Nasdaq from 1972-2001 and shows B&H
> gives 11.9% (27.2%) while MA gives 15.2% (20.5%), much more gain with
> much less risk. If he had included the adverse period following 2001 it
> would probably have looked even better for MA.
>
> A possible interpretation is that if you think there is a bubble then
> use MA, otherwise you might as well stick to B&H.

Well it stands to reason that it would give you lower returns (buy only
after an uptick/sell after a downdraft) with less risk (avoid crashes and
the beginning of rallys). I might believe that this method could work for
some individual stocks iff the tended to show persistance in trending but it
is a giant leap to project this onto the market as a whole.

-herb

> >
> > PS: What is doing (as opposed to has done) better?
> >
> >
> >

Re: Blue Monday?

"David Wilkinson" <> wrote in message
news:d3vmn5$11t$
> Herb wrote:
> > "David Wilkinson" <> wrote in message
> > news:d3unc1$s86$
> >
> > [snip me]
> >
> >
> >>For what it's worth, both Dow and S&P500 weekly closing values have
> >>dropped below their 39-week Moving Averages this Friday. According to
> >>Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal to
> >>sell and move either into cash or into something else doing better.
> >
> >
> > So Dick sells when the price has gone down. Does he buy, only when the
> > price has gone up? Doesn't sound too effective to me unless you avoid a
> > crash or stumble into an incredible rally. On the margin, it would seem
to
> > be a losing game.
> >
> > -herb
> >
> > PS: What is doing (as opposed to has done) better?
> >
> >
> >
> If I sort my Unit Trust results table for the best returns over the last
> 3 months I get UK and European smaller companies as doing best. Whether
> this will continue is anyone's guess.

I'm sure you are not suggesting that people pile into what has done best in
the past three months (chasing returns).

-herb

Re: Blue Monday?

Herb wrote:
> "David Wilkinson" <> wrote in message
> news:d3vmn5$11t$
>
>>Herb wrote:
>>
>>>"David Wilkinson" <> wrote in message
>>>news:d3unc1$s86$
>>>
>>>[snip me]
>>>
>>>
>>>
>>>>For what it's worth, both Dow and S&P500 weekly closing values have
>>>>dropped below their 39-week Moving Averages this Friday. According to
>>>>Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal to
>>>>sell and move either into cash or into something else doing better.
>>>
>>>
>>>So Dick sells when the price has gone down. Does he buy, only when the
>>>price has gone up? Doesn't sound too effective to me unless you avoid a
>>>crash or stumble into an incredible rally. On the margin, it would seem
>
> to
>
>>>be a losing game.
>>>
>>>-herb
>>>
>>>PS: What is doing (as opposed to has done) better?
>>>
>>>
>>>
>>
>>If I sort my Unit Trust results table for the best returns over the last
>>3 months I get UK and European smaller companies as doing best. Whether
>>this will continue is anyone's guess.
>
>
> I'm sure you are not suggesting that people pile into what has done best in
> the past three months (chasing returns).
>
> -herb
>
>
Er.. That's why I said " Whether
>>this will continue is anyone's guess."

Read the words Herb :-)

Re: Blue Monday?

"Elle" <> wrote in message
news:n5P8e.10184$
> "Herb" <> wrote
> > "Elle" <> wrote
> > > I predict a 90% likelihood that the DJIA change at Monday's close will
> be
> > > >= -50. In other words, no panic: it will drop no more than 50 points
> and
> > > may very well rise.
> >
> > Just for fun, I'll take that bet. I think tomorrow's Dow will move more
> > than 50 points.
>
> More than 50 points _down_ is what you're betting, right?

Well, it's too late to place bets but, no, my feeling was that it would move
by a lot but I didn't know the direction.

-herb

>
>

Re: Blue Monday?

