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Here We Go on the Advance/Decline Line Again


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#41 mortiz

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Posted 28 February 2010 - 04:22 PM

Doc, With respect to the differences in the high yield funds you displayed and the basket of 40 high yield bond CEFs comprising the AD line, I have no clue what the underlying corporate bonds are within the various funds. The corresponding equal-weighted junk bond CEF price index derived from this same basket of CEFs, has posted a new recovery high, but not a new all-time high. CEF's NAV price often does not reflect its trading price, so perhaps that is a factor. As you know, we have 30 years of bond CEF internals data (scraped daily by the McClellans and/or myself, dividend/split adjusted) and both parties are very particular about accuracy.... I don't know how any of the junk bond funds, CEF or otherwise, are weighted, so that could also be a factor. The bottom line, particularly over the past few years, the bond CEF internals have been an excellent guide for measuring weakening or strengthening liquidity in advance of common stock index price turns.... perhaps that trend is changing, but I'm hesitant in betting against it right now. Thanks for asking your usual good questions. Randy

#42 Taz

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Posted 28 February 2010 - 05:09 PM

At the moment here in OZ, there was a very nasty bearish divergance at the top and the A-D is failing to move higher on rally days here. If we had perhaps 2-3 bad days in market, it would break its July low. While I like the A-D, it is no holy grail. We had no bearish divergance at the top in 1987 her in OZ. And in late 2003-2004 the A-D line hit new lows while our market struggled higher and kept going higher for a few years after that.

#43 Gary Smith

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Posted 28 February 2010 - 05:27 PM

Doc,

With respect to the differences in the high yield funds you displayed and the basket of 40 high yield bond CEFs comprising the AD line, I have no clue what the underlying corporate bonds are within the various funds. The corresponding equal-weighted junk bond CEF price index derived from this same basket of CEFs, has posted a new recovery high, but not a new all-time high.

CEF's NAV price often does not reflect its trading price, so perhaps that is a factor. As you know, we have 30 years of bond CEF internals data (scraped daily by the McClellans and/or myself, dividend/split adjusted) and both parties are very particular about accuracy....

I don't know how any of the junk bond funds, CEF or otherwise, are weighted, so that could also be a factor. The bottom line, particularly over the past few years, the bond CEF internals have been an excellent guide for measuring weakening or strengthening liquidity in advance of common stock index price turns.... perhaps that trend is changing, but I'm hesitant in betting against it right now.

Thanks for asking your usual good questions.

Randy


Randy, although I am no fan of closed end junk bond funds, I loved your chart of the closed end A/D line. Correct me if I am wrong, but I think the confusion with Doc's question is he was looking at a price chart of junk bonds, not an A/D line chart?? Junk bonds on a total return basis are less than a percent or so under their all time *historical* highs set in January, the closed end a little more so since they can flucutate above or below their NAV. I would love to see you incorporate the Merrill Lynch High Yield Master II Index in your research arsenal as it, like your closed end junk bond A/D line, would be a real eye opener. The Merrill chart reflects better than anything what is occurring in the real world, real money trading of the junk bond market. And I should probably incorporate your junk bond A/D line in my trading as well. I have been on record here for years about how valuable junk bonds are as a forecasting tool for the equity markets. However, one of their few misses as such a tool occurred in the May/June period of 08 as junk bonds, seemingly immune to the downdraft in stocks in the early part of that year, went on to new all time highs (before eventually crashing downward in the worst decline in junk bond history) Had I seen your A/D line chart it would have shown a distinct downtrend already in place.

As an aside, regarding the NYSE line in general, even though I have no problems with the A/D line as a forecasting tool, I would hate to think where some of us would had we paid attention to it in 98 and 99 as a few select tech, telecom and media stocks soared into the stratophere taking the major indexes along with it even though there were far more declining stocks than advancing stocks during that period.

And another aside, unless I missed it, I am surprised no one on this board has mentioned what has occurred in the S&P COT over the past few weeks or if it is even relevant.

Junk bonds were last year's trade for me, although I do maintain some exposure. Their returns in 09 on a relative return basis were at historical levels compared to the S&P and I am thinking the power this year reverts back to stocks, especaially some select tech stocks where industry-wise there seems to be real signs of a very strong economic recovery.

#44 IndexTrader

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Posted 28 February 2010 - 05:55 PM

INDEXTRADER - The first time was on my technical question survey project. Everyone joining the discussion was talking about the specific technical pattern except you. You criticized me instead for trying to prove something. I had to hold back and explain nicely to you that nowhere had I mentioned that I was trying to prove anything. It was simply a fun technical project for group discussion purpose.

The 2nd time was on one of my trades. While I was merely setting up part 1 of the trade, you cynically questioned me whether I had taken my loss yet. I got a double-digit gain out of that trade, as most of my real time real money trades posted here. Suppose I had lost money on that trade, your line of questioning would only aggravate the situation. As a senior citizen that has been around for such a long time, there’s no way you did not know that. So, the only intent that I could come up with is to take a cheap shot at me. But then, I let that go too.

