The FOMC tightened the money supply on Tuesday by raising the Fed funds rate by 25 basis points to 3.75%, for the 11th time in about 18 months. Consequently SPX fell more than 30 points Tuesday to Thursday, and closed the week down about 23 points, to just over 1,215.
Price stability is the primary objective of the Federal Reserve, because if the Fed targets inflation, growth fluctuates little. However, when the growth is directed inflation fluctuates a lot, which eventually leads to instability. The data show that the Fed has done an excellent job of smoothing out the business cycle done in the past 20 years. Sustainable growth is optimal growth, so the standard of living increases at the fastest possible rate.
The current Fed Funds Rate is still accommodative. Normally, a neutral attitude is more than 5%. However, the Fed has been brilliant in lowering inflation expectations, which lower future inflation, the tightening cycle by using a combination of "jawboning" and actual tightening. Consequently, the economy of above trend growth to growth trend shifted smoothly. The smooth downshift in economic growth is reflected in the stock market. The VIX (S & P 500 Volatility Index) fell below 10 two months ago, which was a multi-decade low. VIX reflects investor fear, and there is little fear of the stock market recently.
The chart below is a weekly chart of the SPX to VIX ratio since 1990. Over time, it will rise and SPX VIX will trade in a range. So, the ratio will increase. Also, there is usually an inverse relationship between SPX and VIX, ie when SPX rises, VIX falls, and vice versa. The 200-week MA (red line) shows the ratio is mean reversion. Typically, when the ratio of 30 to 40 points of the 200-week MA, MA expires this direction. The 40-week MA (blue line) shows a sharp increase over the 2 1/2 year cyclical bull market. Thus, when the ratio rises above 100, care may be needed intermediate term.
Economic reports next week are: Mon: Existing Home Sales, di: New Home Sales and Consumer Confidence, Wed: Orders for durable goods, don: Unemployment Claims, Final GDP and Final GDP deflator, Fri: Personal Income, Personal expenses, Revised Michigan Consumer Sentiment, and Chicago PMI. Notable earnings next week: Monday: WAG, di No, Wed: RIMM RHAT KMG, Thurs: PEP, Fri None.
I believe the market will rise next week in the new district, but there may be some more profit warnings. It seems, end-of-the-quarter window dressing has already been completed (eg oil rose a week ago, while oil prices fell). Volatility can pick up when the result season starts in October, and some stocks rise and other stocks will plummet on earnings. Economic reports and oil prices should continue to influence the market.
Tickets available at Forum Index Market Overview section.
Arthur Albert Eckart is the founder and owner of Peak Trader. Arthur has worked for commercial banks, eg Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds 1999-00. Arthur Eckart has a BA and MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.
Mr Eckart has to maximize a comprehensive trading methodology using economics, portfolio optimization, and technical analysis and minimize risks at the same time and developed over time. This methodology has resulted in excellent returns with low risk over the past four years.
Friday, 30 May 2014
Thursday, 15 May 2014
Coins, More Than Just Money
Time for Change
The Congress of the United States is again considering a number of issues relating to our currency and coins. These include the Dollar, district, and Cent. Many want to stay with the current design, in Congress and pass laws so they can not be changed.
The first law that currency design dates from 1792. Many coins in this time wanted our nation to bear. The image of George Washington Washington was very adamant against this idea, referring to a coin with the image of a person to be monarchical. In September of 1792 the Morris bill proposed our coins bear the characteristic image of the Liberty. Rep. John Page, under Washington served during the French and Indian wars not only echoed the presidential objection, but pointed out that how happy they would be with the incumbent, there was no reason to believe that their offspring would be happy with some of his successors. Other members of Congress insisted that it was not a real compliment to emphasize a medal. An image of Washington The basics of coin designs were not for the honor of men. It was hoped by the founders that our coins would represent and honor all of America. Lady Liberty was chosen as the design, because she was one of our most important rights. A symbol that every American could understand and embrace.
This bill was signed into law on April 2, 1792. This law is the basis for subsequent U.S. coins laws, it is known as "the statutes One".
The Act of 26 September 1890 stated that the changes in the designs of the United States coins not more than twenty-five years without congressional approval can be made. Each design circulating twenty-five years or more may be changed without their consent. Since that date, all denominations, changed many times without the need for congressional action. Today, Congress is to make this law infringement. The Jefferson five cent coin by the new law will return to a statue of Jefferson and Monticello in 2006. Congress is also considering a bill that the image of Washington would need to be in the neighborhood, standing together with the Lincoln Cent. They are following the early logic of Henry Ford. Mr. Ford thought a car in a color was good enough for the masses. American does not accept this logic then, and we should not be forced to accept it.
We as Americans love and embrace change. We expect this in our fashion, cars, televisions, and in our daily lives. Would any of us are happy when the Manufacturers of America has decided that the current design was the best for us, and never made something new or different? Are we so arrogant to believe that our choices today are suitable and acceptable for future generations?
The first draft amendment to the Washington quarter took place in 1999. This was the first major change since 1932. The United States Mint estimates that more than 100 million Americans collecting the State Quarters. That equates to 1 in 3 of Americans collecting coins. The evidence is clear for all to see. What happens to the 100 million plus Americans who are currently collecting these coins at the designs go back to the same as they have been back? What will be the reason to continue collecting coins? The United States Mint and the Bureau of Engraving earn much of their profits by republishing currency no longer in circulation. If our coins and currency are never changed, why would anyone want to withdraw from circulation? This requires the government to wait until they wear out. While currency has an average circulation of 18 to 24 months, the coins to circulate to 38 years.
Most Americans today have only witnessed a few minor changes in the design of our currency. The last major change for the State Quarter program was replaced Franklin on the half dollar with Kennedy. Now we have five of the six coins bearing the likeness of a president. A new bill is being heard on Capital Hill in connection with a new dollar design. This will make. Our sixth and final coin with a presidential design The bill a new commemorative circulation honoring each president in the order of the mandate would create. Most Americans would agree that all these men do not have to be honored in this way. Our founding fathers knew this.
Our current elected leaders have not yet figured this out. They have not learned that change like a good thing. They insist that we maintain our lackluster currency and coins in an everyday attempt to keep the political peace. Proponents of the current designs have but to present forever. A good argument for keeping the images That wish is to continue honoring these great men. That no one should be lost to history. Our founding fathers knew this was no honor. How can we honor these men while we do not choose their desire of not allowing a person on a coin to be placed to honor?
Each collector is aware how our coins has been stagnant. The designs are stale and mediocre at best. It does a lot of effort to coins dating 30 years or more in our pocket change will not take. This is directly related to a lack of interest. Many studies have been done on circulating quarters. More eagle reverse Washington quarters are found in change than the new state quarters.
