Seasonality and technical analysis stems from the idea that investors are partially predictable. Those that believe in technical analysis can reap the benefits of the daily fluctuations that exist in the market without concerns on the fundamentals of the company or the economy. Yesterday, I pointed out that the final hour has become a trader's paradise as momentum up- or downward has become extremely predictable as the final hour unfolds. Today, I would like to point out another profitable trade that has worked for me.
Since November 2009, the first trading day of every month has been a positive day for the Dow Jones with an average gain of 88 points. Most believe that this is typical because new money from managed investment funds enter the market on the first of each month, creating a small but predictable push.
So what trading vehicles allow you to capture this behaviour? Instead of choosing a stock which may decide not to move with the market, one should consider purchasing an ETF. For the Dow Jones, this would be the Diamonds Trust [DIA:NYSE], for the S&P 500, this is the "Spiders" ETF [SPY:NYSE], and for the NASDAQ, it is the "Cubes" or Powershares QQQQ Trust [QQQQ:NSD]. These three ETF's track the exchange on a 1:1 ratio. You can also purchase calls or puts on these as well which can limit your risk to just a fraction of the cost.
If you're looking for leveraged ETF's to potentially double your profits (or losses), you can purchase some of the Proshares Ultra ETFs: The Dow Jones [DDM:NYSE], the S&P 500 [SSO:NYSE], and the NASDAQ [QLD:NYSE]. These three products provide double the exposure to the market. A full list of products, including inverse products for hedging and triple exposure, is available on their website.
There are always simple patterns that develop in the market, and the brave will try to take advantage of it. However, we were in a bull market for over a year, and now that the market is in correction mode, we may not see this pattern develop. For those that want to take the chance, the aforementioned products may allow you to capture the move of the market with little margin and less risk compared to a common equity.
Trading the Final Hour
I remember back in the spring of 2009, the final hour was the best hour to trade. It was full of volatility, but also full of huge predictable profits. For about two weeks, there was a simple pattern that guaranteed profits: whichever direction the market was trending going into the final hour was the way it would finish.
It was the biggest and most predictable momentum play I had ever seen. If the market was moving up as it approached 3 PM, and was still moving up, I would buy calls on the Diamonds Trust [DIA:NYSE], an ETF that tracks the Dow Jones Industrial Average. If it was trending downwards, I would buy puts.
And now, it seems like the final hour has become trader's heaven again. In the last five trading days in the United States, we have seen the last hour trade with momentum reversing the day's trend.
Thursday May 20: The Dow gained 100 points from 1 PM to 3 PM to reach 10,202. In the final hour, it lost 134 points to finish at 10,068.
Friday May 21: The Dow lost 100 points from 12 PM to 3 PM to reach 10,092.00. In the final hour, it gained 101 points to finish at 10,193.
Monday May 24: The Dow was flat through out the day and at 3 PM was 10,130. In the final hour, it lost 85 points to finish at 10,066.
Tuesday May 25: The Dow fell below 10,000 and was down almost 200 points at the open. In the final hour, it moved up 96 points to finish at 10,043, down only 24 points on the day.
Wednesday May 26: The Dow surged 100 points on the day and at 3 PM was 10,070. In the final hour, selling hit the market dropping it 96 points to close below 10,000 for the first time in four months.
Today, the market did not sell-off after the market climbed 200 points, but in the last hour, buying picked up and moved the market up another 86 points, most of that occurring in the final 30 minutes. Easy money and DIA options increasing 10-20 per cent on late-day momentum.
I don't know how long this last-hour trading frenzy will continue, but it is something I did recognize, and I thought I would post it up for others. Some believe it may be short covering on up days and bargain hunters on down days that is creating volatility.
It was the biggest and most predictable momentum play I had ever seen. If the market was moving up as it approached 3 PM, and was still moving up, I would buy calls on the Diamonds Trust [DIA:NYSE], an ETF that tracks the Dow Jones Industrial Average. If it was trending downwards, I would buy puts.
And now, it seems like the final hour has become trader's heaven again. In the last five trading days in the United States, we have seen the last hour trade with momentum reversing the day's trend.
