TSX TrendWatch Weekly

Although we do our best to provide the essential information about relative trend analysis™ (RTA) in our Visitor Guide and Q&A page, we still get questions now and then via phone or email.  I try to answer most of them personally. Even though a lot of these questions are already covered in our documentation, I don’t mind repeating or delving a little deeper into each topic. I’ve got a Q&A down below with some of the most recent questions, but let me cover off last week’s action first.

WEEKLY REVIEW… The S&P/TSX Composite Index rewarded us with a 3% gain last week. All 10 sector indexes have positive trend values now with INDUSTRIALS, and FINANCIAL SERVICES, and INFORMATION TECHNOLOGY  at the top of the trend rankings. ENERGY and CONSUMER STAPLES  continue to lag for now.

The S&P/TSX Venture Index  underperformed over the week with  a +1.7% gain.

The major US indexes had gains in line with the S&P/TSX Composite Index for the most part.

Who’s going to complain when the percentage of stocks in the S&P/TSX Composite Index with positive trend values is 81%. The median price gain per week on a 10 week exponential moving average basis is +0.7%.  Whatever the media might say to make you nervous about being in the equities markets, we’re on a roll here, so ignore them.

Q&A… Distributing this weekly blog/newsletter by email can be both a blessing and a curse.  The plus side is that you get the latest info delivered to your inbox and don’t have to concern yourself with remembering to go to the web site. The downside is that you miss out or forget many of the features at the Web site, including the Data & Charts workbook, and the basic explanation of relative trend analysis™ (RTA) is all about in the Visitors’ Guide and FAQ. Another thing that annoys some readers is that I don’t make specific buy and sell recommendations. That’s because I find that totally inappropriate for any investment newsletter.  To do so implies that the author knows what each and every reader’s risk tolerance and investment objectives are. No one does.

Perhaps because of that, I get questions by email or phone on assorted topics that I thought I had covered off fairly well at the web site.  But that’s OK, because in the process I learn more about what my readers want to know, and something about what I might add to the site documentation to make it more useful. So, at the risk of repeating myself, let me cover off some of the questions I’ve been getting recently. Some touch on what I do specifically when I make my investment decisions. I don’t mind sharing that with you, with the caveat that what I do is not necessarily what you should be doing. With that in mind, let me answer a few of the ones that might have broad interest.

• Q: It looks like you’ve limited yourself to investing in the stocks that make up the S&P/TSX Composite Index. Isn’t that quite limiting, given all the stocks that are out there in both Canada and around the world?
  A: No, that’s not what I do. TSX TrendWatch is a showcase for the relative trend analysis™ (RTA) approach to screening stocks for potential opportunities to make better than average capital gains. If you can see how it works with that pool of about 200 stocks, you should be able to understand how it might work for any pool of stocks in Canada, the US and elsewhere. There’s enough information provided about relative trend analysis™ (RTA) that you can do your own math based on any pool of stocks. Alternatively, you can let us do the work and subscribe to one or more of our Premium Services. You’ll receive weekly database updates for Canadian stocks, Canadian and US ETFs, or Canadian income trusts, and soon the most actively traded US equities on all US exchanges.
  So, in short, I use all of the databases we maintain to pick stocks that look promising. Naturally I look at recent news and some fundamentals to see if there might be some extraneous reason for my trend and consistency numbers to look overly positive.  The numbers don’t lie, but often there are other reasons for them to look too good to be true.
• Q: How is RTA different from other forms of technical analysis? And, shouldn’t you add extra measures to your model, because it is currently too simple?
  A: Bingo!  Simple is exactly what I wanted!  I spent years testing all kinds of traditional technical analysis indicators (with real investment cash) to see which worked best. I even assumed that the more indicators I had the better.  I dabbled in MACD, Bollinger Bands, stochastics, candle sticks, point-and-figure charts, on balance volume, TRIX, Parabolic SARs, momentum indicators, the William’s collection of measures, relative strength analysis, channel indexes, Chaikin Oscillators and maybe 30 or 40 more… including some I developed myself.
  Then I realized intuitively and proved mathematically that all of these things are so highly inter-correlated that you’re actually losing predictive power by combining them.  And, because all of these technical analysis measures were so arbitrary anyway, I sat down with a blank piece of paper and created my own…  relative trend analysis™ (RTA).
  I asked myself what I wanted and the answer was stocks whose price went up quickly and steadily, not erratically. Trend calculations gave me the “going up” measure and consistency gave me the “steadily” bit. I was done!
  All I had to do was figure out the “relative” part.  Almost all moving average and volatility calculations use raw price data.  That makes it useless when you want to compare one stock or index with another.  So, the solution there was simple too. I converted all price changes to percentage price changes before calculating anything else.  A level playing field was created.  End of story!
• Q: Are you sure I’m worse off using a number of different indicators?
  A: No, I’m not! I want you, as a do-it-yourself investor to develop a methodology that you can feel comfortable with. This is not a one-size-fits-all approach.  All I’m suggesting is that the relative trend analysis™ (RTA) data that you can find or subscribe to at my web site(s) are a great screen for detecting potential opportunities before you apply your own favourite selection criteria. I personally get by with next to nothing beyond my RTA screen except (1) a review of recent news to find any weird stuff that might have distorted my trend/consistency numbers, and (2) trading volume, because if it’s hard to buy or sell, you’re going to get screwed on transaction costs.

So, that’s it for this week. Feedback is always welcome.

This entry was posted on Monday, March 8th, 2010 at 6:50 pm and is filed under Uncategorized.