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Richard
Lees Combines Physics Into New Technical Analysis
By
Jim Wyckoff
(Note:
This is a story I wrote a few years back, when I was a journalist
with FWN.)
Stock
market and options trader Richard Lees has combined physics, pattern
recognition and technical analysis to form several new “pH-Indicators”
to guide him in trading.
Lees
is a money manager and president of Richard Lees Capital Management
in the Studio City area of Los Angeles. He is a featured speaker at
the Telerate Seminars 20th annual Technical Analysis Group (TAG 20)
conference here this weekend.
“I
began to trade the markets in 1982 when, after my father died,
managing family money arose literally from a life-and-death
situation as my responsibility in the family. So the enterprise has,
from day one, left me with little patience for hypothetical market
methods,” said Lees.
He
has studied technicals, fundamentals and systems trading that
combined them both. “Eventually, I felt my own way to what worked
in real time and with real money,” he said.
After
some valuable additional encouragement from one of the “wizards”
in Jack Schwager’s book, “Market Wizards,” Lees developed an
entirely new set of indicators.
“The
indicator set, which is what I’m introducing for the first time in
public at TAG 20 in Las Vegas, is called The pH-Indicators. And they
are elastic, or what I like to call liquid oscillators. They do not
reach, what conventional oscillators call ‘overbought’ and ‘oversold,’
but rather establish trend points which give signals, although in
all timeframes. I use them on everything from intermediate signals
on the stock market to day trading.”
Lees
said three proprietary indicators are literally enough for him to
reviewuate the stock market.
“One
is pH-F, my fundamental indicator, and keys off the S&P earnings
yield rather than its price-earnings ratio. This has kept me on the
right side of the bull market of the 1990s.
“Second
is pH-L, my Liquidity Indicator, which sits at the heart on my work.
It is a simple, but I think elegant, way I’ve found to connect
what the Federal Reserve is doing in the real economy with how the
stock market is valuing that real economy.
“Last
is pH-I, my Market Internals indicator, which gives me everything
technical I need to know about market action in one indicator. It’s
kind of an updated version of TRIN, and it was formed at least in
part because of my simultaneous admiration for and disappointment in
TRIN. I would emphasize that I consider Richard Arms one of the true
brilliant men in technical analysis, and I’ve long admired his
work. It’s just that I found what I consider a more immediate and
fast-changing indicator which I believe is more suited to the
electronic markets of today and tomorrow.”
Lees
said he then combines what these indicators are telling him about
the market to produce an Overall Market-pH number, which is also the
percentage he will be invested at any given time in the market.
(i.e., if the Overall Market-pH is 9.3, he wants to be 93% in the
market with his stock picks.)
Then
he uses a 21-point Screen he developed for picking stocks, which
essentially identifies “a key data signature that I’ve found
over the years selects value just before it’s about to become
growth.”
“I’m
effectively always in the market then, but at different levels of
commitment. I believe in stock picking, not mutual fund investing,
as I believe money managers should be paid for picking stocks, not
other money managers.”
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