Schaeffer's Trading Floor Blog

Swans...

by 4/26/2005 12:17 PM
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The buying spikes settled down shortly after the indices pushed into positive territory and I have been using the lull to work on my weekly column for the homepage...

The focus of the column will be Massey Energy (MEE) which is a stock I first profiled back in February. The shares recently pulled back and bounced off the prior resistance zone near 36. While the equity scorecard is neutral there are a couple of points that might still make the stock interesting.

However, the reason for this post is not about that stock. It has to do with the topic of risk. Last week I noted I was reading through the trading psychology chapter from our "Mastering Advanced Options Strategies" and listed some key points for traders. One of the other things that caught my eye was concept of the "black swan" from Fooled by Randomness, by Nassim Nicholas Taleb. This topic came up on the trading floor this morning so I thought I would use it in my column. But I also thought you might be interested to see it also. The excerpt below explains this concept...

    "In his Treatise on Human Nature, the Scots philosopher David Hume posed the issue in the following way (as rephrased in the now famous black swan problem by John Stuart Mill): No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion."

The study course then goes to note this conclusion from Taleb:

    "I can use data to disprove a proposition, never to prove one. I can use history to refute a conjecture, never to affirm it. For instance, the statement "The market never goes down 20% in a given 3-month period" can be tested, but it is completely meaningless if verified. I can quantitatively reject the proposition by finding counterexamples, but it is impossible for me to accept it simply because in past data the market never went down 20% in any 3-month period."


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In response to my cynical post on IBM, Dave says - "RE:IBM the only thing they forgot was the stock split..."

My response - The cynical response would be that they need to keep some "powder dry" in case today's gains don't stick...

Luckily, I am not that cynical...Am I?

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Semis Move Higher...

by 4/26/2005 11:01 AM
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For what it is worth...it looks like much of the buying has been directed towards the semis as ALTR is now up 10 percent and the SMH has broken the downtrend of lower highs and is challenging last week's best levels...

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Buy-Buy-Buy!

by 4/26/2005 10:54 AM
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The bulls appear to be making a push...my alert for NYSE net ticks has become active and the broad market indices have all now crossed into positive territory...


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Feeling Hot...Hot...Not?

by 4/26/2005 10:50 AM
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A quick scan of the news shows that IBM is a "hot stock" as they increased their dividend and approved a massive stock buyback...This has the shares trading up two percent to 76...which of course is still below where they started 2005 when they traded near 97...

Now, for new readers of this space, I am an unabashed cynic on the stock and you can click here and here for the reason why...

Keeping in my mind my bias as a caveat, doesn't this feel like it is a page ripped straight from "a CEO's guide for what to do when you miss earnings, your stock is plummeting, and you are afraid analysts will begin to downgrade your stock" playbook...

When I last checked on Wall Street's ratings we saw that 61 percent of the analysts tracked by Zacks ranked IBM with a "buy" rating. That has now slipped to 53 percent. Will this be enough to elicit some enthusiasm from the Street and keep the rest of them on board?


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