Stock Market Analysis

The return that a stock can provide is often predicted with the help of technical analysis. Stock market trading tips are based on technical analysis of various parameters.

Stock market analysis is science of examining stock data and predicting their future moves on the stock market. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. Their holdings are usually short-term - once their projected profit is reached they drop the stock.

The basis for stock market analysis is the belief that stock prices move in predictable patterns. All the factors that influence price movement - company performance, the general state of the economy, natural disasters - are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements.

Stock market analysis is not intended for long-term investments because fundamental information concerning a company's potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements. Most stock tips and recommendations are based on stock analysis methods.

Investors can take advantage of these stock analysis methods to track both upswings and downswings in price by deciding whether to go long or short on their portfolios. Stop-loss orders limit losses in the event that the market does not move as expected.

There are many tools available for stock market technical analysis. Hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic stock analysis methods of 'support' and 'resistance'. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels.

Stock Analysis Charts & Patterns

Stock market analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period - weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices.

A variation on the bar chart is the candlestick chart. These charts use solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are coloured black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish - the stock opened near its low and closed near its high. Conversely, a red body with short shadows is bearish - the stock opened near the high and closed near the low. These are only two of the more than 20 patterns that can be formed by candlesticks.

When glancing at charts the untrained eye may simply see random movements from one day to the next. Trained analysts, however, see patterns that are used to predict future movements of stock prices. There are hundreds of different indicators and patterns that can be applied. There is no one single reliable indicator, but these stock analysis methods when taken into consideration with others, investors can be quite successful in predicting price movements.

One of the most popular patterns is Cup and Handle. Prices start out relatively high then dip and come back up (the cup). They finally level out for a period (handle) before making a breakout - a sudden rise in price. Investors who buy on the handle can make good profits.

Another popular pattern is Head and Shoulders. This is formed by a peak (first shoulder) followed by a dip and then a higher peak (the head) followed again by a dip and a rise (the second shoulder). This is taken to be a bearish pattern with prices to fall substantially after the second shoulder.

Other Stock Market Analysis Methods

Moving Average - The most popular indicator is the moving average. This shows the average price over a period of time. For a 30 day moving average you add the closing prices for each of the 30 days and divide by 30. The most common averages are 20, 30, 50, 100, and 200 days. Longer time spans are less affected by daily price fluctuations. A moving average is plotted as a line on a graph of price changes. When prices fall below the moving average they have a tendency to keep on falling. Conversely, when prices rise above the moving average they tend to keep on rising.

Relative Strength Index (RSI) - This indicator compares the number of days a stock finishes up with the number of days it finishes down. It is calculated for a certain time span - usually between 9 and 15 days. The average number of up days is divided by the average number of down days. This number is added to one and the result is used to divide 100. This number is subtracted from 100. The RSI has a range between 0 and 100. A RSI of 70 or above can indicate a stock which is overbought and due for a fall in price. When the RSI falls below 30 the stock may be oversold and is a good time to buy. These numbers are not absolute - they can vary depending on whether the market is bullish or bearish. RSI charted over longer periods tend to show less extremes of movement. Looking at historical charts over a period of a year or so can give a good indicator of how a stock price moves in relation to its RSI.

Money Flow Index (MFI) - The RSI is calculated by following stock prices, but the Money Flow Index (MFI) takes into account the number of shares traded as well as the price. The range is from 0 to 100 and just like the RSI, an MFI of 70 is an indicator to sell and an MFI of 30 is an indicator to buy. Also like the RSI, when charted over longer periods of time the MFI can be more accurate as an indicator.

Bollinger Bands - This indicator is plotted as a grouping of 3 lines. The upper and lower lines are plotted according to market volatility. When the market is volatile the space between these lines widens and during times of less volatility the lines come closer together. The middle line is the simple moving average between the two outer lines (bands). As prices move closer to the lower band the stronger the indication is that the stock is oversold - the price should soon rise. As prices rise to the higher band the stock becomes more overbought meaning prices should fall. Bollinger bands are often used by investors to confirm other indicators. The wise technical analyst will always use a number of indicators before making a decision to trade a particular stock.

Read More

The Truth Behind Stock Market Trading

If you happen to watch a business show or business news on TV, you'd probably hear words or phrases like "stock market," 'trading," "stocks" or "stock market trading." What are these things and what is their significance? To answer your questions, here's an overview on what stock market trading is.

