I became involved in the personal computer movement back in the early days. I built an 8 bit, Intel 8008 powered computer from a July 1974 magazine article in Radio Electronics. I also started one of the first "home computer" clubs at NASA/Houston in 1975, so I have been a really long-time observer of this technological development.

I have been amazed at the development of what has become the worship of Apple, even from the early days of the Apple 1. Now an anthropologist has confirmed that it has become a religion.

Today Apple Inc. has become a mammoth corporation. All very interesting.

John Bollinger writes:

I was just a few years behind you, starting with a z80 S100 system in 1978. Indeed, I developed Bollinger Bands on such a system. In those years there were a wide of microcomputer choices and many users moved around from platform to platform, but the Apple people were exclusive from the start. They used separate stores, forums, bulletin boards, user groups, ect… It seemed that with Apple you were either in or out, whereas with other platforms there was a lot of cross fertilization, debate and movement. One could work with a Commodore, Radio Shack, S100, cp/m, Atari, Sinclair, etc. user, even with some of the mini-computer users, PDP, VAX, etc., but rarely with an Apple user. The dividing line seemed to be memory mapping versus port mapping, with Apple's 6502 using memory mapping while much of the rest of field used port mapping, a distinction that faded long ago. My take is that the closed culture was deliberately fostered by Apple's founders to ensure the success of their brand.

David Lilienfeld writes:

I too remember those early days, having built the first MITS machine. Running a program meant flipping toggle switches up and down. The 8008 was followed by the 8080, which was a great chip with which to design. It was a lot easier than the 8008. There were only two competitors of note–the Motorola 6800 and the AMD 6502. That's how Motorola and Advanced Micro entered the microprocessor market (and the world introduced to Jerry Saunders, who could have taught Liberace a thing or two about flamboyance).The Z80 followed in due course. By then, the TRS-80 came on the scene, along with the first set of Apple computers. Those were heady days. Just getting a "Star Trek" program to work was considered a major accomplishment.

I'm not so amazed by Apple's development, per se, as by its rescue from the trash heaps of the PC industry. This isn't close to being the arrogant company that built the Lisa and the original Mac. I'm not sure it is a religion, though. Look at what's already happening with the early adopters and the new iPad. This situation is like the original versions of Word, and the Microsoft fans (Microsoft worship in corporations was pretty prevalent, though nothing like Apple). As with Microsoft, this support of Apple will in time pass.

Jeff Watson writes:

I remember my first Commodore and thought that being able to figure out empirical calculations(curve fitting) with major fudge factors to describe grain prices was the cat's meow. But then again I thought my old HP 35 calculator was something.





It is the oddest coincidence that on one of the rare occasions that you write to the list I am in the midst of a discussion with another (new member- neophyte to investing/trading) about the use of your bands. He is new to technical analysis and likes the ideas behind your bands. I mentioned to him that you are on the SpecList and he was intrigued. My question for you is simply: What is the best reference for him to learn about using your bands? Is it your book? (stupid question I know — but perhaps you have discovered someone else's ideas that you particularly like).

John Bollinger responds: 

Hello Chris,

The best introduction is still my book, even though it does need updating as I have extended the BB body of knowledge substantially since then.

Odd that you should mention discovering someone else's ideas that I particularity like, as Ian Woodward has been an inspiration to me over the past couple of years. He has just turned 80 and is still going strong. I can think of many analysts half his age who haven't a quarter of his current creativity. His work with Bollinger Bands is very interesting.





Here is his most recent article:

An above average 2010, from Sam Eisenstadt

Perhaps now that he has left Value Line we'll learn a bit about what really went on with that ranking system?

