The Master Trader, + Website

Alongside Laszlo Birinyi's stories from his more than forty years of trading experience, the book provides guidance on critical trading and investment issues, including:

• What the market will likely do if Spyders are up one percent in pre-trading
• Whether to buy or sell when a stock reports better that expected earnings and trade up to $5 to $50
• The details behind group rotation and market cycles
• The seasonal factors in investing
• Indicators, explained: which are indicative and which are descriptive
• The importance of sentiment and how to track it

The book will include chapters and details on technical analysis, the failure of technical analysis efforts, the business of wall street, trading indicators, anecdotal data, and price gaps. The Website associated with the book will also feature data sourcing and video.

Acknowledgments xiii

Preface xv

Chapter 1: Technical Analysis: Fuhgeddaboudit 1

Indicators: Pick One, Any One 3

1990 Another Opportunity Missed 6

Notes 9

Chapter 2: The Failure of Technical Efforts 11

A Lack of Analysis . . . (Again) 13

The Advance/Decline Line: A Favorite Tool, but Why? 15

Volume? Another Important Indicator? Really? 20

Newsletters—Once Upon a Time . . . 23

Predicting Rain Doesn’t Count; Building Arks Does 25

Technical Analysis Fails a Rigorous Test 28

Notes 30

Chapter 3: Technicals: The Last Word 31

Topical Studies: An Introduction 33

Notes 36

Chapter 4: Wall Street: Games People Play 37

A Brokerage Firm Can’t Calculate Performance? 40

Mr. Prechter 42

Notes 47

Chapter 5: Money Flows: The Ultimate Indicator 49

Playing with Blocks 51

It is Not How Often; It is How Much 54

The SEC’s Study on the Information from Large Trades 58

Wall Street Week: The Record 63

Apple is a Buy at $3? 65

Mr. Market’s Voice 71

Notes 73

Chapter 6: Anecdotal Data 75

Magazines and Newspapers Are Databases in Disguise 80

Dow Theory in Real Time 84

Magazine Covers—Overrated 87

Note 87

Chapter 7: Always Cut the Cards 89

Strategists: More Marketing Than Markets 91

Stock Market Research: An Oxymoron 94

The Issue of CAPE: Cyclically Adjusted Price-Earnings Ratio 95

Strategists: One More Thing . . . 97

What Do Stocks Really Return? 100

A Successful Model Except for “Irrational” Investors 102

The Press Should Be in the Reporting, Not Forecasting, Business 106

Notes 112

Chapter 8: DOW: 19,792? 115

Citibank (the Company) versus Citi (the Stock) 118

World War I: The Market Swoons, Oops, Rallies 120

The Dow Trades above 1,000 123

Notes 126

Chapter 9: That’s Easy for You to Say! 129

BusinessWeek: 1998, 1999, and America Online 131

BEST: Real Time, Real Money, Real Results 134

Notes 136

Chapter 10: Playing the Game 137

Mr. Buffett Buys and Sells Silver 139

Bonds Can Go Down 143

Mr. Ellis: The Loser’s Game 146

Wall Street Week: We Were Lucky (for Eight Years) 148

Money Managers Don’t Get It? 149

Notes 154

Chapter 11: Have It Your Way 155

Weasel Words: Not Our Choice, but Know and Recognize 160

Chapter 12: The Market: Yesterday, Today, and Tomorrow? 163

Commissions Go Down; ERISA Changes the Rules 164

London’s Big Bang: A Failure There, a Good Idea Here? 169

The Public versus “All Others” 173

High-Frequency Traders Get Billions, Brokers Prosper, but Are You Benefiting? 178

