The Visual Investor E-Book

John J. Murphy

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Trading Series
• Sprache: Englisch
• Veröffentlichungsjahr: 2009

Seitenzahl: 310

Beschreibung

The Visual Investor, Second Edition breaks down technical analysis into terms that are accessible to even individual investors. Aimed at the typical investor--such as the average CNBC viewer--this book shows investors how to follow the ups and downs of stock prices by visually comparing the charts, without using formulas or having a necessarily advanced understanding of technical analysis math and jargon. Murphy covers all the fundamentals, from chart types and market indicators to sector analysis and global investing, providing examples and easy-to-read charts so that any reader can become a skilled visual investor.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Preface

Acknowledgements

SECTION ONE - Introduction

WHAT HAS CHANGED?

FUND CATEGORIES

GLOBAL FUNDS

INVESTORS NEED TO BE BETTER INFORMED

BENEFITS OF VISUAL INVESTING

STRUCTURE OF THE BOOK

CHAPTER 1 - What Is Visual Investing?

WHY MARKET ANALYSIS?

THE TREND IS TO BLEND

WHAT’S IN A NAME?

WHY STUDY THE MARKET?

CHARTISTS ARE CHEATERS

IT’S ALWAYS JUST SUPPLY AND DEMAND

CHARTS ARE JUST FASTER

CHARTS DO LOOK AHEAD

PICTURES DON’T LIE

PICTURE ANYTHING YOU WANT

THE MARKET’S ALWAYS RIGHT

IT’S ALL ABOUT TREND

ISN’T THE PAST ALWAYS PROLOGUE?

TIMING IS EVERYTHING

SUMMARY

CHAPTER 2 - The Trend Is Your Friend

WHAT IS A TREND?

SUPPORT AND RESISTANCE LEVELS

ROLE REVERSAL

SHORT VERSUS LONG TERM

DAILY, WEEKLY, AND MONTHLY CHARTS

RECENT VERSUS DISTANT PAST

TRENDLINES

CHANNEL LINES

RETRACING OUR STEPS BY ONE-THIRD, ONE-HALF, AND TWO-THIRDS

WEEKLY REVERSALS

SUMMARY

CHAPTER 3 - Pictures That Tell a Story

CHART TYPES

TIME CHOICES

SCALING

VOLUME ANALYSIS

CHART PATTERNS

MEASURING TECHNIQUES

EVEN THE FED IS CHARTING

THE TRIANGLE

POINT-AND-FIGURE CHARTS

CHART PATTERN RECOGNITION SOFTWARE

SECTION TWO - Indicators

CHAPTER 4 - Your Best Friend in a Trend

TWO CLASSES OF INDICATORS

THE MOVING AVERAGE

THE SIMPLE AVERAGE

WEIGHTING THE AVERAGE OR SMOOTHING IT?

MOVING AVERAGE LENGTHS

MOVING AVERAGE COMBINATIONS

SUMMARY

CHAPTER 5 - Is It Overbought or Oversold?