Definition

In simple terms, stock market trading is the voluntary buying and selling or exchange of company stocks and their derivatives. Stocks refer to the capital raised by a corporation by means of issuing and sharing shares. These are traded in a stock market just as commodities like coffee, sugar, wheat and rice are traded in a commodity market. The physical or virtual (as trading may take place online) marketplace for trading shares on the other hand is called stock exchange.

Trading Process

Stock market trading takes place as one sells his stocks and as the other buys them. Usually buyers and sellers of stocks meet in stock exchanges and there they agree on the price of the stocks. The actual stock market trading happens on a trading floor--the one usually shown on TV when news on stock market trading are reported. Here investors raise their arms, throwing signals to each other. That auction-like picture of a stock market trading is the traditional way stocks are traded. It's called "open outcry" since the traders cry out their bids.

Key Players in Stock Market Trading

Stock market trading participants vary from persons selling small individual stock investments to institutions trading collective investments, hedge funds, pension funds, mutual funds, etc. Big investors can be banks, insurance companies and other huge companies.

Importance of Stock Market Trading

Stock market trading is required to foster economic growth. It does this by helping companies raise capital or by helping them handle their financial problems. Stock market trading helps ensure that the capital is saved and is invested in most profitable business. Moreover, stock market facilitates the transfer of payments between traders.

Online Stock Market Trading

With the emergence and popularity of the Internet, almost everything can now be done conveniently online. You can go shopping online, join conferences online, read news online and communicate with business partners wherever you are. Even stock market trading can now be done virtually and this has made entering into a business much easier for anyone interested. Aside from conducting stock market trading over the Internet, you can also conveniently check status of your investments online.

The benefits of online stock market trading are just endless. Aside from the above mentioned, choosing where to invest is also much easier online. You can find virtually all kinds of stocks over the Internet; however, it would be best to invest in stocks with moving prices to ensure profitability in the long run.

Disadvantages of Stock Market Trading

One of the greatest drawbacks of stock market trading, whether online or not, is its lower leverage compared to other forms of trading like Forex trading. Also, you cannot easily short sell stocks as it takes time for stock prices to go up. This means that increasing your profit may also take time.

Read More

An Overview on Reading the Stock Market

A lot of people are familiar with the stock market. However, most individuals remain unfamiliar with terms like "stock", "buying and selling of stocks", "stock market charts, and "bulls and bears". Even the term "stock market" itself remains a point of confusion for those who don't have financial expertise. There are times when they would scratch their heads in bewilderment whenever they hear their neighbors complain about the low prices of stocks on the market or if a colleague suddenly gets a huge windfall from his stock market investments. What most people are aware of is that the trading on the stock market can lead to booming or bankrupt businesses if these companies have played the "stock market game" correctly. Simply put, stocks are representations of the company's assets and profits. If the company makes a profit from the stocks, this value is divided yearly among the shareholders in the form of a dividend. As an example, if a company makes a profit of $100,000 this year, and it has 20 shareholders holding 1 stock each, the shareholders would receive a dividend of $5,000.

The Stock Market Defined

The stock market - also known as the "stock exchange" - is a financial institution wherein licensed brokers trade company stocks and other securities - including privately traded securities - that are approved for trading by the exchange. Exchanges can occur physically or virtually. Brokers buy and sell stocks based on the needs and requirements of the people and/or companies they represent.

The two types of stock markets are...

• Primary Stock Market = for trading of Initial Public Offerings (IPOs) and other brand new issues by sellers and buyers

• Secondary Stock Market = for trading of existent stocks in the market by buyers and sellers

Common Stock Market Terms

Stock market "lingo" is nothing to be confused or feel daunted about. In order to understand the trends in the stock market, you need to learn certain commonly used terms and be able to assess stock market charts. By taking the initiative to learn the basics of the stock market, you will be transformed into a knowledgeable investor and be able to make good stock decisions.

Let us take a look at some of the terms that you will most likely encounter on the stock market...

Stock price = This is the value for which stocks are bought and sold. Factors that directly impact on stock prices are the position and performance of company issuing the stocks. Another term related to the stock price is the market capitalization - or simply market cap - which is the stock price multiplied by the number of shares. Other factors that affect stock prices include current performance and expansion and future growth. Let us put it in simpler terms. If a company is doing poorly in the stock market, their stock prices decline in value. In contrast, if these companies are performing well, you will see the stock prices shoot up in value.