Collectors across the country tell the story of how difficult it is to get the newest neighborhood in circulation. All of the new designs have helped to school curricula, and a revived interest in the history of our nation spark. I would think this is a lesson for all would be involved. We must change. Even if the decision is made that the current images should be maintained, they should be updated on a regular basis. If Congress wants to update the currency legislation, it must be that all designs are required to be replaced every 25 years, not etched in "forever".
It's time to inform you that it is time to change the congress.
The Congress of the United States is again considering a number of issues relating to our currency and coins. These include the Dollar, district, and Cent. Many want to stay with the current design, in Congress and pass laws so they can not be changed.
The first law that currency design dates from 1792. Many coins in this time wanted our nation to bear. The image of George Washington Washington was very adamant against this idea, referring to a coin with the image of a person to be monarchical. In September of 1792 the Morris bill proposed our coins bear the characteristic image of the Liberty. Rep. John Page, under Washington served during the French and Indian wars not only echoed the presidential objection, but pointed out that how happy they would be with the incumbent, there was no reason to believe that their offspring would be happy with some of his successors. Other members of Congress insisted that it was not a real compliment to emphasize a medal. An image of Washington The basics of coin designs were not for the honor of men. It was hoped by the founders that our coins would represent and honor all of America. Lady Liberty was chosen as the design, because she was one of our most important rights. A symbol that every American could understand and embrace.
This bill was signed into law on April 2, 1792. This law is the basis for subsequent U.S. coins laws, it is known as "the statutes One".
The Act of 26 September 1890 stated that the changes in the designs of the United States coins not more than twenty-five years without congressional approval can be made. Each design circulating twenty-five years or more may be changed without their consent. Since that date, all denominations, changed many times without the need for congressional action. Today, Congress is to make this law infringement. The Jefferson five cent coin by the new law will return to a statue of Jefferson and Monticello in 2006. Congress is also considering a bill that the image of Washington would need to be in the neighborhood, standing together with the Lincoln Cent. They are following the early logic of Henry Ford. Mr. Ford thought a car in a color was good enough for the masses. American does not accept this logic then, and we should not be forced to accept it.
We as Americans love and embrace change. We expect this in our fashion, cars, televisions, and in our daily lives. Would any of us are happy when the Manufacturers of America has decided that the current design was the best for us, and never made something new or different? Are we so arrogant to believe that our choices today are suitable and acceptable for future generations?
The first draft amendment to the Washington quarter took place in 1999. This was the first major change since 1932. The United States Mint estimates that more than 100 million Americans collecting the State Quarters. That equates to 1 in 3 of Americans collecting coins. The evidence is clear for all to see. What happens to the 100 million plus Americans who are currently collecting these coins at the designs go back to the same as they have been back? What will be the reason to continue collecting coins? The United States Mint and the Bureau of Engraving earn much of their profits by republishing currency no longer in circulation. If our coins and currency are never changed, why would anyone want to withdraw from circulation? This requires the government to wait until they wear out. While currency has an average circulation of 18 to 24 months, the coins to circulate to 38 years.
Most Americans today have only witnessed a few minor changes in the design of our currency. The last major change for the State Quarter program was replaced Franklin on the half dollar with Kennedy. Now we have five of the six coins bearing the likeness of a president. A new bill is being heard on Capital Hill in connection with a new dollar design. This will make. Our sixth and final coin with a presidential design The bill a new commemorative circulation honoring each president in the order of the mandate would create. Most Americans would agree that all these men do not have to be honored in this way. Our founding fathers knew this.
Our current elected leaders have not yet figured this out. They have not learned that change like a good thing. They insist that we maintain our lackluster currency and coins in an everyday attempt to keep the political peace. Proponents of the current designs have but to present forever. A good argument for keeping the images That wish is to continue honoring these great men. That no one should be lost to history. Our founding fathers knew this was no honor. How can we honor these men while we do not choose their desire of not allowing a person on a coin to be placed to honor?
Each collector is aware how our coins has been stagnant. The designs are stale and mediocre at best. It does a lot of effort to coins dating 30 years or more in our pocket change will not take. This is directly related to a lack of interest. Many studies have been done on circulating quarters. More eagle reverse Washington quarters are found in change than the new state quarters.
Collectors across the country tell the story of how difficult it is to get the newest neighborhood in circulation. All of the new designs have helped to school curricula, and a revived interest in the history of our nation spark. I would think this is a lesson for all would be involved. We must change. Even if the decision is made that the current images should be maintained, they should be updated on a regular basis. If Congress wants to update the currency legislation, it must be that all designs are required to be replaced every 25 years, not etched in "forever".
It's time to inform you that it is time to change the congress.
Wednesday, 30 April 2014
Investment Strategies and Human Behavior
About Response is probably the most popularly known effect of human behavior
on market prices. All things being equal, a rational market the fundamentals of a company must determine the market and establish a clear relationship between the two. However, research - as well as a casual glance at CNN stock-ticker on any given day - shows that this relationship does not necessarily happen as expected.
Investors often overreact, often wild, thus pushing prices up too high or pushing
too low against its base. Not only is the market, therefore, are not entirely
rational in reality, but the effect can not be attributed to a financial or business-based
factor. The most likely reason for the anomaly appears to be the way investors perceive
and respond to, earnings surprises or news, or even actions of other investors. This
overreaction happens on the stock market and gives rise to a number of investments
strategies.
Contrarian strategies
The overreaction effect is very pronounced 'out of favor' to compare (contrarian
shares) against the current 'favorites', or what are also known as value and glamor
stocks. 'Out of favor' stocks are not stocks that poor quality stocks are simply those who
are not attractive for the market, for which reason it might be. The interesting
is that over time, the stocks 'out of favor' to outperform the better overall
Favorites. Then, when the 'out of favor' stocks become the 'favorites' due to increased
buy the effect is reversed, and the process is repeated in a cyclical manner, while only a
small changes could be made to the fundamentals of the file. "This happens," says David
Dremen, which examined the effect of a portfolio of stocks over a period of ten years,
"Because these stocks will tend to pass the time than to return as investor expectations change.
Premiums paid for high growth stocks are overpriced, while out-of-favor "stocks
begin represent greater potential benefits. The effect is reminiscent of regression to the
mean, a statistical effect which measurement will tend to their average, and is
actually nothing new. Scientists have known for a few hundred years that this kind of effect
often occurs when human behavior is involved. What is new is that the effect has been
to act within a particular domain of stocks.
Whether a stock is a 'out of favor' or 'problem area' stock is indicated by their ratios.
According to James O'Shaughnessy, whose extensive and well-researched findings were
published in What Works on Wall Street, these include: price to book value (P / BV)
price to cash flow (P / CF), and earnings ratio (P / E). Stocks with the lowest ratios
to rise, especially in the most potential good news surprises, and therefore the
ones, of this opposing perspective, that has to be searched for, provided that they
essentially good stocks.
Momentum Strategies
Contrarian investing seems that making money in the stock market to give than
and above the small but consistent returns of well-known companies like Microsoft or
IBM, requires just buying 'out of favor' or value stocks. However, this is not the case.
