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Market Indicators: The Best-Kept Secret to More Effective Trading and Investing

Book Description

A smart trader needs to know what other traders are thinking and doing. Professional traders and investors use a wide range of indicators—some well-known, some not so well-known—to gauge the state of the market.

Market Indicators introduces the many key indicators used by professional traders and investors every day. Having stood the test of time, these indicators will alert the trader to market situations that offer the best chance to trade profitably.

Richard Sipley is a portfolio manager for Boston Private Bank and Trust Company, responsible for trading millions of dollars of assets. Sipley uses these indicators every day in his trading and investing, and he draws on that experience to explain what they are, how they work, and how to use them.

Table of Contents

  1. Copyright
  2. Acknowledgments
  3. Introduction
    1. The Outline
    2. A Few Warnings
    3. About Me
  4. I. Measuring Investor Actions
    1. 1. Clues from the Options Market
      1. 1.1. The Basics
      2. 1.2. What is the Volatility Index?
        1. 1.2.1. WHY INVESTORS AND TRADERS LOOK AT THE VIX
        2. 1.2.2. STUDYING THE VIX
        3. 1.2.3. USING THE VIX
        4. 1.2.4. MOVING AVERAGES
        5. 1.2.5. BOLLINGER BANDS
        6. 1.2.6. DIVERGENCES
        7. 1.2.7. PREDICTING VOLATILITY
        8. 1.2.8. OTHER VOLATILITY INDICATORS
        9. 1.2.9. VIX RESOURCES
      3. 1.3. More Options: The Put/Call Ratio
        1. 1.3.1. ADJUSTED PUT/CALL RATIO
        2. 1.3.2. THE INTERNATIONAL SECURITIES EXCHANGE SENTIMENT INDEX
        3. 1.3.3. USING OPTIONS DATA FOR STOCKS AND SECTORS
          1. 1.3.3.1. Analyzing Sectors
          2. 1.3.3.2. Options Resources
        4. 1.3.4. RESOURCES
    2. 2. Big Money on the Move
      1. 2.1. Volatility on the Rise
        1. 2.1.1. LOPSIDED PRICE MOVES ON LOPSIDED VOLUME
      2. 2.2. Lowry's Examination of Market Tops
        1. 2.2.1. VOLATILITY IN STOCKS AND SECTORS
        2. 2.2.2. VOLATILITY—IS IT A BEAR MARKET?
        3. 2.2.3. LAST HOUR
        4. 2.2.4. MONEY FLOW
        5. 2.2.5. USING RATE OF CHANGE
        6. 2.2.6. RESOURCES
    3. 3. Fast Money on the Move
      1. 3.1. Exchange Traded Funds
      2. 3.2. Inverse ETFs
      3. 3.3. ETF Shares Outstanding
      4. 3.4. Rydex Funds
      5. 3.5. Over-the-Counter Volume
      6. 3.6. Fund Flows
        1. 3.6.1. RESOURCES
    4. 4. Follow the Money: Cash, Debt, and Shorts
      1. 4.1. Cash
        1. 4.1.1. MONEY MARKET VERSUS MARKET MONEY
        2. 4.1.2. HEDGE FUND CASH
        3. 4.1.3. MARGIN DEBT
      2. 4.2. Something Borrowed, Something Sold—The Short Trade
        1. 4.2.1. FUEL FOR A REBOUND
        2. 4.2.2. SHORTING ETFs
        3. 4.2.3. HEDGE FUND EXPOSURE
        4. 4.2.4. RESOURCES
    5. 5. Too Far, Too Fast
      1. 5.1. Percent of Stocks above the 10-, 40-, 50- and 200-Day Moving Averages
        1. 5.1.1. SHORT-TERM SWINGS: THE 10-DAY MOVING AVERAGE
        2. 5.1.2. WORDEN T2108
        3. 5.1.3. THE 50-DAY MOVING AVERAGE
        4. 5.1.4. COMBINING SHORT- AND LONG-TERM MOVING AVERAGES
        5. 5.1.5. SECTOR STRENGTH 50-DAY MOVING AVERAGES
        6. 5.1.6. DISTANCE FROM 200-DAY MOVING AVERAGE
      2. 5.2. New High/New Low Index
      3. 5.3. The Arms Index—Adding Volume to the Equation
        1. 5.3.1. RESOURCES
    6. 6. Relative Value
      1. 6.1. The Fed Model
      2. 6.2. The Alternative: BBB Corporate Bonds
      3. 6.3. Dividend Yield
      4. 6.4. Building a Better Mousetrap: Proprietary Models
        1. 6.4.1. VALUE LINE
        2. 6.4.2. MARKET COMMENTATORS
        3. 6.4.3. SECTOR WEIGHTINGS
        4. 6.4.4. WANTS VERSUS NEEDS
        5. 6.4.5. TOBIN'S QUOTIENT RATIO
        6. 6.4.6. SHILLER'S CAPE
        7. 6.4.7. THE REALLY BIG PICTURE
        8. 6.4.8. RESOURCES
  5. II. Considering the Human Element
    1. 7. Sentiment Surveys
      1. 7.1. American Association of Individual Investors
      2. 7.2. Investors Intelligence
      3. 7.3. Market Vane
      4. 7.4. Hulbert Newsletter Survey
      5. 7.5. Merrill Lynch Fund Manager Survey
      6. 7.6. Yale Confidence Indexes
