Wednesday, November 04, 2009

Trading Volume Stocks: What One Day Can Bring

Financial experts love to use jargon that confuse and infuriate the newbie. Education is key- before making any trade transaction you should know a little about the market, how it works and the definitions that are associated with it. Taking the time to arm yourself with just a little bit of education can save you some heartache and embarrassment later on. It does not matter whether you trade online or with a traditional broker, you do need to know a few things before you begin.

For instance: the basic definition of the word "volume" when related to stocks is simple. It is the number of stock shares that are traded usually over the course of one trading day. If there are fewer trades than usual for that time period, then they say that the volume is "thin". Likewise, more trading is "heavy". The amount of trading will influence market prices either up or down as stocks change hands. The more trading (heavy trading) that goes on, the higher the price for that stock will rise and vice versa.

Researching the volume of a particular stock before making a transaction is a wise idea and can be done in a number of ways from the traditional to the more modern. In the old days, this information was only available through a broker, but times have changed and many people now handle their own stock portfolios with no financial consultant involvement at all. The do-it-yourself investment wizard can find out a stock's previous day volume by looking in the newspaper or online. Online is probably the better choice if you are dealing with a stock that seems to be having wide variables- information is updated frequently, in some cases as often as every half hour or less.

Knowing volume of your particular stock can be important for several reasons. First, it can give some indication how many buyers and sellers are involved with it. The higher the volume, the more movement has been reported. A sudden jump or decline in volume, especially in one that has been typically steady may indicate an event, either positive or negative that may affect the entire market. Of course, not every little spike or valley on the volume chart of a stock will indicate a major change and sometimes there is little or no reason at all for the change. Do not make any major decisions to buy or sell stocks based on one day's volume information, however. You need to track the stock's average daily volume for several days before finalizing a decision.

Friday, September 25, 2009

How to Know When to Sell Your Stocks

While quite a bit of time and research goes into selecting stocks, it is often hard to know when to pull out – especially for first time investors. The good news is that if you have chosen your stocks carefully, you won’t need to pull out for a very long time, such as when you are ready to retire. But there are specific instances when you will need to sell your stocks before you have reached your financial goals.

You may think that the time to sell is when the stock value is about to drop – and you may even be advised by your broker to do this. But this isn’t necessarily the right course of action.

Stocks go up and down all the time, depending on the economy…and of course the economy depends on the stock market as well. This is why it is so hard to determine whether you should sell your stock or not. Stocks go down, but they also tend to go back up.

You have to do more research, and you have to keep up with the stability of the companies that you invest in. Changes in corporations have a profound impact on the value of the stock. For instance, a new CEO can affect the value of stock. A plummet in the industry can affect a stock. Many things – all combined – affect the value of stock. But there are really only three good reasons to sell a stock.

The first reason is having reached your financial goals. Once you’ve reached retirement, you may wish to sell your stocks and put your money in safer financial vehicles, such as a savings account.

This is a common practice for those who have invested for the purpose of financing their retirement. The second reason to sell a stock is if there are major changes in the business you are investing in that cause, or will cause, the value of the stock to drop, with little or no possibility of the value rising again. Ideally, you would sell your stock in this situation before the value starts to drop.

If the value of the stock spikes, this is the third reason you may want to sell. If your stock is valued at $100 per share today, but drastically rises to $200 per share next week, it is a great time to sell – especially if the outlook is that the value will drop back down to $100 per share soon. You would sell when the stock was worth $200 per share.

As a beginner, you definitely want to consult with a broker or a financial advisor before buying or selling stocks. They will work with you to help you make the right decisions to reach your financial goals.

Thursday, June 18, 2009

Trading Stocks Online: Does the Ease of Use Make it More Dangerous?

The majority of American homes have at least one computer, and of those, most are connected to the Internet for at least one hour or more each day of the year. Because of the ease of having the entire world right there at your fingertips, more and more business is conducted from the home - from ordering Junior's birthday gift to performing job duties. It was only a matter of time before the financial world started grabbing some of the Internet action- now a large portion of every day's trading actions are performed online. Whether you go through a broker or execute your trade on your own, online trading can be an interesting way to manage your investments.

Because the Internet is there twenty-four hours a day, it can become very easy to get carried away by the whole online trading concept. Before you even log onto the first site, and before you even look at the first trade online, there are some things you must know and understand. Knowing these basics can make your online trading experience satisfying and hopefully, financially rewarding.

If you have never worked with stocks before it might be advisable to work with an online broker before going out on your own. The stock market should not be a learn-as- you-go experience, especially not with the current state of the economy. Do your research if you wish, but work with a broker until you are more confident in your own abilities.