Indeed, if one were to buy one rising it to its logical conclusion
- That stocks were on their way to becoming glamor - and profitable opportunities would
be missed. In addition, value stocks take an average of five years to show a valuable
back. Clearly this is often unacceptable and research confirms, in fact, that momentum
pushes many files to new heights regularly, and money can be made on these files
significantly faster than five years. This does not mean you just buy all shares
are away from their rational price rises as a result of market or behavioral influences. Such
and unsystematic approach would likely result in a loss. Although, as Robert Vishny
points out, "You do not make money on the best stocks in the market, money per se but on the
inventories think everyone is going to be. for the best ' The rider of course you
still need to share that good or potentially good buy, even though they may not
the best. Since this is true, and you can locate these files, there are two
momentum strategies that can be employed.
The first strategy refers to combinations of the files, and makes use of so-called
the major stock effect. Research on the portfolio return of Andrew Lo and Craig
Mackinlay, using a mix of small and large capitalization on the New York
Stock Exchange, showed that there is a correlation between one week and the next,
where about ten percent of the price change in the coming weeks yield could be predicted from
This weeks. Although the effect only works for portfolios, not individual stocks,
and only in the short term - ie, daily and weekly returns - there seems to be a
observable lead / lag pattern. Which means, large stocks lead small stocks, hence the
name. For example, Microsoft is going up dramatically and there a few days later
price jump in other computer software manufacturers.
Consequently, buying second line stocks - mid caps and small caps - in a sector
believed ready for a re-rating to be sometime in the near future, and then sit on the
investments patient, can work very well. Although money can be made here purely from
momentum effects, my preference is for a portfolio that is financially sound and less
likely to be afflicted when it moves around. volatility by In other words, you are pitting
your wits against the market sentiment, the investor perception alone has decided this
stocks are out of fashion, not against fundamental financial and economic determinants
realities.
The second strategy involves intriguing findings Professor Joseph Lakonishok programs
show that a high momentum stocks - as measured by their previous six months earnings -
outperform low momentum stocks by 8 percent to 9 percent in the following year. Hence
buy high-momentum stocks can also be a suitable method for increasing his portfolio
return. Again, though, the rider is that you still need to stocks that are good or buy
potentially good.
Joseph Lakonishok and his colleagues, finance professors Andre Shleifer and Robert
Vishny, not only come with interesting scientific ideas. They run LSV Asset Management,
where they are in practice much of their research discoveries. In general, they tend
avoid choosing expensive growth stocks that have been given the dynamics tag. Instead,
they use momentum signals - such as increased sensitivity and volatility
earnings reports or news announcements - to value stocks that are just beginning to reveal
the upward phase of their recovery. This is no easy method of portfolio formation,
timing and stock selection are crucial, but like the professors, you will find it much
easier if you have a specialized computer!
Surprise Profit Strategies
As far as momentum stocks, the trick in forming a wallet is in the use of
accurate measures indicating the stock starts rising phase. This can be somewhat
harder than it first appears, even with a specialized computer program. Nevertheless
Besides watching the stock of the past six months, profits, earnings surprises can also be used
as the decisive factor for stock selection.
One way to gain surprise, represented by the work of Victor Bernard and
Jacob Thomas at Columbia University, is by measuring the surprise against analyst
expectations. If the surprise is not only positive, but exceeds the expectations of analysts
there is a greater chance that a potential winning candidate for your
portfolio. However, it must be remembered that it is not always clear what
a useful positive earnings surprise, especially when it is considered that the profit
can be maintained or repeated in the future. One swallow does not make a summer! Has
The company actually changed at all?
Earnings surprises may also be affected in the market by the analyst
evaluations and this evolution overreaction in the extreme, which again provides a
useful strategy. For example, Intel showed a greatly exaggerated 20 percent in three days
when the stronger second quarter had reported. profits in 1995 This all came to 4
percent below the expectations of analysts, who had, behaviorally speaking, the impetus for
the drop. A change-around was inevitable but as profits continued to grow. By the
spring of 1997, Intel's stock had nearly tripled. Anyone knowledgeable about the
now, instead of after the investment crowd, would have made money in this
situation.
A similar striking example is Hewlett Packard, and it also serves to emphasize
how extreme reaction of investors to press releases can be. Exploiting this overreaction
leads to a profitable investment. In September 1992 the company
announced that profits would be below expectations of analysts. By the next day, the price
had plummeted 18 percent. This reaction was completely irrational and disproportionate. In
real terms for an expected decline in profit in the course of the following year a few
million dollars of the company's market valuation had plummeted in twenty-four hours with 3.5
billion dollars. Needless to say - if you have followed the scope of this article so far -
it will not come as a shock to know that the price was fully recovered within three months
and then some.
With a thorough understanding of these types of behavioral pricing anomalies, based born
by his success, and considers that a good investor may not be constant
trade, Warren Buffet put it well when he said: "Just look at the market to see if
Everyone has done something foolish that day when you can benefit. "
Merger Strategies
Another way to make use of over-reaction that causes pricing anomalies is to exploit
certain types of merger situations. For example, in 1907 made a covenant between
Royal Dutch Petroleum and Shell Transport. These two companies have agreed to merge their
interests on a 60 to 40 percent basis, but remain independent incorporated in the Netherlands and
in England. As it was in the early 1990's, RDP acted primarily in the U.S. as a
component of the S & P500 and Shell was trading mainly in the UK as part
the FTSE100 (Financial Times Stock Exchange index Hundred).
Even taking into account the passage of years, a rational market dictates that the two
parts of the company to trade in the same or similar ratio of 60-40. Still, recent
research has shown that this is not the case, share prices of the corporation did
not reflect this relationship. On the contrary, after adjusting for taxes, transaction costs, and
exchange differences, the actual price ratio between RDP and Shell had departed
the expected ratio by about 35 percent.
Human behavior is back to work for the effect, because apart from the trade in
potentially most profitable part of the company's stock, can also be used with a
arbitrage approach. The strategy is long term perhaps, but for mutual funds or hedge
funds can be an ideal method of investment.
Apparent High Risk Strategies
A seemingly high risk strategy involves dealing in investments that are considered
need a very wide berth because they will lead to heavy losses. The reason for this
strategy is that misinformation, lack of knowledge about the investment, or market
pressures, are influencing the investors think in a certain way and making them overreact.
Successful implementation of the strategy is to overcome these factors and rational
examining the proposed investment.