MEASURING OVERBOUGHT AND OVERSOLD CONDITIONS

DIVERGENCES

MOMENTUM

WELLES WILDER’S RELATIVE STRENGTH INDEX

THE STOCHASTICS OSCILLATOR

COMBINE RSI AND STOCHASTICS

SUMMARY

CHAPTER 6 - How to Have the Best of Both Worlds

MACD CONSTRUCTION

MACD AS TREND-FOLLOWING INDICATOR

MACD AS AN OSCILLATOR

MACD DIVERGENCES

HOW TO BLEND DAILY AND WEEKLY SIGNALS

HOW TO MAKE MACD EVEN BETTER—THE HISTOGRAM

BE SURE TO WATCH MONTHLY SIGNALS

HOW TO KNOW WHICH INDICATORS TO USE

THE AVERAGE DIRECTIONAL MOVEMENT (ADX) LINE

SUMMARY

SECTION THREE - Linkage

CHAPTER 7 - Market Linkage

THE ASSET ALLOCATION PROCESS

THE RELATIVE STRENGTH RATIO

2002 SHIFT FROM PAPER TO HARD ASSETS

COMMODITY/BOND RATIO ALSO TURNED UP

TURNS IN THE BOND/STOCK RATIO

2007 RATIO SHIFTS BACK TO BONDS

BONDS RISE AS STOCKS FALL

FALLING U.S. RATES HURT THE DOLLAR

FALLING DOLLAR PUSHES GOLD TO RECORD HIGH

COMMODITY-RELATED STOCKS

FOREIGN STOCKS ARE LINKED TO THE DOLLAR

COMMODITY EXPORTERS GET BIGGER BOOST

GLOBAL DECOUPLING IS A MYTH

RISING YEN THREATENS GLOBAL STOCKS

REVIEW OF 2004 INTERMARKET BOOK

SUMMARY

CHAPTER 8 - Market Breadth

MEASURING MARKET BREADTH WITH NYSE AD LINE

NYSE AD LINE VIOLATES MOVING AVERAGE LINES

ADVANCE-DECLINE SHOWS NEGATIVE DIVERGENCE

WHERE THE NEGATIVE DIVERGENCES WERE LOCATED

RETAIL STOCKS START TO UNDERPERFORM DURING 2007

RETAILERS AND HOMEBUILDERS WERE LINKED

CONSUMERS ARE ALSO SQUEEZED BY RISING OIL

DOW THEORY

TRANSPORTS DON’T CONFIRM INDUSTRIAL HIGH

PERCENT OF NYSE STOCKS ABOVE 200-DAY AVERAGE

NYSE BULLISH PERCENT INDEX

POINT-AND-FIGURE VERSION OF BPI

SUMMARY

CHAPTER 9 - Relative Strength and Rotation

USES OF RELATIVE STRENGTH

TOP-DOWN ANALYSIS

RELATIVE STRENGTH VERSUS ABSOLUTE PERFORMANCE

USING RELATIVE STRENGTH BETWEEN STOCKS

COMPARING GOLD STOCKS TO GOLD

HOW TO SPOT NEW MARKET LEADERS

WHERE THE MONEY CAME FROM

SPOTTING ROTATION BACK INTO LARGE CAPS

TREND CHANGES ARE EASY TO SPOT

ROTATION WITHIN MARKET SECTORS

CHINESE STOCKS LOSE LEADERSHIP ROLE

SUMMARY

SECTION FOUR - Mutual Funds and Exchange-Traded Funds

CHAPTER 10 - Sectors and Industry Groups

DIFFERENCE BETWEEN SECTORS AND INDUSTRY GROUPS

PERFORMANCE CHARTS

SECTOR CARPETS

USING MARKET CARPET TO FIND STOCK LEADERS

INDUSTRY GROUP LEADER

SECTOR TRENDS NEED TO BE MONITORED

INFORMATION ON SECTORS AND INDUSTRY GROUPS

SPOTTING NATURAL GAS LEADERSHIP

NATURAL GAS COMPONENTS

CBOE VOLATILITY (VIX) INDEX

SUMMARY

CHAPTER 11 - Mutual Funds

WHAT WORKS ON MUTUAL FUNDS

OPEN- VERSUS CLOSED-END FUNDS

CHARTING ADJUSTMENTS ON OPEN-END FUNDS

BLENDING FUNDAMENTAL AND TECHNICAL DATA

RELATIVE STRENGTH ANALYSIS

TRADITIONAL AND NONTRADITIONAL MUTUAL FUNDS

KEEP IT SIMPLE

200-DAY MOVING AVERAGE AND HOUSING

NATURAL GAS BREAKOUT

CONSUMER DISCRETIONARY BREAKDOWN

BEAR CROSSING SINKS CHIPS

NEGATIVE ROC HURTS TECHNOLOGY

CONSUMER STAPLES HOLD UP OKAY

RETAIL RATIO PLUNGES

ENERGIZING A PORTFOLIO

LATIN AMERICA LEADS

REAL ESTATE IS GLOBAL

PROFUNDS RISING RATES FUND

PROFUNDS FALLING U.S. DOLLAR FUND

COMMODITY MUTUAL FUNDS

INVERSE STOCK FUNDS

SUMMARY

CHAPTER 12 - Exchange-Traded Funds

ETFs VERSUS MUTUAL FUNDS

USING ETFs TO HEDGE

USING A BEAR ETF

TRADING THE NASDAQ 100

USING SECTOR ETFs

INVERSE SECTOR ETFs

USING TECHNOLOGY AS A MARKET INDICATOR

COMMODITY ETFs

FOREIGN CURRENCY ETFs

BOND ETFs

INTERNATIONAL ETFs

SUMMARY

Conclusion

APPENDIX A - Getting Started

APPENDIX B - Japanese Candlesticks

APPENDIX C - Point-and-Figure Charting

Index

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Copyright © 2009 by John J. Murphy. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