Thursday May 20: The Dow gained 100 points from 1 PM to 3 PM to reach 10,202. In the final hour, it lost 134 points to finish at 10,068.
Friday May 21: The Dow lost 100 points from 12 PM to 3 PM to reach 10,092.00. In the final hour, it gained 101 points to finish at 10,193.
Monday May 24: The Dow was flat through out the day and at 3 PM was 10,130. In the final hour, it lost 85 points to finish at 10,066.
Tuesday May 25: The Dow fell below 10,000 and was down almost 200 points at the open. In the final hour, it moved up 96 points to finish at 10,043, down only 24 points on the day.
Wednesday May 26: The Dow surged 100 points on the day and at 3 PM was 10,070. In the final hour, selling hit the market dropping it 96 points to close below 10,000 for the first time in four months.
Today, the market did not sell-off after the market climbed 200 points, but in the last hour, buying picked up and moved the market up another 86 points, most of that occurring in the final 30 minutes. Easy money and DIA options increasing 10-20 per cent on late-day momentum.
I don't know how long this last-hour trading frenzy will continue, but it is something I did recognize, and I thought I would post it up for others. Some believe it may be short covering on up days and bargain hunters on down days that is creating volatility.
Canadian Banks Set to Report
Bank of Montreal [BMO:TSE] will start the second quarter earnings season for banks in Canada, providing a tone for the rest of the industry. Expectations for the sturdy six have been set extremely high as the Canadian banks have continued to report huge profits quarter after quarter during a financial crisis. Earnings estimates are expected to be up around 40 per cent from last year; revenue streams from trading and lower loan losses are continuing to improve the bottom line.
However, great expectations can lead to disappointment, especially with a rising Loonie decreasing foreign income and European loan problems yet to be factored into the estimates.
"Expectations have just gotten very, very high for the banks and that's probably the biggest headwind to stocks in the near term," Edward Jones analyst Craig Fehr said [1].
On the other hand, a small drop in the value of the shares after earnings could be a buying opportunity. Being rated the best banking system in the world, many investors may be tempted to invest money into the strong fundamentals.
"Investors should absolutely be investing in Canadian banks," said Barclays Capital bank analyst John Aiken. "With significantly less exposure to Europe and the additional weakness in the U.S. economy ... you've got very strong downside support [1]."
The market saw extreme volatility on Tuesday May 25 as traders prepared themselves for a slew of reports, and many are buying up bank stocks that have been beaten up during this market correction. Shares of CIBC [CM:TSE] rose 1.5 per cent today and is one of few stocks that have not seen their stock's value decrease during the month of May.
Canadian Imperial Bank of Commerce, Toronto-Dominion Bank [TD:TSE], Royal Bank of Canada [RY:TSE], and National Bank [NA:TSE] all report earnings on Thursday, which will definitely create a mixed bag of winners and losers. Bank of Nova Scotia [BNS:TSE] report June 1.
How to Protect Your Gains
Those that are pessimistic on earnings should consider writing calls for additional income. Option premiums for the month of June are paying nearly 3 per cent. By the end of this week, the risk premium will have disappeared which could provide a cheap way to close the options and hedge your investments.
The big five banks have been given a rating of 9 on the Minh-dex Maple Leaf Fund and have beaten the TSX over the past two weeks.
[1] Quotes obtained from a Reuters article.
However, great expectations can lead to disappointment, especially with a rising Loonie decreasing foreign income and European loan problems yet to be factored into the estimates.
"Expectations have just gotten very, very high for the banks and that's probably the biggest headwind to stocks in the near term," Edward Jones analyst Craig Fehr said [1].
On the other hand, a small drop in the value of the shares after earnings could be a buying opportunity. Being rated the best banking system in the world, many investors may be tempted to invest money into the strong fundamentals.
"Investors should absolutely be investing in Canadian banks," said Barclays Capital bank analyst John Aiken. "With significantly less exposure to Europe and the additional weakness in the U.S. economy ... you've got very strong downside support [1]."
