Total Trader » Stock Trading

How to Profit by Swing Trading

Total Trader — Thu, 04 Feb 2010 08:34:28 +0000

It’s not exactly breaking news. A buy and hold strategy hasn’t worked for the last decade. You probably know as much if you’ve opened your retirement account statement lately. The Dow, S&P 500, and NASDAQ are all flat or down over the last 10 years.

It’s time to face facts, the old-time buy a few large-cap blue chips and hold them forever strategy has gone the way of the Dodo bird.

So, what’s the answer for this particular market?

Personally I swing. Swing trade that is.

I like swing trading for this market because it takes advantage of momentum… or trading in and out of stocks and sectors that are seeing a temporary boost. There’s no ‘buy and hope’ strategy at play here.

Let’s take a look at how swing trading works.

In a nutshell swing trading is… buying the lows and selling the highs. Ok, I know what you’re thinking… how do I consistently buy the lows and sell the highs? It seems like it is easier said than done.

Although there’s a lot of different ways to approach it, my favourite is looking for technically-based short-term trends. And taking a position to profit from the trend.

Here’s something you might not know; swing traders don’t care why a stock is trending. If the technical’s show there’s a trend, it’s not your job to figure out why. You just want to profit from it.

But here’s the catch… the stock market isn’t just flat over the last 10 years. It’s flat over the last few months too. Lots of volatility but no real trends.

You may be happy to see a flat market – especially after last year. But for swing traders like me a flat market is worse.

So how do you overcome a flat US market?

By not limiting yourself to just the stock market.

Here’s why. You won’t always find a trend in the US stock market. So I’ll trade foreign markets, bonds, commodities and even currencies. Until recently, access to these markets was difficult and often required separate trading accounts.

In the past, many individual investors found it hard to trade these markets. This helped give rise to the notion that a buy and hold strategy is the best way to invest.

Now, there’s an easy way to trade ASX stocks, foreign stocks, bonds, commodities, and currencies using momentum. It’s quick, cheap, painless and you can do it all from one trading account.

Want to know what it is?

That’s right, ETFs (Exchange Traded Funds). These are the one investment that can give you exposure to all of these markets. Today’s ETFs are revolutionizing the ability to trade currencies, commodities, and foreign markets. You can now really drill down and focus on specific subsectors of all these markets.

As I said… follow the trend. If you can’t find it in the US stock market, you now have easy access to an entire array of markets with ETFs.

I believe that the big money over the next few months and years will be found in the ’specialty’ ETFs that are popping up. The value of these ETFs can be derived from commodities like gold, currency pairs, corporate bonds, and any specific subsector you can think of. The list goes on and on.

And now you can go long or short with two or even three times leverage. Talk about spicing things up!

And remember as a swing trader you don’t care why the ETF is trending. The patterns and trends you use as a swing trader hold up regardless of the asset being traded. So you can apply the same technical analysis principles that you use with stocks.

Combining technical analysis, momentum trading, and specialty ETFs isn’t a bad way to trade this market right now. And it sure beats the heck out of buying a few blue chips and holding on for dear life!

Stock Trading Psychology

Eden — Wed, 06 Jan 2010 02:27:55 +0000

Many of todays highly successful traders will tell you that the general key to success in trading is to be able to comfortably take a loss. It is general knowledge among experts in the trading psychology field and among traders that the market is not predictable and it is safe to say that it never will be. In the world of trading, it is expected to take a loss; even those who are highly skilled traders know that it is inevitable. With that said, let us have a look at things you as a trader should be aware of, how you can take a loss effectively and use it towards the greater good of your trading world.

Trading psychology tells us that when a trader loses he begins to become somewhat of a perfectionist in his dealing. Many traders think that in trading, a good day will always be one that is profitable. Trading psychology experts tells us this is not true.-

A trader should define a good day as one where they have extensively researched and planned with discipline and focus, and have followed through to the entire extent of the plan. Yes, when a trader has mastered the art of accepting losses and working through them with a well thought out plan then good days will become profitable in time.

Because the art of trading in an unpredictable market fluctuates so greatly from one day to the next, experts in trading psychology believe that it is important that you concentrate on what you can control, instead of things that are beyond your control. Looking into the short-term you cannot expect to be able to control the profits of your trading. With that said, look at what you do you have ability to control.

You do have the ability to control the difference between good and bad days. You are able to control this factor by extensively researching the strategies you implement within your trading experiences. By learning to research your chosen strategies, thus controlling the amount of good and bad trading days you experience, you will, in the long-term begin to generate profits, which is the ultimate goal of every trader.

Trading psychology experts tell us that it is important to become realistic in trading instead of becoming a perfectionist. Perfectionist traders, relate a loss with failure, and will become obsessed with the failure, focusing only upon it. Realistic traders understand the unpredictability of the market and taking a loss is simply part of the art.

The main key you must remember in trading psychology to be able to effectively limit your losses, instead of becoming obsessed with them. A common thing seen within the trading psychology world is that traders who are obsessed with their losses often have a hard time bouncing back from them, thus losing in the end.

Experts in trading psychology have organized three basic strategies you can use to effectively stop losses. These strategies are:

Price Based

Time Based

Indicator Based

Stops that are priced based are generally used when the other two have not functioned. To make this work you will need to make hypothesiss about the trade and identify a low point in that particular market. Then you will set your trade entries near your points, thus making sure that losses will not be overly excessive if the hypothesis fails.

Time Based stops constitutes making use of your time. Designate a holding period you allow to capture a certain number of points. If you have no achieved your desired profit within that time limit, you should stop the trade. If effectively used you should stop even if the price stop limit has not been achieved.

The Indicator based stop makes use of market indicators. As a trader, you should be aware of these indicators and utilize them extensively within your trading experiences. Look at indicators such as, volume, advances, declines, and new highs and lows.

Experts in trading psychology say that setting stops and rehearsing them mentally is a good psychological tool to use and will help ensure that you follow through.

Stocks/CFDs on Total Trader

Total Trader — Mon, 26 Oct 2009 02:17:14 +0000

Investors are increasingly looking to Contracts for Difference

CFD Trading

(CFDs) as a more flexible method of trading stocks online.

CFD trading is carried out on live prices on Total Trader’s online
trading platforms, without the delays of normal stock trading,
such as waiting for fills from the stock exchange.

CFDs are more flexible method of trading stocks online and investors are increasingly looking to it.

Investors are increasingly looking to Contracts for Difference (CFDs) as a more flexible method of trading stocks online.

Stock/CFD Exchanges Available

Americas
US – American Stock Exchange, NASDAQ Capital Market, NASDAQ Global Markets, New York Stock Exchange, Other OTC on NASDAQ (Pink Sheets)
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Asia Pacific
Australia – Australian Stock Exchange Ltd.
Hong Kong -Hong Kong Stock Exchange
Japan - Tokyo Stock Exchange

Europe
UK – London Stock Exchange
Switzerland – Swiss Exchange, Virt-X
Germany – Frankfurt /Xetra Stock Exchange
Italy – Milano Stock Exchange
Denmark – OMX Copenhagen
Plus more than 10 other European exchanges

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Trade over 15 Index-tracking CFDs across over 20 exchanges worldwide with a single click. Additionally index-tracking CFDs trade on live prices without needing to subscribe to live pricing.

Index-tracking CFDs are the easiest way to gain exposure to global stock markets whether taking long or short positions. Index-tracking CFDs are linked to the performance of a stock index which allows investors to easily diversify investment risks. These index-tracking CFDs can be short sold, opening up the possibility of turning a profit in a falling market.

DMA CFD Trading – Direct Market Access

Designed to cater to the professional trader and investor, we offer CFD Exchange DMA on most global exchanges. CFD Exchange DMA gives Direct Market Access to the exchange order book on real-time CFD prices. This means a trader can combine the benefits of trading direct on an exchange with the leverage of margin-traded CFDs.

With DMA CFDs, traders get direct access to the exchange order book and can place trades directly around the live market depth. CFD Exchange DMA is a leveraged product, allowing for increased market exposure, while short selling is also a possibility.

Live Market Prices - Costs & Rebates

By default, clients have access to delayed market data on the equities and futures exchanges on which they are enabled to trade. To receive real-time market data for stock, CFD, CFD DMA or futures trading, clients will have to subscribe to the individual exchanges. Clients will incur a small monthly subscription fees for the data they elect to receive in real time. An Online Subscription Tool is available on the live trading platforms.

Data fee rebates for active equity trading clients.
For equities clients that subscribe to real-time market data, we have introduced a data fee rebate scheme where fees are rebated per exchange should clients trade the minimum number of times across both stocks and CFDs during each calendar month. Rebates are only applicable for non-professional equities clients subscribing to level-1 data. The definition of Non-Professional and Professional subscribers may vary by exchange.

Stock Trading: Apple, Amazon.com Approach All-Time Highs

Eden — Thu, 15 Oct 2009 02:37:28 +0000

Don’t look now, but Apple (AAPL) and Amazon.com (AMZN) are not only hitting bull market highs, but they’re also approaching all-time highs. If the economy is still weak, investors in AAPL and AMZN aren’t too worried. While this is indicative of overall market strength, it’s also a major testament to how well these two companies have done even through the toughest times. Amazon.com’s all-time closing high is $106.69, reached at the peak of the Internet Bubble. The stock is currently trading at $97.2. Apple’s all-time high was reached on December 28th, 2007 when it closed at $199.83. AAPL is currently trading at $191.28.

Source: Bespoken Research

The ABC’s of Stock Trading

Eden — Mon, 12 Oct 2009 23:37:43 +0000

A wise man chooses to do in the beginning what the fool is forced to do in the end.

Better to be wrong and rich than right and broke.

Create an atmosphere of confidence and you will never choke on the bone of contention.

Develop an edge and stick to it. If you are not living on the edge then you are falling off of one.

Enter the market prepared or you will exit impaired.

Forget the last trade or the market will steal your next one.

Giving in to emotional bias is akin to giving up.

He who chases three rabbits catches none.

If it sounds to easy to be true then it is neither easy or true.

Just say no when the market has said yes one too many times.

Keep what you have by not keeping what you never intended to have.

Losers justify and winners rectify.

Make time for self.

Noise is the mother of doubt.

Obvious trades can lead to blind faith.

Poor execution can result in a broken disposition.

Quitting is not a fork in the road but a dead end street.

Reason looks for support in the past while judgment considers the weight of the future.

Stocks move first and ask questions later.

Timing the market is like winding a clock that has no hands.

Understand yourself first and the market last.

Voice your opinion in mute mode.

Wishers become has beens when what has been becomes a wish.

Xtra time in the market could spell disaster in the home.

Your ability to win is based on your willingness to lose.

