Credit Card ’s Talk

Every day on CNBC-TV they show a 200-day moving average line superimposed on the stock price history. It seems they give great credence to this manufactured line as it represents 10 months of price action. What is it? Does it really mean anything?

The line represents the addition of the closing prices of that particular stock, mutual fund or index for the past 200 trading sessions that have been added up and divided by 200. That is then placed on the chart at that point. For example if the price of the equity started at zero and went up exactly one point for 200 days the average would be 100. A dot is then place on the chart at 100 even though the equity price is now at 200. Each day the new closing price is added after dropping off price number 1 and the new group is added up and divided by 200. This is done each day. Nothing complicated.

Does this mean anything?

This is considered to be a very useful technical indicator, but like all technical indicators you must understand how to use it. There is one rule for any technical indicator: no single one is a Holy Grail for predicting future price action of a stock, fund or index. WAIT! Don?t throw out the baby with the bath water.

The 200-day MA is not a predictor, but it does establish the current trend of whatever you wish to measure that has a recurring event. You can use it for the average price of housing, cost of gold, global weather temperature, medical costs, etc., etc. that can then be plotted on a chart.

You don?t have to stay with 200 days. You may modify it to any number of days or time periods you wish from two on out past 200. Many technical analysts use 10, 20, 50, 100 and then plot these on the same chart simultaneously to see when one crosses over another. These are called oscillators and thousands of traders use them to determine buy and sell signals.

Because the 200-day MA is composed of 200 price entries it has been determined that it works best when used with something that has many factors represented. In the stock market this is indexes and mutual funds. Mutual funds are composed of many stocks or bonds and the price action of any single equity does not cause a major price swing.

If you will keep in mind that the 200-day MA will show only the major long term trend it can be a very useful investment tool.

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

al@mutualfundstrategy.com; 1-888-345-7870

Every day I hear from the ?experts? on CNBC-TV and the radio gurus that the way to buy stocks is find value. One man?s Rembrandt is another man?s connect-the-dots and fill in the spaces. Valuation is like beauty. It is in the mind of the beholder.

If valuation is the key to buying stocks then there should be some kind of a formula to determine what is undervalued and over-valued. In every industry there are formulas for standards of performance. For cars we want to know the zero to 60 miles per hour in how many seconds. For soap we want it to be 99 and 44/100 percent pure. For alcoholic beverages it could be how long it has been aged. And on and on.

Yet in the stock market we have no hard and fast set of rules by which to judge a company performance. Ah, and there?s the rub! No matter how good a company performance might be it may have no bearing on the price performance of the stock. You can find good companies that are within a sector that is doing poorly and yet one company can be making huge profits and sales, but the stock price is going nowhere. There need not be any correlation.

When you are in a bull market almost every stock goes up ? even the dogs. When you are in a bear market almost every stock goes down ? even the best ones. We ended an 18 year bull market in 2000 and almost without exception every stock headed for the exit.

Bull and bear markets follow relatively standard patterns of about 16 to 18 years up and 16 to 18 years down and the valuations go right along with them. If you own stocks or especially index funds during the bear periods you will be lucky to have broken even at the end of the 16-year cycle. Cash in your mattress will outperform market returns while the bear is in charge.

During these bear times there will be periods when the market will have a nice advance such as the one we saw start in 2003. These intermediate rises can ultimately bring many investors back into the market only to lose it when the rally is over and true valuation returns.

One valuation measurement for the overall market is the Price/Earnings ratio of the S&P500 Index. The median number for the historic purposes has been around 14. Today it is running about 21 which is considered high. When bear markets end the P/E can be about 6 or 8. There are other factors to be considered when buying any stock or fund, but the one thing that is most important is to have an exit strategy. Without one you will give back your profits.

No one knows exactly where the top or bottom of a market move will be. Knowing conventional valuations is one tool to help your buying and selling decisions.

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

Do you have a financial planner? Does one of your friends have a financial planner? Maybe you take your advice from your broker. As I have said countless times before a broker will make you broker. And a financial planner won?t do any better. I know. You thought they would.

Let?s look at the real reason investors choose to take advice from these so called ?experts?. Once they get you into their office or sitting with you at the dining room table or kitchen table you are doomed. Mr. F.P. has come prepared with beautiful slick color brochures and will have a presentation that will utterly confuse, bedazzle and befuddle. You will sit there and be afraid to ask a question because you know it is so dumb. You can?t say ?no? or you will be admitting how dumb you are. And he knows that.

It is not that he is a liar. (I hope.) It is that all financial planners and brokers are taught the Wall Street method of ?making money?. Unfortunately it doesn?t work.