You should talk with your broker about your own personal investment goals. Know what all of the risks are when dealing with the stock market. And by all means, know your own limits. Do not try to trade above your financial capabilities- if you choose the wrong stock, or the market fluctuates you can put your family in real financial danger.

Online trading can allow you to research and buy your stock in one simple step, or to do the research only, using a broker to buy the actual stock. Beyond the other tips that apply to all stock trading, both traditional and online, there are other special considerations for online trading, including knowing that you might not be able to instantly execute or cancel orders- both may be delayed by as much as a few hours. You also need to know if quotes and other information given is delayed or given in real time. (This will usually be clearly denoted on the stock site.) What are the limits to your trades- do you have a daily cap while working online? And because you are dealing with an entity that sometimes has technical issues, you must ask about website crashes and what that can mean to your ability to make or cancel orders.

Finally, before making your first trade with an online company, check out their privacy policy, find out about commission and transaction fees and review the customer service and complaint policy.

Article Written By J. Foley

Friday, June 05, 2009

Price Trading: Gambits, Tactics and Good Business Sense

Price trading can be tricky at best, even for the most astute financial mind. Watching the tracking trends of certain stock and thinking you have it predicted down to the last few percentage points of accuracy, only to have it fall completely off the charts, is not only heart breaking, it can also lead to financial ruin. Although trend trading can provide an educational leg-up on the competition, it does not always stop the trader from being faced with financial doom when a market takes an unexpected and therefore unpredictable header toward the basement.

The economy is in a major downward spiral, and most indicators are showing that, however some price trading charts are showing some stocks are in fairly stable shape. How this can be should be a puzzle to all but the most novice among us. The stock futures are showing down trends, and the realistic and responsible trader will adjust trading activity to reflect this.

Price trading charts are often confusing and more, they contradict themselves. Using financial software for analysis of these charts can help, but even that may prove to be ineffective when there is just too much data for the computer to sort through. Price trading can be lucrative, if you know what you are doing, and can make sense of what the market is doing.

With price trading, the main consideration is timing. You must make your move, no matter what financial instrument you are dealing with, at the optimum time to gain the best price. Knowing that there will be a huge demand on one stock in one week's time and holding onto that stock to sell during the rush makes sense, but selling it one week before the demand hits does not. As with any financial activity, especially with the current economic situation, you must know your limits and your financial caps. Do not exceed your own budgetary limits and put yourself at the risk for financial ruin. Do not make trades that you do not fully understand. Do your homework and the necessary legwork before beginning any trading activities. Work with a broker before heading out to take on the financial world on your own. Take educational seminars and read all of the financial information that is available to you, either in hard copy or online.

Do not allow yourself to get caught up in the thrilling rush of one or two successful trades. A little financial knowledge can be a bad thing, especially if it leads to risky, undisciplined behaviors on your part.

Article Written By J. Foley

Wednesday, May 27, 2009

Consumers feel better, and so does the stock market

12:29 PM, May 26, 2009

Consumers are feeling somewhat better, and that's making investors feel better too.

The stock market rose for the first time in a week today as unexpectedly strong consumer-confidence data sparked optimism that spending by Americans could support a hoped-for second-half economic recovery.

The Dow Jones industrial average is up about 175 points, bolstered by stocks of consumer-discretionary companies such as restaurant, hotel and clothing chains. Earlier in the day the blue-chip gauge was up by almost 220 points.

An index of consumer sentiment spurted this month to 54.9, its highest level since September, according to the Conference Board, a New York-based research group. That was up from a revised 40.8 last month and far outdistanced the 42.6 level anticipated on average by economists.

“While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us,” said Lynn Franco, who heads the organization’s consumer research center.

The increase, the third in a row since the index hit a low in February, partly reflected an improved perception of the employment market.

The so-called expectations index, a measure of the conditions consumers foresee in the coming months, surged to 72.3 from 51.

Investors hope that resilient consumers can help pull the economy out of recession later this year and pad badly bruised earnings at major retailers.

“Higher consumer confidence plus the boost to disposable income in Q2 from a tax cut and extra Social Security payments make it more likely that a 'breakout' number on retail sales will be recorded soon after the weak readings of the last several months,” economists at UBS wrote in a note to clients.

Consumer-discretionary stocks are up more than 3.5% today, the best performance among 10 major sectors tracked by Standard & Poor’s Corp.

Hotel chains are doing especially well. Starwood Hotels & Resorts Worldwide has climbed 8.8% today, Wyndham Worldwide is up 8.4% and Wynn Resorts is up 6.7%. In other sectors, Home Depot is 4.4% higher and JPMorgan Chase is up 5.6%.

