Your Letters

The editors of Working Money look forward to hearing from you!

KEEPING IT SIMPLE

Editor,

Just read the November/December 2000 introductory issue of Working Money, The Investors' Magazine. If you can keep all the concepts as simple and straightforward as you have in this first issue, you will gain a strong customer base. Basic concepts should not be made complicated; the more people who understand investing, the better!

Laura Wolf, via e-mail

SHORT-TERM CDS

Editor,

I really enjoyed reading the January/February 2001 Working Money article by David Penn, "The 411 On 911 Funds," on setting up an emergency fund using staggered CDs. But, unfortunately, I was unable to find CDs with short time frames of one- and two-month duration. I went to www.bankrate.com and was unsuccessful. Could you tell me where I can find those types of CDs as mentioned in your article?

Craig Chester, via e-mail
West Deptford, NJ

David Penn replies:

Thank you for writing. There are a number of banks and savings and loans that offer 30-day certificates of deposit. I don't want to make a specific recommendation, but to name a few, the Universal Bank in Southern California, United Bank of Philadelphia, and Potomac Bank in Virginia are all examples of institutions that offer 30-day certificates of deposit.

One reason there are fewer 30-day CDs than 90-day CDs is that the yield on 30-day CDs is often no bigger than the yield on a money market account. And, of course, there is no liquidity problem with money market accounts. At the same time, using the staggered CD strategy mentioned in the article would only involve using 30-day CDs in the beginning; after the third month, only 90-day CDs are used.

MAKING SENSE OF MUTUAL FUNDS

Editor,

When I saw the first issue of Working Money, I thought, "How could anyone possibly add to the plethora of personal finance periodicals already in circulation?" I was pleasantly surprised by your in-depth -- yet understandable and practical -- investment content. That being said, I'd like to help clarify a few points from the November/December 2000 article by Sean Moore, "Making Sense Of Load Funds."

1 The introductory paragraphs of the article almost make it seem like load funds incur sales charges, while no-load funds incur "other fees such as annual expense ratios, deferred sales charges, and 12(b)-1 fees." In fact:

• Annual expense ratios are incurred by all mutual funds, not just no-loads.
• Deferred sales charges are really loads, so by definition, no-load funds don't charge these.
• Loaded funds also incur 12(b)-1 fees. And if these fees are greater than 25% per year, Morningstar won't even consider them a true no-load fund.

 On the other hand, certain no-load funds charge redemption fees to investors who sell before six to 12 months. These fees are usually paid directly into the fund; they do not compensate the person who sold it.

2 The other issue I wanted to bring up is professional advice. While paying a commission for a load fund is one way to obtain investment advice, there are other ways, too. Some advisors charge hourly to recommend specific no-load mutual funds. And for investors who "don't have the time to monitor their portfolios," an investment manager will create, implement, and monitor a portfolio of no-load mutual funds (and/or individual stocks and bonds) tailored to each client. In other words, your readers should know that brokers aren't the only way to get good investment advice.

Those are just a few thoughts; keep up the good work, and I look forward to the next issue!

Hope Egan, CPA, CFP, via e-mail
Chicago, IL

CANDLESTICK CHART  FORMATIONS

Editor,

I enjoyed reading "Stocks And The Art Of Charts" in the January/February 2001 Working Money. Do you know of any place (such as books, websites, or other resources) where I can get further in-depth information on candlestick chart formations?

Bill Wirostko, via e-mail

See also the next several letters.

CANDLESTICK CHARTING

Editor,

The Japanese developed candlestick charts to help read chart movements in the price of rice, isn't that so? I read "Stocks And The Art Of Charts" in the January/February 2001 Working Money on using candlestick charting to help interpret the markets, and I'm writing to ask what books you can suggest on this topic for me and my son. He lives in Tokyo; I live in New York. He is currently studying derivatives, and this concept may help him as it has helped me.

Dave Terruli, via e-mail

Jayanthi Gopalakrishnan replies:

You are correct -- the Japanese did develop candlestick charts to help read chart movements in rice prices.

I think the best books to get started on using candlestick charts are Steve Nison's Japanese Candlestick Charting Techniques (New York Institute of Finance/Simon & Schuster, 1991) and Beyond Candlesticks (John Wiley & Sons, 1994). Other good books include Greg Morris' Candlestick Charting Explained: Timeless Techniques For Trading Stocks And Futures (Irwin Professional Publishing, 1995) and The Japanese Chart Of Charts by Seiki Shimizu (Probus Publishing, 1986).

Good luck.

MORE CANDLESTICKS

Editor,

I was reading "Stocks And The Art Of Charts" in the January/February 2001 Working Money. Please send me some more information, especially in the area of charting analysis and the use of various indicators. Also, please inform me of any software that you might have available in this area. Thanks.

James A. DuBois, via e-mail

Sharon Yamanaka replies:

We have published a number of articles on candlestick charting in our sister publication, Technical Analysis of STOCKS & COMMODITIES, The Traders' Magazine. Three that combine candlestick charting with other indicators are:

"Using Candlesticks And Oscillators" by Gary S. Wagner and Bradley L. Matheny, Technical Analysis of STOCKS & COMMODITIES, Volume 12: March 1994.
"Candlesticks And Stochastics" by Greg Morris, Technical Analysis of STOCKS & COMMODITIES, Volume 9: August 1991.
"Candlestick Filtering" by Rudy Teseo, Technical Analysis of STOCKS & COMMODITIES, Volume 17: December 1999.

These articles and others from Technical Analysis of STOCKS & COMMODITIES magazine can be purchased from the Online Store at Traders.com.