Kim Zussman replies:

Similar results [to what Sam Eisenstadt reported regarding "rally from recession lows"] when isolating on major declines in DJIA (1929-09, weekly closes), defined as:

This weeks close = low for prior and future 20 weeks (major low) + This weeks close = low for prior 255 weeks (5 year low)

Using this definition, here is the size of the decline (from max prior 5 years to the major low), return next 40 weeks, and return for 20 weeks following the first 40:

Date         decline    nxt 40W    nnxt 20W
03/02/09    -0.53      0.59      ?
09/30/02    -0.36      0.22      0.12
12/02/74    -0.45      0.41      0.21
05/18/70    -0.33      0.38     -0.07
04/20/42    -0.50      0.35      0.14
07/05/32    -0.89      0.99      0.15
11/11/29    -0.40      0.05     -0.30

Four out of 6 subsequent 20W returns were positive, with the notable exception of 1929 (whose repetition has been ruled out through close study by the current Fed Chair).

Phil McDonnell writes:

What went wrong with the rankings? Gaming may be part of the answer. Sam Eisenstadt clearly did not know the answer when I asked him a few years ago. In my opinion, the SEC has the best theory but they let the 'monsters' off easily with only a fine and no admission of wrongdoing. According to the SEC they were funneling money off to an in-house brokerage, in effect skimming the investors.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Sam Eisenstadt replies:

I hope Phil is not implying that I was somehow involved in the SEC case against Value Line. Nowhere in the SEC charges am I mentioned, nor was I aware of the goings-on in the brokerage area. As far as Jim is concerned, I recognize that he has never been a fan of the Value Line Ranking System, even when it was performing well from the late 1960s into the late 1990s. I would recommend he read Fischer Black's "Yes Virginia, There is Hope — Tests of the Value Line Ranking System. " In recent years, the system had problems as "earnings growth," (the major component in the system) was deemphasized in favor of "value" factors. The Niederhoffer Theory of Changing Cycles. Perhaps we're approaching another change, in which event we may not hear from Jim for a while.

Victor Niederhoffer explains:

What everyone associated with, or knowing of, Sam Eisenstadt, certainly all contributors here and those associated with me, has thought about this issue is that Sam is just the finest gentleman anyone has ever had the pleasure of meeting. A beacon of light in our industry. The Osborne of fundamentals. The Balder of our field. What a joy to have him swinging and gliding again unfettered from the River Styx.



SushilBollinger Bands provide so many utilities in figuring out different aspects of the market. I discovered one few years ago and find it pretty useful in getting the broad sense of the fear and greed state of the market. You can try it as follows:

((Next Expiry Futures - Current Expiry) / Current Expiry) X No. of contract rollovers in a year X 100 is the underlying variable you want to calculate and then throw around Bollinger Bands over its ongoing plot. I use the upper standard deviation at +2 and the lower one at -3 standard deviations.

This variable basically plots a cost of carry / yield equivalent of the futures contract differential on a rolling basis. The reason I do not use Current Expiry - Cash is that at expirations there would be huge noise as well as one would have to multiply the ratio by the No. of times the current contracts could rollover found by dividing 365 days by days left to expiry. A bit cumbersome. Also, Cash and futures comparison requires finding out dividend declarations, dates of ex-dividends for various index components. So the formula I have chosen is simpler, easier to build (you can use the CIX function on Bloomberg to build this for example in a minute).

As the reading gets closer to the upper standard deviation line it is a fair indication of the long risk taking capacity exhaustion in the current state & as it slips closer to the lower (deeper) standard deviation line it is the extreme of risk aversion. The %B indicator of Mr. Bollinger provides additional qualifier often. Whenever there is a divergence between the main indicator and %B that is the indicator makes a higher high or a lower low while %B did not it becomes an even securer reading. Trade entry decisions made with other tools thus come with a greater confidence as to whether one is trying venturing into a turning tide or into a running tide.

A perspective of observing the market through such a lens provides to my own psychology a more positive frame of mind. Someone who aspires to consistently be paid by the market can take the attitude of providing some utility and service to the market for which it should be compensated regularly. When the market is at +2 line indicating a state of avarice you supply to the stretched out demand and when the market is at the -3 line indicating a state of panic you demand courage. That way an attitude of being a consistent service provider looking for consistent rewards helps one overcome one's own emotions of fear and greed that cold otherwise arise much more easily with a sense of competition with the system. I find, for myself, that an attitude to serve the emotionally unintelligent is the reason for them to pay me consistently.

