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john magee technical analysis::delphic options research ltd

• The jmta::dor letter is directed to the long term investor who manages his own investments, is moderately well informed, makes his own decisions and is independent minded. While written primarily for investors, short term traders can profit from the report by always being aware of the three trends of the market. The report is licensed to readers with the understanding that action taken based on the report is the responsibility of the investor. jmta::dor is not a registered investment adviser, and does not recommend the purchase or sale of any security.
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• How the Report is used by Investors
  • 1. Daily jmta::dor analyzes the major market indices--the Dow, the S&P and the NASDAQ composite. On Friday evenings (at latest Sunday) the analysis of these markets is posted. Should events warrant during the week a special report will be posted and readers of the service who have so requested will be emailed.
  • 2. Readers of the report may trade off the analysis in a number of ways--by buying Diamonds (DIA), Spydrs (SPY), and NASDAQ 100 (QQQ), or by buying a basket of stocks, or futures or options.
  • 3. Hedging of the positions may be accomplished by taking a position in the different direction in one of the other instruments--as for example, long the DIA, long a put results in a hedge.
  • 4. jmta::dor believes that positions should be hedged when conditions indicate and will so report
  • 5. But the reader is responsible for the use of material and opinions expressed in the report are only opinions, as jmta::dor does not render specific advice or recommendations.
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• How the Report is used by Traders
  • Short term traders will use the report skillfully to trade with the direction of the long, intermediate and short term trends. In other words trades with this philosophy will not be taken against the indicated trend, damping down equity volatility. Or the trader might decide to use only two of these indicators.
  • Even day traders might find this philosophy useful.
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• Trading and investment strategies of jmta::dor
  • 1. Capital should be divided into tranches or units, generally speaking the number of units depending on the individual's attitude to risk and the amount of capital--the more capital the more units.
  • 2. These units are committed to each individual market or trading situation over a varied period of time and diversity of market situations
  • 3. As the individual situation develops an investor will be finally completely invested if the trend is sufficiently long.
  • 4. Once completely invested the investor does nothing until the market dictates that he should
    • a) begin scaling out of the market on a scale up by hedging or liquidating a unit at a time.
    • b) hedge or liquidate an entire position in the case of change of major trend.
    • c) if possessed of sufficient capital look for trades which increase profit potential and reduce risk at the same time.
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• On a major change of trend from long to short or bull to bear
  • an investor should be completely hedged, out of the market, or short. If short then scaled in positions should be used as the reverse of the above long strategy.
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• jmta::dor's long term strategy in bull markets:
  • Avoid taxes by investing in the Amex unit trusts: Spydrs, Diamonds and NASDAQ.
  • Rather than liquidating these units and paying tax, hedge these positions and pay the taxes on profits taken on hedges, when this occurs.
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  • Expect short term losses on hedges and some positions. This is better than being deliquified by falling markets or of seeing the erosion of capital that occurs in a bear market. While fin de siecle fashion would have it that bear markets no longer exist it would be wise to act as if they will in fact occur at some point in the next millennium.
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• Basic Principles of Technical Analysis
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• Technical Analysis, unlike fundamental analysis, uses as its source material the objective facts about stocks:
  • prices as observed on exchanges where stock is traded
    • open, high, low, close
  • volume as observed in trading of stock
• Basic tenets of Technical Analysis
  • 1. Market action of any particular stock reflects all known factors affecting that stock's present and future, or, as John Magee used to say, '...every thing known or suspected about a stock is distilled down to today's closing price on the NYSE.'
  • 2. Stock Prices move in trends, bull bear and mule
  • 3. The volume of a stock will go with the trend
  • 4. A trend, once established, will tend to continue
• Trends:
  • An up trend is in effect as long as each successive rally reaches a new price higher than the previous rally, and each successive reaction stops at a higher level than the previous reaction.
    • 1. Major Trends last a year or more and result in price changes of 20% or more, up or down
    • 2. Intermediate Trends consist of movement in the opposite direction to the Major Trend and may retrace 50-66% of the Major Trend.
    • 3. Minor Trends consist of daily fluctuations which are of no importance except insofar as they combine to form larger trends.
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• Basic tools of Technical Analysis: Data is charted on bar charts in objective formats. The charts are then analyzed to find patterns and formations which have proven in the past to be productive in trading and investing in stocks in general.
  • Support and resistance
  • and archtypal pattern models--heads and shoulders, double tops,
  • reversal, continuation and consolidation formations
  • trends, trend lines and trend channels
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