Our bias is neutral/bearish on S&P 500 and crude oil, and bullish gold, writes Bill Baruch, Pres...
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The New Day Trader Advantage
02/01/2008 12:00 am EST
Having known Jon Markman for several years and listened to his views on the market and economy, I was looking forward to his new book, The New Day Trader Advantage, and I must say, I was not disappointed. The organization of the book is interesting, as after a thorough introduction, Jon discusses a different market approach or view for each day of the week, Sunday through Friday. The goal of this format is to encourage the investor to be disciplined and focused, thereby avoiding a helter-skelter approach. This is indeed an admirable goal, and this strategy might work. Additionally, the examples and techniques are accompanied by well-annotated charts, which will help the reader understand the material. There is plenty of valuable information, as well as concrete techniques, so I will only be able to highlight a few during this review.
Jon sets aside Sunday to look at the intermediate-term trend because as he says “If you get the three-to-six-month direction of the market right, you know whether you should primarily take long or short positions.” He covers many valuable methods including: cycles, the Advance/Decline line, McClellan oscillator, Lowery’s buying pressure, and more. There is also an interesting discussion of one way Jon gauges market sentiment, while the chapter concludes with a very simple method: looking at a stock or index relative to its ten-month moving average. Even if you use nothing else to analyze your investment positions, this will still put you ahead of many others. Now that one has determined the intermediate-term trend, Jon moves into determining which sector one should concentrate on, since he notes that “at least 60 percent of an individual stock’s advance comes from the success and popularity of its sector.” Jon details an approach using relative strength charts of the major sectors, where their performance is compared to a major average such as the S&P 500. Even better, he takes you step-by-step through setting up this analysis online and then finding the strongest stocks within your chosen sector or industry. The appendices he provides not only cover sectors and indices, but ETFs as well and will save the reader considerable time. The application of the MACD is also included, as are some different methods and techniques for analyzing and selecting ETFs.
For Tuesday Jon concentrates on a fascinating site that I had not previously heard of called markethistory.com whose editor, Gibbons Burke, is an old colleague that I had lost track of over the past few years. This site is a very powerful resource, and Jon is kind enough to share his insights on how he uses its extensive information. Those who are interested in trading the somewhat more esoteric world of spin-offs, reverse splits, bankruptcies, and IPOs will enjoy Jon’s description of some recent examples in each of these investment categories in Wednesday’s section.
It is back to the number crunching on Thursday as Jon delves in to the StockScouter application that he has worked on from its inception. He carefully takes you through the methodology of how stocks are selected while demonstrating how you could construct a portfolio from the selections by buying the top ten stocks every month and then selling them six months later. Of course, the stocks that are chosen will ideally be favorable in terms of their market criteria (i.e. sector, market cap, and style) but if that is not possible, those that are neutral are selected. Jon also takes you step-by-step through setting up the routine on MSN to monitor the StockScouter selections, but the step-by-step approach is fairly intricate and may take several attempts to get it right. From a trader’s perspective, he suggests that the top ten stocks each month may be the best ones to also look at if you are applying shorter-term trading techniques. Now I did pull up charts of some of those selected from early 2007, and most would have been good candidates. A thorough review of the first nine months of 2007 is then provided with their performance. It is stressed that one of the advantages of this approach is that it will put you in stocks that you would not normally choose, and given the excellent six-year track record, this is probably a good idea.
On Friday, Jon suggests that you spend some time reviewing the past week and then ponder what he calls N Power and Ecosystems. Briefly, this refers to changes or shifts in our social, political, and corporate trends and behavior that will eventually result in the growth of new industries or sectors. For this he relies heavily on the work of Jim Williams of the Williams Inference Center in Massachusetts, who, for example, helped his clients “understand the potential impact of ethanol as far back as 2002.” Many other trends are discussed in this chapter along with the specific stocks that benefited from investors’ demand for companies that could capitalize on these new trends. This makes for very interesting reading.
The final chapter provides a concise review of the topics that Jon covered in each chapter and how he feels the new day trader should organize their efforts systematically. As any successful trader will tell you it will take work and if you are not ready to invest the time and energy to apply Jon’s methods you will be wasting you time. As my first trading book of 2008, The New Day Trader Advantage was a real pleasure and is highly recommended.
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