| The Van Tharp Institute |
June 14, 2006 � Issue #275 | |
|
Home | Workshops | Products | Contact Us |
||
|
Do Not 'Reply.' Click Here To Email [email protected]. Tharp's Thoughts Weekly Newsletter |
Thank you for subscribing to "Tharp's Thoughts" |
Trading Education 20 Percent Off STOCK CLEARANCE SALE, Starting today!
Feature Article Hurricaneomics, By Darrell Jobman
Trading Tip A Review of Market Models: Moving Average Crossovers, by D. R. Barton, Jr.
Listening In... Comments from Peak Performance 202
|
Stock Clearance Sale Save 20% on these items before we do our year-end inventory counts
|
||
|
"Here
We Go Again," By Darrell Jobman Should storms of the magnitude of 2005's Katrina, Rita, and Wilma strike again, the expanding hurricane impact on financial markets will have a ripple effect on global markets and consumers far removed from the vicinity of the storm. Welcome to "hurricaneomics," a term coined by Louis B. Mendelsohn, who began developing software in the 1980s to analyze intermarket relationships. Hurricaneomics deals with that imprecise slice of economics that suggests that disasters like a Katrina can set into motion a domino action that will have an effect on every U.S. citizen, no matter where they live, and on many different markets, reinforcing the significance of intermarket relationships. One of the first markets that typically is affected at the first hint a tropical storm is brewing is natural gas, as traders anticipate that a severe hurricane might disrupt Gulf production and shipping. Anything that affects natural gas is likely to have repercussions throughout the energy sector as was evident in 2005 when Katrina approached. In the aftermath of disastrous hurricanes will come demand for building materials, which will drive up demand and prices for commodities such as lumber, copper and other materials needed to rebuild. But all those are the obvious plays, the moves the professionals are likely to foresee and capture before most investors realize what is happening. Successful traders who are aware of the hurricaneomic effect expand their view from the eye of the storm to opportunities beyond its immediate reach. Throw in extraordinary demand from a source such as China and geopolitical events and you have the makings of full-fledged bull markets in energy, as we have already witnessed. In addition to the higher prices everyone in the world is now paying for gasoline or merchandise that involves shipping costs, markets that may seem remotely related to hurricanes can be affected. For example the shift to ethanol as a clean air additive, has sparked a big increase in demand. A major source of ethanol in the United States is corn. Corn is also a major component of feed for livestock and poultry, which provide meat for consumers, and the United States is also the world's major exporter of corn. The shock of the U.S. Department of Agriculture's most recent supply/demand estimates is not that the planted acreage of corn has declined from 2005, as expected, but that the usage of corn for ethanol will increase dramatically in the season ahead. With reduced production and higher usage, spurred by energy demand, competition for corn could become intense. Market prices of ethanol are currently over $3 per gallon, and ethanol producers could pay near $7 a bushel a corn and still have positive returns, estimates Chris Hurt, Purdue University extension marketing specialist. Corn at $7 is a far cry from the price a little over $2 a bushel that livestock producers have paid in recent years. Hurricanes, past or future, won't be totally responsible for corn prices, of course, but at least part of the current demand for corn for fuel can be attributed to the 2005 hurricanes. If another severe hurricane season exacerbates the current energy situation or if weather in either 2006 or 2007 reduces corn production, corn may be the next bull market. "The effect of another severe hurricane season could go far beyond commodities and strike at the core of the U.S. and global economies," Mendelsohn points out. Money spent for any materials for further extensive rebuilding or repairing or increased prices for higher gas pump prices or heating bills takes away from spending for other items that could promote economic growth. The federal government, now very sensitive about providing disaster aid as a result of the fiasco following Katrina, could be expected to step in more quickly in future disasters, further increasing expenditures that will mean more debt. An expanding deficit and more borrowing is likely to mean higher interest rates and higher inflation rates, as has already been noted in government statistics. That has implications for the U.S. dollar, which in turn has an influence on many global markets as the economic ripples from such large-scale disasters expand. At the same time, higher costs of fuel for heating and transportation and more expensive building materials could slice corporate profits dramatically, reducing prices of equities and leading to a recession that would affect everyone who owns stocks in pension plans or mutual funds. Whether it's higher interest rates and larger house payments or increased spending at the gas pump or higher bills for energy usage, every U.S. consumer could become aware of hurricaneomics and not just those directly affected by the hurricanes.
