The Janus Factor

Module 5 – Strength-Following and Contrarian Markets Introduction ‘I wish I was the fish, he thought, with everything he has against only my will and my intelligence.’ The Old Man and the Sea My training as a trader began more than thirty years ago. I was lucky enough then to learn from experienced and successful […]

Relative Strength Divergence The next chart shows the normalized performance of Wal Mart (WMT) and the benchmark against which WMT is measured in this study, the Standard & Poors’ 500 index. Even without the aid of a relative strength calculation, it is easy to see that WMT outperformed the index over the period shown. A […]

Module 4 – Relative Strength Computing Relative Strength Here’s a mental experiment in relativity: Imagine that you are standing on the bank of a river watching a motorboat race. How would you determine the speed generated by the boats themselves, without the influence of the river’s current? (If the boats are racing against the current, […]

Liquidation After we sell short at L, we have only to wait for the index to tell us whether our judgement is correct. Our stops are placed above near-term supply, at a price just over 155. The index begins to ease downward on only modest volume. Volume must be considered in context, and our interpretation […]

Selling Short From K, a rally begins. If the rally is merely a correction of the oversold condition at K, rather than the beginning of a strong drive to new highs, it should show signs of supply after recovering about one half of the decline from the top, near H. The arrow marks the one-half […]

Sign of Weakness Our outlook for this index at I is now bearish enough that we have liquidated our long position. There have been consistent indications of distribution by strong hands; our point & figure targets have all been achieved; price-volume at I hints that the index may be moving into a period of liquidation. […]

Psychology Distribution is only possible when the mass of traders are positive on the market. Published editorials and reports from July to September give us some insight into traders’ outlook and mood during this period. All of the following excerpts are from the Wall Street Journal. July 8: “According to one observing broker there is […]

Selling Turns Aggressive After a correction to E, the index rallies weakly before gapping to a correction low at F. By now the index has marked time for two weeks, and new support has been building between 145 and 150. Further, the distribution between 150 and 153 is not yet large enough to threaten the […]

Passive Selling After our purchases at A and again at B, the index rallies strongly over the following two months. At C,the rally accelerates on widening spread and increased volume.This set of conditions is characteristic of the markup stage and may be generally interpreted as bullish. Nevertheless, the index has rallied to our first objective […]