But there is only so much that consumer confidence alone can help stocks. One reason consumers are feeling better is that their portfolios have rebounded sharply since stock indexes hit multiyear lows in early March. So today’s rally is relying on something akin to a perpetual energy machine.

Moreover, there are big questions as to whether consumers can come to the market’s rescue.

The most obvious is the continued free fall in housing prices, which was reinforced with new data released Monday.

The widely followed S&P/Case-Shiller index of home prices in 20 cities slumped 18.7% from March 2008 through March 2009. (Los Angeles was off 22.3%.)

More than that, the job market remains weak and consumers have boosted their saving and begun whittling their debt.

“The type of environment we’re in, and coming out of, is unlike anything we’ve seen in our lifetimes,” said Dan Greenhaus, market analyst at Miller Tabak & Co. in New York. “How consumers perform in a massive deleveraging phase remains to be seen.”

-- Walter Hamilton
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Thursday, May 21, 2009

Day Trading For a Living

Some people love numbers, and the thought of learning a whole new language of technical jargon thrills them to no end. They think with the analytical side of their brain at all times, and can be counted on to see the big picture, no matter what else is going on around them. These people have the super speedy brains of a numbers-based genius, nerves than can be slightly shaken, but never stirred, and just a touch of brass; they are the perfect person to take on day trading for a living.

Do not get the idea that these are just some kind of young, hip cowboy types that roam in making trades at random, raking in the big financial rewards as they do so- they must truly know their stuff and they have to have an innate sixth sense ability before heading out into the day trading world. That world, by the way, is online, so heading out is a misnomer as well. Day trading activity takes place daily, online with the more short-term trades that they move quickly. They are literally traders, rather than investors, but can reap huge rewards in a relatively short period of time. Of course, day trading for a living does carry some fairly large monetary risks, so you must know a little about the market, your limits and what your loss cap is before even beginning.

Day traders do not always buy and sell their stocks in the course of the day, some may be held onto for a few days or even a week or more, in an activity commonly known as "swing trading". Doing day trading for a living will probably encompass both types of trading activity, especially on days when certain stocks are fairly flat. Knowing the trends of stocks is always a wise idea, and while the day trader moves quickly, without the wait and see approach of a more traditional trader, they do know and understand these trends.

Before thinking about day trading for a living you must know more than just the stock market and your own capabilities. A day trader must function under certain regulations which include minimum equity requirements for a day trader account, as the day trade buying power of that account and what defines a trader as a day trader. You do not want to begin your new career with SEC trouble looming over your head. Check out the regulations and the requirements. Do your homework and possibly buy and download the applicable software to your home or office computer. Day trading for a living can be lucrative, or it can be the financial death of you, know what you are getting into before you get into it.

Article Written By J. Foley

Saturday, April 04, 2009

Stocks Finish Higher, Led by Techs

The market posted its fourth straight weekly gain despite more gloomy news on the labor market and a decline in service-sector sentiment

U.S. stocks closed higher Friday, sending the market upward for a fourth straight week. The advance was led by tech issues after Research in Motion (RIMM) posted robust fourth-quarter results.

On Friday, the 30-stock Dow Jones industrial average finished higher by 39.51 points, or 0.50%, at 8,017.59. The broad S&P 500 index moved up 8.12 points, or 0.97%, to 842.50. The tech-heavy Nasdaq composite index added 19.24 points, or 1.20%, to 1,621.87. On the New York Stock Exchange, 21 stocks were higher in price for every 10 that declined. Nasdaq breadth was 16-11 positive.

Treasuries plunged. The dollar index eased. Gold and crude oil futures fell.

The stock market's higher close followed earlier bouts of profit taking, as investors digested news of another hefty drop in nonfarm payrolls in March while preparing for next week's start of the first-quarter corporate earnings season. The gains extended rallies from earlier this week that drove all three major market indexes up more than 20% off their bear-market lows in early March.

Federal Reserve Chairman Ben Bernanke discussed the Fed's balance sheet, which has expanded in bid to help the economy work out of recession.

In a speech Friday, Federal Reserve Chairman Ben Bernanke said the Fed has used its balance sheet "prudently," in conjunction with a multiplicity of new programs. He also cited the drop to record lows in mortgage rates as a sign that the Fed's actions are having their intended effect.

Bernanke also indicated the Fed has taken care to design its programs so that they will be unwound as markets and the economy revive. The speech detailed the various Fed programs as it essentially retooled its balance sheet to meet the needs of the credit markets.