Zoos welcome bulls and bears but pigs…

Source: David Blair

10 rules for investing -Bob Farrell’s

Eden — Mon, 10 Aug 2009 00:26:47 +0000

Wall Street “gurus” come and go, but in the case of Bob Farrell legendary status was achieved. He spent several decades as chief stock market analyst at Merrill Lynch & Co. and had a front-row seat at the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987 crash.

Farrell retired in 1992, but his famous “10 Market Rules to Remember” have lived on and are summarized below, courtesy of The Big Picture and MarketWatch (June 2008). The words of wisdom are timeless and are especially appropriate as investors grapple with the difficult juncture at which stock markets find themselves at this stage.

1. Markets tend to return to the mean over time

When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one direction will lead to an excess in the opposite direction

Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.

3. There are no new eras – excesses are never permanent

Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. Look at how far the emerging markets and BRIC nations ran over the past six years, only to get cut in half.

As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it – human nature – is never different.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.

5. The public buys the most at the top and the least at the bottom

That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.

6. Fear and greed are stronger than long-term resolve

Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names

This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.

8. Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend

I would suggest that as of August 2008, we are on our third reflexive rebound – the January rate cuts, the Bear Stearns low in March, and now the Fannie/Freddie rescue lows of July.

We have yet to see the long-drawn-out fundamental portion of the bear market.

9. When all the experts and forecasts agree – something else is going to happen

As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.

10. Bull markets are more fun than bear markets

Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.

Sources: The Big Picture

Market ‘Noise’: How Seasoned Traders Learn to Ignore It

Eden — Mon, 27 Jul 2009 02:36:40 +0000

For many years I was a futures market reporter. I spent time working right on the futures trading floors in Chicago and New York. Most of the time my daily reporting “beat” involved interviewing traders and analysts and then writing three daily market reports. For months at a time I would cover the same markets, day in and day out. It was a fantastic learning experience and an opportunity that very few get.

One thing I eventually discovered from covering the same markets day after day, month after month, was that the vast majority of the time the vast majority of the markets’ overall fundamental and technical situations did not change on a day-today basis. Yet, as a market reporter I was conditioned to write about why the market went up one day and why the market went down the next day, and so on.

Even though a market may have been in a very narrow trading range for days or weeks, I had to ask the traders and analysts every day to come up with some fresh fundamental and\or technical reasons why that market moved only a fraction. Reporting on the New York “soft” futures markets (coffee, cocoa, sugar, cotton and orange juice) is especially difficult for a reporter. He or she needs to dig up and write about some fresh-sounding news every day. The soft markets many times just do not have much fresh fundamental news on a daily basis — or sometimes even on a weekly basis, for that matter. Conversely, it was easier covering the financial and currency markets because there was usually at least one government economic report that came out every day that would make those markets wiggle a bit. Or, some government official (like Greenspan) would make comments to which those markets took notice.

As time went on and I came to better understand markets and market behavior, and as I studied specific trading strategies, I realized that the day-to-day market “noise” is not of much use to most traders. Here’s a specific example of market noise:

Recently the live cattle futures market was up a bit on a Monday due to talk that the cash cattle trade later in the week would be at higher money. On Tuesday the futures market dropped a bit because of ideas the cash cattle market trade later in the week may not be at firmer money, but steady at best. Nobody was trying to manipulate the live cattle market that week. It was just a case of differing opinions getting center stage when the market closed on different sides of unchanged.

For a trader who tries to follow the near-term fundamentals in a market too closely, hearing that kind of conflicting news can be a nuisance at least, or a factor that prevents successful trading results at most. It’s not easy for less-experienced traders to ignore the differing daily drumbeat of fundamental news that is reportedly impacting a market.

The lesson here is that prudent traders should not become overly sensitive or reactive to most of the day-to-day fundamental news events that are reported to be moving the market on any given day. What is important for the trader is that he or she recognizes and understands the overall trend of the market, and that daily market “noise” is usually an insignificant part of the overall process of trading and of market behavior, itself.

Toronto Stock Exchange – Canadian Stocks & CFDs Available

Total Trader — Wed, 01 Jul 2009 00:25:12 +0000

Total Trader has added Toronto Stock Exchange (TSX) stocks and CFDs to the trading platforms.

CFDs available now! Total Trader has 180+ of the largest Toronto-listed stocks available as CFDs now. For a list of the available CFDs, commission rates and margin requirements, please view the Trading Conditions in the platform and select Toronto Stock Exchange.

Try trading Canadian stocks and CFDS with a
Free Total Trader Demo Account

The Ability to Not Trade: An Unappreciated Contributor to Successful Trading

Eden — Mon, 22 Jun 2009 00:11:35 +0000

I compared the trader to a sniper, blending self-control with a high level of aggression and decisiveness. There is one other respect in which traders are like snipers: both engage in periods of intense performance activity punctuated by potentially long periods of inactivity.

The sniper may wait hours or even days in a hide, waiting for the perfect shot. Wet, cold, cramping, and simple boredom are the sniper’s greatest enemies. It is a rare individual who can keep still for extended periods of time and then function with the utmost skill and accuracy. How do they do it? Many keep themselves mentally occupied and active, even while they’re physically still.

One characteristic I’ve found among successful traders is that they function effectively when they’re not trading. When markets become very quiet and range bound, they occupy themselves with a variety of activities, from sharing ideas with peers to conducting research. Traders who do not tolerate inactivity well inevitably feel the need to trade, often when there is no objective edge present. For them, losing money is less onerous than experiencing boredom.

By structuring your non-trading time, you can be like the sniper: fresh in your thought and perception, even as you’re waiting patiently for the next opportunity. Reviewing markets and relationships, reviewing your performance, testing trading ideas, learning from and teaching others: there are many activities that make non-trading time productive.

If, however, your motivation is not to understand markets and develop yourself–if your motivation is to enjoy the thrill of risk and action–you will find non-trading time to be aversive. There are those who live to trade and there are those who trade to make money. Trading success is an expression of what you bring to markets; it cannot fill a personal void.

Source: Brett Steenbarger

Market tipped to hit 4500 by year end

Total Trader — Thu, 04 Jun 2009 01:08:22 +0000

Expectations the Australian share market can climb above the 4500-point level by the end of 2009 have been boosted by the bourse retracing back through 4000 to a seven-month high yesterday following economic data showing a recession was avoided in the March quarter.

However, market analysts warn that a market correction of up to 10 per cent could be prompted by weaker corporate earnings and poor offshore economic data.

The S&P/ASX200 has risen 7.9 per cent since January 1, and Wednesday’s close at 4017.2 was its strongest finish since November 10, 2008.

The benchmark index retreated 1.7 per cent this morning to around 3950 points, following a weak lead from Wall Street.

Bell Potter Securities senior client adviser Stuart Smith said the market had “most definitely” bottomed on March 6 when the S&P/ASX 200 hit 3145 points.

The S&P/ASX 200 is now up more than 25 per cent from its March low.

Zurich Australia’s director of investments Matthew Drennan forecast the benchmark index will rise to between 4100 and 4200 points by December 31, while Platypus expects it to reach 4500 points by the end of the year.

Mr Smith says a 4170 point finish to the month of June is on the cards if bullish sentiment surrounding resources stocks translates into earnings upgrades by analysts.

Mr Drennan said negative economic news from the US, higher domestic unemployment and a fall-back in consumption spending could buffet the market over the next six months and prompt a correction.

“It (the downwards correction) may even be up to 10 per cent over the next three to six months on a trend of a few bad economic numbers in a row.”

Corporate earnings results due in the September quarter may pull another dark cloud over the market and as outlook comments were analysed, Platypus Asset Management chief investment officer Donald Williams said.

“If they come out and say things are still weak and it’s too hard to call how things will play out in the next six to 12 months, then maybe that will be the trigger for a correction.”

Source: http://business.smh.com.au/business/market-tipped-to-hit-4500-by-year-end-20090604-bw9z.html

Research ASX200: Dexus Property Group (DXS)

Eden — Thu, 04 Jun 2009 00:45:25 +0000

StoneBridge Snapshot -Dexus Property Group (DXS) $0.75

DXS operates under a stapled security structure and is an owner, manager and developer of a high quality portfolio of office and industrial properties valued at approx. $9bn at 31 December 08.
Notable properties include the Governor Phillip and Governor Macquarie Tower complex, 30 The Bond and Australia Square in Sydney, Woodside Plaza in Perth, and 360 Collins Street in Melbourne.
98% of the groups operating earnings are derived by rent from the investment property portfolio and 1H09 income grew by 1.5% on a like for like basis which we saw as a reasonable result in view of difficult operating conditions. The portfolio WALE is 4.8yrs and current occupancy sits at 93.1% (Office 98%, Industrial~90%).
Geographically assets are weighted 70% to Australia, 26% US, 4% Europe and by sector 50% Office (with 94% of these assets rated A-grade or premium), 47% Industrial and 3% Retail.
The average portfolio cap rate was 7.4% at 31 December 08, falling from 6.7% at 30 June 08 (8% asset value decline in total) and 6.4% at the peak in December 07.
DXS has spent the last six months focused on balance sheet and liquidity management via completion of a $749M capital raising in late May @ $0.65/security which followed a $313M institutional placement @ $0.77/security in December 08 and is now well placed on our estimates liquidity wise to meet its refinancing and capital commitments out until December 2010, which would be enhanced by any asset sales executed.
Balance sheet metrics are sound and well within covenant limits with Gearing post raising 28.8% v 55% covenant limit (Borrowings/Total Tangible Assets excl derivatives) and interest cover 3.2x v 2.0x covenant limit Valuation metrics around DXS are attractive by virtue of it trading at a 33% discount to the post raising NTA of $1.14/security and on an implied cap rate of ~10% v 7.4% book.
If cap rates soften 50 pts to 7.9% DXS NTA falls to $1.03/security and at 8.4% (200pts from peak) NTA is estimated at $0.93/security.
FY10 EPS guidance 8.4c/security (P/E 9.0x) with DPU guidance 5.9c/security (yield 7.9%).

View Dexus Property Group (DXS) Research

A Closer Look at the 200-Day Moving Average

Eden — Wed, 03 Jun 2009 23:10:10 +0000

One of the quick-and-dirty tools used to technical analysts is to see where a stock or index is compared with its average price over the past 200 days. This is an easy way to get a read of a stock’s momentum.

Yesterday was a big day for the 200DMA world. The S&P 500 closed above its 200DMA for the first time since December 26, 2007. That closed out the index’s longest run below its 200DMA according to my records which go back to 1932.

That streak, however, is still well short of the longest run above the 200DMA which ran from November 1953 all the way to May 1956. Since the index has gone up over the time, the “above” streaks tend to be longer than the “below” streaks.

On November 20, 2008, the S&P was a stunning 39.6% below its 200DMA. That’s the biggest discount on my records. The only thing that comes close is the reading from this past March.