The market saw extreme volatility on Tuesday May 25 as traders prepared themselves for a slew of reports, and many are buying up bank stocks that have been beaten up during this market correction. Shares of CIBC [CM:TSE] rose 1.5 per cent today and is one of few stocks that have not seen their stock's value decrease during the month of May.
Canadian Imperial Bank of Commerce, Toronto-Dominion Bank [TD:TSE], Royal Bank of Canada [RY:TSE], and National Bank [NA:TSE] all report earnings on Thursday, which will definitely create a mixed bag of winners and losers. Bank of Nova Scotia [BNS:TSE] report June 1.
How to Protect Your Gains
Those that are pessimistic on earnings should consider writing calls for additional income. Option premiums for the month of June are paying nearly 3 per cent. By the end of this week, the risk premium will have disappeared which could provide a cheap way to close the options and hedge your investments.
The big five banks have been given a rating of 9 on the Minh-dex Maple Leaf Fund and have beaten the TSX over the past two weeks.
[1] Quotes obtained from a Reuters article.
Real-Life Avatar; Help Save the Frogs
On Friday, I was surfing through Science Daily, one of my favourite websites, and stumbled upon an article that infuriated me.
The New Zealand government is planning on downgrading multiple conservation areas to allow mining of gold and silver, inevitably leading to the extinction of the oldest and most evolutionary distinct frog species in the world [1], as well as the destruction of unique flora and fauna of their country.
A large part of New Zealand's natural beauty is already being destroyed by fire, logging, and mining, and the government dares bring up this topic in a post-Avatar movie world? The NZ government even posted a Discussion Paper with an evaluation of the mining prospects and the environmental values of each proposed area, but came to the conclusion that they do not want to save the region.
According to Section 7.2 of the Discussion Paper, "the [Coromandel Peninsula] contains the headwaters and middle reaches of numerous waterways identified as nationally important for biodiversity..." If the waterways of the Peninsula are polluted from the miners, it would cause detrimental effects to areas downstream.
The paper admits that many species of plants and animals of the proposed areas are endangered, but the potential for mining still exists. The UN announced that 2010 is the year of biodiversity which was supposed to be a sign that government officials have decided to put a larger emphasis on the world's environmental issues. Clearly, this is not the case.
The government of New Zealand has posted an online submission form along with maps of the areas under proposal, information on the people of the region, and its economic value. I have sent my responses to the New Zealand government and truly hope that my values are aligned with the rest of the people of New Zealand. My responses to a majority of the questions are below.
I am hoping that all of my readers pass on this blog to everyone they know on Facebook, myspace, e-mail or anything. Please have your friends and family send their comments to the government to do something about this. The deadline for submission is Wednesday May 26 at 5 PM New Zealand time. That is Wednesday May 26 at 1 AM EST, or Wednesday May 26 at 5 AM UTC.
Q1 On the areas proposed for removal from Schedule 4: Section 7 of the discussion paper sets out the areas proposed for removal from Schedule 4. Do you think these areas should be removed from Schedule 4 so that applications for exploration and mining activity can be considered on a case-by-case basis? Yes or No? And why? (Your response may be in relation to any one or more of the areas discussed. Please clearly identify the area(s) to which your response relates.)
7.2 Sections of public conservation land on the Coromandel Peninsula --
I do not agree with any area being removed from Schedule 4, especially areas discussed in section 7.2. According to the Discussion Paper, this area is nationally important to the biodiversity of New Zealand, which is already being threatened by logging, mining, and fire. Additional mining or other operations would cause a detrimental effect that will ripple through the rest of the country.
Q2 On the areas proposed for addition to Schedule 4: Section 8 of the discussion paper sets out the areas proposed for addition to Schedule 4. Do you agree with the proposal to add these areas to Schedule 4? Yes or No? And why? (Your response may be in relation to any one or more of the areas discussed. Please clearly identify the area(s) to which your response relates.)
I have reviewed the list of 14 areas that have been proposed for conservation and agree that these areas should be included in Schedule 4.