John Bollinger adds:

There is a little-used method of calculating a constant-maturity futures contract that constantly looks n days into the future that is sometimes called a perpetual contract. Comparing two of these perpetual contracts with differing look forward lengths, say 10 and 30, would be quite helpful for Sushil's type of analysis.



 Bollinger Bands are frequently deployed in multiples, with the most popular multiple probably being threes with upper and lower bands of one, two and three standard deviations.

From my perspective Bollinger Bands define whether prices are high or low on a relative basis. However, just as many authors find that the books others have read are not necessarily the books they wrote, Bollinger Bands are used for lots of things that I never conceived of. Enjoy and please report back on your success or lack thereof.



 This is grillin', not BBQ, but I just had to pass it on anyway. A friend here in British California got himself a nice, new, giant Weber "Genesis" grill. Given the size, it ought to be called the "Missouri" or the "Invincible". It plugs right into an outside gas line, so no external tank needed.

One of his specialities is to put a bunch of sun dried tomatoes, parsley, garlic and herbs in a food processor, whip it into a pesto, and then spread it in a thick layer on the skinless side of a properly prepared (i.e., de-boned) slab of fresh-caught salmon. Then he puts the salmon skin-side down on that Weber and cooks it until it's just firming up but still juicy. Meanwhile, he's tossed big chunks of onion, mushrooms, peppers and squash in olive oil, added salt and pepper, and roasted them in a veggie tray, also in the Weber.

Throw in a bottle of Rigamorole (blended Riesling and Gewurtz) from the Okanagan, and fresh blueberries for dessert, and it's one of the best meals I've had in a long time.

Greg Calvin adds: 

I have put one of these Webers to good use after obtaining it through the certified pre-owned program. The Genesis is a well-constructed grill that provides for even distribution of heat throughout the chamber, making it ideal for when you don't want to flip the food. The design is flare-up resistant, and higher models generally have more stainless steel.

This grill is not perfect for BBQ as the burners run side-to-side, but this is a minor gripe. The Summit line provides front-to-back burners as well as other accessories at a substantial jump in price. Weber's customer service is even better than its grills.

Some simple equipment lessons learned:

If you're using propane, get a spare tank. It's a minor cost, and eliminates some 'uh oh' bbq moments. Keep the grate clean, keep it oiled, or seasoned. Finally, get a second opinion — Check the built-in thermometer with a good oven thermometer. This is especially important for BBQ and roasting.

John Bollinger writes:

Get some swordfish steaks, one per person. Wipe 'em and spread one side thickly with a mixture of Dijon mustard, a little good olive oil, a bit of sea salt and a few good cranks on the pepper mill with a mix of peppercorns. Let 'em sit while you fire up your grill. Grill 'em mustard side up, without turning. The heat cooks 'em from the bottom up and the acid cooks 'em from the top down. Five to seven minutes should be right depending on the thickness of the steaks and the temperature of the grill.

Webers: I have three, a little Smokey Joe, an 18" One Touch and an old 22", so I always have the right tool for the job. They sit in a line like the three bears. Use hardwood charcoal if you can get it. Mesquite charcoal is cheap and plentiful here. My local liquor emporium sells it in 50 pound sacks for the cost of a 20 pound sack of the standard toxic oil-refinery briquettes.



 Investors are often perplexed by the lack of warning of market tops and bottoms, until after the fact. There is no alarm bell tolling. However, there are warning signs at the tops usually based upon enthusiasm, and at the bottom signs based on despair. Didn't Mutual Fund Magazine close its shutters at the end of the last bear market, ringing the bell near the bottom? So now we have a new FOX Business Channel to start broadcasting this year.

Is this a warning bell that the market is flirting with the top?

Victor Niederhoffer writes:

This is all very well and good except that there are approximately 1 billion qualitative events like starting a new business channel that come within a month of all market tops, bottoms, and continuations. It is impossible to differentiate the cause, effect, or any other factor related to the seemingly and for the large part random movements from drift.

From Jason Goepfert:

My local Barnes & Noble is relatively small and its business magazine section is sparse, Forbes, Fortune, BusinessWeek and not much else.