"David Wilkinson" <> wrote in message
news:d40usk$j87$
> Herb wrote:
> > "David Wilkinson" <> wrote in message
> > news:d3vmn5$11t$
> >
> >>Herb wrote:
> >>
> >>>"David Wilkinson" <> wrote in
message
> >>>news:d3unc1$s86$
> >>>
> >>>[snip me]
> >>>
> >>>
> >>>
> >>>>For what it's worth, both Dow and S&P500 weekly closing values have
> >>>>dropped below their 39-week Moving Averages this Friday. According to
> >>>>Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal
to
> >>>>sell and move either into cash or into something else doing better.
> >>>
> >>>
> >>>So Dick sells when the price has gone down. Does he buy, only when the
> >>>price has gone up? Doesn't sound too effective to me unless you avoid
a
> >>>crash or stumble into an incredible rally. On the margin, it would
seem
> >
> > to
> >
> >>>be a losing game.
> >>>
> >>>-herb
> >>>
> >>>PS: What is doing (as opposed to has done) better?
> >>>
> >>>
> >>>
> >>
> >>If I sort my Unit Trust results table for the best returns over the last
> >>3 months I get UK and European smaller companies as doing best. Whether
> >>this will continue is anyone's guess.
> >
> >
> > I'm sure you are not suggesting that people pile into what has done best
in
> > the past three months (chasing returns).
> >
> > -herb
> >
> >
> Er.. That's why I said " Whether
> >>this will continue is anyone's guess."
>
> Read the words Herb :-)

But I also read your earlier words when you said people would pull out of
the US market and put their money into things that were "doing better."

What were you saying?

-herb

Re: Blue Monday?

Herb wrote:
> "David Wilkinson" <> wrote in message
> news:d40usk$j87$
>
>>Herb wrote:
>>
>>>"David Wilkinson" <> wrote in message
>>>news:d3vmn5$11t$
>>>
>>>
>>>>Herb wrote:
>>>>
>>>>
>>>>>"David Wilkinson" <> wrote in
>
> message
>
>>>>>news:d3unc1$s86$
>>>>>
>>>>>[snip me]
>>>>>
>>>>>
>>>>>
>>>>>
>>>>>>For what it's worth, both Dow and S&P500 weekly closing values have
>>>>>>dropped below their 39-week Moving Averages this Friday. According to
>>>>>>Dick Fabian's book "The Mutual Fund Wealth Builder" this is a signal
>
> to
>
>>>>>>sell and move either into cash or into something else doing better.
>>>>>
>>>>>
>>>>>So Dick sells when the price has gone down. Does he buy, only when the
>>>>>price has gone up? Doesn't sound too effective to me unless you avoid
>
> a
>
>>>>>crash or stumble into an incredible rally. On the margin, it would
>
> seem
>
>>>to
>>>
>>>
>>>>>be a losing game.
>>>>>
>>>>>-herb
>>>>>
>>>>>PS: What is doing (as opposed to has done) better?
>>>>>
>>>>>
>>>>>
>>>>
>>>>If I sort my Unit Trust results table for the best returns over the last
>>>>3 months I get UK and European smaller companies as doing best. Whether
>>>>this will continue is anyone's guess.
>>>
>>>
>>>I'm sure you are not suggesting that people pile into what has done best
>
> in
>
>>>the past three months (chasing returns).
>>>
>>>-herb
>>>
>>>
>>
>>Er.. That's why I said " Whether
>> >>this will continue is anyone's guess."
>>
>>Read the words Herb :-)
>
>
> But I also read your earlier words when you said people would pull out of
> the US market and put their money into things that were "doing better."
>
> What were you saying?
>
> -herb
>
>
I was telling you what Dick Fabian's book recommends. When both indices
drop below their 39-week MAs then he says move into cash or something
that is doing better. This is presumably out of Index funds based on the
US stock market. Fabian thinks he knows, or thought he knew when he
wrote the book, which funds are doing better using a momentum approach.
I also said that my recollection was that this approach had not been
very successful. Personally I only know for sure what has happened so
far and, I am tempted to say, not what will happen next and I think
Fabian has found the same thing.

On the other hand, it is perhaps not quite so bad as that when the
trends are well-defined. It has been obvious for some time from the UK
that Unit Trusts investing in US stocks have been doing noticeably worse
than funds investing in UK and European stocks. This is a consequence of
fairly static US stock prices and a falling dollar against the pound. As
a result I have been invested in UK and European funds and have had
nothing in US funds and have benefited from this.

If you were using the "Fuzzy Logic" method to evaluate US funds from the
UK today you would note that the "Foreign Market Trend" was "LOWER" and
the "Foreign Currency Trend" was "OK", from which the guideline would be
"SELL" US funds. To decide whether to hold US funds in the US would
require different parameters.