Q3 On the assessment of areas: The assessment of areas covered by Schedule 4 and those proposed for addition is outlined in sections 7 and 8 of this document and Appendices 1 and 2. (a) What are your views on the assessment of the various values (conservation, cultural, tourism and recreation, mineral, other) of the land areas discussed?
The Discussion Paper creates a very fair and equal case for all of the various values, based on my understanding of the history. However, I feel the placement of mineral values being first in each section could create an empathetic effect to the value of the economy over the value of the environment. Whether this was intentional or not is another debate that I do not want to get into.
Q5 On a new contestable conservation fund: Section 9 describes a proposed contestable conservation fund the Government proposes to establish, which would be made up of a percentage of the money the Crown receives from minerals (except petroleum) from public conservation areas.
(a) A broad objective, to enhance conservation outcomes for New Zealand, is proposed for the fund. Do you agree with the proposed objective?
This is just a consolation prize if mining is allowed and is not what the people truly want. I will only agree with this conservation fund if the government makes the foolish mistake of allowing mining.
(c) An independent panel appointed by the Minister of Energy and Resources and the Minister of Conservation is proposed to run the fund. Do you think this is a good idea?
Absolutely not. The potential for a conflict of interest lies and if anger from citizens lingers, this would not be good for the next election.
Q7 On any other issues: Do you have any further suggestions or comments on what has been said in this document?
New Zealand's reputation as a green, environmentally-friendly country has already taken a hit over the past few years, and the removal of any area in Schedule 4 would be detrimental to the recovery of a positive reputation. Gold, silver, and any other commodity are non-renewable, therefore, has limited economic value and lifespan. Consider the lost tourism revenue if the reputation of New Zealand is tainted for decades.
We have seen many examples of natural resource mining and drilling in parts of Africa and other parts of Asia destroy the habitat of many species already threatened to extinction. Neither the people nor the governments have been able to share in the benefits of compromise.
We have seen examples where environmental conservation has generated more income than hunting and mining. In Japan, whale hunting was once a thriving industry, until they almost became extinct. Those who used to kill them for a living now run whale-watching tours and have achieved more economic and moral prosperity.
I would like to see New Zealand leaders place a larger emphasis on the country's environment. The economic benefits of mining are uncertain when world commodity prices are correcting. This action is can not be reversed.
Remember that we are now living in a post-Avatar culture, whose movie theme resembles very much the proposal of areas being removed from Schedule 4 for mining. If at least not for the benefit of the natural beauty of New Zealand, consider that the reputation of elected officials is at stake here.
Happy Everybody Draw Mohammad Day?
What started off as a campaign to support the South Park writers has become a controversial religious debate. Clear divisions exist - On one side of the argument, the Freedom of Speech and that a joke on a religion is fair game. On the other side, Muslims who are offended by the depiction of their god and that it is disrespectful to their religion.
What's funny is that the original cartoon contains no real images of Mohammad. In fact, not even a real image of a human being of Muslim characteristics exists. If one were to follow the intent of this "event," they would realize that they are to draw pictures of things other than Mohammad.
In the South Park episode "200" that sparked this whole ordeal, Mohammad was never actually drawn, and the anger that followed seemed unjustified, especially when a week later, it turned out the man in the bear suit was Santa Claus. It is also ironic that the show poked fun at the usual reactions of the Muslim extremes of violence, only to have it come to fruition less than 24 hours later, proving their point.
The rage that has followed is inconsistent because South Park has drawn Mohammad in a 2001 episode, albeit a pre-9/11 world, and no anger ensued.
In a very intelligent skit on "The Daily Show with Jon Stewart" aired April 22, 2010, Stewart discussed his disgust with those who have threatened the writers of South Park with harm and death. He commented that the Americans and Western societies value the Freedoms of Expression so much, that even the threats of death from "Revolution Muslim" living in America are protected. Later, Aasif Mandvi, Muslim correspondent, remarked that he would be upset on a drawing, but is more upset that those who claim to speak on behalf of the Muslim world are threatening harm to another man, all in the name of Mohammad.