So does the 200DMA work? The evidence suggests that it’s a pretty good indicator of future price performance. When the S&P 500 has been below the 200DMA, it’s dropped a total of about 20% over the equivalent of 27 years. In other words, the S&P 500 has been below its 200DMA about one-third of the time.

Historically, the best time to invest has been when the S&P is less than 1.7% below the 200DMA.

When the index is above the 200DMA, well, then everything looks much brighter. All of the market’s gain and then some have happen when we’re above the 200DMA which occurs about two-thirds of the time.

The market seems to like nearly every point of being above the 200DMA. Danger only clicks in when the S&P 500 is over 17.5% above the 200DMA which is a very high reading.

Source:Edelfenbein

Oil Up 99% In 75 Trading Days

Eden — Tue, 02 Jun 2009 23:37:11 +0000

Oil has rallied more over the last 75 trading days than it did at any time during its entire bubble run from 2001-2008. In fact, its current rally of 99% since the February 12th low is nearly double the highest 75-day rally during the last oil bull (From December 2001 to April 2002, oil rallied 55% over 75-days.) Oil has also gone from $33.75 to $67.75 in just 75 trading days. During the 2001-2008 oil bubble, it took 409 trading days to complete the same task from January 2004 to August 2005. While many investors are arguing that oil’s rally is a good sign for the global economy and equity markets, let’s hope it doesn’t keep up the pace, or else we’ll be right back to $150 in no time.

Source: Bespoken Research

Tips To Make Money In Trading Stocks Online

Eden — Mon, 01 Jun 2009 01:13:34 +0000

There are many people who have been successful in making money from online stock trading. The following 5 tips will really help you improve your Trading.
1 – Candlestick Chart reading in stock trading is the most beneficial step for the traders to trade efficiently. By becoming skillful in the activity of reading charts, candlestick charts in particular, you can easily weed out the stocks that will move up or down, depending on other factors of course.

2 – Make a habit of setting stop losses whenever you trade or else your entire account will get knocked down pretty quick. You should always proceed by cutting your losses early and by allowing the winners to ride. This is one of the tactics of the successful stock trader.

3 – You should never purchase a stock that is dropping and think that it will increase suddenly after you purchase it. You should always opt for the stock that is constantly moving up and will keep on touching the heights. Therefore, you should get rid of a myth “buy low and sell high” from your mind. Its buy high and sell higher.

4 – You should never give an importance to the news. It is recommended you work independently while trading online. This is because there are frequent ups and downs in the stock market and by the time news reaches you, it’s too late. Therefore, it is recommended that you should always work with your brain instead of trading by using someone else’s brain.

5 – You should always search for the best broker. Keep in mind also that it should be a reputable broker, and not one of these fly by night outfits offering these outrageously low commissions. Beware.

These five stock trading tips will really help everyone to their goal of hitting the jackpot while trading stocks online.

Source: Trade with Skill

Oil Continues to Outperform Oil Stocks

Eden — Fri, 29 May 2009 08:30:37 +0000

Oil continues to rally on a daily basis and it is now up to $65/barrel after getting down to the $30s just a few months ago. At the same time, oil stocks have lagged the commodity pretty significantly. Below is a historical chart of the ratio between oil stocks and oil. When the line is rising, oil stocks are outperforming oil, and when the line is falling, oil is outperforming oil stocks. When oil tanked at the end of 2008, the ratio spiked like it never had before. Since the ratio peaked, however, it has fallen nearly as fast as it rose. The current ratio is right near its average over the last 7 years, but it is “oversold” based on recent action. At some point this ratio is bound to reverse as oil stocks begin to catch up with the commodity, the commodity begins to pulls back in, or both.

Source: Bespoken Research

David Fuller : Substantiating bullish bias for equities

Eden — Mon, 25 May 2009 02:01:33 +0000

“I have described conditions as being more bullish than bearish for a number of months. However such claims need to be substantiated by technical (market) evidence, which is best monitored every day.”I will review the process, discussed at length in Fullermoney, in what can be a template for subscribers, not only for today’s environment but also the transition from every other bear to bull market in future:

“Climactic capitulation – Bear markets usually end in climactic fashion, which is the phase of greatest capitulation and despondency. This is what happened late last October and also in November.

“Base building – The most persistent capitulation stage marks the beginning of the end for the bear market, which by definition, must also be the beginning of the new bull market, although all one may see for some months will be ranging, including some new lows by indices for less fundamentally attractive markets, but also rising lows by indices for the next bull market’s leaders.

“Reversion to the mean – If the bear really is ending or over, you will see the evidence accumulate in several ways, which are different from the redistribution bear market rallies which occur on the way down. Mean reversion (we use the 200-day moving average to measure this because it is a widely followed medium to somewhat longer-term trend smoothing device) will become evident due to a combination of different developments.

“Uptrends are established – Indices will be breaking up out of their ranging bases, with the best performers establishing step sequence uptrends, one above the other. These will eventually break above the 200-day MAs, which will eventually turn upwards sometime later. The rising MA becomes a potential support level during minor mean reversions throughout the duration of the new uptrend.

“Summary – Perspective is gained by monitoring many indices, as there will inevitably be leaders and laggards. This is Fullermoney’s commonality approach. For instance, if stock market indices are mostly ranging but downward breaks are no longer being maintained, in contrast to some rallies which are being extended, one does not need to be a genius to deduce that demand (buying pressure) is beginning to exceed supply (selling pressure).

“The performance of upside leaders when looking for evidence of market bottoms and recovery potential is much more important than focussing on laggards, because we are looking for a transition from bear, which includes all stock market indices in its latter stages, to bull in which case markets will break away from the prior downtrend one by one over time.”

Source: David Fuller

Research ASX200: Forte Energy NL (FTE)

Eden — Mon, 25 May 2009 00:39:40 +0000

StoneBridge Snapshot – Forte Energy NL (FTE $0.11) – Excellent high grade U3O8 potential in Mauritania

FTE is focused on exploring for uranium mineralisation at its two West African projects in Mauritania and Guinea.
Areva NC, the world’s leading nuclear fuel cycle company, backed FTE with a $2.7M placement @ $0.135/share. Areva now has a 14.4% stake in FTE.
The Bir En Nar project in Mauritania is the most prospective, where drilling in late 2007 returned a number of high grade intersections.
FTE is set to commence a second round of drilling at Bin En Nar project in Mauritania in July 2009.
Results of the second drilling program at the Firawa project in Guinea are being assessed and FTE expects to release an initial resource in the next few weeks.

View FTE Research

Research: Norton Goldfields Limited (NGF)

Eden — Fri, 22 May 2009 02:12:38 +0000

Norton Goldfields Limited (NGF $0.25) – Leveraged production with growth upside

Initiating Coverage with a BUY recommendation and $0.45/share price target

Key points

NGF offers excellent leverage to Australian Dollar gold prices through its 100% owned Paddington Gold Mine in Western Australia.
Paddington is currently producing around 130kozpa from low grade open pits at a total cash cost around A$800/oz.
The company is planning to add high grade underground ore in late 2009 which will lift gold production to nearly 200kozpa at similar cash costs.
We are initiating coverage on NGF with a BUY recommendation and set a $0.45/share price target.
Aside from movements in the gold price, key catalysts for NGF’s share price include the release of an updated life of mine plan in August and the commencement of ore supply from underground mining in late 2009.

View Full Research Document

ASX200 banks – Considerations for the short-seller

Eden — Thu, 21 May 2009 06:59:36 +0000

Event

ASIC is due to review the status of its ban on covered short-selling of financial stocks. The ban is currently in place until Sunday, 31 May 2009.

Impact

Less scope for an absolute short. The outlook for Australian banks has improved considerably over the past few months. first half 2009 results showed improving levels of capital, coverage and funding. As visibility continues to improve, the majors will be able to demonstrate that impairment risks are manageable, and unlikely to result in capital erosion.

In the eyes of the short-seller. In considering a potential short-position in Australian banks we expect most investors to place less emphasis on the standalone story (which is good), and more emphasis on the relative arguments. On this basis, Australian banks are likely to find themselves on the short-side of most trades.

Relative fundamentals. Australia is on the cusp on an economic downturn. Credit growth is slowing; impairment costs are rising; capital ratios may decline; and all against a backdrop of rising unemployment and contracting GDP. Conversely the US, UK and European economies have already suffered several quarters of weak operating conditions, suggesting the scope for recovery in offshore markets may be better than in Australia.

Relative valuations. Australian banks look expensive relative to regional and global peers. On the one hand, we’d argue this is justified given higher levels of near-term and sustainable returns (ROE). On the other, higher relative valuations suggest the scope for share price recovery may be less than international peers.

Outlook

The reintroduction of short-selling will, by definition, increase selling activity in Australian banks. Our analysis of the global sector suggests global investors are likely to view Australian banks as expensive, with a less attractive recovery story.

We find very little cause for an outright assault on share prices. However, in our view the relative story for the major banks and their large market capitalisation (~9% of the Top 30 banks market cap) mean Australian banks are a viable funding source for pair-trades within the global sector.

Our sector preference remains WBC, ANZ, CBA, and NAB. We highlight potential pair-trades within the domestic sector in this report.

Source: Macquarie Private Wealth

Stock, CFD, Fx and Forex Options – Data and Trade Signals 20-5-09

Eden — Wed, 20 May 2009 07:28:42 +0000

Calendar

Economic Data Releases
Country	Time (GMT)	Name	Expectation	Prior	Comment
UK	08:30	Bank of England Minutes	-	-
US	13:30	Geithner testifies on TARP	-	-
US	18:00	FOMC Minutes	-	-

Earnings Releases
Country	Time (GMT) (G(GMT)(GMT)	Name	EPS exp.	EPS prior	Comment
UK	-	Burberry Group PLC	0.275	0.279
US	Bef-Mkt	Deere & Co (John Deere)	1.071	0.622
UK	-	London Stock Exchange Groupo	0.308	0.405

What’s going on?

Theme Comment

The rally in stocks stopped at the release of the US housing starts and building permits that both disappointed badly. We are getting very close to the 200 DMA (now 942) in S&P500 and believe that it will be “magnetic” in the next couple of days – i.e. buy on dips until we get a test.
Japanese GDP out at abysmally -15.2% annualized – but slightly better than expected. Exports are down 50% YoY.
Crude Oil may be close to a break higher – despite bearish inventory situation. Watch out for DOE storage today and Crude above 61.20.