Last year, they started carrying Active Trader, which I found at the back of the top rack. If I weren't 6'6", I never would have seen it.

This weekend, on the second shelf, I was taken aback when I saw the following magazines all prominently displayed: Active Trader; Equities Magazine; Technical Analysis of Stocks & Commodities; Traders Press; Trader Monthly; and Bloomberg Magazine 

Jim Sogi writes:

My daughter called last week and said, "Dad, I want to buy some stocks, now." I said, " Wait till they go down a bit." She said, "You always say that." I told her that, as with the rest of the public, with recent all time highs, the urge to buy stocks at high levels is typical but often wrong. It is better to buy stocks when they are down so you aren't down a couple percent as soon as you buy. She looks at her stocks about once a quarter.

From Stefan Jovanovich:

 The actual use of canaries in coalmines fails to provide the historical lesson that the metaphor promises. Mining for "sea" coal (named because the earliest pits were at the coastal towns like Newcastle in what is now the United Kingdom) began in the 1400s. Canaries were first used in British coal mines in 1911. As part of the political alliance between the Liberals and the new Labor Party, parliament adopted regulations requiring that two canaries be placed in every mine. That, of course, required that someone be assigned the job of canary keeper.

The requirement for canaries was finally abolished in 1986. There is no evidence that the canaries served any useful purpose; the scientific justification was so weak that they were first described as being uniquely qualified to detect carbon monoxide. When that proved not to be the case, they were rationalized as being peculiarly sensitive to methane. The canary in the coalmine is probably better compared to the caboose on the rail train, a "safety" requirement that provided a comparatively soft berth for the man assigned to the useless activity.



One must repeat that the unconditional drift of the market is 10% a year. Whenever you are short, you have a drift going against you. When you wish to go short, chances are that the drift of the market will be above 10% a year. That’s because you and others think there’s a bear market retrospectively, and require a higher rate of return to be invested. In addition there are frictional costs to being short. Put them all together, and I’ve never seen a short seller who’s made money, nor has the Palindrome. It does give psychic value however in that it lets you vent your hatred of the system and yourself. It also gives stature because you are always on the negative which seems so much more poignant than the positive.

Since you always are giving away money on the short side, on an expectational basis, it is best not to consider it as the wind is against you unless you are truly insecure. The question of when you should go short is the wrong question. A better question is when you should increase the leverage of your long investments. I would propose a hypothesis that it is good to do that when the market has suffered a decline with a given period of a certain magnitude or more.

I believe the above reasoning, as well as the questions I ask bears about whether things are truly so much worse than before, and whether if they are, is this bullish or bearish, which I have made repeatedly since 1960 but also for the last four years, during which the market has doubled, has prevented many people from self destruction.

Dr. Janice Dorn provides a different perspective:

Part of the profundity of Victor’s remark is that the bears make poignant arguments which are almost tailor-made to touch something very deep inside of those who are always watching and waiting for some disaster or catastrophe. The bearish arguments tend to be more scholarly, detailed, laced with Latin words and appeal to the limbic core of the brain (which holds memories of fear and terror and sees them even in their absence), as well as the higher neocortical areas which are, in some way, hard-wired to process, consolidate and retain bad news more firmly and longer lasting than good news. Bad news is stored as pain and that pain can be evoked in almost any situation. Good news tends to be more fleeting and there is more difficulty reaching into the brain stores to retrieve the memories of euphoria. Perhaps the neurochemistry of euphoria (be it dopamine, serotonin, norepi, or any of the thousands of neurochemicals) is configured in a way as to be more transient, spontaneous and non-entrained. Depression, disaster, danger lurking around every corner is much more “reachable” in terms of our psyche. Once again, this is likely a function of the way that the cortical neuro-pathways are laid down and communicate electrochemically with each other in the vast cortical landscape.

In any case, the rah-rah cheerleaders are often seen as buffoons, whereas the permabears are the scholars and masters of Latin.