Today, many countries in the Middle East have banned Facebook as well as YouTube, Yahoo! and a plethora of websites. Although some websites are not sure as to why they are on the black list, the government claims it is to protect their religious rights.
200-Day Moving Averages Breached
All four major North American markets have just dropped below the 200-day moving average today. Toronto, the Dow Jones, NASDAQ, and the S&P 500 are down between 1.7 and 3.5 per cent on more terrible news in Europe.
A drop below the 200-day moving average is not a good sign. Long-term investors should consider protecting their assets through a variety of hedging strategies, preferably writing deep in-the-money calls. Consider selling June strike prices 5 per cent below your stock's current value, or even higher if you think there is a 20 per cent correction on the horizon. Just be cautious as this is an automatic exercise if the market turns around sharply or decides to stop falling.
For example, Bank of Montreal [BMO:TSE] is trading at $59.90 (at 12:50 PM EST) and the June 58 call, which is $1.90 in-the-money or 4 per cent, is bidding $3.30. Time value is $1.40. So, if your stock falls below $58 by June 18, you earn $3.30 to offset any loss on your stock. It also allows you to be a little wrong. If BMO finishes at the same value that it is today, you still make $1.40 and if it goes up, you earn the difference of $1.40 and how much the stock is up.
This strategy replicates a sell today without creating a down tick on the market itself and allows you to capture any time value on the option. As well, most widely held stocks are going ex-dividend by June expiration and I sense many investors are not in the mood to trade.
The other levels we should keep an eye on is the Dow Jones at 10,000. Although this level is not a real technical level, it is a psychological level that many amateur traders might use to sell or try and push the market lower.
A drop below the 200-day moving average is not a good sign. Long-term investors should consider protecting their assets through a variety of hedging strategies, preferably writing deep in-the-money calls. Consider selling June strike prices 5 per cent below your stock's current value, or even higher if you think there is a 20 per cent correction on the horizon. Just be cautious as this is an automatic exercise if the market turns around sharply or decides to stop falling.
For example, Bank of Montreal [BMO:TSE] is trading at $59.90 (at 12:50 PM EST) and the June 58 call, which is $1.90 in-the-money or 4 per cent, is bidding $3.30. Time value is $1.40. So, if your stock falls below $58 by June 18, you earn $3.30 to offset any loss on your stock. It also allows you to be a little wrong. If BMO finishes at the same value that it is today, you still make $1.40 and if it goes up, you earn the difference of $1.40 and how much the stock is up.
This strategy replicates a sell today without creating a down tick on the market itself and allows you to capture any time value on the option. As well, most widely held stocks are going ex-dividend by June expiration and I sense many investors are not in the mood to trade.
The other levels we should keep an eye on is the Dow Jones at 10,000. Although this level is not a real technical level, it is a psychological level that many amateur traders might use to sell or try and push the market lower.
Oil Ready for Rebound?
Analysts on CNBC discussed today that oil is becoming extremely cheap and it has been greatly over sold. Their reasons are simple: No new supply in oil reserves and an over reaction in the commodity market. So how can regular investors like us profit on the next move up, if they are correct?
Much like gold, oil and many energy commodities also have ETFs. In the US, the most commonly-traded oil ETF is the United States Oil Fund [USO:AMEX]. It tracks the current front-month futures on oil and goes up and down with a 1:1 ratio.
In Canada, many traders like the Horizons BetaPro NYMEX Crude Oil Bull+ Fund [HOU:TSX] because it provides double exposure to the move of oil. That is, if oil moves up 1 per cent, the fund moves up 2 per cent.
These two products are good for position trading, but are not good for long-term strategies. One main reason is something called "Contango." This term describes the price difference between the spot rate and a future delivery contract. Simply put, the cost of an oil contract expiring in May should cost less than a contract expiring in July. This compensates for time, interest rates, storage fees, etc. As a result of Contango, when the oil contracts are rolled over, the ETF loses on this spread. For example, if May oil is $70 and June is $73, on the day of rollover, the fund's value stays the same, even though the real price of oil is a little higher.