I have personally made an effort not to comment on other people’s real money trades unless they’re successful. It’s a common sense and common a courtesy for grown-ups to know not to make people feel worse when they lose money.

And then this one, for the 3rd time…. The fact that you don't post much except on my thread only amplifies your agenda.


I'll let my prior comments stand. You're way overly sensitive. Here's a link to those "swipes" I took at you:

Here's the link to your survey post in early January: http://www.traders-t...mp;#entry501095

Here's the link to your trade in early February: http://www.traders-t...mp;#entry505163

#45 TechMan

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Posted 28 February 2010 - 06:23 PM

And another aside, unless I missed it, I am surprised no one on this board has mentioned what has occurred in the S&P COT over the past few weeks or if it is even relevant.


Hi Gary - Thanks for the insight. I'm interested to know what you have in mind on the COT report over the past few weeks. I've been keeping track of the data. In fact, you've just reminded me of what I had told porche911 that I was going to post an updated chart.

Regard.

#46 bulworth

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Posted 28 February 2010 - 07:17 PM

Looks like this thread is good evidence that the 'pie-fight' indicator is ticking up rapidly.
Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination are omnipotent.

#47 Gary Smith

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Posted 28 February 2010 - 11:17 PM

And another aside, unless I missed it, I am surprised no one on this board has mentioned what has occurred in the S&P COT over the past few weeks or if it is even relevant.


Hi Gary - Thanks for the insight. I'm interested to know what you have in mind on the COT report over the past few weeks. I've been keeping track of the data. In fact, you've just reminded me of what I had told porche911 that I was going to post an updated chart.

Regard.


TechMan, with the Dow a few hundred points lower the COT came out a few weeks ago and for the first time in at least a year showed the commercials in the large S&P contract had gone net long, where they still remain. The large specs on the other hand are at their largest net short position in over a year. In the old days like the late 80s/early 90s this would be significant, but I haven't found much use for the COT in a long time. I mean the commercials were net short and in a fairly significant way throughout the big run up in 2009. Back in the old bull days the usual configuration was the commercials net long with the large specs net short. In fact, and someone can check this to be precise, I believe throughout the great bull run of the 90s the large specs were net short the entire way up save for but a few weeks. Still, out of habit, I check the COT each week and it caught my attention, especially since the markets had been in correction mode before they went net long. You never know when a broken indicator will suddenly become relevant again.

#48 NAV

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Posted 28 February 2010 - 11:45 PM

Techman, If you are convinced about the inefficacy of the NYSE A/D line as an indicator based on your research, then just throw it out of your arsenal of TA tools. I have thrown many indicators out of my TA arsenal over the years. But if you think you may have missed some stuff in your analysis of A/D line, i would suggest you to open mindedly research the following sites 1) Tom Mclellan's site 2) Fib's Technicalwatch.com 3) Terry Laundry's use of A/D line for establishing "T"s. All the above have consistently demonstrated the use of A/D line as an intermediate term timing tool. I am personaly convinced of the utility of the A/D line. When i say A/D line i mean the NYSE A/D line. Nasdaq A/D line is garbage IMO.

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#49 Echo

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Posted 01 March 2010 - 12:15 AM

Nav, Couldn't agree with you more on NYAD. Also nasdaq AD (NAAD) is generally downhill since inception, a function of the OTC stocks, most don't make it. $NAUD on the other hand, the volume component, is useful since most of the volume is in the larger cap nasdaq stocks. Doc

Edited by Echo, 01 March 2010 - 12:16 AM.


#50 IYB

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Posted 01 March 2010 - 12:28 AM

Techman,

If you are convinced about the inefficacy of the NYSE A/D line as an indicator based on your research, then just throw it out of your arsenal of TA tools. I have thrown many indicators out of my TA arsenal over the years. But if you think you may have missed some stuff in your analysis of A/D line, i would suggest you to open mindedly research the following sites

1) Tom Mclellan's site
2) Fib's Technicalwatch.com
3) Terry Laundry's use of A/D line for establishing "T"s.

All the above have consistently demonstrated the use of A/D line as an intermediate term timing tool. I am personaly convinced of the utility of the A/D line. When i say A/D line i mean the NYSE A/D line. Nasdaq A/D line is garbage IMO.

Very sage advise. To that I would add that NO INDICATOR, repeat NONE in and of itself will give a trader the answers he seeks. It's all about how we use them. And it is my observation that the best traders and analysts develop their own tools, signals and methods. So the question should not be "Is A-D Line a valid timing tool?", but instead, "can I employ A-D information is some way that gives me an edge in entry or exit, and which produces trading profits?"

If the answer is "no", there is now shame, as NAV says, in pitching A-D entirely....... so long, that is, that you develop other tools that do the job for you. :) Good trading, D

Edited by IYB, 01 March 2010 - 12:29 AM.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds