Credit Card ’s Talk

Financial markets provide their participants with the most favorable conditions for purchase/sale of financial instruments they have inside. Their major functions are: guaranteeing liquidity, forming assets prices within establishing proposition and demand and decreasing of operational expenses, incurred by the participants of the market.

Financial market comprises variety of instruments, hence its functioning totally depends on instruments held. Usually it can be classified according to the type of financial instruments and according to the terms of instruments? paying-off.

From the point of different types of instruments held the market can be divided into the one of promissory notes and the one of securities (stock market). The first one contains promissory instruments with the right for its owners to get some fixed amount of money in future and is called the market of promissory notes, while the latter binds the issuer to pay a certain amount of money according to the return received after paying-off all the promissory notes and is called stock market. There are also types of securities referring to both categories as, e.g., preference shares and converted bonds. They are also called the instruments with fixed return.

Another classification is due to paying-off terms of instruments. These are: market of assets with high liquidity (money market) and market of capital. The first one refers to the market of short-term promissory notes with assets age up to 12 months. The second one refers to the market of long-term promissory notes with instruments age surpasses 12 months. This classification can be referred to the bond market only as its instruments have fixed expiry date, while the stock market?s not.

Now we are turning to the stock market.

As it was mentioned before, ordinary shares? purchasers typically invest their funds into the company-issuer and become its owners. Their weight in the process of making decisions in the company depends on the number of shares he/she possesses. Due to the financial experience of the company, its part in the market and future potential shares can be divided into several groups.

1. Blue Chips

Shares of large companies with a long record of profit growth, annual return over $4 billion, large capitalization and constancy in paying-off dividends are referred to as blue chips.

2. Growth Stocks

Shares of such company grow faster; its managers typically pursue the policy of reinvestment of revenue into further development and modernization of the company. These companies rarely pay dividends and in case they do the dividends are minimal as compared with other companies.

3. Income Stocks

Income stocks are the stocks of companies with high and stable earnings that pay high dividends to the shareholders. The shares of such companies usually use mutual funds in the plans for middle-aged and elderly people.

4. Defensive Stocks

These are the stocks whose prices stay stable when the market declines, do well during recessions and are able to minimize risks. They perform perfect when the market turns sour and are in requisition during economic boom.

These categories are widely spread in mutual funds, thus for better understanding investment process it is useful to keep in mind this division.

Shares can be issued both within the country and abroad. In case a company wants to issue its shares abroad it can use American Depositary Receipts (ADRs). ADRs are usually issued by the American banks and point at shareholders? right to possess the shares of a foreign company under the asset management of a bank. Each ADR signals of one or more shares possession.

When operating with shares, aside of purchase/sale ratio profits, you can also quarterly receive dividends. They depend on: type of share, financial state of the company, shares category etc.

Ordinary shares do not guarantee paying-off dividends. Dividends of a company depend on its profitability and spare cash. Dividends differ from each other as they are to be paid in a different period of time, with the possibility of being higher as well as lower. There are periods when companies do not pay dividends at all, mostly when a company is in a financial distress or in case executives decide to reinvest income into the development of the business. While calculating acceptable share price, dividends are the key factor.

Price of ordinary share is determined by three main factors: annual dividends rate, dividends growth rate and discount rate. The latter is also called a required income rate. The company with the high risks level is expected to have high required income rate. The higher cash flow the higher share prices and versus. This interdependence determines assets value. Below we will touch upon the division of share prices estimating in three possible cases with regard to dividends.

While purchasing shares, aside of risks and dividends analysis, it is absolutely important to examine company carefully as for its profit/loss accounting, balance, cash flows, distribution of profits between its shareholders, managers? and executives? wages etc. Only when you are sure of all the ins and outs of a company, you can easily buy or sell shares. If you are not confident of the information, it is more advisable not to hold shares for a long time (especially before financial accounting published).

Dr. Goldfinger
http://www.financegaes.com

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The big bad bear is stirring again. So far he has stretched, yawned and peaked out of his cave. After his almost year-long nap he is hungry. A nice big steak would hit the spot.

That steak comes from cattle and not too far from his den there is a fat complacent bull munching in the pasture. He has his tail towards the bear and Mr. Bear remembers that 3 years ago he walked up to another bull and bit him in the backside. It looks like he can do it again.

We know who bull and bear really are. It seems that almost everyone is bullish and thinks we are in another bull market like the one in 1999 where all investors thought they were geniuses. History has taught (for those who wish to listen and learn) that major bull markets are followed by bear markets of equal length. The major bull came to an end after 18 years in 2000. Can we expect an 18-year bear market? If history repeats its cycle the answer is yes.

The recent return of the upward movement of stock prices from last year is very typical of rallies in bear markets. Many have a 50% retracement of the first down leg (as happened after the big break in 1929) that tops out with the resumption of the downward path.

Today our bull is feeding on the lowest interest rates in 40 years, a tax cut that puts extra money in the hands of consumers (where it belongs) and a strong housing market plus the belief that the market always does well in an election year. Let?s hope all these things will come to pass.

The worst problem for investors is their complacency. They start making money and forget to protect their profits. These slip away when the market starts down and their broker says, ?Don?t worry. The market always comes back?.If the investor did not learn to protect his assets from the 2000 debacle he is doomed to lose again. What should he do?

He should protect his investment account with stop-loss orders on all stocks and mental stops for all mutual funds. Brokers hate this and will try to talk their clients out of doing it. Why? Because he makes a commission as long as you are invested and nothing if you have cash in your money market.

It is better to make 1% in a money market than lose 20% or more of the principle as the market heads south. You don?t have to be a market ?expert? to place a stop. Decide how much risk you are will to take 5%, 10%, 15%? And place your stop accordingly.

When this bear comes out of his cave don?t let him bite you ? you know where.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

Two weeks ago the Canadian government announced that it was imposing a new tax on income trusts. This announcement shocked the market and sent the Toronto Stock Exchange S&P/TSX composite index spiraling down 2.4% for the day. To put that in US terms that was the equivalent to a 300 point drop in the DOW. Billions of dollars were lost by this announcement.

Unfortunately I had recently taken a position in Enerplus Resources (ERF) the granddaddy of income trusts. It was the first Canadian oil and gas trust formed in 1986. Over the past five years, while the DOW was returning peanuts, its return was over 200%. It has a 9% yield and pays a monthly dividend like clock work. The plan was for it to become the anchor stock in an income oriented portfolio that I am building. As I have mentioned numerous times, to be successful in this market you need to be either a trader or a dollar-cost averager. Most will be far more successful as a dollar-cost averager. I have written many articles on the topic on this site. I make use both styles, but primarily I am a trader.

On the day of the announcement, ERF dropped 14%. That might have been the largest one day drop that I have experienced in a stock. If it is not the largest - it is definitely in the top two or three. Here are the comments from one mutual fund manager, ?There is a knee-jerk reaction out there. You got a lot of mutual funds that might be experiencing cash-ins because the media headlines make the masses want to liquidate at whatever the cost.? Based on his comments, I would presume that he was advising his clients not to sell. I have been caught in downdrafts such as this before. So, I was a seller.

Seven days afer the infamous announcement, the calm mutual fund manager?s clients are down an additional 10.5%. As a trader, I don?t rationalize over this or that - I react. Perseverance of capital is my number one priority. Although my intent was to become a long term investor growing old collecting dividends, STUFF happened and my plans were changed. Many will say, that if it is such a great stock it will come back. My answer is maybe. Not everyone sold seven days ago and have since suffered an additional 10.5% loss. So, now every time ERF advances a few points it will be faced with enormous selling pressure. Those trapped will want out. ERF could be dead money for awhile. Additionally, there is an opportunity cost of being stuck in a stock after such a calamity. Your money could be put to use in another stock as opposed to languishing in ERF waiting for it to come back. So, the next day I put some of the money to use into another to stock Hud Bay Minerals (HBM).

Refer to HBM.TO’s chart of my site.

Over the past seven days HBM has gone up 1.9% versus -10.5% for ERF. Making this a double win. I have recovered some of the loss and avoided an additional loss. Many would have listened to the broker and held on. Although my original intent was to be a long term investor in ERF, I realize that preservation of capital trumps intent. This was not my first rodeo, so I sold and moved on.

Refer to ERF’sChart on my site

About the Author

Michael Dawson recently said goodbye to a 20 year career in Engineering, Marketing and Sales to focus on living his dream of financial independence. He has since founded The Time and Money Group as vehicle to encourage others to do the same. The company’s mantra is Why trade time for money … when you can have both. Sign up for their free weekly newsletter, where he and others discuss the different paths to financial freedom and offer insights for your successful navigation.

http://www.thetimeandmoneygroup.com

Make sure to read one of Dawson’s most popular articles: Saying Good-Bye to the Time for Money Swap

On Wednesday, SPX opened sharply higher on the better than expected CPI report, although the core rate was in-line. SPX reached about 1,373 before pulling-back sharply. The strong open may have been a blow-off top, and a bearish head & shoulders (on 15-minute chart) may have been created with the right shoulder at roughly 1,370 and the neckline at 1,357. Several weeks ago, SPX created a bullish inverse head & shoulders (on 15-minute chart) with the neckline at 1,338.

Over the past three days, SPX has traded entirely above the monthly upper Bollinger Band, currently 1,361. The 10-day MA, currently 1,362, has generally held for a month and the 20-day MA, currently 1,351, has generally held for three months. Both MAs have risen sharply. Consequently, SPX is being compressed between 1,370 and the rising 10-day MA. Given some short-term technical indicators are severely overbought, it’s likely the compression will result in a move to the downside.

There are three possible scenerios. If the rally continues, there’s a multi-year resistance level about 1,400. However, SPX will need to trade well above the monthly upper Bollinger Band, at levels not reached in 10-years, since the middle of the bubble boom. If there’s a consolidation, SPX will fall below the 10-day MA, perhaps bounce initially off the 20-day MA, with further significant support levels at 1,338 and 1,326. Initial resistance is 1,370. SPX will then either rally, e.g. about 1,400, or fall, e.g. below 1,300. If there’s a correction, support levels will turn into resistance levels through steep falls and volatile downtrends. First major support is 1,290.

Economic data and oil prices will largely determine SPX direction. Last week, the PPI core rate was reported much higher than expected, although the CPI core rate was in-line. Consequently, SPX may discount, over the next few weeks, higher PPI and CPI core rates in next month’s report. Oil closed at 56.82 Friday. If oil falls and stabilizes around 50, that may be market bullish, or if oil rises and stabilizes around 60, that may be market bearish. I suspect, a consolidation will take place through the first week of November and then a correction will take place, since intermediate-term technical indicators are overbought. Nonetheless, I wouldn’t rule out a rise to about 1,400 in early-November and a fall below 1,300 in late-November.

Free chart available at PeakTrader.com Forum Index Market Forecast category.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

It seems that every day I turn on the TV and find a Poker game. Texas No Limit seems to be all the rage these days. I love watching it. When I discuss this with others, their response is always the same, ?You should play.? Ah, but what they don?t know is I stay out of the kitchen. As far as risk to reward ratio. That?s a gamble I?m not willing to take. I prefer to invest my money. Sometimes I gamble in the stock market, but as long as I stay within my comfort zone (long term), I don?t mind.

