Fundamental - Technical - Speculators - Smart Money

[Vicorka]

Stock market is not as it was 10 years ago. It is definitely not as it was 50 years ago. More and more speculators are coming to the market. There are more speculators and they invest more funds into the market and they dominate the market. Last stock market crash proved perfectly that economy does not drive the stock market - it affects the market, yet it certainly does not dictate the price of a stock. Huge institutional speculators (you may call them "smart money") dictate the price of a stock - they can pump and they can dump.

You cannot spot actions of speculators by using fundamental analysis only. You may still study reports and earnings. However, speculators are not interesting in company earnings. Funds managers are not interested in dividends any more (as it was many years ago). Speculators are looking for big profit over shortest period of time and only TA may tell you what big speculators are doing...

Your arguments...

 

[new_trader]

Stock market is not as it was 10 years ago. It is definitely not as it was 50 years ago. More and more speculators are coming to the market. There are more speculators and they invest more funds into the market and they dominate the market. Last stock market crash proved perfectly that economy does not drive the stock market - it affects the market, yet it certainly does not dictate the price of a stock. Huge institutional speculators (you may call them "smart money") dictate the price of a stock - they can pump and they can dump.

You cannot spot actions of speculators by using fundamental analysis only. You may still study reports and earnings. However, speculators are not interesting in company earnings. Funds managers are not interested in dividends any more (as it was many years ago). Speculators are looking for big profit over shortest period of time and only TA may tell you what big speculators are doing...

Your arguments...

More or less...but nothing has changed in the last 100+years so I disagree with you about the market being different now. As Jesse Livermore said: "There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."

 

[Vicorka]

Whatever happens in the stock market today has happened before and will happen again."[/I]

If you mean it will go up and down then yes. If you mean that people come to the market to make money then yes. If you mean that there always will be somebody who abuses the market then yes.

However, now, the market is traded in mush bigger volumes than 10, 20, 30 years ago and market behaves differently. Check the GOOG yesterday's trading. Just do not tell me that their earnings report did upset investors (leave this to CNN) - earnings cannot grow all the time and sometimes it is natural to have them lower than before. Check the volume during the GOOG slide - intraday traders do not trade in such volumes. Long-term traders or speculators...

My point is that fundamental analysis is less important now...

 

[new_trader]

market behaves differently.

No, it doesn't, it behaves as it always has, I don't need to check anything.

 

[wackypete2]

Intraday trading is certainly different than it was 20 years ago. I can tell you from personal experience that equities behave completely different, intraday, than 20 years ago. It was much easier to daytrade back then. Today a stock or index might lose 2% in the morning then gain 3% in the afternoon. Intraday whipsaws are harsh and very common. It wasn't always that way.

Huge institutional speculators (you may call them "smart money") dictate the price of a stock - they can pump and they can dump. ... Speculators are looking for big profit over shortest period of time and only TA may tell you what big speculators are doing

This is very true except that neither TA nor FA will help you when the big speculators jump in. No chartist or fundamentalist could have foreseen yesterday's move in Google.

Peter

 

[new_trader]

My point is that fundamental analysis is less important now...

So how would you argue your case when I can give you a quote from a chapter in a book about the Stock market that was published 80 years ago which advises ignoring fundamentals altogether and just focusing on the action of the market itself? That’s basically what you are saying isn’t it? However, you're implying that this is a new phenomena and I’m saying there is documented evidence which proves your opinion is incorrect.

There seems to be a never ending supply of people who insist that “markets have changed”...you aren’t the first and you won’t be the last either.

 

[wackypete2]

More or less...but nothing has changed in the last 100+years so I disagree with you about the market being different now. As Jesse Livermore said: "There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."

Over a longer period of time I agree with this. Human emotions, sentiment, stupidity, etc, will never change. But for short term traders this no longer applies.

Peter

 

[new_trader]

Over a longer period of time I agree with this. Human emotions, sentiment, stupidity, etc, will never change. But for short term traders this no longer applies.