On a personal note from the Van Tharp staff: As we prepared this issue today we were receiving the remnants of tropical storm Alberto, the first named storm of the 2006 hurricane season in the US. Lots of rain with some flooding, but with little wind. Very topical with today's issue. Tonight we also have our local NHL Hockey Team, aptly named, the Carolina Hurricanes, in game five of the NHL Stanley Cups play- offs!
|
||
|
A Review of Market Models: Moving Average Crossovers by D. R. Barton, Jr. �When the market is trending, any set of moving averages works.� � Chuck LeBeau Every time a new trader ventures into the world of technical analysis, the first thing they look at is, almost assuredly, a moving average. And with good reason. Moving averages are very simple to understand. They are often quoted on TV. And they are ubiquitous tools for traders and money managers everywhere. But� The way the tool is used tells the tale. Most people begin by looking at moving average crossovers to give them entry and exit points. And this is an alluring market model � it is easy to understand and implement and it is easy to build a belief system around the information that moving averages give. To see how useful this information is, let�s look at the three main ways to use moving average crossovers: 1. When price crosses above a single moving average, go long; when it crosses below go short. In this model, one moving average is used as the �line in the sand� with everything below being bearish and everything above, bullish. Long- term testing has proved this simple tool useful. For example, if you only hold stocks when the S&P 500 is above its 200 day moving average, you significantly outperform the market. 2. Buy when a fast moving average crosses above a slow moving average and sell when it crosses below. This is the classic moving average crossover system. The bottom line, as Chuck LeBeau�s quote says above, is that this works great in trending markets, and not so well in choppy or sideways markets. People spend massive amounts of time trying to figure out what time periods to use for their moving averages; but the time would be better spent working a way to tell if the market is trending or not. Typical sets of moving averages are 9 & 18 bars and 50 & 200 bars. 3. Use three moving averages. Here, you require both the fast and medium speed averages to be above the slow average in order to go long. With both averages below the slow one, you go short; and if one is below and one is above you are flat. A typical set of three moving averages would be 4, 9 & 18 bars. This is a very compelling theory for how to use moving averages to keep you out of choppy markets and only long or short for trending periods. Unfortunately, while the three moving average model does moderately outperform a simple two moving average crossover system, it really doesn�t test out significantly better. Moving Average Crossovers: Ditch �em or Live by Them? Now, let�s look at our standard list of questions for market models: Is it theoretically credible? You betcha. They work beautifully in trending markets. If you can limit your losses and live with low winning percentages and pretty big drawdowns, moving average crossovers definitely make money over time. Who�s it most useful for? Long term- trend followers. Others need not apply. How Fanatic are the fans? Pretty modest. As with most standard technical tools, little cheerleading is needed to convince people where moving average crossovers work. Is it being used by real-life traders? As a crossover system, very moderately. But as we shall see when we get to the section on support and resistance, EVERY trader I know uses moving averages. Next week we�ll continue our series with another market model. Until then� Great Trading!
|
||
|
Here's what Attendees Said About Last Week's Peak 202 Workshop:
The next scheduled Peak Performance Workshops in the USA are in November 2006. Peak Performance 101 will be held in Sydney Australia in September 2006. |
||
|
Special Reports By Van Tharp Click below to read page one of each report, or to order. |
||
|
Do Not Reply to this email using the reply button as the email address is not monitored, your email will not be seen. Please click this link to contact us: [email protected] The Van Tharp Institute does not support spamming in any way, shape or form. This is a subscription based newsletter. If you no longer wish to subscribe, Unsubscribe Here Or, paste this address in your browser: http://www.iitm.com/privacy_policy.htm
The Van Tharp Institute |
||
|
Back to top
Copyright 2006 the International Institute of Trading Mastery, Inc. |
.
.
.
.
.
.
.
|
Quote of the Week: The trouble with weather forecasting is that it's right too often for us to ignore it and wrong too often for us to rely on it. ~Patrick Young |
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
|
Free Trading Simulation Game A computerized version of Van's famous "marble game." It is designed to teach you the important principles of proper position sizing. Download the 1st three levels of the game for free. Register now. |
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
|
2006
|