In economic news Friday, the U.S. ISM nonmanufacturing index slipped to 40.8 in March from February's 41.6. The index is up from its all-time low of 37.4 in November 2008, but is well off its 49.6 print a year ago. However, the business activity index improved to 44.1 versus 40.2 (it was 52.2 in March 2008). New orders fell to 38.8 from 40.7. The employment index slid to 32.3 from 37.3. New export orders dipped to 39.0 from 40.0. Prices paid fell to 39.1 from 48.1. The composite manufacturing and nonmanufacturing edged down to 40.3 from 40.9.

"The data disappointed expectations for modest improvement and that should give Treasuries a little boost at the expense of stocks," says Action Economics.

U.S. nonfarm payrolls lost 663,000 jobs in March, and a bit stronger than the 650,000 expected. The unemployment rate rose to 8.5% from 8.1% the month before, though about as expected. While February's 651,000 decline was not revised, January was revised down to -741,000 (previously 655,000), with job losses averaging 685,000 in the first quarter. Average hourly earnings rose 0.2%. Average weekly hours dipped to 33.2 from 33.3. Total goods-producing sector lost 305,000 jobs, with a 161,000 decline in manufacturing, and an 126,000 drop in construction. Business services lost 133,000 jobs. Only health care added jobs, about 8,000.

"The headline data were about in line with forecasts. While the data indicates the job weakness continues, the report failed to realize the worst fears of a greater than 700,000 drop in jobs," says Standard & Poor's senior economist Beth Ann Bovino.

Monday, March 30, 2009

The persistent rally of stock market

The stock market
enjoyed an unusually strong week with the BSE Sensitive Index finishing 12.06% or 1,081.81 points higher, and the Nifty ending
10.74% up. The CNX Midcap Index underperformed the main indices with a relatively modest gain of 5.77%.

Tata Steel was the biggest winner among the index stocks with a 26.9% gain. The other index stocks to go up included ICICI Bank, HDFC Bank, Sterlite Industries and State Bank with gains falling between 19.3% and 18.0%. None of the index stocks declined last week.

Unitech was the biggest winner among the more heavily traded non-index stocks with a 33.2% gain. The other non-index stocks to go up included PNB, Aban Offshore, Lanco Infratech, Axis Bank, Sesa Goa, JSW Steel and Yes Bank with gains falling between 32.4% and 23.6%.

Akruti City was the biggest loser among the more heavily traded non-index stocks with a 51.6% loss. The other non-index stocks to go down included Edserv Softsystems, MindTree, Crompton Greaves, Tulip Telecom, Everonn Systems , Firstsource Solutions and Gujarat NRE Coke with losses falling between 22.1% and 2.9%.

Intermediate Trend

The market remains in the intermediate uptrend which started on March 6 when the Sensitive Index made a bottom at 8,047. The levels below which the uptrend would end are now a considerable distance down at 8,867 for the Sensitive Index, 2,739 for the Nifty and 3,190 for the CNX Midcap Index.

These would be revised upwards to the level where the next minor decline bottoms out. Most global markets are in fairly strong intermediate uptrends, and are typically somewhere between their one-month and three-month highs.

Long-Term Trend

The market's long-term trend is down. The index has been in a 3,300-point range between 7,700 and 11,000 since the end of October, without any clear sequence of rising or falling tops and bottoms. It would therefore be best to take 11,000 as the level to cross for the Sensitive Index for a bull market confirmation. The corresponding level for the Nifty is 3,250, and that for the CNX Midcap Index is 4,000. (Figures have been rounded upwards).

Almost 25% of the market's heavily traded stocks are now at two-month highs or better, and over 15% are above their 200-day moving averages. These could be the first signs that the bear phase may have already ended. In any event, quite a few stocks may have already left the worst behind them.

Trading & Investing Strategies

The market is currently in an intermediate uptrend, and long-term investing should be put on hold until the next intermediate downtrend develops and has run for a week or two. It will be a good idea to hold on to past and recent investments, and not get out of them as this rally progresses. This portfolio building exercise suggested over the last few months is simply to buy stocks at low levels, and not in anticipation of an early end to the bear market - even though this now looks like a distinct possibility.

Global Perspective

The major trends of all global markets remain down, but the intermediate trends of almost all the markets are up. The Dow would enter a bull market (major uptrend) if it were to climb above 9,500. The Shanghai Index has crossed its 200-day moving average, and a global bull phase will become a real possibility if other indices follow suit.

The BSE Sensitive Index had lost 37.5% in the twelve months that ended on Thursday, keeping it at the 21st place among 35 wellknown global indices considered for the study. Chile continues to head the list, but with a 11.6% loss. New Zealand, South Korea, Israel and Spain follow. The Dow Jones Industrial Average has lost 35.6% and the NASDAQ Composite has lost 30.4% over the same period. (These rankings do not take exchange rate effects into consideration).