Peter

I disagree, completely. I read about whipsaws etc...all the things that people here insist is some kind of new phenomena and yet they were written about by traders more than 60 years ago. There is no argument, the idea that markets have changed is categorically false.

 

[wackypete2]

I disagree, completely. I read about whipsaws etc...all the things that people here insist is some kind of new phenomena and yet they were written about by traders more than 60 years ago. There is no argument, the idea that markets have changed is categorically false.

I doubt Jesse L. saw many 10% intraday drops.
We can disagree but my view is from personal experience, not from reading a book. If markets haven't changed then we'd still see the very low leverage that was used in JL's time.

Just my opinion.

Peter

 

[Vicorka]

I disagree, completely. I read about whipsaws etc...all the things that people here insist is some kind of new phenomena and yet they were written about by traders more than 60 years ago. There is no argument, the idea that markets have changed is categorically false.

You may refer to 60- and even 80-year old books on technical analysis. The difference is that at that time this knowledge was not applied.

60-years ago big/smart/institutional or whatever you call them were not involved into intraday trading. For them, 60-years ago, in order to trade in mid- and long-term they had to relay on the fundamental analysis. Now, big money are involved in intraday trading and that changes the rules of the game. There is no fundamentals in intraday...

Everything evolves in this world and stock market is not an exception. In order to survive and dominate we have to evolve as well.

 

[new_trader]

I doubt Jesse L. saw many 10% intraday drops.
We can disagree but my view is from personal experience, not from reading a book. If markets haven't changed then we'd still see the very low leverage that was used in JL's time.

Just my opinion.

Peter

Nobody has personal experience going back 80+ years though, do they? But at the same time, like the OP, they insist today’s market is different. OK, where is the proof? If nobody has the experience from that era why are they so insistent that the market is different today?

Splitlink is the oldest member of this forum (as far as I know) and he is 80 years old. So he was born around the time the books I refer to were published. The author of the book had some 20 years experience so that takes us back 100 years. All we have to rely on is books that were written by stock traders of that era and as far as my experience with the stock market goes, those books read like they were written yesterday.

 

[new_trader]

You may refer to 60- and even 80-year old books on technical analysis. The difference is that at that time this knowledge was not applied.

60-years ago big/smart/institutional or whatever you call them were not involved into intraday trading. For them, 60-years ago, in order to trade in mid- and long-term they had to relay on the fundamental analysis. Now, big money are involved in intraday trading and that changes the rules of the game. There is no fundamentals in intraday...

Everything evolves in this world and stock market is not an exception. In order to survive and dominate we have to evolve as well.

Now you're just writing absolute nonsense, OK?

 

[Billy Gates]

The markets haven't changed at all, they still abide by the same rules. They move much faster now because of the increase in the number of people involved. As there is only so much available in the market at anyone time the price targets are achieved much quicker than they were 20 odd years ago.

I think it would be difficult to find something that hasn't already happened before or something that cannot be attributed to a general market behavior.

 

[Vicorka]

No chartist or fundamentalist could have foreseen yesterday's move in Google.

Peter

1.
http://www.trade2win.com/boards/stocks/158568-buy-google.html
see post on October 4, 2012.

2. Even if you do not predicted this decline, one of the basic rules in TA noted many years ago by Elliot Wave and other technicians:

when you see strongly increasing volume during the decline, close your long position if you are in long. Strongly increasing volume on price downside can mean only one thing: somebody with big money is pushing down and it like a snow boll generates panic and accelerates itself. You do not to have play short during such signal, yet it is madness to be in long.

It is not FA it is TA.

 

[Vicorka]

The markets haven't changed at all, they still abide by the same rules. They move much faster now because of the increase in the number of people involved. As there is only so much available in the market at anyone time the price targets are achieved much quicker than they were 20 odd years ago.