Reading Stock Market Charts = These charts and quotes provide the current status of the performance of the stocks. These stock changes can be reflected as "day-to-day" or "intra-day" depending on the trading on that particular day.

52 Week High and Low = This consists of stock data over a period of 52 weeks. On the date of reporting, you will be able to see the stocks with the lowest and highest prices during this 52-week period.

Type of Stock = Preferred stocks would have specific symbols written after the company name. If no such symbols are indicated, the stock is a common stock.

Ticker Symbol = Every company trading on the stock market is assigned an abbreviation or specific letters. These ticker symbols are used so that all the companies can be listed on the ticker tape. All the major stock exchanges in the U.S. - such as the New York Stock Exchange, NASDAQ, Dow Jones and American Stock Exchange - restrict ticker symbols from 1 to 4 letters only (similar to the heraldic symbols in the British exchanges). Any new companies should register their own symbols, which should be different from the symbols that are already being used by other firms. Some examples of ticker symbols include AAPL for Apple Computer Inc. and INTC for Intel. You will probably observe that some symbols would have a period followed by 1 or 2 additional letters. One good example is BRK.B. This means that the stock is being offered by Berkshire Hathway Company and it is a lower priced "Class B" stock.

Dividend Per Share and Dividend Yield = On a stock market chart, a company is said to be issuing dividends if both of the columns with these headings are filled up. You compute the Dividend Yield by dividing the annual dividends per share by the price per share. This dividend yield means that the shareholder has a return on his dividends.

Price/Earnings Ratio or P/E Ratio = This value is computed by dividing the latest stock price by the average earnings per share for the last 4 quarters.

Trading Volume = Total selling and buying transactions that have taken place during the day.

Closing = Last quoted price of the stock at closing day of the stock market

Net Change = The difference in stock prices since the last change that occurred. Net Change enables you see the direction where the stock price is headed - with a plus symbol for a positive direction while a minus symbol for a negative direction.

Bulls and bears = The term "bulls" and "bears" are economic indicators for the stock market. You have a bull market when the values of stocks go up. This is an indicator of good health in the economy. In a bull market, investors can stand to gain substantial profits from stock sales. In contrast, bear market is indicative of an economic downtrend so that investors need to sell their stocks before the prices drop much lower. During a bear market, a lot of investors and businesses tend to lose greatly if they have not been quick in buying good stocks and selling those shares before they dropped fast. The general rule of thumb to follow in the stock market is to buy when prices are low and sell when prices are high (before the prices decline.)

Read More

All stock purchases are transacted by bringing money from outside the market to trade with those who own stocks and would be willing to leave the market, becoming non-owners, if they are paid their price. The sellers exit the market, even if only temporarily, with the money that was never in the market. Trading your current surplus labor for stocks will only net you a gain if in the future someone else is willing to trade you more surplus labor for the right to own your stocks. Your money is not in the stock, bond, or commodity markets; it is in the pocket of the person that sold you stocks, bonds, or commodities. Both today and in the future, the un-inflated value of stocks is the fire-sale value of equity in buildings and equipment and resources that are not collateral for loans and bonds. Everything else is a mirage, appearing as inflated equity created by too much surplus wealth being exchanged (gambled) for control of corporations and their future profits. This "air" in the market is why price changes can be so volatile; small changes up or down on small amounts of a company's stock are leveraged to effect all of its stock by and because of investor ignorance.

Let me digress a moment to another discussion of money, in the realm of buying and selling as done in the stock market. All money available to purchase any asset is pocket money, in the context of liquidity. It is not invested in stocks and bonds, or real estate, or gems and precious metals, or stamps and rare coins. Money simply moves from one pocket to another (from one bank account to another), in trade for assets or consumption of goods. Those who purchase stocks and bonds, or real estate, etc., take money out of their pockets to effect a purchase, while those who sell stocks and bonds, or real estate, etc., put money into their pockets to effect a sale of those goods. The key to the future value of any commodity, or stock, or piece of land bears directly on the amount (and trade value) of pocket money available at any given future time. These markets are devoid of any value other than future demand to own stocks, bonds, commodities and real estate; and that demand will depend on the mount of pocket money available for investment or speculation. The money is always outside the markets because it only moves from one pocket to another, wherein the last pocket always belongs to someone who is NOT IN THE MARKET.