So, if you're looking to play oil but don't want to own a stock like BP, then you could consider energy ETFs described above. As always, ensure these products are suitable for your investment needs and contain the risk of losing a portion of your original investment.
Movie Review: Robin Hood (2010)
The opening narrative says "the outlaw takes his place in history." It instills the idea that Robin Hood is an outlaw, but he does not become the outlaw until the end of the movie. The movie also lacks introductory names. These two things can cause a little confusion to start, but once you can sort it all out, this movie becomes a great surprise.
I had been told not to expect much from this movie, but those critics were wrong. It contained humour and action that was well placed. The story line is very strong and easy to follow after the first few opening scenes. it plot starts off a little scattered, but everything combines together fantastically.
As the movie progresses, Robin Hood becomes exposed to his past. He learns about his father and home town through revelations of fate and good luck. The story is built between this recurring theme of fate, as well as the main plot of a war between England and France.
The length of the movie is about 140 minutes, but is justified. In fact, I was hoping for it to be a little longer, as the climax was a little short for me, but overall, this is a movie worth watching. I give this movie 4 out of 5.
Halak!
The city of Montreal has gone Halak-crazy. People have been seen putting stickers of Halak on stop signs, indicative of his great play so far in the NHL playoffs. Well, a few fans went beyond border line vandalism and creatively did a Budweiser parody commercial from a decade ago. If you haven't done so, take a look at the video above.
Flyers Beat Bruins in 7
Just minutes after the game ended, hundreds of news articles appeared on Google search claiming this to be one of the biggest wins ever, and TSN announces that this "is the greatest come back in NHL playoff history."
Earlier in the month, Detroit Red Wings coach Mike Babcock said that a 3-0 series come back is due. He was clearly referring to his team trying to make a come back against the Sharks, but his words came true. It only happens once a generation and it happened this year.
The Bruins started off the game with intent, scoring three goals in the first period to take a 3-0 lead. Goals by Ryder and two by Lucic gave the Bruins what should be a comfortable lead. The crowd was roaring as a Montreal-Boston Conference Finals was less than 45 minutes away, but a fanned shot by Van Riemsdyk cut the lead by two.
In the second period, the Flyers continued to pour on the pressure. Hartnell and Briere would both score in the second frame to tie the hockey game. Both players also assisted on each other's goal.
The Flyers would complete the comeback with a power-play goal by Gagne, his forth goal in four games. The Bruins tried to push back but what plagued them all year, lack of offense, could not be cured. The Bruins would only get 11 shots on net in the final two periods.
Leighton came in relief when Boucher injured his knee in game 5, being the second goaltending duo in NHL Playoff history to share a shut out. In a twist of fate, it was the first game he was ready to play, as he had been sidelined the entire playoffs until game 5.
Game 7 was a microcosm of the entire series, as a 3-0 lead would be squandered by the Bruins in too many aspects. Up next for the Flyers, the Montreal Canadiens and their red-hot goalie, Halak. Stay tuned for my predictions.
Moving Averages
Although most of my topics are geared towards buy-and-hold readers, there are times when learning technical analysis can come in handy. Charters or technicians (both terms are often used) have an arsenal of weapons at hand, including indicators, moving averages, and volume. These patterns are often used by traders to determine enter and exit points and strategies to maximize returns and lower risk.
My friend Christian asked me to write a post about Fibonacci Bands and it got me thinking, maybe I should write about the basics of technical analysis for you guys. It's helped me make a lot of money over the past few years as well.
I won't immediately post about Fibonacci Bands because some of its foundation is built on basic technical analysis theories, so I will start with the most commonly-used pattern - moving averages.
There are two types of moving averages that I've seen: Simple Moving Averages (SMA) and Exponential Moving Averages (EMA).
When it comes to trading, I prefer using the SMA. As it name indicates, it is simple. The moving average takes the closing values of the past x days and takes the average, then plots it on a chart. You can also do this by hand if you really wanted as well. Most traders like to use 20 days, 50 days, and 200 days, and many websites allow for three moving averages to be plotted on a chart.
