Podcast: The Keynesian Beauty Contest

Pete, May 7, 2008 @ 3:58PM ET | Link | RSS | Read via Email | 12 Comments  

We have received many emails from readers regarding our “Trading Ideas” post. In today’s podcast, we go over how to use the list of stocks found in our daily Keynesian Beauty Contest stock scan:

We feature GOOG, AAPL and WYNN as examples of stocks that were at the top of the list in the recent past. We answered Daniel’s questions and digressed into market and trader psychology.

Google Inc. (GOOG)

Microsoft dropped its buyout bid for Yahoo the other day. Had the deal gone through, they might have be able to compete against Google’s stronghold as the biggest online search engine. Will there be another try?

Let’s take a look at some mass media articles that reflect prevailing sentiment toward GOOG:

CHARTS

06-goog1.gif
Daily bar chart with 50- and 200-day moving averages

06-goog2.gif
Daily bar chart with Swing Line applied

06-goog3.gif
Daily bar chart with InVivo.RMI.Stops and InVivo.RMI.Histogram applied

Aaple (AAPL)

AAPL has had a lot of upside momentum lately:

CHARTS

06-aapl1.gif
Daily bar chart with 50- and 200-day moving averages

06-aapl2.gif
Daily bar chart with Swing Line applied

06-aapl3.gif
Daily bar chart with InVivo.RMI.Stops and InVivo.RMI.Histogram applied

Wynn Resorts (WYNN)

WYNN was at the top of our NASDAQ 100 stock rank & sort at the end of 2007 and that marked a significant top:

CHARTS

07-wynn1.gif
Daily bar chart with 50- and 200-day moving averages

07-wynn2.gif
Daily bar chart with Swing Line applied

07-wynn3.gif
Daily bar chart with InVivo.RMI.Stops and InVivo.RMI.Histogram applied

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  1. Daniel on May 7th, 2008 5:51 PM

    Teresa and Pete,

    Thanks a lot for the podcast. It was illustrative, informative and it shattered any doubt I had over the Trading Ideas List.

    Are the Trading Ideas going to be up each week, day? Is it basically a scan?

    Thanks once again,

    Daniel

  2. Daniel on May 7th, 2008 6:14 PM

    Part 2 (sorry),

    All the examples had a bias for short selling opportunities. As such I have a questions:

    If stops cannot be eyeballed and you are for a reverse pattern where should one put it?

    Can you give another example of going long apart from AAPL?

    No hurry,

    Daniel

  3. Teresa on May 7th, 2008 7:48 PM

    We’ll do our best to post Trading Ideas daily, but I can’t promise to do it every single day. I do the stock scan and then put the results in TradeStation RadarScreen to generate the stops.

    The entry point and the trailing stop are not necessarily the same thing. A trade setup might get you in at a certain point and when the trade goes into the money, you can start trailing the stop down.

    As you have seen from The Ultimate Trading Course, some of the hit and run setups are designed for scalps of only a few bars. They are not trend trades.

    I’ll ask Pete to look at the old spreadsheets to find an example of a long.

  4. LordV on May 7th, 2008 11:32 PM

    When you brought up the point in the Pod Cast that you can’t take the money with you, it reminded me of a speech that I heard from Zig Ziglar.

    He was talking about Howard Hughes and someone inquired to how much did Howard Hughes leave when he was gone? The answer was,
    “he left it all”.

    So if anyone ever asks you how much are you going to leave when you die, you can tell them, the same as Howard Hughes!

  5. Mike (via email) on May 8th, 2008 10:39 AM

    A Hollywood producer with a penchant for philosophy and/or skepticism (yeah right, as if that person exists) would do well to create a show in the same vein as the wildly popular Mythbusters. Instead of using science to debunk mythology, this particular tangent would use healthy skepticism and learned philosophy to expose and lay bare the paradoxes rampant in this overly pragmatic society.

    Oh, we both know I’m about to go on a world class rant, but I shall restrain. All I’ll do is cite one example which was inspired by the contents of the latest podcast. If imposing your own reality (or narrative in the terminology of Taleb) is so detrimental in the world of trading, why does it have such a stellar record of success in politics? Yes, now is not the time or place. We’ll have to wait for that elusive producer to take up that torch.

    Earlier on in the podcast you noted that one of the key factors separating you from the rest was that you utilized better information in order to arrive at conclusions. I don’t think this is the case. We all can use the Google, therefore we all have access to the same quality of information. The factor that separates is the perspective and objectivity earned though all that hard work and study to recognize what information is of use amongst all the rhetoric and noise. There’s your badge of honor my friend.

    You might even aspire to add more glory to your trophy case. Truly the greatest accomplishment you might ever hope for in the world of trading is the development of an Invivo-RMI stop indicator not just for price action on charts but for worthwhile financial information. Now that’s an algorithm! Alas, even if you could develop such a thing, you could plop it right in front of eager traders and most of them would gleefully and willfully ignore it preferring their own version of reality. I just thought of another paradox! Go figure.

  6. Teresa on May 8th, 2008 10:42 AM

    The “better information” I mentioned was the fact that, being at the firm, I could participate and witness the investor sentiment cycle in real-time.

    When a stock was hot, the phone would be ringing off the hook with client calls, all on the long side and so on. That’s how I learned that it is never different this time.

    The internet version of this process is a message board. So yes, information has been “democratized”. :)

  7. Daniel on May 14th, 2008 2:13 PM

    Teresa and Pete,

    Two simple questions. As I have understood (right or wrong), the list produces a scan of stocks that are in play. From there on, one would chart them one at a time to identify possible trade setups from the 15 that you have identified. There on as a discretionary (soon to be) trader, act upon if any setups appear.

    Question 1: Is this how you do (would) utilize the scan results?

    Question 2: would one have to do it before the market opens all of the analysis?

    Thanks,

    Daniel

  8. Teresa on May 14th, 2008 2:17 PM

    I would just scroll through all the charts and see if there are any “textbook” setups. If they are not textbook, I pass. Simple as that. And yes, it has to be done before the market because I am looking for specific setups for the next day. Some of them might go on a watch list.

  9. Teresa on May 14th, 2008 3:22 PM

    Teresa and Pete,

    When you say “500,000 shares on the day, 20-day average of 1.5 million” does it mean:

    500,000 shares per day
    SMA(volume*C,20) > 1.500.000

    Thanks,

    Daniel

  10. Teresa on May 14th, 2008 3:24 PM

    It means the 20-day moving average of “trading volume” should be > 1,500,000 shares

  11. Daniel on May 14th, 2008 7:22 PM

    Teresa,

    At first I did not get it.
    So you mean:

    Condition A: SMA(V,20)> 1.500.000 shares
    Condition B: V(today) => 500.000 shares

    Is this so?

    Thanks,

    Daniel

  12. Teresa on May 14th, 2008 11:00 PM

    Yes!