Big Chart - SP 500 In the Babson Style

 

Here is a shot of the SP 500 chart in its original size.

You can more easily see the bounce off the 50% fibonacci retracement.

I have mixed feelings about that 'gap' on the chart.   

The futures are a more volatile animal than the cash market.

These are the charts as I use them each day   I also have the ability to 'zoom in' on even the smallest sections.

I take no money for this.    I don't need it and enjoy independence.  

It is just sharing of ideas.

I am just showing the charts as I use them for my own investment/trading, with some additional comments.

I have been using this 'Babson' charting method since 2002. 

It's funny but I had forgotten that early on in this blog I used to title the posts 'Charts in the Babson style.' 

He did not provide a written description of his method. 

I made it my own, with a foundation of classic charting techniques, from some general comments about the principles he followed. 

He did provide a list of trading commandments that are worth considering.

But I cannot stress enough, that it is not the charts that make the trade, but the trader.

So be careful what kinds of nonsense you put in your trading mind.

See you after the close.

Roger Babson's Ten Commandments For Investing

Some friends and I were discussing Roger Babson earlier today.  Several of us have a feeling that the markets may be approaching a critical juncture, and we were wondering how that might express itself, given today's Fed and government activism as opposed to the more ad hoc to stabilizing markets in Babson's day.

As you may recall he was an MIT trained engineer who became a famous stock market analyst and financial theorist. I have acknowledged in the past that my own particular style of charting was in part inspired by his approaches to force and resistance. He never really codified his techniques, so they are not all that well understood. But he used them to some great personal advantage.

I see in reviewing some of these fossilized chart remains that I used to put a great deal more energy into them when I was more actively trading.  On my old site I used to update charts several times per day and look at ten minute intervals, which may be appropriate to futures trading in size.

As a point of interest Babson helped in the creation of a 'business engineering' course at MIT, a first for an American University. Babson founded Babson College among other things.  I have written about Babson several times when discussing the events of 1929, but also about 'The Boulders of Dogtown' which are typical of the man.

But Babson is most well known for his prediction on 5 September 1929, "sooner or later, a crash is coming, and it may be terrific."

Roger Babson had ten commandments he followed in investing and encouraged his readers to do the same.  I was reminded of them when I looked up the exact date of his crash forecast that triggered 'the Babson Break.'

It pleased me that I had arrived at several of those commandments through personal experience but that lesson always involved the loss of capital, alas.  One hears these things, and they are sayings.  And then you encounter them in practice, and you learn them.  And so it is with most sound principles and advice.  And quite often whole peoples must relearn the principles of the past.

They are all valuable, but I have placed asterisks behind those that have served me most well, and some which bear the most vivid memories. lol

One thing Babson does not overtly mention is to follow the money, and understand who stands to gain what from any deal or transaction, but I think it is implied.  I would also urge one to never confuse reliable performance with luck, unless you aspire to be soundly lashed by the tails of probability.

One thing that did strike me oddly in reviewing this is to ask, 'is anyone except for a few old codgers like me investing anymore?'  It almost seems archaic to say, when everything is just a bet and most everyone is just a player.  It must have seemed that way to Babson as well, in the Autumn of 1929.

These were:

• 1. Keep speculation and investments separate. **
• 2. Don't be fooled by a name. **
• 3. Be wary of new promotions.
• 4. Give due consideration to your market ability.
• 5. Don't buy without proper facts. **
• 6. Safeguard purchases through diversification. **
• 7. Don't try to diversify by buying different securities of the same company.
• 8. Small companies should be carefully scrutinized. ***
• 9. Buy adequate security, not super abundance.
• 10. Choose your dealer and buy outright (i.e., don't buy on margin.) **

Charts for Market Close February 20

US Equity Charts in the Babson Style

Charts in the Babson Style for the Week Ending 16 January

As a reminder, all US markets will be closed on Monday for a national holiday.

Charts in the Babson Style for Midweek January 14

As a reminder, this Friday January 16 is options expiration.

Also, US markets will be closed on Monday January 19 for the Martin Luther King national holiday.

The markets will be open on Tuesday January 20 which is the Inauguration Day for the incoming President Barack Obama.

Charts in the Babson Style for Midweek January 7

It looks like a pivotal moment on the charts.

Pivotal: being of crucial importance; central, key. By pivotal is meant a key decision point on the chart.

The rally which we have had so far is within the bounds of a 'technical bounce.'

What the market does tomorrow after the Jobs Report will help us to decide if it was indeed just a technical rally, or if it is something else, up to and including a trend change into a more sustained bear market rally that might be substantial.

The Jobs Report number tomorrow in combination with how the market will react to it, is almost a coin flip at this point with a shading to bearish only because of the trend. The number should be 'bad.' We'd estimate north of 500,000, perhaps higher.

It is our estimate that any number less than 550,000 is discounted in already and will be fuel for a short covering rally with cries of 'bottom.' Any number over 710,000 will be a shock and probably will bring the market lower.

And in between is a gray area. We do not believe for one minute that the recession is at its bottom, and that blue skies are in sight.. But that may mean little when hot, restless money comes off the table, aching for higher returns and risk, eventually to be consumed by beta.

The gambler jumps in, the trader waits. We have only hedged positions on the table as of the market close, not including our long term holdings, none of which are related to equities at this time. Our goal is not to give up any money by overtrading.

Charts in the Babson Style for 11 December

Charts in the Babson Style for the Week Ending 5 December

A Few Charts in the Babson Style for Midweek 3 December

Charts in the Babson Style for MidWeek 12 November

Charts in the Babson Style for the Week Ending 7 November

Charts in the Babson Style for 30 October 2008

The broadest index here, the Russell 2000, suggest that we may have made an important bottom. We will look to see if this is confirmed by the other indices, and by the VIX.

The market is 'guilty until proven innocent' in a bear market downtrend.

As we stated earlier today our bias is to think this is end-of-month paiting of the tape. Do not expect the economy to recover or the financial system to gain efficient function in service of real economic activity until serious reforms are put in place.

Charts in the Babson Style for the Week Ending 24 October 2008

A rough week indeed, with the US equity markets opening this morning with the SP futures down limits. We thought there might be a plunge to retest the lows, and set up a rebound rally, but that was not to be the case.

Is this the first weekend in some time we will not be waiting on some Fed and Treasury action on Sunday night before the Asian markets open? Seems like it. Treasury said they might start buying chunks of insurance companies and other financial firms. That failed to buoy the markets, but as they say, it could have been worse.

Do you remember when watching the market was 'like watching paint dry on a house' intraday? Now it feels like we're watching a tornado rip that house apart every day.

It looke like we'll be retesting the lows, perhaps next week, and continue to bleed on the downside, perhaps another ten percent or so until the market reaches value.

Try to pay the good things you receive forward, payez au suivant, which are the terms of this house. It is ironic indeed but well known that the help that those in need receive so often comes from those who have suffered themselves, and realize that it is by the grace and mercy of God that we are blessed. To learn to love we must first yearn to be comforted.

Have a pleasant weekend.