Stock Market Logic: A Sophisticated Approach to Profits on Wall Street

396 Pages·1991·9.7 MB·English

by  Norman G. Fosback

A
Classic
The Zweig
Forecast
.
SOPHISTICATED APPROACH
TO PROFITS ON WALL STREET
NORMAN
FOSBACK
G.
STOCK
MARKET
LOGIC
The author is Editor of:
Mutual Fund Forecaster
Market Logic
New Issues
The Insiders
Income & Safety
Investor’s Digest
STOCK
M A R K F .T
LOGIC
A SOPHISTICATED APPROACH
TO PROFITS ON WALL STREET
NORMAN G. FOSBACK
Dearborn
Financial Publishing, Inc.
STOCK MARKET LOGIC
A Sophisticated Approach to Profits on Wall Street
Copyright© 1976,1984,1985,1986,1987,1988,1989,1990,1991,1992
by The Institute for Econometric Research, Incorporated, 3471 North
Federal, Fort Lauderdale, Florida 33306. Telephone: [phone]. All
rights reserved. No part of this publication may be reproduced, stored in
a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior
written permission of the publisher.
Library of Congress Catalog Card Number: 76-028826
International Standard Book Numbers: 0-917604-48-2 (hardcover)
0-79310-148-4 (paper)
First Printing October 1976 17.000 copies
Second Printing June 1977 16.000 copies
Third Printing September 1979 10.000 copies
Fourth Printing November 1980 15.000 copies
Fifth Printing March 1981 16.000 copies
Sixth Printing February 1983 15.000 copies
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Fifteenth Printing January 1987 50.000 copies
Sixteenth Printing March 1987 100.000 copies
Seventeenth Printing May 1987 100.000 copies
Eighteenth Printing January 1990 53.000 copies
Nineteenth Printing May 1991 25.000 copies
Twentieth Printing September 1991 50.000 copies
Twenty-first Printing February 1992 50.000 copies
The manuscript was typed by Chris Stotler. The type was set in IBM Press
Roman by Shirley Babione and Joan Appel. Manufactured in the United
States of America by Areata Graphics Hawkins, Kingsport, TN.
Market Logic, New Issues, The Insiders, Insider Indicator, Money Fund
Safety Ratings, Income & Safety, Mutual Fund Forecaster, Fund Watch,
and Investor’s Digest are registered trademarks of The Institute for Econ­
ometric Research, Incorporated.
iv
“Outstanding action oriented research requires first a thorough
knowledge of the problem, and second a thorough knowledge of the
applicable scientific theories. Weakness in practical knowledge of
the problem leads to academic exercises; weakness in knowledge of
methods and theories leads to technically unsound work.”
From The Bank Administration Institute’s
Evaluation of Pension Fund Investment
Performance Measurement
v
TABLE OF CONTENTS
INTRODUCTION 1
PART ONE: STOCK MARKET INDICATORS
1 Riches Beyond the Dreams of Avarice 5
2 The Dow Theory 9
3 Yields, P/E’s and Other Trivia 12
4 Leading Economic Indicators 17
5 Will the Real Money Supply Please Stand Up? 21
6 Free Reserves 27
7 Reserve Requirements 30
8 Discount Rate 33
9 Margin Requirements 35
10 Three Steps And A Stumble 38
11 Two Tumbles And A Jump 41
12 Bills, Funds, and Discounts 43
13 Yields, Yields, Yields 47
14 Total Shorts/Total Volume Ratio 55
15 Short Interest Ratio 59
16 Specialist Short Sales Ratio 65
17 Non-Member Short Sales Ratio 68
18 Member Off-Floor Balance Index: Once in a
Generation Buy Signals 72
19 Odd Lotters 74
20 High Low Logic Index 76
21 The Fosback Index: A Fund Timing Indicator 80
22 Advisory Sentiment Index: Betting Against
the Experts 84
viii CONTENTS
23 Put/Call Ratio 87
24 Stock Margin Debt 90
25 Credit Balances 94
26 The Stock Margin Debt/Credit Balance
Indicator 96
27 The Speculation Indexes 97
28 Corporate Indicator 1: Secondary
Offerings 101
29 Corporate Indicator 2: New Stock
Offerings 103
30 Corporate Indicator 3: Stock Splits 104
31 Market Bellwethers 107
32 Utility Stocks: A Real Bellwether? 111
33 The Classic Indicators of Market Breadth 113
34 Negative and Positive Volume Indexes 120
35 The “Going Nowhere” Indicators 124
36 Most Active Stocks 127
37 Overbought/Oversold Index 129
38 Short Term Trading Index 131
39 Industry Group Diffusion Index 134
40 Daily Price Persistency 136
41 All You Ever Wanted To Know About
Moving Averages 139
42 Volume Indicators 147
43 January Barometer or Boomerang
Barometer? 151
44 The Seasonality Indicator 154
45 The Mystery of Market Cycles and
Periodicity 164
46 Inflation and Stock Prices 168
47 News and the Market 172
48 A Unified Theory of Market Prediction 175
PART TWO: ECONOMETRICS AND THE STOCK
MARKET
49 An Introduction to Econometrics 182
CONTENTS ix
50 An Econometric Model of Your Own 188
51 Multiple Indicator Models 191
52 The Major Trend Model 193
PART THREE: STOCK SELECTION THEORIES
53 Stock Selection: An Overview 196
54 Prices and Earnings: Buy Low,
Sell High 201
55 Chart Patterns: Windmills of the Mind? 206
56 Trend Lines and SRL’s:
Terminological Inexactitude 214
57 On-Balance Volume, Tick Volume,
and Money Flows 219
58 Relative Strength: Buy High, Sell
Higher 226
59 Weak Stocks: When Are They a Buy? 231
60 The Insiders 235
61 Volatility Analysis 239
62 Liquidity: Good or Bad? 243
PART FOUR: STOCK SELECTION: FROM THEORY
TO PRACTICE
63 The Synthesis 247
PART FIVE: A TOTAL FINANCIAL MANAGEMENT
SYSTEM
64 Diversification: The First Step 252
65 Leverage: Multiplying Rewards and
Risks 255
66 The Miracle of Compound Interest 262
67 New Issues: Initial Public Offerings 268
68 Contra-Cyclical Investing With the
Gold Price Model 271
X CONTENTS
69 The Dividend Difference 275
PART SIX: MEASURING THE MARKET: KEEPING
SCORE
70 Evaluation of Market Indexes 279
71 Dow Jones Averages 281
72 Capitalization Weighted Indexes 284
73 Advance/Decline Line 290
74 Geometric Averages 293
75 Unweighted Market Indexes 296
76 The Total Return Indexes 300
PART SEVEN: USING MARKET LOGIC
77 How to Use Market Logic 304
78 Scanning Market Logic 305
79 Market Logic: The Complete Service 307
80 Key Market Logic Statistics 327
81 Hot Line 337
82 Research Program 339
PART EIGHT: THE MUTUAL FUND ALTERNATIVE
83 Winning The Easy Way 341
84 Fund Performance Indicators 346
85 Mutual Fund Forecasting 349
PART NINE: A RUN DOWN RANDOM WALK STREET
86 The Non-Random Character of Stock
Market Prices 353
Technical Note: Econometrics 361
Technical Note: Risk 371
Selected References 314-
Index 381