Tolerable risk should be the goal of every investor. Know your limits! Here are my big three don?ts:

We all know that emotions control every decision that an investor makes in any type of money related vehicle. Whether is be the stock market, real estate, art work or antiques, emotions ultimately set the final price on both sides of the transaction. Some investors have greater control over their emotions while other investors are destroyed by their emotional reactions to certain events.

One common occurrence that I have seen many investors make, including myself, is placing a position in a stock at the wrong time. My last article detailed the importance of timing, while this article will concentrate on the importance of staying focused and emotionally stable when things don?t work out as expected. In the past, I would study a stock?s chart, the fundamentals, the general market health and everything else that I felt necessary before placing a large sum of cash behind my beliefs. When things went wrong and I was forced to sell for a small loss, I would drop the stock from my watch lists and remove it from my memory. This was one of the biggest mistakes that I was making during my earlier years of investing. The greatest investors study their mistakes and learn why they were wrong. If you don?t learn from your mistakes, you will continue to repeat them and never move to the next level.

I was usually correct with my analysis on the particular stock but many times I was too early with my entry point during a new up-trend. Months later, I would come across the same stock in my screens but it was now up 25%, 50% or more from my initial buy point and stop loss. I would be frustrated for selling my stock too soon and was getting tired of using rules and missing big winners that I sold for a loss. I knew money could be made in Wall Street by using the law of averages to my advantage and employing strong money management skills but I needed to employ the rules more consistently. I started to practice what I was taught by selling my losers quickly and allowing my stronger stocks to ride their trends. Over time, I was experiencing a few more losers than winners but my stake was growing because these losers were smaller in size than the winners. The words written in the books were true; Jesse Livermore, Gerald Loeb and William O?Neil were all accurate with their lessons about cutting losses quickly.

More importantly, I learned to keep strong stocks on my radar even if I bought too soon and was forced to sell for a loss. My timing was wrong and my ego was shot because I was wrong, so I typically decided to stay away from that specific stock because it had already taken my cash and my pride. Emotionally, I was burned by the stock even though this was not entirely true. Investing is a game of trial and error. It is okay to buy a stock at the wrong time and sell, only to buy it again because they timing may be better. If you cut the losses small and allow winners to grow, the averages will ALWAYS work out, I promise. You must be honest with yourself to allow the averages to work out. You cannot allow a stock to drop past your sell point and you must try to always hold the strongest stocks without selling them during a premature pullback. This all sounds so easy but it is not! If it was so easy, we would all be extremely rich and the stock market would be everyone?s full time job.

I kept using my system of trial and error and started to record every thought and transaction I made. With my revised philosophy in place; I continued to study the stocks that I was forced to sell and tried my best to re-purchase, even at higher prices than my original position if the time was right. Even now I have these issues, the greatest traders of all time always had these issues and every fund manager must decide if the time is right. My latest example, which can relate to almost everyone in the community is Paincare Holdings, a stock that was purchased solely as a ?test buy? that I was forced to sell. If things turn around and the general market starts to rally, I would have no problem buying the stock at a higher price than my original position if the opportunity presents itself.

LaBarge is another example, first showing up on the screens at $9.35 but during a down-trending market. The new pivot point and buy area was $14, over 50% higher than the original price but a solid entry point regardless of past gains or prices. Mentally it is always the toughest to buy a stock at a higher price than you were watching it at an earlier date but it can be the most rewarding strategy. Never look at a chart and toss away a candidate because it has moved up 50% or even doubled in recent months, the real move may just be beginning.

The moral of this article is to make you understand that timing may be your only issue when buying stocks so never throw away a possible superstar because you bought too soon. Keep it on your watch list and be prepared to initiate another position, even if it will cost you an extra point or two. If you buy again and it doesn?t work out, re-peat the process, there is always a chance that the stock was not meant to be or your analysis was slightly faulty. In either case, learn what you are doing right and wrong so you can be prepared to use those lessons with the next stock.

Chris Perruna - http://www.marketstockwatch.com

Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.