I think it would be difficult to find something that hasn't already happened before or something that cannot be attributed to a general market behavior.

Agree with that. The speed changed + more money (traders).

Yet, my main point is that now you cannot relay on FA as 20 years ago.

Price is moved by supply/demand are traders are in panic, no matter what FA tells, the stock will go down. 20 years ago biggest part of the trading was based on FA. Now, biggest part of traders is in TA and relaying solely on FA could be a bad thing.

 

[new_trader]

Agree with that. The speed changed + more money (traders).

Yet, my main point is that now you cannot relay on FA as 20 years ago.

Price is moved by supply/demand are traders are in panic, no matter what FA tells, the stock will go down. 20 years ago biggest part of the trading was based on FA. Now, biggest part of traders is in TA and relaying solely on FA could be a bad thing.

The Law of Supply and Demand operates in all markets in every part of the world. When demand exceeds supply, prices rise, and when supply is greater than demand, prices decline. This is true not only of stocks; it is constantly being demonstrated in markets for wheat, corn, cotton, sugar and every other commodity that is bought and sold; also in other markets such as real estate, labor, etc.

from an article published in 1931...still going to argue?

 

[wackypete2]

when you see strongly increasing volume during the decline, close your long position if you are in long. Strongly increasing volume on price downside can mean only one thing: somebody with big money is pushing down and it like a snow boll generates panic and accelerates itself. You do not to have play short during such signal, yet it is madness to be in long.

It is not FA it is TA.

Yet none of that explains yesterday's move in google. Find me someone who said on wed that google will have a 10% drop on thursday.

If you got out based on whatever signals you use then great, but make no mistake that move was a reaction to news that no one could have seen coming. Traders who wanted to exit at close just before the earnings news got slammed becasue, surprise, the news came out early by mistake.

Peter

 

[wackypete2]

from an article published in 1931...still going to argue?

oil

Peter

 

[Splitlink]

Huge institutional speculators (you may call them "smart money") dictate the price of a stock - they can pump and they can dump.

You cannot spot actions of speculators by using fundamental analysis only. You may still study reports and earnings. However, speculators are not interesting in company earnings. Funds managers are not interested in dividends any more (as it was many years ago). Speculators are looking for big profit over shortest period of time and only TA may tell you what big speculators are doing...

Your arguments...

I am too old to worry myself over what any company is going to do at any time in the future, I've given up my Sharescope subscription and trade by using TA.

However, if any younger person has capital that he wants to see grow, I would advise him to try to figure out what the future holds for certain companies and, then, work out how it has grown over 5 years and buy the shares when they are cheap.. Use TA as a pastime. The serious money is in FA.

When they are being pumped up by institutional speculators is the time to sell.

I have said on this site many times that Jim Slater's "The Zulu Principle" set me on the road to some good purchases. Did you know that Next PLC , after Davis left, went down to "penny share" status? I did not buy them at that price-- I was too scared-- but i got them at less than 150p, mainly because they had no debt, at all! In fact, when I bought them they had cash of over 120 muillion! Anyone could have seen that, it was in the results.

 

[Billy Gates]

Agree with that. The speed changed + more money (traders).

Yet, my main point is that now you cannot relay on FA as 20 years ago.

Price is moved by supply/demand are traders are in panic, no matter what FA tells, the stock will go down. 20 years ago biggest part of the trading was based on FA. Now, biggest part of traders is in TA and relaying solely on FA could be a bad thing.

Yes I agree that it is supply and demand that drives the markets. My belief is that FA is more for investing as opposed to trading, especially daytrading. The views of the analysts are already factored into the overall conditions of the market.

Yes some traders do trade on the news on a daily basis, they can gauge the sentiment of the market and look for a trading opportunity. But once again these moves do not betray the overall trend.

Take the google example. Although the extent of the move may have been unclear in TA, the fact that the trend had changed was not. For TA traders they will stay with the trend whether that move lasts 1 hour or 1 week.