Editor’s note: This paper was originally published at http://ssrn.com/abstract=2050301 and is reprinted here with the permission
of the author.

Abstract: In their 1985 paper Does the stock market overreact? DeBondt and Thaler explained the idea of mean reversion. They illustrated how mean reversion leads to the “Loser’s portfolio” outperforming the “Winner’s portfolio”over a 3-year period. Based on mean reversion, this paper asserts a new stock selection and trend determining approach. DeBondt and Thaler use an innovative approach to convert price performance data into nonprice ranking data, which is positively tested for mean reversion and stationarity.

Introduction: Findings of reversion in stock prices towards some fundamental values remained in the literature for a decade.  Using overreaction, DeBondt and Thaler (1985) showcased that a stock which performed poorly over a 3-5 year period subsequently tended to outperform securities that performed well relative to the average, during that same period. This implies that, on average,

Editor’s note: This report was originally published by Phases & Cycles on August 27, 2013 and is reprinted here with permission.

If there is one thing that the 2009-13 bull market has taught us over and over again, it is to not underestimate its persistence and refusal to buckle to bearish forces.

Recent action for the S&P 500 could be summarized as follows: after a modest four-week correction to 1560 in late-June (an approximate 1/3 correction of the November-May rally), the Index moved to an all-time high and is now into the second down-leg but already becoming over-sold. This is exemplified by: 1) the recent –75% reading on the Advance-Decline oscillator, 2) the minus six (bullish) reading on the Net Day (or Meisels) Index, 3) the dearth of New Highs (a mere 11 on August 15th), and 4) the almost over-sold status of the Slow Stochastic.

In all probability, the sell-off culminated last

Julie Dahlquist is first and foremost a teacher. She may not try to be teaching all the time but she taught me a great deal in a short time. Great teachers have the ability to make complex ideas easy to understand. Julie demonstrated this skill when she explained the relationship between economics and technical analysis.

My B.B.A. and Ph.D. are both in economics. I am often asked how an economist can become a technical analyst. However, I do not see economics and technical analysis at odds with each other. That supply and demand determine price is at the heart of economics. To me, technical analysis is nothing more than looking at the relationship between supply and demand.

That sounds simple enough but she has actually incorporated the two disciplines in a way that seems to be unique. In an easy to understand

Elliott Wave is often thought of as a comprehensive market philosophy. It can be applied as a self-contained analytical tool but Gorman and Kennedy demonstrate that Elliott Wave can be combined with other indicators to potentially increase returns and decrease risk. The use of additional indicators is rarely seen with Elliott Wave analysis but this book demonstrates how to add momentum or an overbought/oversold indicators.

In Visual Guide to Elliott Wave Trading, Gorman and Kennedy explain how to apply Elliott Wave and more importantly how to trade Elliott Wave. 

One of the advantages of Elliott Wave is that it provides a way to forecast market turning points. Analysis often begins with a study of the past market action to determine which wave is unfolding now. That information is useful to traders but no tool is ever 100% accurate. A simple idea, adding MACD or

Philippines Stock Exchange PSEi Index Outlook

Editor’s note: This analysis was prepared on August 28, 2013.

The PSEi fell as low as 5,562 in today’s trading following last night’s sell-off of emerging market shares in the U.S. Fortunately, the PCOMP managed to surface above its support at its June low to close the session at 5,738.  Bargain hunting in anticipation of a better-than-expected Philippine GDP report allowed the index to recover part of its losses and as a result formed what appears to be a bullish hammer candlestick pattern. With prices at support and an oversold condition, the index may stage a rally in the very near term. A bounce off its present support may send it back to 5,900 or even to 6,100. Note, however, that any rally may still be temporary as this may mark the last rally of the wave C of a wave 4 correction. Following this rally,