eISBN : 978-0-470-48668-9

1. Investment analysis. 2. Portfolio management. I. Title. HG4529.M863 2009 332.63’22-dc22 2008048202

To Clare and Brian

Preface

This may come as a surprise, but I don’t really think of myself as a writer. I think of myself as a market analyst who writes about things that I see on charts. Fortunately, I’ve achieved some success in both fields. My first book, Technical Analysis of the Futures Markets (New York Institute of Finance/Prentice Hall, 1986) was described by many as the bible of technical analysis and was translated into a half dozen languages. A second edition was published under the title Technical Analysis of the Financial Markets (Prentice Hall, 1999) and, as the newer title implies, broadened its coverage to include all financial markets. I authored Intermarket Technical Analysis (John Wiley & Sons, 1991) which was described as a landmark publication since it was the first book to emphasize linkages between financial markets and asset classes. A second edition of that book, Intermarket Analysis (John Wiley & Sons, 2004) was published 12 years later.

The first edition of The Visual Investor (John Wiley & Sons, 1996) was my favorite of the books written thus far—and still is. While my other two books were written primarily for market professionals, or investors with some degree of charting experience, The Visual Investor was for the general public with little or no charting experience. The genesis for the book came while I was the technical analyst for CNBC. I usually had three or four short segments on the air each day to discuss some aspect of the financial markets. And I used a lot of charts. Unfortunately, there wasn’t a lot of time to explain how the charts were constructed and exactly how to interpret them. I received an awful lot of mail from viewers asking me to explain what all the lines on the charts meant. The first edition of The Visual Investor was my answer to all of those viewer requests.

We decided to call the book The Visual Investor for a couple of reasons. What I did on TV (and still do in my market commentary) is show pictures of markets in much the same way that meteorologists look at weather maps. It’s all visual. There was no point calling it anything else. Besides, a lot of people are intimidated by the term “technical analysis.” Even I still don’t understand what that means. So we decided to call it what it really was in an attempt to get more people to consider this valuable form of market analysis without all the unnecessary technical baggage and jargon.

I also started calling what I did visual analysis to lessen the fear factor of TV producers who seemed terrified by the subject (despite the fact that TV is a visual medium). It seems like every TV story has some chart attached to it these days. It still seems, however, that TV producers are reluctant to interview someone who actually knows how to read a chart. They’ll ask economists, security analysts, and sometimes one of their own commentators what the charts mean. They seem reluctant, however, to ask a card-carrying chart analyst (yes, professional chartists now carry cards). They seem afraid that would be “too technical” for them or their audience. That’s probably just as well because you don’t need to watch TV to find out what markets are going up and which are going down. One of the purposes of this second edition is to convince you that you’re perfectly capable of doing your own visual analysis of the various financial markets. And it’s not as hard as you might think.

One of the things that happens to most market veterans over the years is that they tend to simplify their work. Part of the reason for that may simply be lack of energy as one gets older. I prefer to think of the tendency to simplify things as a sign of experience and, hopefully, some increased maturity and wisdom. When I first started my career as a chartist 40 years ago, I studied (and tried to apply) every technical tool and theory that I found. Believe me, there were a lot of them. At one time or another, I studied and used virtually every one of them. And I found some value in each one of them. As my intermarket work forced me to broaden my horizon to include all financial markets all over the world, however, there simply wasn’t time to perform in-depth chart analysis on each and every one of them (especially with as many as 80 technical indicators in some charting packages). Then I found something else out. It wasn’t really necessary to do so anyway. All one really needs to do is find out which markets are rising and which ones aren’t. It’s really as simple as that.