FX

FX	Daily stance	Comment
EURUSD	0	Momentum stalls at 1.3650. See consolidation 1.3530-1.3650
EURJPY	0	Unable to hold 200-day MA at 131.0, now res. Ranging 129.50-131.0
USDJPY	0/+	Need to hold 95.10-15 suppt to preserve uptrend. Next res 96.20
GBPUSD	0	200-day MA at 1.5550 may cap. 1.5420-50 nearest suppt. Consolidating.
AUDUSD	0/+	Buy dips to 0.7670-80 for test back to 0.7785 highs. Stop below 0.76

Equities

Equities	Daily stance	Comment
DAX	0/+	Buy on dips targeting 5005. S/L below 4912.
FTSE	0/+	Buy on dips targeting 4525. S/L below 4447.
S&P500	0/+	Buy on dips targeting 920. S/L below 900.
Nasdaq100	0/+
DowJones	0/+

Futures

Commodities	Daily Stance	Comment
Gold	0/+	Buy on dips towards 925 and target 934. Stop below 921.
Silver	0/+	Buy on dips towards 14.00 and target 14.30. Stop below 13.90.
Oil	0/+	Buy at the break of 61.20 and target 62.80. Stop below 60.70.

FX Options

FX-Options	Comment
EURUSD	Front end vols are trading lower in the previous session. 1m and out remains unchanged
	so likely to see a correction back to 1.34.
USDJPY	1w was quickly given 12.25 early today and the whole curve quickly became bid as spot
	Dips to 95.45 low. Large 96.40 strike for today so might be a draw if spot is in the area.
AUDUSD	Vols are still not finding any support particularly the middle of the curve. Upside strikes
	still finding a few bids so likely to see spot well supported.

RIO Ratio Put Spread – Great Risk vs. Reward

Total Trader — Wed, 13 May 2009 04:51:52 +0000

Post is currently under repair. For full information in regards to this trade including entry levels, please call or email Eden Hage on 1300 368 316 or info@TotalTrader.com.au Related posts:Oil Search (OSH) – Calendar Spread BHP Long-Dated Calendar Spread Trade Idea – BHP – WPL- LGL Calendar Spreads Long Strangle – Options Trading Options Trades Related posts:

May Stock Market Update & Asset Allocation

Total Trader — Sat, 09 May 2009 03:15:58 +0000

Click on the video below to watch the May Stock Market update.

Stock,CFD, Fx and Forex Options – Data and Trades

Eden — Thu, 07 May 2009 07:08:27 +0000

Calendar

Economic Data Releases

Country Time (GMT) Name Expectation Prior Comment

UK 11:00 BOE – Interest rate (MAY) 0.50% 0.50%

EC 11:45 ECB – Interest rate (MAY) 1.00% 1.25%

US 12:30 Initial Jobless Claims (MAY) 635K 631K

Earnings Releases
Country	Time (GMT) (G(GMT)(GMT)	Name	EPS exp.	EPS prior	Comment
US	-	News Corp	0.180	0.186
UK	12:30	Thomson Reuters	0.371	0.424

What’s going on?

Theme Comment

Yesterday’s ADP Employment Change was a lot better than expected – and the March figure was revised higher by 34K. Today’s Jobless Claims will probably confirm that we stopped losing jobs at an increasing pace… BUT the US economy is likely to continue losing jobs for the next two years.
Stocks went higher again – completely disregarding the trend in earnings. We respect the S-T trend, but remain L-T bearish. The S&P500 might test the 200 DMA (now 958) or the big-picture resistance around the 1000 or 1014 (38.2% Fibonacci).
Copper is rallying strongly and could break higher above the 220-level. That would lead to more (unwarranted) stock optimism.

FX

FX	Daily stance	Comment
EURUSD	0	Ranging ahead of ECB announcement. 1.3270-1.3350 the suggested range
EURJPY	0/-	Seen drifting further away from 200-day MA at 132.58. Suppt 129.80-00
USDJPY	0/-	Likely capped at 98.90-00. Look for a re-test of 97.50 if 98.00 gives way
GBPUSD	0/+	Support at 1.5060-70. Above 1.5160-70 targets 1.5370 res else we see 1.5000
AUDUSD	0	May lack momentum to get past 0.7560 Asian high. Ranging 0.7460-0.7560

Equities

Equities	Daily stance	Comment
DAX	+	Buy at the break of 4919 targeting 4975. S/L below 4902.
FTSE	+	Buy at the break of 4415 targeting 4450. S/L below 4400.
S&P500	+	Buy at the break of 920 targeting 929. S/L below 915.
Nasdaq100	+
Nikkei225	+

Futures

Commodities	Daily Stance	Comment
Gold(XAUUSD)	0/+	Buy at the break of 916.30 and target 928. Stop below 911.
Silver(XAGUSD)	0/+	Buy at the break of 13.92 and target 14.28. Stop below 13.80.
Oil (CLM9)	+	Buy around 56 and target 57.50. Stop below 55.50. Low DOE yesterday.

FX Options

FX-Options	Comment
EURUSD	Large 1.3225 option expiring today. Will attract spot if we are trading sub 1.33 closer
	to expiry time.
USDJPY	Interests were looking to buy upside overnights in NY session yesterday. Tokyo session
	sees mainly front end sellers but also a few mid curve downside buyers.
AUDUSD	Risk reversals got given quickly as spot surged after the employment report. Still seeing
	a few downside bids coming in intraweek but back end looks offered.

Loss Control from Stocks and CFDs, too Forex.

Eden — Mon, 04 May 2009 07:53:08 +0000

Suppose you have $5000 to trade with, and you lose 50% of this amount. How much money in percentage terms do you have to make to breakeven on your next trade? If you automatically said 50%, this is incorrect. You need to make 100% on your remaining $2500, to make up the lost $2500, and break-even! Things are never as intuitive as they first appear. This table emphasizes the importance of keeping your losses small so that you can recover and continue to trade.

If you lose 25% of your account, you must make 33.3% profit on the remaining equity, simply to break-even. Keep your total equity drawdown to less than 20% and you have a chance of surviving in the sharemarket. Trading is not about avoiding risk – it is about managing risk.

Types of Stops

An initial stop is designed to protect your capital. Even successful traders find that they only make winning trades around 50% of the time. As long as the dollars gained outweigh the dollars lost, then you will be profitable, even if your hit-rate is quite low.

A breakeven stop will help lock in a no-loss trade. This type of stop is implemented once a trade has begun to co-operate and there is now little threat of your initial stop being hit. At least when you have moved your stop to breakeven, there is a chance that you will end up with a profitable trade. Especially with the application of leverage, it is important to move your stop to breakeven as soon as reasonably possible. This will minimise the potential drawdown of your account.

Trailing stops are designed to protect your profit. Once the trade has trended strongly in the expected direction, you can follow the trend by moving your stop. You could also decide to extract money from the position if the option hits your profit target. I only use profit targets for option and warrant trades, not for share trades. Profit targets tend to cap available profits. Learn to protect your profits as well as protecting your initial capital and you will be well on the way to trading effectively.

Sell in May and Buy Protection

Eden — Sun, 03 May 2009 23:18:24 +0000

Investors should “sell in May and go away,” or so goes the old adage. We compared the returns for the Dow Jones Industrial Average since 1928 for the periods November-April and May-October to see how well this adage has held up in reality. Our findings are in the table below.

Clearly, the November through April period has outperformed over the last 80 years – the difference in both the mean and median returns is enough to warrant further study. What also caught our attention is the difference in the average annualized monthly volatility, itself already a very smoothed measure. The most immediate practical implication is that a strategy that buys the Dow Jones Industrials during the months of November through April and sits in cash otherwise should have returns with lower volatility:

Returns above exclude transaction costs and returns on cash, and are logarithmically scaled. Higher risk-adjusted returns are very desirable, and one way to capture the lower return volatility of the “sell in May” approach while not giving up absolute returns might be to lever up during the November-April period and remain in cash or in a reduced portfolio otherwise. Just for kicks, we tested an approach that shorts the market during May through October (the “ShortInMay” line above); the Depression-era tumult really ruins that approach, as does missing out on the still-positive average returns of the maligned May-Oct period.

Conclusion: given the lower average historical returns and higher volatility of the May through October period, large-cap stock investors may want err on the side of buying more portfolio protection in the form of index puts during that time.

Source: Condor Options

Oil Outperforming Oil Stocks

Eden — Tue, 21 Apr 2009 00:42:38 +0000

While the price of oil has risen from the $30s to $50, oil stocks have not really rallied much. Below we highlight the ratio of oil stocks (S&P 500 Oil & Gas index) to oil (the commodity). When the line is rising, oil stocks are outperforming oil, and vice versa for a declining line. As shown below, when oil spiked in early 2008, the ratio dropped to its lowest level in years. Then when oil tanked in late 2008, the ratio spiked to its highest level in years as oil stocks held up much better. Recently, however, oil has rallied and oil stocks have been stagnant, causing the ratio to come back down. At the moment, the ratio is resting just above the average since 1990.

Source: Bespoken Research

Options Income Strategy

Total Trader — Sat, 18 Apr 2009 05:57:38 +0000

How the Income Strategy works:

Step 1: Sell Puts: This is how you buy the shares. If you are happy to buy the shares at the market level sell an at-the-money put. This means your breakeven on the share purchase is lower than the current share price. This is demonstrated in the below examples. If the the share price is above the strike price at expiry you receive the premium and look to sell another put. If the share price is below the strike price at expiry you are exercise and buy the shares (Step 2)

Step 2: Buy Shares: Once you are exercised on the sold puts you buy the shares at the strike price. Immediately sell calls (Step 3)

Step 3: Sell Call: Sell the calls at a strike price above your breakeven and receive a premium. Even if you are exercised sell the shares and lock in a profit.

If you still wish to trade that share then look at sell at put. The aim is to always be selling premium and look to receive income every month either through sold puts and sold calls.

This strategy can be implemented with protection (buy puts) which is a more conservative approach. You do not currently use protection on your covered call portfolio but we could look at this in the future if you decide to.

If you would like the to find our more details about this trade including strike prices and risks or about options tranding in general please contact Eden Hage on 1300 368 316 or eden.hage@stonebridgegroup.com.au

Stock Market Trading Plan

Eden — Thu, 16 Apr 2009 00:14:21 +0000

A trading plan will not guarantee your success in the markets, but a good plan will enable you to work methodically toward your trading goals while reviewing on a regular basis what is working and what is not. It will act as a roadmap for your trading journey. It will enable you to respond positively and constructively no matter what happens with your individual trades. And, most importantly, it will help you control the only thing a trader can control: his or her own actions.Finally, trading is a business. It can be a fascinating and sometimes thrilling business, but in the end it is a business. A trading plan helps you treat it as a business.

Successful trading begins with a winning trading plan. It’s as simple as that. If you develop a well-conceived trading plan to guide your actions in the market you will already have the advantage over most of your market competition. Put simply, it gives you the edge you need to win over the long haul.

Here are some important elements of a trading plan.

