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D. This Week's Guidepost

"Buy and Sell Signals" We've been asked many times about the value of the Rolling Analysis and if the buy/sell levels are current recommendations. Absolutely Not! Let’s see why.

Look at the price chart for three stocks found on earlier pick lists.

First, (GEND):

1. If we want to show the value of (GEND) as a rolling stock, where should we put the buy/sell channel?

2. First case choose the time frame between 8/31/98 and 10/26/98 with a channel $2.60 to $3.80. We get two rolls and an APR return of 620%! Our rolling analysis selects buy/sell at $2.90/$3.51 for the greatest return.

3. Lets take advantage of the larger price rise and select a time frame of 9/28/98 to 12/7/98 with a price channel of $2.50 to $6.50. In this case the optimum buy/sell is $3.50 and $5.51 with only one roll and a return of 369%, about half that returned with the more narrow channel!

4. Second, (NSPK):
   
   
   

5. In this case we have stronger rolls in November with anemic activity in September and October. However:
   • First case choose the time frame between 8/31/98 and 11/09/98 with a channel $6.70 to $8.00.
   • We get three rolls and an APR return of 472%! Our rolling analysis selects buy/sell at $7.00/$7.66 for the greatest return.
   • Next take the time frame between 10/05/98 and 11/30/98 to get more of the November increase with a price channel of $6.00 to $10.00. Now the optimum buy/sell is $7.00 and $9.01 with only one roll and a return of 316%, about 30% less!

6. Thirdly, (DNCC):
   
   
   

7. DNCC has a dramatic rise in November. How does that impact our rolling analysis?

8. For the first example on this chart we will choose a time frame between 9/2/98 and 11/18/98 giving us two rolls in a price channel of $2.55/$3.50. This returns 392% APR at $2.79 buy $3.27 sell.

9. Next take the time frame between 9/02/98 and 11/25/98 to get the big jump in November with a price channel of $2.00 to $6.00. The optimum buy/sell is now $3.00 and $5.00 with only one roll and a return of 597%!

   So What!

10. If you have followed thus far, now is the time to ask what is the value of all this. Let’s summarize:
    • We found greater return in the first two examples pursuing a modest path, the smaller channel with more rolls. That is an important message.

    • In the last example, a dramatic price increase occurred that brought more return with the larger channel.

11. The last example is an outlier, not the normal case. We cannot predict such a price jump. We should generally go for the smaller channel with more turns, other things being equal.

12. Are other things usually equal? Often not! What then? We will discuss in coming guideposts considerations that allow us to truly "Let our profits run," hanging on when conventional wisdom would tell us to get out.

13. In any case, what we have observed with these three examples is a play on history. It is easy to look at what has happened and predict with hindsight what would have been best. The optimum values in the Rolling Analysis are not recommended buy/sell signals going forward.

14. The value in the Rolling Analysis is the flavor, the color, the personality of how the stock has reacted in the past. Recently (12/28/99), eminent stock market chartist and guru Don Worden (founder of TC2000) made the following comment: “Every stock has a personality. You should study a stock's personality before you attempt to come to conclusions about its technical strength or weakness... “

15. To Worden’s observation we add a hearty hurrah! That is the purpose of the Rolling Analysis section. It is not to fix buy and sell triggers. It is to help us understand the personality of tickers we are considering to be rollers. This is but one unique and proprietary feature of Pro-fundity that sets it apart from other rolling stock web sites. Properly utilized, this will provide a market sense and understanding of the nature of what we call “rolling stocks,” increasing their successful use to fatten our wallets.

It is our intent to help our subscribers understand market strategies well enough to make informed decisions and understand the risks.

TC-2000 tutorials are available on the home page.