Junk bonds are an example here. These are high yield bonds with low credit ratings by
agencies, ie with a rated BB or lower. The general perception of this, intensified by
the media attention surrounding Mike Milken and Drexel Burnham in the late eighties,
that they are very poor and therefore extremely risky. But is that perception justified
or is it another case of investors overreact to the information they hear instead of
making their own considered assessment? The fact is these bonds are still around, so
someone is buying them - in fact worth $ 178.45 billion was spent during the five
years ending in 1996 (source: Securities Data Co.). Indeed, these individuals may well have
make their decisions based on various reports and studies that demonstrate the
performance of these tires under the appropriate conditions. In particular, the low-grade
bonds on average yield 50 percent more than quality and that defaults were not
considerably larger (looking at the data from 1900 to 1945 the Hickman report), the
default rate, according to TR Atkinson, was actually 0.01 percent from 1945 -1965, and
perhaps the most convincing that even when the default rate increased to between 0.015 percent
and 0.019 percent by 1981, at a yield premium of 4 percent of the risk was very acceptable.
What this has meant that it was the possibility of a gain was more than twenty times more likely than
the potential loss on the stand. But in the affected mentality of most investors
there was no chance of a sure gain. Faced with the possibility of what they believed
there were greater elsewhere in the market, and as prospect theory
Daniel Kahneman and Amos Twerski predicts, investors aloof from this possibility in
the benefit of what they believed were safer stocks, such as the upcoming Microsoft glamorous
and Yahoo! The irony is that many investors would later get burnt out on these files as their
ratings shot through the roof and then see-sawed.
Junk bonds are not for everyone, and certainly not for the beginner, they take a high
level of knowledge they trade successfully, they must be in a diversified portfolio,
and they must be of good quality, which many have not yet. But what this strategy
seen that there are many investments that further research be safer than
first appears. Human behavior, overreaction, concerns the importance of foreign
information, such as the media hype and expert advice, stopping investors from giving junk
bonds or similar apparent investments with a high risk of a careful consideration on their own merit.
A new wave of strategies
While over-reaction can be utilized with a variety of strategies, as we have seen, up to now
overreaction is difficult to measure as a causative factor in determining price itself
anomalies. Knowing this would give us a very effective strategy. However, the scientific
jury is still out on what exactly overreaction. We know what effect it has, but
what actually is it? For example, it is a market-based or based individual investor
effect, or both? Can we know before we see the effects of the factors that promote
are in evidence? Attempts to with the help of a measure have produced mixed results, such as ABN AMRO
found with their behavioral finance fund has lost about 27 percent since inception.
Much work needs to be done before we fully understand how human behavior functions in the
context of the stock market.
There is little doubt that a knowledge of human behavior can improve
money-making opportunities when investing. Behavioral finance specialists, however, have only
just begun to scratch the surface of new strategies with a systematic approach
the understanding of the processes and the application of the findings. Much more useful
strategies are likely to occur in the coming years. The area itself is only about
fifteen years old, a newcomer in the financial arena, and one that is only now beginning
in order to show its value.
on market prices. All things being equal, a rational market the fundamentals of a company must determine the market and establish a clear relationship between the two. However, research - as well as a casual glance at CNN stock-ticker on any given day - shows that this relationship does not necessarily happen as expected.
Investors often overreact, often wild, thus pushing prices up too high or pushing
too low against its base. Not only is the market, therefore, are not entirely
rational in reality, but the effect can not be attributed to a financial or business-based
factor. The most likely reason for the anomaly appears to be the way investors perceive
and respond to, earnings surprises or news, or even actions of other investors. This
overreaction happens on the stock market and gives rise to a number of investments
strategies.
Contrarian strategies
The overreaction effect is very pronounced 'out of favor' to compare (contrarian
shares) against the current 'favorites', or what are also known as value and glamor
stocks. 'Out of favor' stocks are not stocks that poor quality stocks are simply those who
are not attractive for the market, for which reason it might be. The interesting
is that over time, the stocks 'out of favor' to outperform the better overall
Favorites. Then, when the 'out of favor' stocks become the 'favorites' due to increased
buy the effect is reversed, and the process is repeated in a cyclical manner, while only a
small changes could be made to the fundamentals of the file. "This happens," says David
Dremen, which examined the effect of a portfolio of stocks over a period of ten years,
"Because these stocks will tend to pass the time than to return as investor expectations change.
Premiums paid for high growth stocks are overpriced, while out-of-favor "stocks
begin represent greater potential benefits. The effect is reminiscent of regression to the
mean, a statistical effect which measurement will tend to their average, and is
actually nothing new. Scientists have known for a few hundred years that this kind of effect
often occurs when human behavior is involved. What is new is that the effect has been
to act within a particular domain of stocks.
Whether a stock is a 'out of favor' or 'problem area' stock is indicated by their ratios.
According to James O'Shaughnessy, whose extensive and well-researched findings were
published in What Works on Wall Street, these include: price to book value (P / BV)
price to cash flow (P / CF), and earnings ratio (P / E). Stocks with the lowest ratios
to rise, especially in the most potential good news surprises, and therefore the
ones, of this opposing perspective, that has to be searched for, provided that they
essentially good stocks.
Momentum Strategies
Contrarian investing seems that making money in the stock market to give than
and above the small but consistent returns of well-known companies like Microsoft or
IBM, requires just buying 'out of favor' or value stocks. However, this is not the case.
Indeed, if one were to buy one rising it to its logical conclusion
- That stocks were on their way to becoming glamor - and profitable opportunities would
be missed. In addition, value stocks take an average of five years to show a valuable
back. Clearly this is often unacceptable and research confirms, in fact, that momentum
pushes many files to new heights regularly, and money can be made on these files
significantly faster than five years. This does not mean you just buy all shares
are away from their rational price rises as a result of market or behavioral influences. Such
and unsystematic approach would likely result in a loss. Although, as Robert Vishny
points out, "You do not make money on the best stocks in the market, money per se but on the
inventories think everyone is going to be. for the best ' The rider of course you
still need to share that good or potentially good buy, even though they may not
the best. Since this is true, and you can locate these files, there are two
momentum strategies that can be employed.
The first strategy refers to combinations of the files, and makes use of so-called
the major stock effect. Research on the portfolio return of Andrew Lo and Craig
Mackinlay, using a mix of small and large capitalization on the New York
Stock Exchange, showed that there is a correlation between one week and the next,
where about ten percent of the price change in the coming weeks yield could be predicted from
This weeks. Although the effect only works for portfolios, not individual stocks,
and only in the short term - ie, daily and weekly returns - there seems to be a
observable lead / lag pattern. Which means, large stocks lead small stocks, hence the
name. For example, Microsoft is going up dramatically and there a few days later
price jump in other computer software manufacturers.
Consequently, buying second line stocks - mid caps and small caps - in a sector
believed ready for a re-rating to be sometime in the near future, and then sit on the
investments patient, can work very well. Although money can be made here purely from
momentum effects, my preference is for a portfolio that is financially sound and less
likely to be afflicted when it moves around. volatility by In other words, you are pitting
your wits against the market sentiment, the investor perception alone has decided this
stocks are out of fashion, not against fundamental financial and economic determinants
realities.