1. Why am I trading? What are my goals?

The answers to these questions might seem obvious, but they usually are not. Take some time to ask them of yourself, and seriously consider the answers. You may be surprised by what you learn. And whatever the answers, you will have a clearer picture going forward of what this enterprise means to you, and that will help you survive any rough patches.

2. What markets am I going to trade and why?

It is often best to specialize, especially for beginning stock market traders. Many pros make a great living trading the same stock day every single day for years. Choose a market that is appropriate for your experience level and trading style. Consider other factors such as available margin, volatility and liquidity.

3. What is the concept or philosophy behind your trading methodology?

Your trading system must have a concept behind it. Whether you are a value investor like Warren Buffet or a trend trader like George Soros, you should understand why you are doing what you are doing, how your beliefs about the markets define what you will do as a trader.

4. What will be your specific method?

In other words, specifically how will you execute your trading ideas? Will you buy breakouts or pullbacks? Buy oversold or sell overbought? Or will you use specific technical setups such as moving-average crossovers or another indicator-based strategy? Under exactly what conditions will you enter? When will you know to exit?

5. How much money will you risk on any single trade? On trading in general?

This is critical. Of course, start small. But just as importantly, have a plan in place for how much you will risk, emotions don’t cloud your judgment when the time comes. The key is to find an allocation that doesn’t cause any stress but still makes the trade worthwhile financially. One of the biggest problems with newer traders is that they are trading way too big in relation to their account size. Like when you are forex trading. Trading forex at 50-1 leverage. Yes, you can do it, but that doesn’t make it a good idea.

6. What will my trading rules be?

This is also critical. Your trading rules include entry and exit rules, rules governing maximum daily, weekly or monthly losses, maximum risk on any given trade, the maximum number of trades per week, etc., etc. These rules enforce discipline and keep you out of trouble. What price will enter at, what price will I will exit. Be discplined.

7. How will I record and evaluate my trading performance?

Allow me to repeat myself: This is critical. In fact, this might be the most important element of trading for new traders in the stock market. A new trader who evaluates his trades, winners and losers, in an effort to learn what works and what does not, will make quantum leaps forward in terms of ability and profitability. If you have a working trading plan and evaluate every single one of your trades after you have closed it you have already beaten 95% of the competition.

8. What are my rules for managing profits?

What’s the problem with profits? Well, believe it or not there is one, and it’s a serious one. It’s called euphoria, and it clouds the judgment perhaps more than any other emotion related to trading. Start piling up the profits for the first time and it won’t be long before you are convinced you are king of the world. About 30 seconds later you’ll be broke, following a series of unwise and exceedingly risky trades. So have a plan for protecting closed profits when you have reached your goals for the week or the month. Don’t give them all back.

9. How will I reward myself for following my trading plan?

Don’t leave this out. Following your trading plan will bring rewards in the form of profits, but you should also consciously reward yourself for doing so because it is such an important part of successful trading. So if you finish the week or the month (or even the day) without having broken any of your trading rules, find a way to reward yourself. You deserve it. You are in rare company.

If you follow your plan you are improving your chances of becoming sucessful stock market or forex trader.

Source:singapore trader report

BHP Long-Dated Calendar Spread

Total Trader — Wed, 15 Apr 2009 08:13:06 +0000

Post is currently under repair. If you would like the to find our more info about options tranding in general please contact Eden Hage on 1300 368 316 or email info@totaltrader.com.au Related posts:Oil Search (OSH) – Calendar Spread Trade Idea – BHP – WPL- LGL Calendar Spreads RIO Ratio Put Spread – Great Risk vs. Reward Long Strangle – Options Trading Options Trades Related posts:

Ritholtz: Three Things to Remember in this Rally

Eden — Tue, 14 Apr 2009 23:48:45 +0000

Follow the Playbook: Ritholtz writes that “the smart investor’s playbook is very different in bear markets than bull markets”. In bulls, you buy the dips, and “lower prices are an opportunity to buy into equities at cheaper valuations”. Buy & hold is the simplest and most cost-effective strategy in these times, he says. In bear markets, he adds, you sell on the rallies. “Buy & hold is a losing strategy – trading what the market presents to you is the best risk management strategy,” he says.
Beware the ‘Conspiracy of Optimists’: Overly positive views of the world occur leading up to a bull market peak, and warning signs get ignored. Ritholtz says recent economic reports were spun to appear to be bullish signs, when the data really was terrible. “Understand the difference between an economy that is improving versus one that ‘getting worse more slowly,’” he writes. “We are experiencing the latter.”
Buying the Very Bottom Isn’t Your Goal: “The problem with this approach is that we don’t know for sure when it’s the bottom or top until after the fact,” Ritholtz writes, adding that, sometimes, even buying the bottom doesn’t ensure you of fast, big gains.

Ritholtz says to “consider as your goal maximizing your returns on a risk adjusted basis. This means being more conservative with your investments when risk levels are higher, and more aggressive when they are lower.” Dollar-cost averaging can be a good way to do this, he says. “It is efficient and cost effective. If you want to be a bit aggressive, you can increase your contributions once the markets fall 30% or (like now) 50%. The time to throttle back a bit? After a 4 -7 year bull market run.”

Is the Stock Market Cheap?

Total Trader — Mon, 13 Apr 2009 00:01:18 +0000

An old-fashioned way to answer this question is to look at the historic Price-to-Earnings (P/E) ratio using reported earnings (as opposed to earnings estimates).

The “price” part of the P/E calculation is available in real time on TV and the Internet. The “earnings” part, however, is more difficult to find. The authoritative source is the Standard & Poor’s website, where the latest numbers are posted on the earnings page in a linked Excel file (see column D).

The number we want is the sum of the reported earnings for the previous four quarters. Since the first quarter of 2009 earnings aren’t available, we’ll use the earnings through Q4 2008. With 99% of earnings reported as of March 31, Q4 earnings were -$23.25 per share (negative earnings). That negative number added to the three previous quarters puts the 2008 reported earnings at $14.88. Thus the 2008 year-end P/E ratio for the S&P 500 is the December closing price of 903.25 divided by 14.88, which gives us the stunning P/E ratio of 60.7 – the highest in the history of the S&P Composite since 1871. The average P/E over this timeframe is only 15. In fact, at the top of the Tech Bubble in 2000, the conventional P/E ratio was a mere 30. It peaked north of 47 two years after the market topped out.

But wait. It gets worse. If we calculate annual earnings based on Standard & Poor’s earnings estimate for the first quarter, the number drops to $6.66. That gives us a P/E at the latest close (April 9) of 128.46.

As these examples illustrate, in times of critical importance, the conventional P/E ratio often lags the index to the point of being useless as a value indicator. “Why the lag?” you may wonder. “How can the P/E be at a record high after the price has fallen so far?” The explanation is simple. Earnings fell faster than price. In fact, the negative earnings of Q4 is something that has never happened before in the history of the S&P Composite.

The P/E10 Ratio
Legendary economist and value investor Benjamin Graham noticed the same bizarre P/E behavior during the Roaring Twenties and subsequent market crash. Graham collaborated with David Dodd to devise a more accurate way to calculate the market’s value, which they discussed in their 1934 classic book, Security Analysis. They attributed the illogical P/E ratios to temporary and sometimes extreme fluctuations in the business cycle. Their solution was to divide the price by the 10-year average of earnings, which we’ll call the P/E10. In recent years, Yale professor Robert Shiller, the author of Irrational Exuberance, has reintroduced the P/E10 to a wider audience of investors. As the accompanying chart illustrates, this ratio closely tracks the real (inflation-adjusted) price of the S&P Composite.

With this method, the historic P/E average is 16.3, with a March 2009 monthly average P/E10 of 13.5 and a monthly close at a P/E10 of 14.2. The ratio in this chart is doubly smoothed (10-year average of earnings and monthly averages of daily closing prices). Thus the fluctuations during the month aren’t especially relevant (e.g., the difference between the monthly average and monthly close P/E10).

Of course, the historic P/E10 has never flat-lined on the average. On the contrary, over the long haul it swings dramatically between the over- and under-valued ranges. If we look at the major peaks and troughs in the P/E10, we see that the high during the Tech Bubble was the all-time high of 44 in December 1999. The 1929 high of 32 comes in at a distant second. The secular bottoms in 1921, 1932, 1942 and 1982 saw P/E10 ratios in the single digits.

Where does the current valuation put us?
For a more precise view of how today’s P/E10 relates to the past, our chart includes horizontal bands to divide the monthly valuations into quintiles – five groups, each with 20% of the total. Ratios in the top 20% suggest a highly overvalued market, the bottom 20% a highly undervalued market. What can we learn from this analysis? Over the past several months, the decline from the all-time P/E10 high has dramatically accelerated toward value territory, with the ratio dropping from the 1st to the upper 4th quintile.

A more cautionary observation is that every time the P/E10 has fallen from the first to the forth quintile, it has ultimately declined to the fifth quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 600. Of course, a happier alternative would be for corporate earnings to make a strong and prolonged surge. When might we see the P/E10 bottom? These secular declines have ranged in length from over 19 years to as few as three. The current decline is now in its ninth year.

Revised Minimum Order Values for CFDs and Stocks

Total Trader — Thu, 09 Apr 2009 05:48:32 +0000

New Minimum Order Values for CFDs and Stocks will apply from March 2009.
The minimum order value applies to all equities trading, including CFDs, CFD DMA and Stocks, and is in place to prevent traders manipulating the underlying market price.
You will not be able to open new positions via the platform below the minimum order size for the relevant exchange.
See the table below for details of the new Minimum Order Values