The chart below (www.bigcharts.com) of Google plots the SMA 20, 50, 200 and creates a line chart for each moving average coloured yellow, blue, and pink respectively. Ignore the red lines; those are Bollinger Bands, a future chapter.
Moving averages can be significant for traders. A moving average charting higher indicates a bullish trend and vice versa. This provides some direction on where the market or stock may be going in the short term.
A second reason moving averages are important is when they cross. When the moving average of a shorter-term (20 for example) moves above the moving average of a longer-term (50), it indicates a bullish trend. This is known as a golden cross and the time to buy is now. When the moving average of the short-term goes below the long-term, it's a signal to sell. This is known as a death cross. The names are quite self-explanatory.
If we use the Google chart above, find a location where the yellow, blue, or pink lines cross. You can see that when the 20-day (yellow) dropped below the 50-day (blue) and 200-day (pink), it was followed by falling prices or stalled rises.
These signals carry more weight when attributed with above average volume. Volume represents the number of shares traded in a day and indicates conviction. Many times on television, you will hear them say, "very little volume" or "heavy volume." Take note of that because it can be very important when you want it to confirm with patterns.
On Monday May 10, I posted this article "Dead Cat Bounce in the Making" and wrote "Tomorrow is the third day, and if it does not trade and close above that level, expect another bad month of May." It is now Friday and the market has dropped again. It took a few days, but shorts are now making good money.
Although signals never work 100 per cent of the time, it is good to ease fears or calm excitement. Many traders do not use charts and as a result, emotions can get the best of them. Charts allow people to understand how a specific stock trades and if the recent drop in the price is nothing but noise over the long-term goal.
Good luck and if you want to try it, follow some big stocks in the next few weeks and see if it works. Let me know about your success.
My friend Christian asked me to write a post about Fibonacci Bands and it got me thinking, maybe I should write about the basics of technical analysis for you guys. It's helped me make a lot of money over the past few years as well.
I won't immediately post about Fibonacci Bands because some of its foundation is built on basic technical analysis theories, so I will start with the most commonly-used pattern - moving averages.
There are two types of moving averages that I've seen: Simple Moving Averages (SMA) and Exponential Moving Averages (EMA).
When it comes to trading, I prefer using the SMA. As it name indicates, it is simple. The moving average takes the closing values of the past x days and takes the average, then plots it on a chart. You can also do this by hand if you really wanted as well. Most traders like to use 20 days, 50 days, and 200 days, and many websites allow for three moving averages to be plotted on a chart.
The chart below (www.bigcharts.com) of Google plots the SMA 20, 50, 200 and creates a line chart for each moving average coloured yellow, blue, and pink respectively. Ignore the red lines; those are Bollinger Bands, a future chapter.
Moving averages can be significant for traders. A moving average charting higher indicates a bullish trend and vice versa. This provides some direction on where the market or stock may be going in the short term.
A second reason moving averages are important is when they cross. When the moving average of a shorter-term (20 for example) moves above the moving average of a longer-term (50), it indicates a bullish trend. This is known as a golden cross and the time to buy is now. When the moving average of the short-term goes below the long-term, it's a signal to sell. This is known as a death cross. The names are quite self-explanatory.
If we use the Google chart above, find a location where the yellow, blue, or pink lines cross. You can see that when the 20-day (yellow) dropped below the 50-day (blue) and 200-day (pink), it was followed by falling prices or stalled rises.
These signals carry more weight when attributed with above average volume. Volume represents the number of shares traded in a day and indicates conviction. Many times on television, you will hear them say, "very little volume" or "heavy volume." Take note of that because it can be very important when you want it to confirm with patterns.
On Monday May 10, I posted this article "Dead Cat Bounce in the Making" and wrote "Tomorrow is the third day, and if it does not trade and close above that level, expect another bad month of May." It is now Friday and the market has dropped again. It took a few days, but shorts are now making good money.
Although signals never work 100 per cent of the time, it is good to ease fears or calm excitement. Many traders do not use charts and as a result, emotions can get the best of them. Charts allow people to understand how a specific stock trades and if the recent drop in the price is nothing but noise over the long-term goal.