The second strategy involves intriguing findings Professor Joseph Lakonishok programs
show that a high momentum stocks - as measured by their previous six months earnings -
outperform low momentum stocks by 8 percent to 9 percent in the following year. Hence
buy high-momentum stocks can also be a suitable method for increasing his portfolio
return. Again, though, the rider is that you still need to stocks that are good or buy
potentially good.
Joseph Lakonishok and his colleagues, finance professors Andre Shleifer and Robert
Vishny, not only come with interesting scientific ideas. They run LSV Asset Management,
where they are in practice much of their research discoveries. In general, they tend
avoid choosing expensive growth stocks that have been given the dynamics tag. Instead,
they use momentum signals - such as increased sensitivity and volatility
earnings reports or news announcements - to value stocks that are just beginning to reveal
the upward phase of their recovery. This is no easy method of portfolio formation,
timing and stock selection are crucial, but like the professors, you will find it much
easier if you have a specialized computer!
Surprise Profit Strategies
As far as momentum stocks, the trick in forming a wallet is in the use of
accurate measures indicating the stock starts rising phase. This can be somewhat
harder than it first appears, even with a specialized computer program. Nevertheless
Besides watching the stock of the past six months, profits, earnings surprises can also be used
as the decisive factor for stock selection.
One way to gain surprise, represented by the work of Victor Bernard and
Jacob Thomas at Columbia University, is by measuring the surprise against analyst
expectations. If the surprise is not only positive, but exceeds the expectations of analysts
there is a greater chance that a potential winning candidate for your
portfolio. However, it must be remembered that it is not always clear what
a useful positive earnings surprise, especially when it is considered that the profit
can be maintained or repeated in the future. One swallow does not make a summer! Has
The company actually changed at all?
Earnings surprises may also be affected in the market by the analyst
evaluations and this evolution overreaction in the extreme, which again provides a
useful strategy. For example, Intel showed a greatly exaggerated 20 percent in three days
when the stronger second quarter had reported. profits in 1995 This all came to 4
percent below the expectations of analysts, who had, behaviorally speaking, the impetus for
the drop. A change-around was inevitable but as profits continued to grow. By the
spring of 1997, Intel's stock had nearly tripled. Anyone knowledgeable about the
now, instead of after the investment crowd, would have made money in this
situation.
A similar striking example is Hewlett Packard, and it also serves to emphasize
how extreme reaction of investors to press releases can be. Exploiting this overreaction
leads to a profitable investment. In September 1992 the company
announced that profits would be below expectations of analysts. By the next day, the price
had plummeted 18 percent. This reaction was completely irrational and disproportionate. In
real terms for an expected decline in profit in the course of the following year a few
million dollars of the company's market valuation had plummeted in twenty-four hours with 3.5
billion dollars. Needless to say - if you have followed the scope of this article so far -
it will not come as a shock to know that the price was fully recovered within three months
and then some.
With a thorough understanding of these types of behavioral pricing anomalies, based born
by his success, and considers that a good investor may not be constant
trade, Warren Buffet put it well when he said: "Just look at the market to see if
Everyone has done something foolish that day when you can benefit. "
Merger Strategies
Another way to make use of over-reaction that causes pricing anomalies is to exploit
certain types of merger situations. For example, in 1907 made a covenant between
Royal Dutch Petroleum and Shell Transport. These two companies have agreed to merge their
interests on a 60 to 40 percent basis, but remain independent incorporated in the Netherlands and
in England. As it was in the early 1990's, RDP acted primarily in the U.S. as a
component of the S & P500 and Shell was trading mainly in the UK as part
the FTSE100 (Financial Times Stock Exchange index Hundred).
Even taking into account the passage of years, a rational market dictates that the two
parts of the company to trade in the same or similar ratio of 60-40. Still, recent
research has shown that this is not the case, share prices of the corporation did
not reflect this relationship. On the contrary, after adjusting for taxes, transaction costs, and
exchange differences, the actual price ratio between RDP and Shell had departed
the expected ratio by about 35 percent.
Human behavior is back to work for the effect, because apart from the trade in
potentially most profitable part of the company's stock, can also be used with a
arbitrage approach. The strategy is long term perhaps, but for mutual funds or hedge
funds can be an ideal method of investment.
Apparent High Risk Strategies
A seemingly high risk strategy involves dealing in investments that are considered
need a very wide berth because they will lead to heavy losses. The reason for this
strategy is that misinformation, lack of knowledge about the investment, or market
pressures, are influencing the investors think in a certain way and making them overreact.
Successful implementation of the strategy is to overcome these factors and rational
examining the proposed investment.
Junk bonds are an example here. These are high yield bonds with low credit ratings by
agencies, ie with a rated BB or lower. The general perception of this, intensified by
the media attention surrounding Mike Milken and Drexel Burnham in the late eighties,
that they are very poor and therefore extremely risky. But is that perception justified
or is it another case of investors overreact to the information they hear instead of
making their own considered assessment? The fact is these bonds are still around, so
someone is buying them - in fact worth $ 178.45 billion was spent during the five
years ending in 1996 (source: Securities Data Co.). Indeed, these individuals may well have
make their decisions based on various reports and studies that demonstrate the
performance of these tires under the appropriate conditions. In particular, the low-grade
bonds on average yield 50 percent more than quality and that defaults were not
considerably larger (looking at the data from 1900 to 1945 the Hickman report), the
default rate, according to TR Atkinson, was actually 0.01 percent from 1945 -1965, and
perhaps the most convincing that even when the default rate increased to between 0.015 percent
and 0.019 percent by 1981, at a yield premium of 4 percent of the risk was very acceptable.
What this has meant that it was the possibility of a gain was more than twenty times more likely than
the potential loss on the stand. But in the affected mentality of most investors
there was no chance of a sure gain. Faced with the possibility of what they believed
there were greater elsewhere in the market, and as prospect theory
Daniel Kahneman and Amos Twerski predicts, investors aloof from this possibility in
the benefit of what they believed were safer stocks, such as the upcoming Microsoft glamorous
and Yahoo! The irony is that many investors would later get burnt out on these files as their
ratings shot through the roof and then see-sawed.
Junk bonds are not for everyone, and certainly not for the beginner, they take a high
level of knowledge they trade successfully, they must be in a diversified portfolio,
and they must be of good quality, which many have not yet. But what this strategy
seen that there are many investments that further research be safer than
first appears. Human behavior, overreaction, concerns the importance of foreign
information, such as the media hype and expert advice, stopping investors from giving junk
bonds or similar apparent investments with a high risk of a careful consideration on their own merit.
A new wave of strategies
While over-reaction can be utilized with a variety of strategies, as we have seen, up to now
overreaction is difficult to measure as a causative factor in determining price itself
anomalies. Knowing this would give us a very effective strategy. However, the scientific
jury is still out on what exactly overreaction. We know what effect it has, but
what actually is it? For example, it is a market-based or based individual investor
effect, or both? Can we know before we see the effects of the factors that promote
are in evidence? Attempts to with the help of a measure have produced mixed results, such as ABN AMRO
found with their behavioral finance fund has lost about 27 percent since inception.