Minimum Order Values as of 2 March 2009
ID	Short Description	Description	Currency	New – Minimum Order Value	Current Minimum Order Value
XASE	AMEX	American Stock Exchange	USD	50	50
XAMS	AMS	Euronext Amsterdam	EUR	100	50
XASX	ASX	Australian Stock Exchange Ltd.	AUD	150	50
XATH	AT	Athens Stock Exchange	EUR	100	50
XBRU	BRU	Euronext Brussels	EUR	100	50
XCSE	CSE	OMX Copenhagen	DKK	1000	500
XCSE	CSE_FN	OMX Copenhagen – First North	DKK	1000	500
XCSE	CSE_INV	OMX Copenhagen, Investments Trusts	DKK	1000	500
XHKG	HKEX	Hong Kong Stock Exchange	HKD	1000	500
XHEL	HSE	OMX Helsinki	EUR	100	50
XLIS	LISB	Euronext Lisbon	EUR	100	50
XLON	LSE_INTL	London International Exchange	USD	100	50
XLON	LSE_SEAQ	London Stock Exchange SEAQ Market	GBP	100	50
XLON	LSE_SETS	London Stock Exchange SETS Market	GBP	100	50
XMIL	MIL	Milano Stock Exchange	EUR	100	50
XNAS	Nasdaq NM	NASDAQ Global Markets	USD	50	50
XNAS	Nasdaq SC	NASDAQ Capital Market	USD	50	50
XNYS	NYSE	New York Stock Exchange	USD	50	50
ARCX	NYSE_ARCA	NYSE ARCA	USD	50	50
XOSL	OSE	Oslo Stock Exchange	NOK	1000	500
XNAS	OTCBB	OTC Bulletin Board on NASDAQ	USD	50	50
XPAR	PAR	Euronext Paris	EUR	100	50
XSES	SGX-ST	Singapore Exchange Securities Trading Limited	SGD	150	50
XMCE	SIBE	Sistema De Interconexion Bursatil Espanol	EUR	100	50
XOME	SSE	OMX Stockholm	SEK	1000	500
XOME	SSE_FN	OMX Stockholm – First North	SEK	1000	500
XSWX	SWX	Swiss Exchange	CHF	150	50
XTKS	TYO	Tokyo Stock Exchange	JPY	10000	5000
XWBO	VIE	Wiener Börse (Vienna) Stock Exchange	EUR	100	50
XVTX	VX	SWX Europe	CHF	150	50
XWAR	WSE	Warsaw Stock Exchange	PLN	300	150

Three Key Tips On How To Buy And Trade Penny Stocks Wisely

Eden — Wed, 08 Apr 2009 23:57:16 +0000

More people are inclined towards buying and trading penny stocks rather than regularly traded stocks because it is deemed as a cheaper option. Also, the easiness of entering the penny stocks market is attracting more investors, but this does not mean that less risk is involved. In fact, most people do not know that the penny stocks market is highly volatile and always changing.

In its simplest sense, penny stocks are also referred to as a microcap stock or nano stock. The usual trading price is under $5 per share. It is common practice that penny stocks are offered by companies who are just in the startup phase or companies who are facing financial problems to inject additional and quick cash in their businesses.

Before you delve in the buying and selling of penny stocks, keep in mind the following tips to be able to do so wisely.

Do your research

Many people are more prone to buying and trading penny stocks because these stocks are low in cost. But before you actually take an active part in this, you must do your research well. If you go online, you will be able to look into a lot of websites discussing penny stocks. Read through them and educate yourself to have a better grasp of what they are. In times like this, especially if there is money involved, it is advisable to be wise in your decision and the best thing that you can do is to use the information that you have accumulated to your advantage.

There are also many online websites that do stock analysis and gives a list of attractive stocks that are selected through studying stock market trends.

Use expert analysis in deciding which penny stocks to buy

If you are new to the buying and trading of stocks, you can turn to the analysis of experts when you are choosing which kind of penny stocks to buy. These experts will be able to tell you the specific kinds of penny stocks that are very attractive to buy at a given time. They can also give you advice in terms of keeping or getting rid of the current stocks that you have. If you want to be a successful stocks trader, you must be able to determine when to buy and when to sell, especially for smaller stocks.

Choose the right stock analysis system

You must be able to choose the right stock analysis system that will help you in deciding what specific kinds of stocks to buy and trade. Remember that in this kind of business, losing money is inevitable. There is no stock analysis system that is completely accurate all the time.

Now that you know different tips on buying and trading penny stocks, you will be in a better position to actually go out in the market and put these tips in actuality. The most important tip is to educate yourself. If you know how to use the information that you have to your advantage, you will be a successful investor of penny stocks in no time at all.

By: Nir Dotan

5 Things to Do Before Trading

Eden — Wed, 08 Apr 2009 23:51:29 +0000

Here they are.

Understand your personal financial situation
Understand diversification
Select the right portfolio holder for you
Do all the research necessary
Realize that it will be a bumpy ride

Let me address them individually.

Understand your financial situation
I would actually say “financial and life” here. Trading is part of your life, not sepeate from it. That is something you need to take into serious consideration. There is the obvious decision about how much money you can put to work in the market. On top of that you also have to think about how much time you can commit.

Understand diversification
For traders this is a bit different than for investors. Diversification in investing is attempting to keep from having all of your money negatively impacted by one set of circumstances, like a downturn in a certain sector. Because traders are in and out of positions relatively frequently, this isn’t as much of an issue. Diversification in trading is more about making sure you have sufficient trading opportunities. Generally speaking, the longer your trading timeframe the more markets and/or securities you need to play.

Select the right portfolio holder
In investing this can mean any number of things from brokers to mutual fund companies to DRIP managers. There are a number of considerations involved there. In trading it really comes down to just the broker. You need to find a broker that suits your specific needs and with which you feel comfortable. By all means seek information and feedback, but in this end this is a decision that only you can make.

Do all the research necessary
Trading is not something you can just jump into and expect to do well. It’s pretty much like any other activity worth pursuing. It takes time to get good at trading. It takes work and study and practice. At times trading will be frustrating and in the beginning it can most definitely be overwhelming with all the different markets, instruments, and ways to trade them. Realize going in that you’re going to have to put forth considerable time and effort.

Realize that it will be a bumpy ride
This one pretty much speaks for itself. There have been all kinds of adjectives used to describe trading and dozens of metaphors applied to it. While it may not make things better, going into trading with the realization that there are going to be any number of ups and downs can help make riding them out a bit easier.

Now I’m not going to say these are the five things to do before trading, but they are among the things you should do before taking the plunge.

Oil Search (OSH) – Calendar Spread

Total Trader — Thu, 02 Apr 2009 03:29:50 +0000

Post is currently under repair. If you would like the to find our more about Calendar Spreads, please contact Eden Hage on 1300 368 316 or email info@totaltrader.com.au Related posts:BHP Long-Dated Calendar Spread Trade Idea – BHP – WPL- LGL Calendar Spreads RIO Ratio Put Spread – Great Risk vs. Reward Long Strangle – Options Trading Options Trades Related posts:

Gold Bounces Off Support Again and Internals Look Strong

Eden — Fri, 27 Mar 2009 02:49:07 +0000

By Chris Vermeulen

Gold bounces off support again today with some indicators pointing to much higher prices.

GLD Gold ETF Fund – Daily Trading Chart

This week gold has been pulling back after last week’s massive one day rally. Hopefully that rally was not a one-day wonder but rather a sign that smart money is still moving into gold and not most retail traders trying to make a quick buck.

Gold Stocks/Gold Bullion Ratio – Weekly Chart

This chart shows we now have a clean breakout, which is extremely bullish for the price of gold. This signal is not fully confirmed until we have the closing price Friday at 4pm ET.

GDX Gold Miner Stocks Fund – Daily Trading Chart

This chart shows a nice rally to the February resistance level with a small bull flag and a daily close above resistance. Wednesday’s price action is very bullish but our support trend line is much to steep for gold stocks to maintain. Those with a high-risk appetite may like this, but I prefer to wait for a more conservative setup.

The USD is Half Way Done It’s Move

The Dollar broke down sharply a few weeks ago and is now forming a bear flag chart pattern. This pattern generally forms at the half way point of a move. If the trend continues, we can expect to see much lower prices for the USD in the next 1-2 weeks.

Gold Trading Conclusion:

While gold bullion is looking a little top heavy, the internals like gold stocks and the USD are shouting the opposite. Gold is currently at support, which is generally a good place to add to positions. If the price of gold breaks down from here, there is a clean exit point, which is a daily candle close below the support level on the GLD gold fund chart.

Long Strangle – Options Trading

Total Trader — Wed, 25 Mar 2009 04:01:25 +0000

Post is currently under repair. For full information in regards to this trade including entry levels, please call or email Eden Hage on 1300 368 316 or info@TotalTrader.com.au Please contact us if you would like to know about other options trades. Related posts:Options Trades Oil Search (OSH) – Calendar Spread Options Income Strategy BHP Long-Dated Calendar Spread Trade Idea – BHP – WPL- [...] Related posts:

Trading Rules and Guidelines

Eden — Wed, 25 Mar 2009 02:27:05 +0000

Here are ten overriding principles that have survived the past five years, through bull and bear markets:

Always live to fight another day
Entries must have a statistical edge
Patience and discipline
Be a jellyfish (swim with the current)
Trade only liquid securities
Focus on trying to capture the middle 80% of a move
Know your exit points when you open a position (and stick to them!)
When in doubt, reduce position size by 50%
Limit losses to 2% of total equity for any single trade
Start each day with a clean financial and emotional slate

The above list is relatively generic, but it helped provide me with a framework for organizing how I would approach trading as a business, what strategies I should adopt, how those strategies should be executed, and ultimately defining what success should look like.

Trading rules are vitally important – as is knowing when they should be broken. Even more important, I believe, is the process that one goes through in order to arrive at these rules and to make sure that as new market situations unfold and new blind spots are revealed, the rules and guidelines are enhanced to maximize the opportunity for the trader to continue to grow and develop.

Posted by Bill Luby

Percentage of US Stocks Above 50-Day Moving Averages

Total Trader — Tue, 24 Mar 2009 23:49:26 +0000

Below we highlight the percentage of stocks trading above their 50-day moving averages for the S&P 500 and its ten sectors. This is a good breadth indicator to measure the underlying strength or weakness of rallies or declines. As shown, 62% of the stocks in the S&P 500 are currently trading above their 50-days, which is getting close to the 75%-80% level that we’ve seen at prior market peaks during this bear market.

In the Financial sector, 69% are trading above their 50-day moving averages, which is the highest level in about a year. This speaks to the strength of Financials during this rally. On the other hand, Industrials, Health Care, and Utilities all have less than 50% of stocks trading above their 50-days, which means breadth has lagged during the rally for these sectors. Breadth has been strongest for Technology, Materials, Energy and Telecom. More than 70% of stocks in each of these sectors are currently trading above their 50-days.

Source: Bespoke Research

The Foundation of Success Webinar – Register NOW

Total Trader — Tue, 24 Mar 2009 04:21:22 +0000

Join us for a Free Educational Wealth Building Webinar on March 31

If you’re an Investor, Trader, have your own SMSF or working towards Financial Freedom you don’t want to miss this!

In the comfort of your own home you will receive insight, knowledge, tips and strategies that will empower and position you to prosper from this current economic environment.

This webinar will focus on:

- Equipping you to take advantage of the opportunities in the current Economic Climate
- The launch of Build Wealth Club our new initiative to provide investors with the keys to financial freedom.
- Tricom Trader presentation, which will identify its new features and walk you through setting up your workspace to best suit your trading style.

Build your Knowledge and be empowered to use it.

Limited numbers available, it will be a closed group and open to questions. Register your interest ASAP.
https://www2.gotomeeting.com/register/966077416

Title: Build Wealth
Date: Tuesday, March 31, 2009
Time: AEST 8-9pm, QLD 7-8pm, SA 7.30-8.30pm, WA 6-7pm
After registering you will receive a confirmation email containing information about joining the Webinar.