(The author is an independent technicals analyst)

Monday, March 23, 2009

Sifting for Gold Among High-Profit Stocks

It's time to draw up a shopping list in preparation for the market's recovery. Here are 56 solid stocks that offer compelling value, relative to bonds, based on earnings yield. Topping the list: WellPoint.

THE DAY WILL COME when you will want to own stocks again. Really, truly, it will. After last week's strong showing, maybe you are already feeling a little left out. Bear-market rallies will eventually give way to a full-blown bull market. And when that time comes, you don't want to miss it. For that to happen, it is vital to prepare a blueprint to help guide your investment choices.

Jeremy Grantham, market seer and chief investment strategist of Boston money-management firm GMO, stressed the importance of being ready for the inflection point in a recent piece titled "Reinvesting When Terrified." He concluded that "you absolutely must have a battle plan for reinvestment and stick to it," all the more so when prospects appear their darkest. GMO now forecasts healthy long-term returns of 10% to 13% for equities.

There is no question that in an environment in which assets are still being repriced and balance sheets restructured, caution is wise. No one is suggesting investors should double down on the market -- but it is probably time to start averaging down.

DRAWING UP A PLAN OF ACTION and setting certain investment parameters before heading into what is arguably still a war zone should offer investors some protection against losses while positioning portfolios to capture potentially powerful returns. If you are skeptical of the ability of stocks to outperform ever again, as a case in point Grantham recalls the 105% return in the Standard & Poor's 500 for a six-month period beginning in June 1933, long before unemployment peaked and bank failures ran their course.

In a five-month period during the 1974 bear market, he points to the 148% advance in equities in the U.K. Moreover, during the Great Depression, there were six advances of 20% or more before full recovery took hold.

To help you with your blueprint, we created a screen based on the earnings yield of a stock -- the earnings per share for the most recent 12-month period, divided by the current stock price. This percentage, which is the inverse of the price/earnings ratio, provides a way to compare stocks with bonds or money-market instruments. The higher the yield relative to fixed-income securities, the better the value of the stock. Ray Dalio of Bridgewater Associates has said the key piece of advice he would offer to investors would be to consider the earnings yield of a stock before making an investment.

Understanding that the earnings outlook for a company isn't etched in stone, most of the stocks in our screen, with just a few exceptions, are expected to produce decent -- if not exceptional -- long-term earnings growth, a factor that will only enhance the rate of return compared with bonds. Last week's huge Treasury-market rally made these stocks look more attractive.

WE HAVE SCREENED FOR COMPANIES whose earnings yield is at least twice that of the 10-year Treasury's recent 2.8% level (it was trading at 2.61% on Friday). We chose that multiple to take into consideration the extra risk associated with stocks. Right now, the stock market as a whole, as measured by the S&P 500 and its earnings yield of 9%, appears to be undervalued in relation to bonds as measured by that 2.8% Treasury-yield yardstick.
Table: Better Than Bonds

We wanted to isolate those companies on the best financial footing, so we weeded out those with debt-to-total-capitalizations higher than 40% and debt-to-equity ratios greater than 60%. To underscore our emphasis on stability, only companies with market values higher than $15 billion made the final cut.

You might wonder why we didn't just screen for dividend yields -- which investors typically use when making a decision on buying a stock. Our thinking is that with companies increasingly slashing or suspending dividend payouts to conserve cash flow and bolster liquidity in these troubled times, this is fast becoming an unreliable indicator of a stock's potential investment return.

Not surprisingly in the current environment, only two financial companies made it to our final screen. They are property-casualty company Traveler s (ticker: TRV), with an earnings yield of 15% and mean long-term earnings-per-share growth estimated at 8.5%, and Warren Buffett's financial conglomerate Berkshire Hathaway (BRKA), with interests in insurance as well as manufacturing, media, consumer-discretionary and retail sectors and an earnings yield of 7.5%.

Travelers' conservative management of its investment portfolio, stable personal-lines business, manageable debt load, and strong balance sheet has helped it weather the current downturn well, and should give it an edge in a recovery.

Berkshire Hathaway is, well, Berkshire Hathaway (see Barron's, "Don't Count Out Berkshire Hathaway," March 2). Despite pressure on its investment portfolio from an ill-timed foray into the oil patch through a ConocoPhillips (COP) stake -- Conoco also makes it onto our long-term list -- and Buffett's staunch support of some beleaguered banks, plus some derivative bets that so far appear to have backfired, Berkshire ended 2008 with $24 billion in cash. And it continues to be well-positioned to take advantage of others' travails. One area Buffett now finds attractive is high-yielding investment-grade corporate bonds.