Much work needs to be done before we fully understand how human behavior functions in the
context of the stock market.
There is little doubt that a knowledge of human behavior can improve
money-making opportunities when investing. Behavioral finance specialists, however, have only
just begun to scratch the surface of new strategies with a systematic approach
the understanding of the processes and the application of the findings. Much more useful
strategies are likely to occur in the coming years. The area itself is only about
fifteen years old, a newcomer in the financial arena, and one that is only now beginning
in order to show its value.
Tuesday, 15 April 2014
Designing a Trading System in MetaStock - Part 1
In this series of three articles, I `m going to guide you through the process I use a trading system with MetaStock designs. I'll cover the four main components that every successful system common to trade, and I will show you how these components into the MetaStock code. Please note that this is not investment advice and any information I cover is purely for illustrative purposes.
I am a technical analyst by profession. It is my belief that all fundamental and economic influences are taken by the market. Eligible at a rate Therefore, I focus my attention on price action. All my trading systems are based on this understanding of the market and the rules of my systems are built to respond to price promotions. In this article I am having the basic rules of trading:
- Entry rules (if you are in a position)
- Exit rules (if you are from a)
- Money Management rules (how many do you have in a trade?)
- Back - Testing (does the system work history?)
These four components is a proven formula for designing profitable trading systems in MetaStock. Let's start with the first part.
A stock that a precise set of conditions by creating entry signals before you will enter a trade. That security I think it's set on an entry in a position signal lines should leave no room for individual judgment. I follow the KISS principal - ie they have to Keep It Simple Simon.
Remember, there is no holy grail of entry systems. There is no MetaStock formula that you get in at exactly the right time, every time. With this in mind, it is your goal to construct. A simple but robust entry system
Although I always say that the input is the least important part of a trading system, you should still have a way to enter a trade. Here are the points that I think are important to consider when identifying possible entry points.
PRICE: It is important to set price limits / minimums because the stock may determine its attributes. For example, speculative stocks tend to be cheaper, and blue chip stocks are often more expensive.
LIDUIDITY: This is a measure of how much money the stock trades on. You need to make every effort to keep the stocks that just do not act enough you. Minimum levels of liquidity You can risk getting caught up in stocks where the market is moving against you if they have low liquidity.
VOLATILITY: This measurement indicates how much a stock moves. It is important to share that enough exercise for you to make a profit, but are not so fickle that you can not sleep at night trade.
TREND: This is the cornerstone of technical analysis. Remember that "the trend is your friend", and you always want to deal with it, not against it. You will be required. Way to measure trends in your system
TRIGGER: This is the point that indicates that it is time to enter a trade. The trigger condition occurs only at one point in time, and no "real" and held for long periods of time, such as a moving average crossover.
When combined, these components become part of your entry rules. But, before we even start coding this in MetaStock, must be one of the most critical elements of a system to determine. What time do you trade?
+ Short term, such a reversal trader
or
+ In the long term, such a trend follower
There are clear differences between these two types of systems and your choice here will have a clear effect on every other decision you make about your system to have.
Short-term systems tend to have a greater time commitment, and more money. However, the advantage of trading often is usually your profits more consistent and more realized.
Conversely, long-term systems tend to require less time and less money. However, as you track your positions open longer, you must wait until the positions are closed before you can collect winnings. Possible
In general, I send my clients, especially those just starting out, to a longer-term trend following system. It takes less time, less money, there is less risk and it is easier to do than the short-term trading. In addition, trend following systems tend to lose a higher profit ratios and are psychologically easier to follow because of this.
For the sake of this example, let's build a trend following system. In the next two articles, I will explain how to encode the four components of entry a trend following system in MetaStock.
David Jenyns is recognized as the leading expert when it
comes to MetaStock and designing profitable trading systems.
His MetaStock website offers a huge collection of free trade
related tips and tricks. Get free access.
I am a technical analyst by profession. It is my belief that all fundamental and economic influences are taken by the market. Eligible at a rate Therefore, I focus my attention on price action. All my trading systems are based on this understanding of the market and the rules of my systems are built to respond to price promotions. In this article I am having the basic rules of trading:
- Entry rules (if you are in a position)
- Exit rules (if you are from a)
- Money Management rules (how many do you have in a trade?)
- Back - Testing (does the system work history?)
These four components is a proven formula for designing profitable trading systems in MetaStock. Let's start with the first part.
A stock that a precise set of conditions by creating entry signals before you will enter a trade. That security I think it's set on an entry in a position signal lines should leave no room for individual judgment. I follow the KISS principal - ie they have to Keep It Simple Simon.
Remember, there is no holy grail of entry systems. There is no MetaStock formula that you get in at exactly the right time, every time. With this in mind, it is your goal to construct. A simple but robust entry system
Although I always say that the input is the least important part of a trading system, you should still have a way to enter a trade. Here are the points that I think are important to consider when identifying possible entry points.
PRICE: It is important to set price limits / minimums because the stock may determine its attributes. For example, speculative stocks tend to be cheaper, and blue chip stocks are often more expensive.
LIDUIDITY: This is a measure of how much money the stock trades on. You need to make every effort to keep the stocks that just do not act enough you. Minimum levels of liquidity You can risk getting caught up in stocks where the market is moving against you if they have low liquidity.
VOLATILITY: This measurement indicates how much a stock moves. It is important to share that enough exercise for you to make a profit, but are not so fickle that you can not sleep at night trade.
TREND: This is the cornerstone of technical analysis. Remember that "the trend is your friend", and you always want to deal with it, not against it. You will be required. Way to measure trends in your system
TRIGGER: This is the point that indicates that it is time to enter a trade. The trigger condition occurs only at one point in time, and no "real" and held for long periods of time, such as a moving average crossover.
When combined, these components become part of your entry rules. But, before we even start coding this in MetaStock, must be one of the most critical elements of a system to determine. What time do you trade?
+ Short term, such a reversal trader
or
+ In the long term, such a trend follower
There are clear differences between these two types of systems and your choice here will have a clear effect on every other decision you make about your system to have.
Short-term systems tend to have a greater time commitment, and more money. However, the advantage of trading often is usually your profits more consistent and more realized.
Conversely, long-term systems tend to require less time and less money. However, as you track your positions open longer, you must wait until the positions are closed before you can collect winnings. Possible
In general, I send my clients, especially those just starting out, to a longer-term trend following system. It takes less time, less money, there is less risk and it is easier to do than the short-term trading. In addition, trend following systems tend to lose a higher profit ratios and are psychologically easier to follow because of this.
For the sake of this example, let's build a trend following system. In the next two articles, I will explain how to encode the four components of entry a trend following system in MetaStock.
David Jenyns is recognized as the leading expert when it
comes to MetaStock and designing profitable trading systems.
His MetaStock website offers a huge collection of free trade
related tips and tricks. Get free access.