The basic things that have been pounded into their heads are false. Let?s look at the big three: Do Research, Dollar Cost Average and Buy and Hold. There are others, but these you will hear from every broker and financial planner because that is what the big brokerage companies and mutual fund families want. They want your money and they want to keep it even when the stocks or funds you own go down. In fact, buy some more.

Research is like blowing in the wind. You will be inundated with green sheets, blue sheets, red sheets, slick full color glossies, videos, etc., etc. Think about this. If you can obtain this information then so can everyone else. Everything that is known about a particular stock is reflected in the last price. Morningstar will sell you a beautiful package about a company, but it is worthless. What you really want to know is will it go up after I buy it?

Of course, if it goes down you will be encouraged to buy more to average out your price so that when it heads up again you will make a fortune. Yes, and pigs can fly.

If it does go down your advisor may say to hold on as the market always comes back. He doesn?t tell you it may take 20 years or that the company might go out of business. Buy and Hold is the greatest myth of Wall Street. No one ever tells you to sell. Have you been told you don?t have a loss until you take it? Please!

You got that advisor because you have not admitted to your self that you cannot pull the trigger. When you have a stock or fund that is falling you don?t want to sell. You have to take charge of your money. Just you.

When you look back at the performance of most financial planners from 2000 to 2003 you know you can do a better job. Always ask to see what they did then. If they lost money you don?t want them. Don?t let them compare their performance to the S&P500. That?s smoke and mirrors.

You can do better. Just do it.

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

Analyzing growth stocks is an important focus for any investor. This is especially important, since stocks are an irreplaceable part of any good investment plan, and since unbiased stock research is hard to find. Still, we need to look at the big picture once in a while. Since so much has changed lately, this may be a good time to ?take stock?. Many have reevaluated their investment strategies. The problem is that many of these reevaluations are moving people away from their goals. As the market has dropped, rather than moving toward buying at the cheaper prices, we?ve seen people move away from stocks, a strategy which has little long-term benefit.

THE PICTURE

It?s all about planning for the future. The first step is to picture the future you have in mind. Most of us already have part of the picture in our sights. We picture ourselves in a home, with food, heat, clothing — the necessities. Beyond the basics, some of us may picture ourselves raising a family and possibly supporting our kids? education or business ventures or helping them buy their first home. Others may imagine supporting a church or charity, or accomplishing some great humanitarian goal. Most imagine some type of vacation at least once in a lifetime, or a personal goal that we?ve always wanted to achieve. Regardless of specifics, trying to get as clear a picture of your intentions as possible is an important first step. Once we know where we?re going, we can begin mapping our path

THE PLAN

Those who fail to plan, have already planned to fail. It is nearly impossible to reach a goal if there?s no strategy in place. Of course, there are a variety of personal decisions and trade-offs involved in any plan, and only a portion of these involve finances. Let?s focus here on the financial dimension of the plan, because the financial decisions are often the ones that prevent us from reaching our goals. Financial decisions are never easy, and the issues quite often reach to the core of our being. They involve our deepest values, our choices of what is most important in our lives. If other people are involved in our life, we need to balance our values with those of our families.

Creating the financial plan involves three steps: goal-setting, measurement and implementation.

Goal-setting requires us to determine both the specific achievements we desire and the timing of these achievements. For example, it is not enough to know that we want to own a 1000 square foot home on the beach in Hawaii. We must also identify any time-frames we have in mind. Measurement requires us to evaluate the cost of our goals, and determine our pacing. We must figure out what it will take, then, based upon our timing needs, pace our plan by calculating what the per-year savings must be and the growth rate our saving must achieve to accomplish that goal. Pacing for our goals is the most technical portion of the planning process, and often where people fall down on the job. Inflation in the economy is a complicating factor here too. If we don?t take inflation into account, a long-term plan is often doomed. Imagine someone who saved up for 30 years to buy a house, ignoring inflation. She?d have saved up $25,000, and wouldn?t be able to afford anything. Her cost calculation must recognize that money loses value over time. Making these calculations can seem intimidating for the inexperienced. We have charts and graphs that we use to assist our clients in making these judgments, but for those who aren?t nearby, the American Savings Education Council has some excellent resources on the web that are fairly simple to use.

Once we?ve gone to the trouble of learning precisely what we need to achieve our goals, its time to begin translating these specifics into an action plan. This is part of the plan implementation. The implementation stage requires us to determine the best way to reach our (now very specific) goals. The factors we will need to look at include income levels, savings decisions, and investment strategies.

Alas, this is all part of the next installment in this column. Stay tuned.

To send comments or to learn more about Scott Pearson’s Investment Management Services, visit http://www.valueview.net

Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor’s Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.

Every investor should start with a good solid set of buying and selling rules and stick to them. This will take the emotional involvement out of the process of stock trading. When the emotions of trading are out of the equation, a person can use rational and logical thought instead of the emotional thought. An example of the emotional thought is when a stock is trading poorly and you say to yourself ?This stock will come back so I will hold on to it for a while longer?. This type of thinking leads to huge losses at times. But if you have a set of selling rules in place, you simply set a percentage amount you are willing to lose and sell the stock if it hits the number.

Most professional traders will sell a new position if the trade turns bad and falls between two and eight percent. This type of rule will preserve your capital so that your remaining capital can be invested again to make up the loss on a later trade. Sell rules prevent the further deterioration of your capital. The loss of capital can be devastating for a person. A large loss requires a much larger gain later on to replace the lost capital. For instance, if you held a stock for a 50% loss you would need a 100% gain to counter the loss. So if a $50 stock falls to $25 before you sell, the only way to make the loss back is to buy a stock that must double in price.

Capital preservation is one the major considerations of a professional investor. If your capital is not reduced you can continue to profit from new trades. Which leads us to some buy rules. Some buy rules to include in your investing strategy;

Return of capital. How long will it take to have your initial investment returned to you so that it can be reinvested? Sophisticated professional investors want fast money. Money that moves and grows but is returned to the coffers quickly.

Return on investment. How much will your invested capital return as a profit? This is important when determining which investment to choose when deciding where to place your money. If one investment offers an annual return of 10% and a second investment returns 20% annually, it is an easy decision. A smart investor will invest in the second choice.

Future growth of a company. Is the business you are investing with growing, stagnant or shrinking? What is the outlook for trends in the industry? Are they positive? Is the company innovative?

Initial value of investment. Is the stock at the right price? Is it expensive when compared to other stocks in the same industry with similar returns? Your opportunity to make profits in stocks is often decided by the initial cost of a stock. This doesn’t mean the price of the stock. It is determined by the multiple of a stock when compared with other stocks. A $60 stock with a multiple of 15 is cheaper than a $20 stock with a multiple of 30.

Save yourself a bunch of grief and take a small loss when necessary, keep your capital moving into investments with the best returns on investment and watch for growing companies to buy and finally, buy stocks which offer the best value.

Matt Fox is a successful professional investor in stocks, options and commodities markets. He also invests in residential, industrial and commercial real estate markets. Read more investing tips from the author at http://www.bizmaker.blogspot.com.

The chart below is a three-year weekly comparison chart of the Price of Copper (candlesticks and right scale), PD (dashed pink line and left scale), and FCX (dashed green line). PD and FCX are two of the largest three copper producers (along with PCU). Last week, copper traded almost entirely above its weekly upper Bollinger Band and closed above 280 cents a pound Fri. Moreover, both the weekly RSI and ULT closed above 80. Furthermore, the weekly MACD and CCI are at extreme levels.

The chart shows copper traded well above its upper Bollinger Bands only twice before over the current bull market, i.e. in the first quarter of 2004 and in the fourth quarter of 2004. Both times copper fell sharply. Also, over the past three years, PD and FCX have risen by higher percentages than copper. However, currently, PD, FCX, and copper are higher by roughly equal percentages, which indicate a pullback in copper is already partially discounted by PD and FCX.

FCX reports earnings Tue. Last quarter, FCX beat earnings expectations by 43 cents. After an initial five point bounce to over 60, it eventually rose to 65, and a month later fell to 50. FCX is at a double top around 65. PD paid a $5 per share special dividend in Dec and announced another $2 special dividend in early Apr. Copper has risen from 200 to 280 cents per pound over the past 3 1/2 months with mean prices of about 190 in the fourth quarter and over 220 in the first quarter. One analyst noted for every penny per pound rise in copper, PD earnings rise 8 cents per share (annually).

Given the severely overbought level of copper, either a volatile consolidation or a large correction will take place soon. Normally, PD and FCX are more volatile than copper. However, PD, FCX, and copper may move by roughly the same percentages. Consequently, the chart indicates, if copper falls from 280 to 260, PD may fall from 85 to 80. Moreover, copper tends to move closely with gold, which reached over 600 last week, although gold is less overbought. However, gold stocks are also partially discounting a pullback in the price of gold. Within the next few months, gold may fall to 550 or 500.

Charts available at http://www.peaktrader.com Forum Index Market Forecast section.

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.