“A mass of Latin words falls upon the facts like soft snow, blurring the outline and covering up all the details. The great enemy of clear language is insincerity. When there is a gap between one’s real and one’s declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish spurting out ink”
–George Orwell, writer (1903-1950)

John Bollinger adds some numbers to the discussion:

S&P 500, 1950 to date, returns by month, ex dividends mean = 0.734%, standard deviation = 4.085%

Dr. William Rafter explains the professional’s dilemma:

Dear Mistress Market,

To second the chair’s remarks about the risks of being short, I emphatically state that “a friend” has never made any money on the short side of equities. Even in profound bear markets, the friend has gotten nothing but frustration out of the short side. Conversely the friend has been able to make money on the long side in those same profound bear markets. But the friend has a problem: people who hire his services want him to add a short component.

More than a quarter of the hedge funds pursue a long/short (”L/S”) style. Let’s assume that our friend had a very successful fully-invested long-only (”L-O”) strategy. The funds don’t want to employ his L-O strategy because they are under the impression that a market-neutral strategy of L/S is less risky. But our friend knows that the short side is just wasted; he can prove that his L-O strategy beats a L/S version of the same thing. By beating it, we mean in every way: higher Sharpe Ratio, lower drawdowns, etc. Now the friend is looking for an allocation of X dollars in his L-O program, but the funds only want to give him .3X or .5X. Since he clearly cannot make money on the short side, he has adapted by finding a strategy that will go nowhere - and that’s what he shorts. (He cannot short the index, because he knows that also will go up.) By his little charade he gets his full allocation, and the fees that go with it.

But this irks, as there are inefficiencies all around: extra transaction costs, risk of errors, extra man-hours, etc. Furthermore, our friend assumes that he is not unique. Others must have the same problem. With more than a quarter of the hedge funds using L/S strategies, how much is being wasted? Is our friend on ethical quicksand by giving the “professional client” what that client says he wants?



Laurence Glazier asks if Optimism in the Markets Exists for More Simple Reasons:

Putting it very simply (or too simply?) is the positive drift in the market an inevitable manifestation of human potential and the innate cheerful optimism we all have, or at least were born with?

Scott Brooks provides his perspective:

I would say no.

Most people are not innately positive or optimistic. Most Americans are blessed by capitalism simply by accident of birth. If they had been born in a communist country, they would simply be sheep there (as they are sheep here) albeit much more unhappy sheep with a greater sense of hopelessness.

Growing up where I did and being surrounded by the people (and their negative destructive attitudes), I don’t think most people are innately optimistic. Any optimism they have is because they are surrounded by an environment of capitalism which breeds some optimism because here they are at least safe (no secret police to break down your door in the middle of the night), they are well fed (no mass starvation, or really, any starvation here), there is consistency of rules (rules and laws are not based on the arbitrary whim of whomever is in charge) and they can see that what is happening around them is consistent with what they innately know is the philosophy of life (as opposed to the propaganda they are exposed to in statist countries…innately they know its a load of cr-p).

No, people are not innately optimistic. Capitalists are. Think about it. What we have today is because of the skills and mind set of very few men. Rockefeller, Carnegie, Edison, Gates. Or men like Jefferson, Franklin, and Henry. Or scientists like Currie, Oppenheimer, Watson and Crick, or my uncle Bob.

What we have as a country is the result of just a few people who were truly optimistic and had the strength of character to fight through all the naysayers and negative busybodies (the Elsworth Tooheys and Wesley Mouchs, Dan Rathers, Paul Krugmans, Alan Abelsons, etc. of the world).

No, people are not optimists. They are negative pessimists who will almost always resort to the lowest common denominator of gossip, destructive thinking and thinking the worst of people.

Just a few of us actually create something of value in this world.

The rest of the world rides on our coat tails….and most of them are dragging anchors behind them or throwing rocks at the back of our heads, or climbing up on our backs to whisper in our ears all the negative things they can think of…but the nice thing is that on our coattails there is also an odd person or two (not very many mind you) who are glad to be on our coat tails…

They appreciate what the men of the mind do for them. And they fight the negative naysayers dragging anchors, throwing rocks or whispering in negativism in our ears.

They are known by many names…but most on this list would think of them as the “Eddie Willers” of the world.