Sunday, 30 March 2014
How Can You Tell Volume is Increasing During the Day?
Some days it's easy to say, make sure you and it is higher than the volume
average of the volume of the previous day. Often, however, a stock is making
the move you want to make after the first hour and the volume is somewhere
below where you want it. How do you know if you need to enter trade?
First, you should know what volume you are looking for and be able to
find intraday volumes. Your real estate agent is a good source. Real-time services
show you the exact volumes. also gives you intraday volume and
average volumes, but it is delayed by at least twenty minutes.
After intra-day volumes can get, how do you know if your goal?
As with most cases there is no 100% foolproof method that exactly every
time. As a general rule, stocks have a strong increase in volume in the first hour
and in the last hour. If it's a quiet day, the volume will usually slow
during the middle hours, especially at lunch. You will often see the
volume increase followed by a morning drop-off. If a stock is moving
However, you usually see volume after folding up for the day, again
initial decline.
After that first volume surge, you can check and see where the volume
is related to the tour volume targets for the day. If you
stock is 40% or more of the target volume, you can very comfortable that
it will make your audience. If the stock is good moves and you hit that
volume, you can feel good. about entering a trade You could be wrong, but
the odds are with you. Going into the last two hours, when the stock
begin to move, be sure to check the volume. If the volume is within 20% -30% of
the target range, it can hit the target. With
the stock move if you want the volume and looks good, you can again
feel good about entering the trade.
As you can see, there are no fixed rules. If the stock is with good momentum and volume is to support that move by showing equal life, we feel good about the trade.
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average of the volume of the previous day. Often, however, a stock is making
the move you want to make after the first hour and the volume is somewhere
below where you want it. How do you know if you need to enter trade?
First, you should know what volume you are looking for and be able to
find intraday volumes. Your real estate agent is a good source. Real-time services
show you the exact volumes. also gives you intraday volume and
average volumes, but it is delayed by at least twenty minutes.
After intra-day volumes can get, how do you know if your goal?
As with most cases there is no 100% foolproof method that exactly every
time. As a general rule, stocks have a strong increase in volume in the first hour
and in the last hour. If it's a quiet day, the volume will usually slow
during the middle hours, especially at lunch. You will often see the
volume increase followed by a morning drop-off. If a stock is moving
However, you usually see volume after folding up for the day, again
initial decline.
After that first volume surge, you can check and see where the volume
is related to the tour volume targets for the day. If you
stock is 40% or more of the target volume, you can very comfortable that
it will make your audience. If the stock is good moves and you hit that
volume, you can feel good. about entering a trade You could be wrong, but
the odds are with you. Going into the last two hours, when the stock
begin to move, be sure to check the volume. If the volume is within 20% -30% of
the target range, it can hit the target. With
the stock move if you want the volume and looks good, you can again
feel good about entering the trade.
As you can see, there are no fixed rules. If the stock is with good momentum and volume is to support that move by showing equal life, we feel good about the trade.
For more FREE trading tips, enter your email address:
Saturday, 15 March 2014
Ways to Play Defensively
We do not consider playing a defensive way of buying "safe" files because safe stocks will not make any money. We have movement, but there are ways to help you survive huge mood swings that momentum stocks can display. Today we look at the idea of the "average down" and if it is a good idea or not. It is not a simple answer.
The concept behind the average down is that if you buy it at 100 and it is XYZ
to 90 and you buy more your "average" cost is only 95 now. So if XYZ bounces
up, you just need to reach 95 to break even on the trade. The idea sounds reasonable, right? Well, "maybe / sometimes."
For the most part of the problem with the average down is that people
use it to justify. poor trade If you buy XYZ with the idea that it is
up and it starts to fall, you should ask why? If the market is healthy, and
XYZ has not released any bad news, XYZ should at least hold its own right? Well someone does not like it and you do not know the reason why, yet. Now, imagine that you buy to "average down" more XYZ and then the next day "tree" they give some kind of bad news. You have effectively bought more shares of a bad trade. So in this case average has hurt you down. So naturally the question is, "you have ever average down?" and that answer is "yes" at times.
Lets take an example: Suppose you are in the XYZ because they just announced good earnings a day ago and they are trading higher. But then ABC, in the same sector announces profits and they miss by a mile. Are more often than not the stock in the whole industry will hit a little. Overall this is a trap and sympathy because XYZ did nothing wrong, buy more on that kind of dip is often a good idea. They are usually not long lived and can get. Chance to buy at a bargain price more XYZ
Part 2 **
How about buying more (below average) simply because the market is having
a bad hair day? This is difficult, but try and follow the reasoning. It all depends on what XYZ has done. Lately
For the most part, if XYZ an "orderly rise" has had and they take a step back because the market burped, we have no objections to the average down and buy some more, hoping that the market the next day and XYZ will rebound will be on the move again. BUT and this is very important, if XYZ already been carried out for a number of points, the answer is very difficult to say. We are conservative about a lot of things and when a stock has moved several points in two weeks and then gets hit to sell in a bad market, we do not recommend buying more and here the average down. Why? two reasons. First, if you already have an increase of $ 5 and XYZ is hit for two in one day drop, you're still up $ 3. But if you buy the market still remains another day, now you really eat into your profits. Since we never really know how far a market will "shake" you could buy in a pretty big hole. So, what we want to do in a case like this is just to take the first fall as violating your stop loss point your profit. If it wants catfish, you're a good profit and when it bottoms out and starts you can buy another backup. If it does not hit your stop loss point on his first fall, instead of buying more, sit tight and see what the next day. If the next day looks like it will rebound, THEN, buy some more.
We emphasize this point for a reason. A few weeks many files are several points in just a few days. Sure, you would expect a shake-out and get it, but what happens if it does not pop up again? This happened with the Internet stocks back in April of 1999 and many people were trapped all summer "hope" to get their money. So, the point is, the average down does have
its place if used wisely. But we did not use to justify a bad trade and we
generally not be used to add to a recent high flier that is falling apart. We would rather sell that high flier, pocket our profits and buy back in when the trough and began to climb.
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The concept behind the average down is that if you buy it at 100 and it is XYZ
to 90 and you buy more your "average" cost is only 95 now. So if XYZ bounces
up, you just need to reach 95 to break even on the trade. The idea sounds reasonable, right? Well, "maybe / sometimes."
For the most part of the problem with the average down is that people
use it to justify. poor trade If you buy XYZ with the idea that it is
up and it starts to fall, you should ask why? If the market is healthy, and
XYZ has not released any bad news, XYZ should at least hold its own right? Well someone does not like it and you do not know the reason why, yet. Now, imagine that you buy to "average down" more XYZ and then the next day "tree" they give some kind of bad news. You have effectively bought more shares of a bad trade. So in this case average has hurt you down. So naturally the question is, "you have ever average down?" and that answer is "yes" at times.