If you have specific questions you would like answered; please email them to eden.hage@tricom.com.au before 5pm 30th March.

Feel free forward this email to family and friends so they can also be equipped and empower to prosper from this current economic environment.

System Requirements
PC-based attendees
Required: Windows® 2000, XP Home, XP Pro, 2003 Server, Vista

Macintosh®-based attendees
Required: Mac OS® X 10.4 (Tiger®) or newer
There is no charge to be on this webinar, but there is LIMITED SPACE available, so I urge you not to procrastinate.

Gold and Gold Stocks During Periods of Deflation and Inflation

Eden — Thu, 19 Mar 2009 01:01:00 +0000

I’ve heard more than a few pundits question an investment in gold or gold stocks in the current environment. They point to deflation and the lack of inflation in the foreseeable future as reasons why precious metals should be avoided. Sounds intelligent on the surface but it reveals to this analyst, a lack of any thought and analysis.

We must remember that success in trading and investing often requires a counterintuitive approach. The markets often go the opposite way they should. Here are a few examples. Gold was in a bear market for 20 years despite what can be called a credit hyperinflation in the United States. Gold has performed spectacularly this decade in the absence of the kind of price inflation we saw in the 1970s. Treasuries have risen this decade along with Gold, Oil and Commodities. When has that happened in history?

Now back to precious metals. The main idea for investing in this sector is to protect your purchasing power or protect against inflation. So it makes sense to buy the sector during an inflationary period. Right? A look at history combined with some common sense analysis reveals that precious metals and the producing companies outperform during deflationary periods and in advance of an inflation cycle.

Let’s look at the 1930s and 1940s. The Great Depression initially was a deflationary event but it concluded in inflation. Using the calculator from inflationdata.com, I calculated the change in prices in the 1930s and 1940s. In the 1930s, prices fell 18%, while they rose 70% in the 1940s. But what happened in the markets?

Which gold bug hasn’t seen this chart of Homestake Mining, from http://www.gold-eagle.com. If I remember correctly, its bull market lasted from 1921 to 1937. The stock made a lower low in the early 1940s and wouldn’t surpass its Great Depression peak until the 1960s. The stock performed especially well from 1931 to 1934, during the later stages of deflation and initial stages of inflation.

This is a chart of the Barrons Gold Mining Index, dating back to 1939. Thanks to http://www.bgmi.us. The rectangle shows 1940 to 1950. There was deflation in the 1930s and huge inflation in the 1940s. Yet the gold stocks performed far worse in the 1940s.

It was the commodity sector that prospered most during the inflation of the 1940s. The rectangle shows 1933 to 1951. Chart from TopLine Investment Graphics: http://www.topline-charts.com/.

The reality is that the precious metals complex outperforms AHEAD of reinflation, while the rest of the commodity sector outperforms DURING the ensuing inflation. Gold stocks perform best when their margins are expanding. That can happen when the price of Gold stays flat and cost inputs (oil, steel, labor) fall. It can happen when gold rises and rises faster than cost inputs. When inflation begins to take hold, the precious metals complex has already anticipated it. Inflation raises the cost of everything. As the cost of steel, oil and labor rise, it hurts the profit margins of gold producers. Hence, gold companies outperformed during the deflation and early reinflation of the 1930s, but underperformed during the inflation of the 1940s.

How did the gold stocks do in the 1970s? The aforementioned BGMI index, rose from a bottom of less than 100 to a peak of about 1300. Let’s call it a 14-bagger. Outstanding right? Well, consider that the price of Gold rose from $35/oz to as high as $888/oz. That is a 25-bagger! Gold stocks unperformed Gold despite a rising gold price. Why? Because of rising commodity prices and rising inflation, gold companies didn’t benefit as much as you’d expect. In relative terms, gold stocks were better performers in the 1960s. The BGMI rose very nicely, while the price of gold remained fixed.

In the early 2000s, there was a fear of deflation. As you can see from the chart below, from 2001-2003 gold stocks strongly outperformed gold as well as commodity stocks. Gold bottomed before the rest of the commodity sector and advanced before inflation began to take hold. As inflation began to take hold, the gold stocks underperformed both gold and commodity stocks and even while the price of gold rose from $600 to over $1,000.

Conclusion

It appears the consensus is wrong on both counts. One side says there is no inflation on the horizon, so the precious metals sector isn’t an appropriate investment. The other side says that there will be hyperinflation, so buy gold. Hyperinflation may be good for physical gold but it is deleterious to everything else including society and the political structure. The reality is that the current macroeconomic environment is most advantageous for gold stocks and then gold. However, if and when inflation begins to take root the precious metals complex will underperform and your funds will best be utilized elsewhere. For more on this analysis, visit our website and consider joining our newsletter. Good Luck!

Revisiting The Long Term Bullish Case For Stocks

Eden — Mon, 16 Mar 2009 00:56:35 +0000

In late November 2008, the S&P 500 index was trading at 850, when we looked at a chart of the 10 year rolling returns. The 10 year return back then was -23% – although horrendous, not one of the worst we’ve seen in history. It still made me consider that it was reason enough Why Long Term Investors Should Consider Buying:

Flash forward a few months to take into account the continued erosion of the S&P 500 and we have the updated chart above. Using the most current data, we have a rolling 10 year return of -45.67% (not including dividends).

How bad is that? There are only a few months that were worse. And they were all around the 10 year anniversary of the 1920’s top:

8/1/1939 -61.66%
9/1/1939 -59.20%
7/1/1939 -58.88%
4/1/1939 -57.16%
6/1/1939 -56.29%
5/1/1939 -56.24%
5/1/1940 -55.81%
6/1/1940 -55.07%
10/1/1939 -53.91%
7/1/1940 -52.56%
4/1/1940 -51.81%
3/1/1939 -51.28%
8/1/1940 -50.94%
2/1/1939 -50.38%
1/1/1939 -49.72%
3/1/1940 -49.25%
9/1/1940 -48.85%
2/1/1940 -47.03%
The monthly data I used went from January 1st 1910 to present (March 1st 2009) so what we are saw as a 10 year simple rolling return is in the worst 1.5% of months for almost 100 years.

Just imagine the stories you’ll tell your grandchildren about the Great Decession. And all the major players: Madoff, Bernanke, Bush, Obama, Greenspan, etc. These are truly historic times we are living through.

Some have written me and questioned the validity of the original market call back in November 25th, 2008. As way of explanation, let me say first, that unlike a loud TV personality, I don’t pretend to know what the market will do – nor am I claiming that you should in me trust (cough Cramer cough). You should base market decisions on your own due diligence. Taking into account something I write is fine, as long as you do your own thinking afterward.

In any case, I made it clear that this was intended for long term investors. Not traders. Long term investors can still make a killing even if they are off a bit. You are either going to get in early, and share in the continued decline of the market, or you’re going to get in late, and pay opportunity costs. But if your time horizon is 25+ years, you don’t really care about a few percentage points here or there, your aim is to catch the big wave.

Even if you disregard the chart above and the fact that we are going through a rare and magnificent opportunity, you have to sit up and take notice when great market timers like Barry Ritholtz, Doug Kass, Jeremy Grantham, Warren Buffett, etc. turn bullish en masse.

Reinvesting When Terrified

Eden — Thu, 12 Mar 2009 22:55:50 +0000

It was psychologically painful in 1999 to give up making money on the way up and to expose yourself to the career risk that comes with looking like an old fuddy duddy. Similarly today, it is both painful and career risky to part with your increasingly beloved cash, particularly since cash has been so hard to raise in this market of unprecedented illiquidity. As this crisis climaxes, formerly reasonable people will start to predict the end of the world, armed with plenty of terrifying and accurate data that will serve to reinforce the wisdom of your caution. Every decline will enhance the beauty of cash until, as some of us experienced in 1974, ‘terminal paralysis’ sets in. Those who were over invested will be catatonic and just sit and pray. Those few who look brilliant, oozing cash, will not want to easily give up their brilliance. So almost everyone is watching and waiting with their inertia beginning to set like concrete. Typically, those with a lot of cash will miss a very large chunk of the market recovery.

There is only one cure for terminal paralysis: you absolutely must have a battle plan for reinvestment and stick to it. Since every action must overcome paralysis, what I recommend is a few large steps, not many small ones. A single giant step at the low would be nice, but without holding a signed contract with the devil, several big moves would be safer. This is what we have been doing at GMO. We made one very large reinvestment move in October, taking us to about half way between neutral and minimum equities, and we have a schedule for further moves contingent on future market declines. It is particularly important to have a clear definition of what it will take for you to be fully invested. Without a similar program, be prepared for your committee’s enthusiasm to invest (and your own for that matter) to fall with the market. You must get them to agree now – quickly before rigor mortis sets in – for we are entering that zone as I write. Remember that you will never catch the low. Sensible value-based investors will always sell too early in bubbles and buy too early in busts. But in return, you may make some important extra money on the roundtrip as well as lowering the average risk exposure.

For the record, we now believe the S&P is worth 900 at fair value or 30% above today’s price. Global equities are even cheaper. (Our estimates of current value are based on the assumption of normal P/Es being applied to normal profit margins.) Our 7-year estimated returns for the various equity categories are in the +10 to +13% range after inflation based on an assumption of a 7-year move from today’s environment back to normal conditions. This compares to a year ago when they were all negative! Unfortunately it also compares to a +15% forecast at the 1974 low, and because of that our guess is that there is still a 50/50 chance of crossing 600 on the S&P 500.

Life is simple: if you invest too much too soon you will regret it; “How could you have done this with the economy so bad, the market in free fall, and the history books screaming about overruns?” On the other hand, if you invest too little after talking about handsome potential returns and the market rallies, you deserve to be shot. We have tried to model these competing costs and regrets. You should try to do the same. If you can’t, a simple clear battle plan – even if it comes directly from your stomach – will be far better in a meltdown than none at all. Perversely, seeking for optimality is a snare and delusion; it will merely serve to increase your paralysis. Investors must respond to rapidly falling prices for events can change fast. In June 1933, long before all the banks had failed or unemployment had peaked, the S&P rallied 105% in 6 months. Similarly, in 1974 it rallied 148% in 5 months in the UK! How would you have felt then with your large and beloved cash reserves? Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.

Searching for the Bottom: Valuation

Eden — Wed, 11 Mar 2009 23:13:48 +0000

What a difference a day makes. There are varying interpretations for today’s rally.Oversold bear market bounce — a popular view.
News flow on mark-to-market and changes in the uptick rule — we doubt it.
A reaction to fundamentals — Doug Kass’s viewpoint, and therefore deserving respect.
The Valuation Question

In normal times stocks react to asset allocation decisions based upon relative valuations of the various asset classes. This has certainly not been a normal time. The climate of fear has generated redemptions from hedge funds and mutual funds. Even companies with solid earnings have moved lower, as everything got sold.