The Demise of the Japanese Market Was Structural 186

Notes 188

Chapter 13: Get Ready, Get Set . . . 191

Tracking Sentiment, or, Keeping Score of the Players 195

Note 196

Chapter 14: Market Cycles and Rotation 197

How to Tell Whether We Are in the Eighth or Ninth Inning 201

Group Rotation Exists; It is Random but Worth Understanding 204

Small Stocks: On Average, Yes, but . . . 212

Growth versus Value: Advantage Growth, but . . . 214

Notes 216

Chapter 15: The Economy and the Federal Reserve Board 217

GDP and the Market, No Surprises Here 218

The Fed Tightens: It Hurts Only for a Little While 221

1994: A Little Perspective, if You Please 225

1995: Economists Predict Because They Are Asked, but Why? 226

Note 228

Chapter 16: Picking Stocks 229

Seeds: Ideas to Get You Started, Planting, and Harvesting Come Later 232

Sprained Wrists Eventually Heal (and Prosper) 233

Capitulation: Another Example of the Anecdotal Process 237

Trend Charts: Late In, Early Out but Profitable and Comfortable 239

Note 245

Chapter 17: The Trading Day 247

The Morning after a Big Day 250

What Do Futures Tell Us? 253

It’s 10:00 a.m.; Do You Know Where Your Stocks Are Going? 253

Chapter 18: “Mind the Gap” 265

After the Post‐Market Fall . . . or Rally 267

Gaps Provide Opportunities and Have Some Tendencies, but None Written in Stone 270

Gaps Squared 272

Old Rule: Large Gaps Have to Be Closed—New Rule: About 25 Percent 273

Chapter 19: You Must Remember This 277

It’s Smart to Be Bearish, but Not Necessarily Profitable 279

You Can Never Know Too Much about Too Many Things on Wall Street 281

Notes 284

Chapter 20: Wall Street Week and Other Adventures 285

Salomon Brothers: The Bar Was High, Even for the Chef 287

Notes 289

Appendix A E xpansions/Recessions and Bull/Bear Markets 291

Appendix B Cost of Timing the Market 303

Dow Jones Return 303

Appendix C H istory of Regulation 307

Glossary 311

About the Author 315

About the Companion Website 317

Index 319

LASZLO BIRINYI is the founder and President of Birinyi Associates, Inc. In 1976, he joined Salomon Brothers as the Head of Equity Market Analysis and developed the firm's weekly commentary, Stock Week. He has developed countless market tools, the most famous being the widely recognized Money Flows tool. In 1989, Birinyi began his own firm, Birinyi Associates, and served as Global Trading Strategist for Deutsche Bank Securities from 1998 to 2002. A frequent guest on business news shows and broadcasts, Birinyi has been inducted into the Wall $treet Week Hall of Fame and named one of Smart Money's "Power 30" market movers. He holds degrees from the University of North Carolina at Chapel Hill and the New York University Stern School of Business Administration.

"Trading is a game," asserts veteran market analyst and industry legend Laszlo Birinyi in The Master Trader: Birinyi's Secrets to Understanding the Market. And "like all games, there are winners and losers. Hopefully, you will emerge a winner by understanding the reality of today's markets and being aware of the land mines and pitfalls."

For more than forty years, Laszlo Birinyi has been one of the financial world's leading voices—a brilliant trader, prognosticator, and unique personality unafraid to speak hard truths that rattle the cages of Wall Street. Now, in The Master Trader, this Wall $treet Week Hall of Famer gives us a frank, entertaining, and highly applicable road map to navigate a stock market riddled with potholes of misinformation.

In The Master Trader, Birinyi debunks widely accepted, but often faulty, financial advice through hard, realistic scrutiny of financial analysts, experts, academics, and even Nobel Prize winners. He emphasizes the marketing incentives that too often override truthfulness in the stock market, befuddling investors and leading to overwhelming economic strain.

With a thorough but no-nonsense tone, Birinyi exposes technical analysis and its potential for failure, demystifies the business protocol of Wall Street, and deciphers trading indicators, anecdotal data, and price gaps. Brimming with insider strategies and personal trading vignettes, The Master Trader addresses:

• Market changes that will likely occur as Spyders adjust in pre-trading
• Techniques for predicting the future success of a stock that reports better than expected earnings
• Methods for determining when to buy or sell stock
• The real function of money flows as a fundamental input instead of a technical indicator
• How to use magazines and newspapers, which are actually databases in disguise, to your advantage
• The futility of stock market research as an indicator of the future instead of an assessment of the past

Combining case studies and real data with Birinyi's fearless insights and trademark wit, The Master Trader is a rare window into the mind of a master. Read this book less as a cheat sheet for making money than a guide to not losing it. In today's struggling economy, that may be enough to come out on top.