Lets take an example: Suppose you are in the XYZ because they just announced good earnings a day ago and they are trading higher. But then ABC, in the same sector announces profits and they miss by a mile. Are more often than not the stock in the whole industry will hit a little. Overall this is a trap and sympathy because XYZ did nothing wrong, buy more on that kind of dip is often a good idea. They are usually not long lived and can get. Chance to buy at a bargain price more XYZ
Part 2 **
How about buying more (below average) simply because the market is having
a bad hair day? This is difficult, but try and follow the reasoning. It all depends on what XYZ has done. Lately
For the most part, if XYZ an "orderly rise" has had and they take a step back because the market burped, we have no objections to the average down and buy some more, hoping that the market the next day and XYZ will rebound will be on the move again. BUT and this is very important, if XYZ already been carried out for a number of points, the answer is very difficult to say. We are conservative about a lot of things and when a stock has moved several points in two weeks and then gets hit to sell in a bad market, we do not recommend buying more and here the average down. Why? two reasons. First, if you already have an increase of $ 5 and XYZ is hit for two in one day drop, you're still up $ 3. But if you buy the market still remains another day, now you really eat into your profits. Since we never really know how far a market will "shake" you could buy in a pretty big hole. So, what we want to do in a case like this is just to take the first fall as violating your stop loss point your profit. If it wants catfish, you're a good profit and when it bottoms out and starts you can buy another backup. If it does not hit your stop loss point on his first fall, instead of buying more, sit tight and see what the next day. If the next day looks like it will rebound, THEN, buy some more.
We emphasize this point for a reason. A few weeks many files are several points in just a few days. Sure, you would expect a shake-out and get it, but what happens if it does not pop up again? This happened with the Internet stocks back in April of 1999 and many people were trapped all summer "hope" to get their money. So, the point is, the average down does have
its place if used wisely. But we did not use to justify a bad trade and we
generally not be used to add to a recent high flier that is falling apart. We would rather sell that high flier, pocket our profits and buy back in when the trough and began to climb.
For more FREE trading tips, enter your email address:
Friday, 28 February 2014
"Over Reaction" and How It Hurts Us Traders
The market is a perfect unity, where buyers and sellers even things out. Named Well, to some extent, that is actually true. But, before the 'evens things out "often overshoot the markings on both sides of the ledger. So let's say XYZ makes some big fuss about an upcoming deal they get. Soon the market is crazy buy it and XYZ is fly. Was the news really warm enough for XYZ to get in two days, or was it just 10 points a large impulse wave that was built and everyone wanted "in" before they missed the boat? We propose the latter.
On the other suggest that you see a stock taken down more than $ 5 per share simply because they declared their income would not "up to standard". Is that valid? We think not. Both examples are "reactions" and
once the hype and rush is over, then the market evens things out. For example, the second stock no less sales or revenues show, but simply had to deliver at a time when they could not get them recognized during the quarter. So, for a "timing" issue a stock lose $ 5 a day. That is crazy.
So why do we put this? Well of course we think that specific issues in a stock could make for a great long-term buying opportunity. (Not all smackdowns buying opportunities, if the stock had really blown it lose or turnover anything, that's another story.) And in the case of XYZ, there was a short sale made in heaven, once the initial hysteria over was. But perhaps more importantly, we know when we have into a frenzy about something.
Suppose a Friday, the day before a holiday weekend and we do very well. Then Monday as everyone on the beach we have a pretty good day. But when the sale of hits on Wed. we get "talking heads" screaming about how the market is not stable and can be passed down. They are the same guys screaming buy everything we need just two days earlier! See the point? Too much upside Friday and Monday, followed by too much downside Wednesday.
So, what we need to do is keen on big up days AND big down days to trade, but do not get caught up in the hype of overreact. We should take advantage of them. That does not buy XYZ after having gained 10 points in two days and did not think the world ends when to take a hit for the day averages (of course several weeks at a time is another story!) Look
overreaction on down days as a potential buying opportunity. How do you know
if it's something more than response or sell a real panic? Let's take a look at say a chip sector downgrade, say on a Wednesday, by perhaps a company like Salomon's.
The market needed to take after a few good days (not recently), and traders a breather got a little nervous about a few tech companies warning about profits. Then Solomon's downgrade. So they sell the chips hard. An overreaction? Well, the downgrade was because they were "too expensive" and rating downgrades are generally short-lived creatures. So what to do when that happens is watching the action in the next few days. If they are on the way back, the downgrade was a gift and again even if you missed the first few dollars of the move up, you are still cheaper than they would have been. Before the downgrade
The bottom line is this: the market exceeded just about everything.
If you base some of your transactions on those extremes by shorting the frenzy and buying the smackdowns, you will find that very often you have made a good trade. Just do not get caught up in the frenzy itself!
On the other suggest that you see a stock taken down more than $ 5 per share simply because they declared their income would not "up to standard". Is that valid? We think not. Both examples are "reactions" and
once the hype and rush is over, then the market evens things out. For example, the second stock no less sales or revenues show, but simply had to deliver at a time when they could not get them recognized during the quarter. So, for a "timing" issue a stock lose $ 5 a day. That is crazy.
So why do we put this? Well of course we think that specific issues in a stock could make for a great long-term buying opportunity. (Not all smackdowns buying opportunities, if the stock had really blown it lose or turnover anything, that's another story.) And in the case of XYZ, there was a short sale made in heaven, once the initial hysteria over was. But perhaps more importantly, we know when we have into a frenzy about something.
Suppose a Friday, the day before a holiday weekend and we do very well. Then Monday as everyone on the beach we have a pretty good day. But when the sale of hits on Wed. we get "talking heads" screaming about how the market is not stable and can be passed down. They are the same guys screaming buy everything we need just two days earlier! See the point? Too much upside Friday and Monday, followed by too much downside Wednesday.
So, what we need to do is keen on big up days AND big down days to trade, but do not get caught up in the hype of overreact. We should take advantage of them. That does not buy XYZ after having gained 10 points in two days and did not think the world ends when to take a hit for the day averages (of course several weeks at a time is another story!) Look
overreaction on down days as a potential buying opportunity. How do you know
if it's something more than response or sell a real panic? Let's take a look at say a chip sector downgrade, say on a Wednesday, by perhaps a company like Salomon's.
The market needed to take after a few good days (not recently), and traders a breather got a little nervous about a few tech companies warning about profits. Then Solomon's downgrade. So they sell the chips hard. An overreaction? Well, the downgrade was because they were "too expensive" and rating downgrades are generally short-lived creatures. So what to do when that happens is watching the action in the next few days. If they are on the way back, the downgrade was a gift and again even if you missed the first few dollars of the move up, you are still cheaper than they would have been. Before the downgrade
The bottom line is this: the market exceeded just about everything.
If you base some of your transactions on those extremes by shorting the frenzy and buying the smackdowns, you will find that very often you have made a good trade. Just do not get caught up in the frenzy itself!
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