Prof. Gordon Haave Disagrees:

No. The things you cite explain the growing economy. The positive drift is simply what the market pays you to part with your $$$ to put into volatile investments. In fact, the more optimism you have the less the market would have to pay you, so that would actually bring returns down, which of course highlights the important to us optimists of people like Abelson. If everyone thought like us, returns would be lower.



I was watching CNBC over a bowl of cereal a short while ago and Pisani said something along the following lines: “The S&P cash hit 1388 or 1389 again this morning and backed off. This is about the seventh time this has happened.” I don’t generally follow information like this but have seen lengthy List conversations about various indicies at various levels (including “the round”). First, is Pisani’s information accurate (or at least close)? Secondly, is it indicative of anything important? I’ve heard much of “levels of support and resistance” but am not sure that they, or double and triple tops, are significant (it wasn’t that long ago that Dow 11350 was being watched as an area of resistance - obviously it has been overcome).

John Bollinger replies:

I find repeated visits to a level, line, band, etc… useful as ‘logical places’ to take decisions. This is the sort of thing that is hard to ‘count’, but relatively easy to trade. Some of you may know Fred Wynia, it was he that taught me the importance of making decisions at ‘logical places’. I put ‘logical places’ in quotes as it is Fred’s term.

Dr. Phil McDonnell replies:

Pisani is accurate. The previous 6 dates and highs are:

11/13  1387.61
11/8   1388.92
11/8   1388.61
11/7   1388.19
10/27  1388.89
10/26  1389.45

So this morning’s high made the 7th such high in the 1387-1389 range.

Under the category of knowing one’s adversary I would note that there has been a long term up channel which one can draw on a chart over the last few years. The tops of significant rallies appear to be collinear, so drawing a line through them gives an upper limit to the channel for chartists. We hit that line on 10/26 at 1389 (or so) on the SnP.

Note that the line is an up sloping line but it has a much more gradual slope than the recent advance from the June-July lows. I would put this in the same category as round numbers and other such things which cannot possibly work but do. Human beings are superstitious and those who look at charts may sell at such junctions ‘just to be safe’.



Years back I read a comment from Tom Dorsey of Dorsey Wright who stated that it is easier for a stock to go from $80 to $100 than from $15 to $20.

Is there an optimal price of a stock to purchase? $30 or above?

If one bought a basket of stocks at $80 at the beginning of the year, and held it for one year, what would be the performance of the basket and would it outperform the S&P index? What would the standard deviation be?

What price should an investor avoid? Below $12 or below $5? What are the reasons for doing so?

James Sogi adds:

Aside from the high/low price issue,

> 20/80

[1] 0.25

> 5/15

[1] 0.33

So it’s about 8% easier.

John Bollinger recalls:

I think the first to dip his toe in this pond was Frederick Macaulay, later of ‘duration‘ fame, writing in the Wall Street Annalist — a NYT publication — in the 1930s, the exact date eludes me.

Martin Lindkvist elaborates:

Ahh… the square root theory. Norman Fosback has a little discussion in Stock Market Logic. The square root theory says the the magnitude of the stocks price move is directly related to the price of the stock. Specifically, for a given market advance, all stocks should change in price based on their square root. So the $15 stock (square root is 3.873) would advance to 24 (3.873+1 squared) and the $80 stock should at the same market advance go to 99 (8.944+1 squared). Or so according to the theory. The gist in any case is that in during an advance it pays to have the lower priced stock which should be more volatile.

Fred Macaulay originated the theory in the Annalist, March 13, 1931. William Dunnigan’s New Blueprints for Gains in Grains from 1956 also has a discussion.

Gibbons Burke replies:

These lines from the first of the Quartets, Burnt Norton, resonate with philosophical thoughts on the nature of the markets, and the study of market history….

Time present and time past
Are both perhaps present in time future,
And time future contained in time past.
If all time is eternally present
All time is unredeemable.
What might have been is an abstraction
Remaining a perpetual possibility
Only in a world of speculation.
What might have been and what has been
Point to one end, which is always present.
Footfalls echo in the memory
Down the passage which we did not take
Towards the door we never opened
Into the rose-garden...


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