      7. 7.7. Ned Davis Crowd Sentiment
      8. 7.8. University of Michigan Consumer Sentiment Index
      9. 7.9. State Street Investor Confidence Index
        1. 7.9.1. RESOURCES
    2. 8. Analyzing the Analysts
      1. 8.1. Smooth Performance in a Bumpy World—The Earnings Estimate
        1. 8.1.1. IT'S ALL ABOUT MARKETING
        2. 8.1.2. ONE WAY OR THE OTHER
        3. 8.1.3. HIDING THEIR TRUE FEELINGS
        4. 8.1.4. REVISING ESTIMATES
      2. 8.2. Buy Side versus Sell Side
        1. 8.2.1. TRACKING REVISIONS
        2. 8.2.2. MARKET STRATEGISTS
      3. 8.3. S&P Analysts versus Wall Street Strategists
        1. 8.3.1. RESOURCES
    3. 9. Reporting the Financial News, Gauging the Investor's Psyche
      1. 9.1. Magazine Covers
      2. 9.2. The Big Weeklies
      3. 9.3. Reading the Paper
        1. 9.3.1. RULE OF PAGE SIXTEEN
      4. 9.4. The Funny Pages
      5. 9.5. Late Night Talk Shows
      6. 9.6. CNBC Highlight
      7. 9.7. The Internet—Real Time Tracking
      8. 9.8. Tracking What People Are Searching
      9. 9.9. Google Trends
      10. 9.10. Twitter
        1. 9.10.1. RESOURCES
    4. 10. Sitting and Watching
      1. 10.1. Gone Fishing
      2. 10.2. Executive Departures
      3. 10.3. The Celebrity CEO's Exit
      4. 10.4. You Can't Shrink to Greatness
      5. 10.5. Help Wanted
      6. 10.6. Fighting with Short Sellers
      7. 10.7. Homes and Skyscrapers
      8. 10.8. Party Time
      9. 10.9. Building Castles in the Sky
      10. 10.10. Stadium Naming Rights: The Winner's Curse
      11. 10.11. Jumping the Shark
      12. 10.12. A Profitable Shoe Shine
        1. 10.12.1. RESOURCES
  6. III. Following the Smart Money
    1. 11. The Insiders
      1. 11.1. Updated Insider Rules
      2. 11.2. Academic Review
      3. 11.3. Executive Buying
        1. 11.3.1. WHO IS BUYING
      4. 11.4. Conviction
      5. 11.5. Safety in Numbers
      6. 11.6. Buying into Strength
      7. 11.7. Meaningless Buys
      8. 11.8. Insider Selling
      9. 11.9. Selling into Weakness
      10. 11.10. 10b5-1 Plans
      11. 11.11. Aggregating the Data
        1. 11.11.1. RESOURCES
    2. 12. Looking to the Futures
      1. 12.1. Knowing Where Parties Stand
      2. 12.2. Commodity Links to Stocks (and Vice Versa)
      3. 12.3. Swaps and Index Funds
      4. 12.4. How to Interpret the Data
        1. 12.4.1. EXTREME MOVES
        2. 12.4.2. STAYING OUT OF TROUBLE
      5. 12.5. Riding the Wave—Watching the Large Traders
      6. 12.6. Tracking the Shifts—Using COT for Financial Futures
        1. 12.6.1. RESOURCES
    3. 13. Giving Credit to the Bond Market
      1. 13.1. Libor and the TED Spread
      2. 13.2. Corporate Bonds
      3. 13.3. Junk But Not Trash
      4. 13.4. Lending Officers
      5. 13.5. Flight to Safety
      6. 13.6. From Spreads to Slopes—The Yield Curve
      7. 13.7. A Different Look
      8. 13.8. Liquidity and VIX
      9. 13.9. Forecasting Bankruptcy
      10. 13.10. Credit-Default Swaps—Bond Insurance
        1. 13.10.1. RESOURCES
    4. 14. Money In, Money Out (IPOs, Secondaries, Mergers, Buybacks, and Dividends)
      1. 14.1. Increasing Supply—The IPO Process
        1. 14.1.1. EXAMINING IPOS FOR CLUES
        2. 14.1.2. QUALITY VERSUS QUANTITY
      2. 14.2. Secondary Offerings
        1. 14.2.1. WHEN THEY HAVE TO
        2. 14.2.2. WHEN THEY'RE STUPID NOT TO
      3. 14.3. Mergers and Buyouts
      4. 14.4. Buybacks
        1. 14.4.1. PUTTING LIPSTICK ON A PIG
        2. 14.4.2. BUYBACKS THAT MAKE SENSE
      5. 14.5. Dividends—The Other Use of Cash
        1. 14.5.1. RESOURCES
    5. 15. Tracking the Trailblazers
      1. 15.1. A Random Walk
        1. 15.1.1. CHECKING IN WITH THE SEC
        2. 15.1.2. WEAK VERSUS STRONG
        3. 15.1.3. ACTIVIST INVESTORS
        4. 15.1.4. FOOTPRINT TRACKING
      2. 15.2. All-Time High List
        1. 15.2.1. VENTURE CAPITALISTS
        2. 15.2.2. RIVATE EQUITY
      3. 15.3. Buyer Beware
        1. 15.3.1. BEATING THE BENCHMARK
        2. 15.3.2. BILLIONAIRES ARE PEOPLE, TOO
        3. 15.3.3. SPECIALISTS WITHOUT PERSPECTIVE
        4. 15.3.4. LIQUIDATIONS AND REDEMPTIONS
        5. 15.3.5. RESOURCES
    6. Conclusion
    7. Notes
    8. About the Author
    9. About Bloomberg