Only one utility makes our list: Duke Energy (DUK), a pure-play electric utility sporting a 9.9% earnings yield and estimated mean long-term earnings growth of about 4%. Duke has ample liquidity to support growth and see it through this economic crisis. Investors will likely be drawn to its solid balance sheet and geographic diversity, as well as its 7% dividend yield -- which in this case appears to be sustainable.

Most heavily represented on our list are companies in the health-care and information-technology sectors. Indeed, Nos. 1 and 2 on the list of 56 companies are managed-health-care companies WellPoint (WLP), with an earnings yield of 17.2%, and UnitedHealth (UNH), boasting an earnings yield of 16.8%.

After a difficult couple of years, WellPoint is on track to improve its shareholder returns. New management is in place, claims inventories are down, and reserves have been strengthened. The company is expected to generate free cash flow of $3 billion in 2009, and to repurchase up to $2 billion of its shares this year.

Topping the list of info-tech stocks is Hewlett-Packard (HP), whose earnings yield is 12.9%. Hit hard by the global downturn and frozen IT budgets, the computer-printer giant posted lower-than-expected revenue in its fiscal first quarter, and reduced its earnings outlook. But synergies from its acquisition of EDS as well as share gains should provide meaningful earnings support. When spending does tick up, Hewlett-Packard is well-positioned to benefit (see the Dec. 29, 2008 Barron's "How HP Prints Profits"). Meantime, it ended the first quarter with $11.3 billion in cash; operating cash flow was $1.1 billion. Also, the company has $7.9 billion remaining in a share-repurchase program, after buying back $1.2 billion of its shares in the prior quarter. Needham & Co. has called Hewlett-Packard "a must-own name in large-cap tech."

There are few media companies that make the grade, but one that does is News Corp . (NWS, Class B), owner of Dow Jones, which publishes Barron's. News Corp. shares have been battered by the deep advertising recession affecting the entire newspaper industry. Also, when Peter Chernin, Rupert Murdoch's longtime second-in-command, announced recently he would leave the company, concerns were raised about succession plans.

Still, the company's balance sheet is in fine shape, with a manageable debt load and cash available to cover its obligations through 2015. News Corp. is expected to generate $2.2 billion in free cash flow this year. At 8.1%, its earnings yield is about 2.9 times the yield of the 10-year Treasury. The stock could benefit if management chose to buy back shares, a signal that the worst for the media industry and economy might be over. At least one analyst has a price target of $14 on the shares, which would indicate a roughly 100% move from current levels.

Our screen, while not foolproof, is compelling for the values it has turned up among companies representing a wide range of sectors. The size and standing of the companies as well as their sound balance sheets and potential for growth should result in meaningful returns for those investors with an action plan in their pockets.

E-mail comments to mail@barrons.com

Monday, March 16, 2009

Making Sense of the Stock Market's Wild Ride

Fortunes are won and lost from day to day in a volatile market that shows no signs of settling down soon

By Ben Steverman

Once again, the wild stock market has made fools of those who would try to predict its direction.

Amid buckets of bad news and a gloomy mood on Wall Street, stocks took a violent swing to the upside. In just three days, the broad Standard & Poor's 500-stock index advanced 10.7%, which is more than what stocks rose in four of the last five years.

That followed a scary descent for the S&P 500 to the lowest levels in more than 12 years. From Jan. 6 to a low on Mar. 6, the S&P 500 dropped 29%.

All this volatility makes stock market investors look like they can't make up their minds. If stocks prices change so much from Monday to Thursday, investors apparently don't know what U.S. companies are really worth.There are two common ways of explaining the market's recent rally, and both underscore investors' extreme uncertainty and skittishness.
Citigroup Memo

The first explanation is based on theories about how markets work. For one thing, stocks rarely fall day after day without a break. Stocks "were more oversold than [they've] been in my 13 years on Wall Street," says Dave Rovelli, managing director of equity trading at Canaccord Adams. "We were due for a rally."

Stocks seemed to react to a Mar. 9 letter from Citigroup (C) Chief Executive Vikram Pandit, touting his troubled bank's performance in the first couple months of 2009. But to Rovelli, that was just a trigger to a rally that would have started eventually anyway. The S&P 500 had declined in 13 of 16 trading sessions from Feb. 13 to Mar. 9.

Richard Sparks of Schaeffer's Investment Research agrees. "The market was ripe for a rally," he says.
Shift in Market Psychology?