On an average day, I scan hundreds of financial markets. I don’t necessarily look at each chart however. We now have screening tools (which I’ll show you later) that help us to quickly determine which markets are rising and which ones are falling. Within the stock market, for example, we can usually tell at a glance which market sectors and industry groups are the strongest and which ones are the weakest on any given day. We can then look to see which individual stocks are driving those groups higher or lower. Only after we’ve uncovered the leaders (or laggards) do we actually look at the charts. We can do the same for foreign stocks and other financial markets such as bonds, commodities, and currencies. The Internet makes all of that easy to do.

One advantage of scanning so many markets is that it gives me a feeling for the big picture. Since all financial markets are linked in some fashion, it’s helpful to get a sense of what the main theme is. Rising stock prices, for example, are usually associated with falling bond prices. A falling dollar usually coincides with rising commodities and stocks tied to those commodities. Strong foreign markets usually signal a higher U.S. market and vice versa. A strong stock market usually favors economically sensitive stock groups like technology and transportation. In a weaker market, defensive groups such as consumer staples and health care usually do better. No market trades in a vacuum. Traders who look at only a handful of markets miss out on valuable information. By the time you finish this book, you’ll have a better grasp of how the big picture works.

The second edition of The Visual Investor follows the same theme as the first edition. I’ve tried very hard to keep it simple. I’ve chosen only those few indicators that I believe the most useful. If you can read a line on a chart and learn to tell up from down, you won’t have any trouble grasping what visual analysis is all about. Knowing why a market is going up or down is interesting, but not crucial. The media is full of people telling you why they think a market is going up or down. It really doesn’t matter. The media is also full of people telling you what the markets should be doing. All that matters is what the markets are actually doing. Visual analysis is the best way to determine that. And that’s what this book is all about.

As you begin to understand the principles of visual analysis, you may notice an increase in your own sense of self-reliance. You may find that you don’t really need to listen to all those analysts and economists who like to explain why the markets did what they did yesterday (which they didn’t know or didn’t bother tell you about the day “before” yesterday). You’ll begin to realize that all those financial “experts” aren’t that expert after all. Remember all those experts who didn’t see the housing bubble bursting in 2007 until it was too late. Or those experts who assured us that the subprime mortgage mess wasn’t all that serious in summer 2007. Even the Federal Reserve Board kept insisting during the second half of 2007 that the economy was in fine shape and inflation was well contained. While they were saying that, the stock market and the U.S. dollar were falling while bond prices and commodities were rising—a recipe for stagflation. By the middle of 2008, the Fed admitted that it was trying to battle a weakening U.S. economy and rising inflation at the same time. It took those experts several months to recognize what the markets were telling us all along. That’s why we prefer looking at the markets instead of listening to the experts.

When I first started writing about intermarket principles more than a decade ago, it wasn’t that easy to implement many of the strategies. Commodities, for example, were the hottest asset class over the past five years. In the past, the only way to benefit from that was through the futures markets. The advent of exchange-traded funds have made access to commodities much simpler for the average investor. ETFs have also made sector trading much easier as well as access to foreign stocks. I’ll show you how ETFs have made the life of the visual investor easier.

I started out to make this a “visual” book. I wanted to show you a lot of pictures of markets that could tell a story on their own. As a result, you’re going to see a lot of charts. The charts I chose were taken from recent market data. They weren’t chosen to depict perfect textbook examples, but to show real-life examples of visual principles at work in the current market environment. I hope I’ve chosen wisely. Please keep in mind there’s only one question you have to continually ask yourself: Is the market I’m looking at going up or down? If you can answer that, you’ll do okay.

—JOHN MURPHY June 2008

Acknowledgments

In the first edition of this book, I recommended that an investor have charting software and access to an online data service to perform visual analysis. Thanks to the increasing number of Internet resources, all one needs now is a good charting website, which eliminates the need for a separate data service. In other words, all you need to do is log on and start charting. One such charting service is StockCharts.com. As the chief technical analyst (and part owner) for that award-winning site, I’ve had some say in its development. Needless to say, I’m very proud of the result. All of the charts (and visual tools) in this book are taken from that website. I’d like to thank Chip Anderson, president of StockCharts.com, for giving me permission to do that. I’d also like to thank Mike Kivowitz of Leafygreen.info for his help in producing the artwork. More information on StockCharts.com can be found at the end of the book. It’s a good place to start your own visual analysis.