Okay...here's part II.

My Dad passed away in June of 2013, so its coming up on the two year anniversary and he's on my mind a lot lately.

I was talking about his time working in NYC at "the agency" on the bond desk. He worked with traders, and at that time in the late 60s the IPO market was crazy apparently. My Dad didn't have enough $$$ to get in on IPOs, or he shouldn't have had enough...but his friends would 'write him in' and let him float his entire pay check, then they'd sell his shares which sometimes allowed him to double his money in a week or two....according to my Dad is was like the dot com era with so many companies going public and people chomping at the bit to get in.

Anyway the book he had me read, Granvilles "Stock market timing for maximum profit"...it was a huge eye opener.

One of the first lessons Granville taught me was to understand how to look at fundamentals. Market participants have fundamentals drilled into them....PE ratios, book value, price to revenue, price to sales, revenue growth, peer comparisons, Net Asset Value (NAV)....numbers numbers and more numbers.

Its almost like people think there should be a slide rule....take EPS, multiply it my NAV, then divide it by the total number of outstanding shares, then multiply by 50. After that take the number and compare it to the share price, if the slide rule comes out at $10 and th PPS is $5 you have a buy...if the PPS is at $20 however go short.

Obviously that wouldn't work....everyone would want to buy and then sell at the same time. As soon as the new fundamental data was released if the number pointed to a share price of $5 and the stock was trading at $10 there wouldn't be anyone wiling to buy until it dropped below $5....to use my favorite expression it would be like a football game with both teams lining up on the same side of the ball, both wanting to play offense and defence at the same time.

Besides which, all that fundamental data being put out to the market....its all old information, often weeks if not months old. Obviously stocks trade not on past performance but rather on expectations for the future.

How many times have you seen a stock climb significantly, and then after the big climb....news comes out. But instead of climbing further the stock trades flat or even down slightly. Talking heads will often remark when this happens that..."the news was already priced in". But how could news that was only just released by "priced in".

And that brings us to what Granville called "the smart money".

Granville opined that "smart money" moves with confidence. He never implicitly wrote about people trading on inside information...but to me that's what he was implying.

I'll use ZIOP as an example since I'm following it right now. They announced a deal with the MD Anderson Cancer centre in Texas back in January or February. Before that the stock was trading as low as $3ish per share. Obviously these types of negotiations don't happen overnight, they take time. And I would suggest there were likely individuals who knew the deal was forthcoming before it was annouced. Had they bought shares in the months or weeks preceding the deal they would have seen the value of those shares skyrocket to a high of $14.40 by March.

That's what Granville meant when he talked about the "smart money" moving with confidence. And he further suggested that you might be able to find evidence of this "smart money confidence" in the price volume movements reflected in the trading. In fact he invented a technical measure to track it called OBV, which stands for On Balance Volume.

OBV is a pretty simple indicator. When the PPS closes up on the day, the day's volume is counted as positive, when the PPS drops the volume that day is counted negative. You can then chart it to see whether OBV is rising (bullish) or falling (bearish).

I'll give an example how OBV can serve to provide a possible indication of accumulation.

Stock XYZ is trading for $10....on day 1 it moves up .25 cent on 2,000,000 shares trading. The following day it drops from $10.25 to $9 but on volume of just 500,000. On day 3 it climbs to $9.25 on volume of 500,000 then on day four drops back to $8.50 on volume of 250,000.

Now the nervous and price sensitive retail holder of XYZ has seen the value of his shares drop from a high of $10.25 to just $8.50....a hefty and costly decline. But look at the volume. On up days volume totaled 2.5 million, on down days just 750,000. That's quite a difference but the nervous retail holder often fixates on the price.

Granville would suggest (and I would obviously agree) that his provides <<POSSIBLE>> evidence of accumulation. Why do I put emphasis on the word, possible?

Because news does matter. If those big volume days happened with a big announcement, or a bullish reccomendation by someone like Cramer on CNBC....then it could very well be that the "smart money" isn't acquiring but rather dumping shares on the news loving TV guru watching retail investors.

I'll leave it there except to say I later myself worked in the financial industry and met a few shady characters who worked for stock promoting outfits and chop shops who taught me some valuable lessons about cheeseball promotion. That's why I'm always leery about news/hype/promo, which many retailers seem to love.

I'll end this with my Dad's words of advice to me....You'll never go broke taking profits.

Good luck to all of us.