Daily Report For Wednesday 7-14-04.
nothing changed today. Investors marked time waiting for Intel's results
to provide the catalyst that would move the market. After the close, Intel disappointed
and the futures for NASDAQ traded down 15 points, but by 4:30 PM PST, they had
recovered from their lows. The sideways action of the past three days is one of
consolidation, and usually -but not always- it results in continuation. Since the
consolidation took place within a downtrend, more than likely the resolution will be on
the downside. However, keep in mind that there has been total lack of selling pressure in
the markets, and thus, if we get a burst of selling in the morning, with no follow thru,
the bulls will be able to take control and rally the market later in the day."
gapped down at the opening, but selling pressure dried up quickly which enabled the bulls
keep the indices above support, and in fact to even close them above their lows for the
day. Are the markets ready to turn higher? Maybe, but not in any meaningful way. In our
view, any bounce from current levels, will be nothing but a short-lived affair. There are
five charts that we would like you to keep in mind going forward:
the current ratio has put a lid on the SPX every time -but one- since its inception. More
recently, the ratio at 80, has stopped the SP five times since early January of 2004.
Usually, when an indicator keeps bumping persistently against extreme levels within a
short period of time, it eventually goes thru it briefly, and then it reverts back
to the mean. Consequently, if the SP rallies from current levels, and the ratio exceeds 80
-like it did in August of 2000- it could very well mark the "spike"
associated with major changes in trend.
NASDAQ, and the SP500. Notice that the rallies off the March, and May lows, were preceded
by a short 2-3 day bounce which failed resulting in a lower low for price, but a higher
low for the Thrust Oscillator. If the pattern repeats itself, we may get a bounce over the
next 2-3 trading days, but it will be followed by lower lows next week, before a tradeable
rally takes place.
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and oil. Both these charts reveal the possibility -not certainty- of some real unsettling
developments over the next few weeks. The U.S. dollar may be forming a "Head &
Shoulders" pattern, which if it is completed, it would set off a downside target of
84 in the dollar index, and perhaps 82. Conversely, oil may be forming an
"Inverse Head & Shoulders" pattern, which if it is completed, it would set
off an upside target of $47-$48.
| Charts courtesy of www.stockcharts.com |
Ike Iossif
email us: aegean.customer.serv@lycos.com
website link: www.aegeancapital.com
Ike Iossif came to the United States at the age of 19 in order to attend university studies. As a high school student in Athens, he thought he wanted to be an engineer, thus he followed what is known in the European system of education as the "science" curriculum. By the time he had finished high school he had 4 years of algebra, 2 years of calculus, 2years of Euclidean geometry, 2 years of analytical geometry, 4 years of physics and four years of chemistry! Within his first year as engineering major, he decided that engineering was just too boring for him, so, he changed his major to Business. Never the less, his rich background in sciences and mathematics gave him a strong understanding in analytical process and scientific methodology from a very young age, and has influenced the rest of his professional life.
While in college majoring in Business Administration, with a Marketing and Sales concentration, he started working as an intern for a German conglomerate, and spent the next six years climbing up the corporate ladder in the area of his education.
In December of 1986, he was promoted to Divisional Marketing Director, a position that entailed significant end of the year bonuses. Thru-out most of 1987 he was constantly advised by colleagues -who had already been in the same position for over a year, and had received those bonuses- how he should invest his year end bonuses in the stock market! So, he eagerly waited for those bonuses, to invest them in the roaring market. Luckily for him, the market crashed before he had a chance to invest anything.
However, the crash of 1987 got him truly interested in becoming more familiar with the stock market and its inner workings. Within a few months, he decided that he wanted to make a career change! He decided that finance was just exciting and rewarding to pass up. He went back to college to re-educate he and obtained a Bachelor’s degree in Finance Real Estate and Law with concentration in security analysis and portfolio management from California State Polytechnic University, Pomona. While still in college, he was recruited as a junior research
Analyst by London/Athens based Aegean Capital Mgt, an Investment firm specializing in offering research and asset management services to offshore institutional investors.
Within a couple of years he became convinced that fundamental analysis did not tell the entire picture. He concluded that while fundamental analysis did reveal "what" to buy, or, sell, it did not reveal "when" to do it, which in his view compromised overall returns. Furthermore, he became convinced that in a "perfectly efficient market" the technical and fundamental characteristics of the market should confirm each other, at least on a long-term basis. It is illogical for a market to continue -for example- to display "technical strength" over a prolonged period of time, while, over the same period the fundamentals continue to deteriorate! A good example of this argument can be found in the dot.com demise of last year. Internet related issues -for some time-displayed tremendous "upside momentum" while at the same time they were confronted with an ever-increasing negative cash flow. At some point, it became clear, that "good technicals" could not make up for poor fundamentals. In his view, periods of time which technicals and fundamentals are moving in opposite direction are due to the fact that in reality, markets are not "perfectly efficient" in his view, even developed markets tend to be at best "somewhat efficient" thus, allowing investors who can identify and exploit pockets of inefficiency to generate above average returns. Market timing allows investors to identify those points in time, in which, the market changes direction, so, the technicals and fundamentals align themselves and the previous state of inefficiency ceases to exist. Thus, his approach has been a blend of both fundamental and technical analysis, which he has employed in all the positions he has held within the firm, which include equities/options trader, market strategist, and portfolio manager leading to his current position of President and Chief Investment Officer.
His timing models are designed to take into account both technical and fundamental factors, which are weighted differently, based upon the desired duration of the signal. For example the "long term" model is designed to identify those points in which "technicals" begin to align themselves with the long term fundamentals, is weighted 65% toward the fundamental components It takes into consideration a wide array of both technical and fundamental inputs, such as 200 day moving averages, 2 year chart patterns -among others- as well as, ratios between current levels of interest rates, economic growth, unemployment, P/Es -among others, versus their 4 year average. The intermediate term model has a 35% weight on the fundamental components, and it includes a lesser number of fundamental inputs, while the short-term "trading model" has only a 10% weight on the fundamental component, and it only includes one such component which is the Federal Funds rate. The long-term model is designed to produce signals that should remain in effect at least one year, and it is currently "neutral." The intermediate term model is designed to produce signals that stay in affect between 30 to 90 days, and it is currently "bearish." The short-term model is designed to produce signals that last less than thirty days; however, in most cases they last about two weeks.
The models employ probability analysis and they calculate they calculate two different scenario probabilities, whose ratio determines the relative probability that over a specified period of time a "re-alignment" between technicals and fundamentals will begin to take place. The specified period of time is 30 days for the long-term model, 2-4 days for the intermediate term model, and one day for the short-term trading model. The model first calculates the probability of a" bullish scenario" taking place, then it calculates the probability of a "bearish scenario" taking place. The ratio between the two is what determines the signal the model generates. For example, let’s hypothesize that our intermediate term model shows a 60% probability of a market advance, versus a 20% probability of a market decline, the ratio between the bullish probability to the bearish probability is 3:1. Meaning, it is three times as likely that the market will advance than decline. In that case our model will rate the market a "buy."
Ratios between .75 and 1.5 rate the market as "neutral." We define "neutrality" as staying in cash. Ratios between 1.5 and 3 rate the market either as a sell or a buy (depending which scenario is favored) but we will only go as far as 100% net long or net short. Ratios between 3 and 4 will cause us to go as much as 150% net long or net short, and ratios over 4 will cause us to go in excess of 150% net long or net short.
For more information you can contact:
Aegean Capital, 909-627-8937,
www.aegeancapital.com, or email aegean.customer.serv@lycos.com