The rebound was driven not by long-term investors but by traders with a very short attention spans. "It's driven by big money, momentum players," Sparks says. "It's such a tough market to trade," that these market participants focus on "very short-term time periods." Traders jump on market trends, but those moves don't last long and can turn on a dime.

The volatility is most striking in the financial sector. From Mar. 10 to 12, one measure of the financial sector, Financial Select Sector SPDR (XLF) rocketed 30% higher. The same index had lost half its value from the beginning of the year to Mar. 9. Professional traders are no doubt making—and also losing—a lot of money on these rapid moves. Successful traders must be "nimble enough and right enough," Sparks says.

Some wonder, though, if the past week marked a significant shift in market psychology. Dan Genter, president of RNC Capital Management, says the recent rally doesn't just reflect the moves by short-term traders but also by long-term investors who are beginning to put money into the market.
Pricing In Worst-Case Scenarios

Stocks—particularly bank stocks—were trading at absurd prices. "All these companies are not going out of business," he says. By falling to 1996 levels, stocks priced in a worst-case scenario for both the economy and for earnings prospects. At those levels, "unless you think the world is coming to an end, it's difficult not to be bullish long-term," says Uri Landesman of ING Investment Management (ING).

Few in the market believe the world has solved its economic and financial problems—quite the opposite. But, Genter says, "it's not just in freefall anymore." He hopes that, by dropping to an extreme low this month, stocks now have a new low below which they're unlikely to fall again.

Landesman says the market needs to see a strong rally from these levels. Or, he worries, stocks will lose their momentum and fall back again. Rovelli also warns of more volatility ahead, particularly in the next couple weeks as bullish and bearish traders battle over the direction of the market.
Long-Term Volatility?

The wild ride could last much longer than that. Scott Jacobson, an expert on volatility and chief investment strategist at Capstone Sales Advisors, says high volatility in the stock market tends to last for two to four years during and after a recession. "I'm sure we have two years of volatility at least," he says.

The problem with a volatile stock market is that it doesn't just reflect investor uncertainty. Wild swings also cause uncertainty and confusion among the investing public, who see their retirement nest eggs grow or shrink erratically from day to day.

Market observers often say the stock market is supposed to move higher six months before the economy does. But, from this standpoint, it's impossible to know whether the market's newfound optimism is a harbinger of things to come, or simply a temporary rest stop on the market's trip ever lower.

Steverman is a reporter for BusinessWeek's Investing channel.

Friday, March 06, 2009

Forex Maestro

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Monday, February 16, 2009

How to select a Forex Broker

The decision of which brokerage firm is best for you is as important in the Forex market as it is in the Stock Market. The way of evaluating the various firms differs slightly between the two markets, however. Forex trades do not involve commissions, but they do have what are known as spreads, which is the difference between the price a currency can be purchased and the price for which it can be sold at a given point in time.

This spread (which is expressed in "pips") is how the brokerage makes its money, so it serves the same purpose for them as a commission. You can be pretty certain that the spreads vary between brokerage firms just as widely as commissions do in the Stock Market, so investigate this carefully before making your selection.

Most brokerages dealing with the Forex market are involved with large financial institutions where the funds are available to provide sufficient leverage for their clients. It is still important to make sure your firm is reliable. They should be registered as a FCM (Futures Commission Merchant), and regulated by the CFTC (Commodity Futures Trading Commission).

Most firms offer widely varied packages of tools that assist you in making trading decisions and understanding the market better. They provide information and research that is available to you in many different formats. It is wise to take a little time to study these tools, and to find the ones that are most helpful to you. They are going to end up being very important and you need to be comfortable with them.

Look for a firm with a wide variety of account and leverage options. The ability to use the Forex market's advantages in leverage is one of the things that makes it the most attractive to you as an investor, and you want to have the maximum flexibility here. Although there are a few unethical firms operating, a few references and inquires should be able to identify them. This selection process is worth a little effort and an investment of time. It is an investment that is going to the most likely to pay off.

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Sunday, February 08, 2009

Despite grim news, market has best week of the year

COMBINED NEWS REPORTS
February 8, 2009

More jobs were lost in January than in any month since December 1974. The unemployment rate is the highest since September 1992. President Barack Obama said the economic downturn "could not be more serious." Wall Street's reaction? Let's party.

Despite the grim economic news, the Dow and the S&P 500 index had their best week in more than a month. The Nasdaq composite index had its biggest weekly gain since November.

The Labor Department said the nation lost 598,000 jobs last month and the unemployment rate climbed to 7.6 percent. If part-time employees, discouraged workers and others are factored in, the unemployment rate would have been 13.9 percent in January, highest on record.