The reason is that no one knows what is “cheap.” Even Warren Buffett, known for buying only when stocks were really cheap, is under fire for being wrong, or buying too soon, depending upon one’s perspective.

Market Valuation

In our investor portfolios we are focusing on stocks that have been unfairly crushed with the overall market and those that will rebound most strongly if the economy avoids a Great Depression scenario. There are many such choices.

For our current purposes, however, let us consider the overall market — the S&P 500. Valuation is a matter of a deceptively simple equation — the P/E ratio. One takes earnings and applies the appropriate multiple, the “correct” P/E ratio. This tells you the fair value price.

The problem lies in the various interpretations of both earnings and the multiple.

Defining Earnings

Earnings can be defined in many ways, with a myriad of decisions. Here is a sample:

Reported or GAAP earnings, which include all of the financial write downs and various other “one-time” charges for severance pay.
Operating earnings, attempting to exclude the one-time charges.
Normalized earnings, where the analyst looks at a general trend over a long time period, attempting to smooth the business cycle.
Weighted earnings, suggested by Prof. Jeremy Siegel, who believes that the reported S&P earnings over-emphasize the smaller cap stocks.
Peak earnings, advocated by John Hussman, where one looks to past peaks in earnings and considers the trend in these peaks.
Forward earnings, where one looks ahead instead of backward, trying to estimate the earnings power of the upcoming year.
These methods all yield different answers — but that is not all. Some analysts augment their method by calling into question past earnings. The historical financial earnings are suspect, since the companies booked false profits on derivatives now known to be over-valued. John Hussman has reduced his old peaks because he now believes the profit margins to have been excessive. If one chooses to normalize earnings, how far in the past must one analyze?

Depending upon your answers to these methodological questions, you can get a wide variety of past earnings results. We cannot even measure the past.

The Multiple

After deciding upon S&P earnings, one must still select an appropriate multiple. Once again, there is an array of choices:

The historical multiple for the S&P 500. This varies with the time frame selected.
The trough multiple, thought to reflect the valuation when markets reflected economic distress.
A multiple reflecting interest rates and/or inflation. It should be higher when interest rates are lower.
Take your pick.

The Kicker

Every analyst agrees that whatever the choice of earnings and multiple, that is not necessarily the bottom. Markets overshoot in both directions, so the “fair value” could still be 50% too high.

The Conclusions

The most bearish pundits take reported earnings and find the S&P 500 to be trading at a P/E ratio of 60 or so. There is no observable bottom for these pundits. They come up with a DJIA at 3000 and the S&P at 300, with no confidence that these values are a real bottom. No wonder investors are frightened.

If one looks at forward earnings of $60 or so, there is still the question of the correct multiple. If one applies the “trough multiple” of 10 or so, the fair value for the S&P is 600, and it could go much lower. No wonder investors are frightened.

If one disputes forward earnings, expecting further reductions in estimates, you could forecast earnings at $40 and apply the trough multiple. That is an S&P value of 400, and we all know that it could overshoot. No wonder investors are frightened.

Standard & Poor’s Announces March Quarterly ASX 200 Rebalances

Eden — Fri, 06 Mar 2009 01:49:52 +0000

View Report

Standard & Poor’s Announces March Quarterly Rebalance
to the S&P/ASX Indices

Sydney, Mar. 6, 2009-Standard & Poor’s Index Services, the leading provider of equity indices in Australia, announced today that the following constituent additions and deletions will take place in the S&P/ASX indices, effective from the close of trade on Mar. 20, 2009.

At this quarterly review the entire S&P/ASX index suite is rebalanced, which includes the All Ordinaries Index.

“Industrials, Healthcare and Consumer Staples stocks have featured as inclusions into the key indices,” said Simon Karaban, associate director at Standard & Poor’s Index Services. “Resource stocks typically had a strong showing in the past rebalances, however, we now see more of a
diversified range of stocks eligible for inclusion.”

Top Strategists Still Expecting a 46% Gain From Here

Eden — Fri, 06 Mar 2009 01:17:16 +0000

While two more Wall Street strategists lowered their year-end S&P 500 price targets recently, collectively they’re still looking for a 46% gain from the index’s current levels. As shown below, UBS, Goldman, and Credit Suisse have now lowered their year-end price targets since the start of the year. The UBS move from 1,300 to 1,100 makes Deutsche Bank the most bullish with a target of 1,140. Barclays has the lowest price target of 874, which would be a 27% increase from here.

10 Major Reasons Traders Fail

Eden — Fri, 06 Mar 2009 00:04:45 +0000

We hear staggering statistics that approximately 95% of traders fail in their ability to consistently profit from the markets.
What are the 10 major mistakes that these traders make that cost them dearly?

1.Having no trading plan
When you don’t have a plan, you don’t have a template to follow. It becomes very costly when your emotions are high and you have to make decisions on the fly.

2.Using strategies that do not match your personality
You hear of a trading strategy that has worked very well and you are anxious to follow it. One important factor to consider is: does it match who you are and your lifestyle?

3.Having unrealistic expectations
Most traders assume that it is very easy to make money in trading. They have unrealistic expectations with regard to their initial capital, their risk profile and how much money they can expect to make.

4.Taking too much risk
Usually when traders are down, they want to make their money back very quickly. Therefore, they increase their position size without thinking about the risk/rewards.

5.Not having rules to follow
Most traders think if they have rules to follow, they are restricting themselves. It is on the contrary. Having rules allows you to be more flexible since you have thought about lots of issues beforehand.

6.Not being flexible to market conditions
It is very important to see the markets as they are and not as you want them to be or as you assume them to be.

7.Failing to take responsibility for your results
When the results are not in your favor, the tendency is to blame the markets, circumstances, advice of others… When you blame things outside of yourself, you become a victim of circumstance. When you take responsibility, you can react differently to your circumstances and become the success you know you can be.

8.Being addicted to volatility
One of the reasons that people get into trading is because they like the excitement of it. If there is no excitement, they create it. This is one of the reasons that traders sabotage themselves.

9.Not having a process to keep track of your performance
If you don’t keep track of your results, how do you know what has worked and what has not? How can you tweak your process to get the best results that you can?

10.Not dealing with your Emotional Risk
When dealing with money, there are lots of emotions involved. Emotions are part of everyday life. What separates the successful traders from others is how they react to their emotions.

So what can you do to become a more consistent trader and increase your profitability?

1.Think of trading as a business and have a trading plan.

2.Make sure that the strategies you select, match your personality so you can follow them.

3.Have a realistic expectation of what your returns are. Include all the costs associated with your trading business.

4.Have an idea for your risk/reward ratio. Don’t confuse trading with gambling. If you are increasing your position, make sure that your strategy warrants it.

5.Have trading rules and follow them. Think about them as contingency plans. Because when your emotions are very high, the tendency is that you make very poor decisions that can cost you your account!

6.Be flexible to the market conditions. When you see the market as it is, you have a much better chance of managing your portfolio and increasing your profits.

7.Take responsibility for your results. Taking responsibility does not mean that you have control of everything that happens. It means that you have a choice of how to react to the things that happen.

8.Find out why you are in the trading business. If it is for the excitement of it, find other hobbies or activities that you can get your excitement from.

9.Keep track of your performance. This is a way of objectively looking at how you are doing, what you did right and what you learned. Be gentle with yourself.

10.One of the most important things that people don’t handle is their Emotional Risk. When emotions run high, the quality of decisions goes down. It is very important to learn how to react to your emotions and thus increase your profits.

“At first, something seems impossible. Then it becomes improbable. But with enough conviction and support, it finally becomes inevitable.” Christopher Reeves

2009: By Far The Worst Start To A Year Since 1900

Eden — Tue, 03 Mar 2009 23:46:05 +0000

The Dow’s current decline of 23.21% is by far the worst start to a year for the index this many days in since 1900. The second worst year at this point was 14.25% in 1920. There have been 19 prior years where the Dow was down 5% or more at this point, and only four of those years ultimately finished in positive territory. Below we highlight the five years where the Dow started the year down 10% or more at this point. In 1920, the Dow continued lower for the rest of the year, but in the three other years, the market ended higher from the level that it was at 41 trading days in.One positive is that 1933 is one of the five years that started off down 10% this many trading days in. While this did occur during the Great Depression, it was also FDR’s first year in office. With many comparing Obama and his plans to FDR and the New Deal, it’s interesting that the market got off to a very bad start in 1933 after he was elected, but reversed when he took office (in March) and finished his first year 66.7% higher! We can only hope that 2009 turns out that way, even though it doesn’t say much for 2010, 2011, 2012, etc.

Does Trend Following Work on Stocks?

Total Trader — Mon, 02 Mar 2009 22:01:45 +0000

Report Abstract

Over the years many commodity trading advisors, proprietary traders, and global macro hedge funds have successfully applied various trend following methods to profitably trade in global futures markets. Very little research, however, has been published regarding trend following strategies applied to stocks. Is it reasonable to assume that trend following works on futures but not stocks? We decided to put a long only trend following strategy to the test by running it against a comprehensive database of U.S. stocks that have been adjusted for corporate actions1. Delisted2 companies were included to account for survivorship bias3. Realistic transaction cost estimates (slippage & commission) were applied. Liquidity filters were used to limit hypothetical trading to only stocks that would have been liquid enough to trade, at the time of the trade. Coverage included 24,000+ securities spanning 22 years. The empirical results strongly suggest that trend following on stocks does offer a positive mathematical expectancy4, an essential building block of an effective investing or trading system.

View Report

Source: Blackstar Funds

Buffett: Our Worst Year Ever

Total Trader — Mon, 02 Mar 2009 07:32:36 +0000

Wow, that’s quite a sobering epitaph – worst year in the long and previously outperforming existence of Berkshire Hathaway.

This is amazing stuff:

“Our decrease in net worth during 2008 was $11.5 billion, which reduced the per-share book value of both our Class A and Class B stock by 9.6%. Over the last 44 years (that is, since present management took over) book value has grown from $19 to $70,530, a rate of 20.3% compounded annually.*

The table on the preceding page, recording both the 44-year performance of Berkshire’s book value and the S&P 500 index, shows that 2008 was the worst year for each. The period was devastating as well for corporate and municipal bonds, real estate and commodities. By year end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.

As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear. “

The full report is below . . .

berkshireletter 2009

Sources:
BRK: 2008 Annual Report

Letter to Shareholders
http://www.berkshirehathaway.com/letters/2008ltr.pdf

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Buffett: Our Worst Year Ever