Classes of technical trading rules, Contrary opinion rules, Smart money rules

Classes of technical trading rules:

• General market movement indicators
• Individual stock selection indicator (graphs and moving average)

Contrary opinion rules:

Contrarians believe that the majority is always wrong and would buy stocks when:

• Mutual fund cash positions are high
• Credit balances in brokerage accounts are high
• Investment advisory opinions are bearish
• OTC versus NYSE volume is low. (5) CBOE put/call ratio is high (>0.5).
• Index futures positions are bearish.

Mutual fund cash position:

• MFR = MU cash/ Total fund cash
• If greater than 13% => market - bearish; contrarian - bullish;
• If smaller than 5% =>opposite

Investor credit balance in brokerage a/c:

• If falling => market - bullish, contrarian - bearish;
• If rising =>opposite

Investment Advisory Opinions:

• IAR = bearish opinion/total opinions
• If greater than 60% => market – bearish, contrarian - bullish;
  If smaller than 20% => opposite

Over the Counter vs NYSE volumn:

• Volumn ratio= OCT volumn/ NYSE volumn (degree of speculation trading)
• If≥112% investor bullish contrarian bearish , If £ 87% opposite

CBOE Put/Call ratio:

• PCR=Puts /calls
• If ≥0.5 => market – bearish, contrarian - bullish;
• If ≤ 0.25 opposite

Futures Traders bullish % stock index:

• If greater than 75% =>speculators – bullish, contrarian - bearish;
• If smaller than 25% => opposite

Smart money rules
Smart money analysts follow the experts and would buy stocks when:

• Confidence index is higher (approaching 100)
• T-bill Eurodollar spread (or high quality / low quality bond spread) is low
• Short sales by specialists as a percentage of the overallshort sales are low
• Debit balances in brokerage accounts are high.
  

Confidence index

• If increase confidence=>sell quality bond buy low grade bond =>decrease bond price and increase yield of quality bond, increase price and decrease yield for low grade bond => narrow their spread
  
  CI = Barron’s average yield on 10 top grade corpoprate bond/ DJ averagee 40 bonds, or
  CI = quality bond yield / average bond yield (always less than 1);
  

T-bill-Eurobond yield spread :

• In case of internaitonal crisis, the spread will increase as T-bills is safer.
  

Short sale by specialist:

• S.S by specialist/ Total S.S. on NYSE;
• If smaller than 30, bullish
• If greater than 30%, bearish

Debt balance in brokerage a/cs

• If increase => bullish