"People are thinking ahead to what are these numbers going to look like in June," said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "Main Street is in free fall, which is where Wall Street was in September and October. Wall Street since mid-October has been flat, and that's what Main Street might look like by spring or early summer."

The Dow Jones industrial average closed Friday at 8,280.59, a gain of 3.5 percent for the week. The Nasdaq composite index finished at 1,591.71, up 7.8 percent. The S&P 500 index ended at 868.60, a rise of 5.2 percent.

Much of the last week's big rally was attributed to hope that a bank-rescue plan, scheduled to be unveiled Monday by Treasury Secretary Timothy Geithner, will lift the economy from recession.

"All focus right now is now is really on Washington," said Dan Cook, senior market analyst at IG Markets

Thursday, January 15, 2009

Advantage of Forex over Stock and Commodity Markets

When one begins to discuss the advantages of investment in the Foreign Currency Exchange Market (Forex) over the Stock or Commodity Market, it is quite easy to sound like a cheerleader and with the same kind of bias. The Forex market offers so many advantages that it is not hard to understand its popularity.

The Forex Market operates 24 hours a day. It is a truly world wide market, and when the sun goes down in one trading center, it is coming up in another. The Forex market, although it has its trends and cycles, is not locked in the Bear vs. the Bull market mentality of the Stock Exchange.

Since all Forex trades involve the exchange of one currency for another, one currency's hard times opens the door for a profit in another currency. The market is not adversely affected by rising interest rates. When a nation raises rates, generally the currency is strengthened, while rising interest rates tends to depress the stock market.

The combined number of different stock issues on the NYSE and NASDAQ exchanges totals 8000. That is a lot of stocks and it is time consuming to keep up with even a portion of them.

There are four major currencies, and only about 34 second tier currencies, to consider in the Forex. Brokerage firms do not stand between you and profit in the Forex. Not only are the brokerage and commission fees almost non-existent, but analysts in the Forex tend to actually analyze in the currency market and not dictate or control the rise and fall of the market.

When the two markets are compared, the Forex certainly looks like the better investment choice.

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Saturday, January 03, 2009

How to Formulate a Profitable Trading Plan In The Forex Market

Investments & Trading

There is no magic formula that ensures profit on any type of investment. The forex market is no exception to this, but there are some steps you can take when devising your own personal investing plan that will not only make profit a more likely result, but will insulate you somewhat from disaster.

* Select Your Term: There are three basic time frames within the forex market dealing with the length of time a position in a certain currency is held. They are long term, medium term, and short term. Each has its advantages and disadvantages. The short term position holder, sometimes known as a scalper, will be making rapid fire trades often exchanging currencies back and forth within a single day. The long term trader will hold on to his currency for months or even years. The medium term trader usually holds his positions for a few days or a week. The advantage of the medium term is that it requires the least amount of capital to realize profit. Leverage is only needed to boost that profit, whereas in both long and short term trading, it is needed to both protect the investment, and insure any chance of profit. Although medium term is recommended for the beginning investor, and involves less risk, you need to identify which is right for your personal plan, and stick to it. A plan that tries to use all three at once will most likely lead to confusion.


* Learn to Use Technical Analysis: The forex market lends itself very well to statistical analysis. Trend following is an example of a type of analysis that can guide the investor in making profitable decisions. Technical analysis of the market includes monitoring price movement as well as a large number of indicators. There are programs available where this large amount of data can be crunched in any way that fits your own individual plan and your own needs. You are going to need to find the right way to access and organize the data required for the execution of your own individual investing strategy.


* Learn to Perfectly Time Your Trade: One of the features of the forex market is the ability of the investor to insulate himself from drastic market swings. This is partly because of the 24 hour nature of the market. With the exception of weekends, there is a forex market operating somewhere day and night. A good trading plan should include both "stop loss" and "take profit" orders. These are simply instructions to change your currency position when either your profit or your loss reaches a certain point. The stop loss order is more easily understood. This is simply bailing out before things get too bad. The take profit approach usually meets with more resistance, and it is true such an order might prevent you from making even more profit should a volatile change keep propelling the value upward. Volatile is volatile, however, and what goes up fast may come down faster. As you can not monitor your account twenty four hours a day, you want to know that if your profit point is reached while you are soundly sleeping, at least your expected level of profit will be realized.

One of the biggest advantages of the internet age regarding forex trading is the ability to freely use demo accounts - which are basically virtual forex games. These programs give you a chance to invest virtual money and see how well you do. Once your personal trading plan is formulated, execute it using a demo account. By doing this you will get a chance to see how it works, iron out any bugs, and fine tune your entries and exits, before you risk a single penny.
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