As for software, we don't sell software, but our Traders' Resource at Working-Money.com lists many software packages and some of their features. Browsing this list may help you narrow down what you need in a software package. Many websites (such as BigCharts, which I used in my article) and charting programs have the option of viewing charts in the candlestick style. These are fairly mainstream and easy to find.

Other than that, we suggest you keep reading Working Money for additional articles describing how to use charts and indicators to help guide your investment efforts!

CANDLESTICK CONTINUATION PATTERN

Editor,

Do you have a favorite continuation candlestick pattern? Do you look at a specific indicator or chart behavior to gauge market strength/weakness for trending markets?

M.W. Stone, via e-mail

Jayanthi Gopalakrishnan replies:

There are several continuation candlestick patterns, and you can find them described in one of Steve Nison's books on the subject, Japanese Candlestick Charting Techniques. Regarding a favorite, I can't say there is one I prefer over others, since their significance varies with market conditions.

I don't rely on candlesticks to gauge market strength/weakness for trending markets. I prefer looking at indicators such as moving averages and the moving average convergence/divergence (MACD) for that.

ERRATA: IRA LIMITS

Editor,

In the January/February 2001 Working Money article "How To Save $13.25 Per Mile. Really!," author Bruce Faber stated that the IRA limit has been increased from $2,000 to $5,000. Would you please provide some type of documentation as to when this change occurred; that is, the IRC section, Congressional bill number, and so on.

I hope he is correct, however, I don't think the legislation passed Congress.

David Bruchhauser
Belleville, IL

Bruce Faber replies:

You are correct that the bill wasn't passed, at least not yet. I apologize for any confusion this misstatement in my article may have caused.

The Comprehensive Retirement Security and Pension Reform Act of 2000, House Bill HR 1102, which contained the change from $2,000 to $5,000 for Iras, had 200 bipartisan sponsors when it was introduced in the US House of Representatives. On July 19, 2000, it was passed by the House with a 401-to-25 margin. HR 1102 then went to the US Senate on July 20. It was referred to the Committee on Finance in early September. By September 13, the Committee on Finance had amended the title and placed it on the Senate Legislative Calendar. And that is where it remains as of this writing, according to the Thomas Legislative Information website (http://thomas.loc.gov/cgi-bin/bdquery/z?d106:HR01102:@@@S|/bss/d106query.html).

In the final days of the 106th Congress, the majority leadership included much of HR 1102 in the doomed-in-advance tax bill. There are pros and cons in all bills, and although this bill has shown much progress, it has yet to pass Congress.

Individual retirement accounts (IRAs) are safety belts for people who plan to grow old. Like safety belts, however, IRAs will not help if they are not used. Since IRAs, with contribution limits of $2,000 per year, were introduced, our money has lost about three-fifths of its value. Just to keep up with inflation, the limits needed to be raised to $5,000 per year. Please feel free to contact your senator and encourage them to pass HR 1102.

ERRATA: TWEEZER TOP CANDLESTICK

Editor,

Being a novice trader, I found your January/February 2001 Working Money article, "Stocks And The Art Of Charts," of interest. I have a few questions that I'd like to pose. I hope you can provide some clarity.

In the CSCO daily chart example, step 4, there is reference to three candlestick formations: tweezer top, belt hold, and harami, which can be signals as to the market's future direction. I clearly see that the belt hold for CSCO is bearish when I compare that candlestick formation against the reference chart on page 44. I also see that the harami is also bearish (page 44 of the reference chart). But on page 46, you state, "The tweezer top and belt hold formations are bearish." This is where I get confused, specifically about your analysis of the tweezer top formation for CSCO.

The CSCO tweezer top formation is a high followed by a low. When I look at page 45 of the reference chart for the tweezer top formation, I see that a high followed by a low shows a positive gray arrow implying a bullish signal. This is contrary to your tweezer top bearish statement on page 46.

What am I missing? I look forward to your clarification.

John Teles, via e-mail

Sharon Yamanaka replies:

In parsing down the long definition of a tweezer top formation, I inadvertently left out that the significance is that there are two consecutive matching highs (or lows). The color of the candlestick bodies are irrelevant to the formation, and I should have included a statement to this effect in the quick chart. So for CSCO, the two matching highs indicate a reversal or downtrend in the stock.

I apologize for the oversight, and good luck with your trading!

RISK QUIZ

Editor,

I am writing about the article "Risk: How Much Is Too Much?" by Jason Hutson, which appeared on pages 32-37 of the November/December 2000 issue of Working Money.

In the "Take This Quiz" sidebar on page 36, the point scores for questions 3 through 5 are absolutely inverted relative to what they would have to be to produce the conclusions shown at the bottom of the quiz. Characteristics such as "rarely display any patience for anything," "commonly change my mind," and "jump at the chance to bend the rules" -- the most high-scoring choices in those three questions -- are noted to be characteristics of those "suited toward longer-term investments with less decision-making involved." On the other hand, the characteristics "lose patience only under the most trying situations," "in control and ready to act at all times," and "rarely act against a rule," which contradict the other statements, were also noted to be absolutely essential for long-term investments.

The three keys for longer-term investments are patience, patience, and patience. The flippant mood swingers whom the quiz is scoring as being suitable for longer-term investments have absolutely none of the essential character for the kinds of investments toward which you are pointing them.

Robert E. Grumbine, MBA
Lakewood, CO

Jason Hutson replies:

I believe it's more important to have patience, self-control, and the ability to follow rules when making frequent high-risk investments than it is to have those characteristics when making a single investment decision to purchase a mutual fund. My point in the quiz was the lower an investor's score, the more investment vehicles he or she can utilize.