While investment in the stock market is considered to be a capital investment in our productive economy, it very seldom is. If you are able to purchase new stock directly from a corporation that will use that money to expand their productive capacity, then you are investing capital in our economy. But when a stock is sold the second, third and so on... times, the new owner is not investing in that corporation. The vast majority of stock trades are done between one investor-speculator and another, trading places between would-be owners and those who would rather not be owners. As far as our productive economy is concerned, these dollars serve no useful purpose. They create no jobs, build no factories, nor do they feed or shelter anyone, except stockbrokers and speculators. The taxes paid on gains are offset by the deductions taken on losses. Brokers and the people that keep these markets going are all on capital welfare. They facilitate these gamblers in transferring money and stocks, and charge a fee to do so. But unless they are helping a corporation issue new stock, they are just recording the economically irrelevant bets of their customers. Stockbrokers and Bookmakers (that manage bets on horses, or sporting events, or whatever) are the same animals in twin professions.

Many baby-boomers are being encouraged to invest in personal savings accounts like IRA's to benefit their uncertain retirement. And many of these IRA's are invested in the stock market, bringing additional dollars to the New York style gambling industry. This money is simply inflating stock prices and giving the illusion of equity growth. Remember, money put into an IRA or 401K, to buy stocks and bonds, is going into the pockets of the sellers. To reap your reward as a seller when you need retirement money, you are betting there will be more buyers in the future willing to pay more to own your stocks and bonds than was the case when you purchased. Such reasoning is how pyramid schemes operate. The boomers are buying into a pyramid scheme that is shrinking at its base (without exception, all pyramid schemes fail); the following generation will be too small in population and earning capacity to bid up prices and produce a profit for the boomers to retire on. The generations following the Boomers are going to have their income taxed heavily to pay the Social Security and Medicare for the Boomers and thereby will not have the pocket money to buy into IRA's and 401K's; causing those markets to fall catastrophically in value and bankrupt many Boomers.

Consider also that most 401K plans are not invested in industrial stocks and bonds; rather they are only speculating on the profitability of a mutual fund company, i.e., the stock you own and will need to sell at a higher price to have retirement income is your investment firm's stock, and no other. Since your fund managers must buy and sell stocks and bonds, etc. to make a profit, similar to all other mutual funds, you can only come out a winner if other 401K speculators come out losers. The Boomers will either suffer losses that will destroy the value of their retirement investments, or they may be forced to keep their capital tied up in owning stocks and bonds and only receive relatively small dividends, without ever being able to recover and spend their invested capital.

The game of win or lose goes like this. If investor-A buys some stock costing one hundred dollars per share and it rises in value to one hundred ten dollars per share, at which time investor-A sells to investor-B; investor-A has made ten dollars per share profit. If this stock continues to rise to one hundred twenty dollars per share and investor-B sells to investor-C, then investor-B has also made ten dollars per share profit. If this stock falls back to one hundred dollars per share and investor-C sells this stock, then investor-C has suffered a loss exactly equal to the previous gains. Similarly, if this stock had dropped for investor-A & -B but rises for investor-C, the initial losses would equal the final gain. For every gain their will ultimately be an equivalent loss, and for every loss their will be an equivalent gain, the books are always balanced. Brokerage fees, taxes and inflation operate to guarantee that in the long run, less money leaves these markets as investor profits than comes into them as gambling wagers. Over time those who profit from these markets do so only by losses incurred by others. Periodic panics and crashes in these markets balance the books by creating the losses that equal the year over year gains for the years between such panics and crashes.

The featuring by the news media, over the years, of catastrophic losses by certain international banks, or certain brokerage firms, or individual investors, shows the general ignorance of how these gambles work. If we heard news of a poker game wherein three players lost $50,000 each, but a fourth player won $150,000, we would not dwell on the losers and the tragic consequences of their losses, without mentioning the winner. More likely, we would focus on the winner and attempt to associate ourselves with such winners, and generally ignore the losers. In the financial markets losses may be tragic to one person or corporation, but on the principle that gains equal losses, both are irrelevant to the market and to the economy. If governments, market directors or investor-speculators alter their market strategies based on someone's losses, they are forgetting someone else's gains, implying that they do not understand these markets and ought not to be in them. Reporting gains and losses in any of the markets is a camouflage of fraud to keep unwary investors in the game. These markets are a zero net sum, so gains and losses are irrelevant for society overall. But since these con-games require continuous inflow of surplus wealth to support brokers and investment bankers, there is an industry of reporting and describing activity in these markets that operates on a foundation of collusion of ignorance and obfuscation of facts. In this ever-changing world investing is nearly dead, so happy speculating.

Read More