Good luck and if you want to try it, follow some big stocks in the next few weeks and see if it works. Let me know about your success.
How to Participate in Gold Properly
Gold continues to soar to new heights. June '10 contracts are currently trading at $1,245 in mid-afternoon trading on May 12. The last time gold traded at levels above $1200 was back in December 2009. Concerns in inflation in China and flight to safety amidst European fears have contributed to the current rise. But those who bought gold stocks back in December have not seen a comparable return, and many gold stocks are down 20 per cent since the high.
Purchasing commodity stocks to participate in a commodity's rise is a common error retail investors make. The main reason is that stocks are priced by company earnings, results, and management. Tying in the price of gold with a stock is fallacious reasoning. Theoretically, gold could continue to break new records everyday but if a gold mining company has hedged revenues or incurred large expenses, one would expect that stock to under perform.
So how can you participate in gold properly? The easiest way is to purchase the bullion itself, but at a cost of $1,245, one ounce isn't as cheap as it used to be. Secondly, your broker will often charge a spread on the purchase and sale, commission, and a safekeeping fee of a few pennies a month.
If this option is not viable, especially if you are a small investor with less than $10,000 to start with, consider purchasing gold exchange-traded funds (ETFs). ETFs are managed by large firms, such as Barclay's or Standard & Poors and mimic the movement of gold as close as possible. The most commonly traded and largest holder of gold is the S&P Gold Index [GLD:NYSE].
GLD is 10:1 against the real price of gold. GLD is currently at $122.07 versus $1,245.00. GLD is the largest holder of gold because every time you buy GLD shares, the fund must go out and purchase the gold. The fund has been on the market for over 5 years and its liquidity and simplicity has made it a very popular product.
Another added benefit is that it is options eligible, so you can use it to protect your recent gains, or speculate on the options at a much lower cost.
If you really wanted to have gold in your account, as is highly recommended by professionals, this is the cheapest and most efficient route. Make sure that it is in line with your investment objective and suitable for your account.
I purchased Kinross Gold several years ago, when gold was much lower, and my shares have not risen with the price of the commodity. If I could go back, I would have purchased the GLD shares instead, so take it from me. ETFs on commodities is a much better choice than picking an individual stock.
A Bubble Waiting to Burst
From 2006 to 2007, the SSE tripled in value. Investors were hungry for wealth and continued to push the value of the exchange for another nine months before it bubbled and popped, wiping out 2/3 of the gains, coinciding with the financial crisis. It was a hard lesson for millions of Chinese investors - Easy come, easy go.
However, unlike the stock market, the real-estate market in China continues to shine. About thirty minutes ago, the Chinese government released data showing consumer prices rose 2.8 per cent in April from last year and property prices rose 12.8 per cent [1].
Concerns in China's real-estate market have been a hot topic for quite some time now. Chinese officials are trying to prevent a property bubble and have implemented many mandates to slow down the market without raising interest rates. China recently banned individuals from having more than two mortgages and second mortgages are charged an interest rate well above the going rate. And yet, prices continue to soar.
But with such strong economic data, what indicators are suggesting the end may be near? Recent remarks by wealthy investors and hedge funds claim that signals of a bubble ready to burst are hiding in plain sight, and we could see the fall of China occur within 9 months. Their reasons point to falling commodity prices and a skewed GDP.
Commodity prices soared in the summer of 2008 during the boom, but lowered demand from China and the rest of the globe have cut the price of oil in half, and prices of metals down 10 to 20 per cent in the last four weeks. They believe this is a clear indication that construction is slowing down in China, which is important because of the skewed GDP.
Recent data showed that approximately 60 per cent of their GDP is based directly to construction. With the Chinese government considering raising interest rates, it could put a serious halt to construction and lead to another Dubai, a country whose property bubble had burst last year. Imagine what a slow down on 60 per cent of their GDP composition would do.
A third argument that I have is that the stock market has always been a leading indicator of an economy. It is a representation of investors expected values of companies in the near future based on forecasted earnings. Investors are showing a lack of confidence in their public companies. As a result, the SSE is down over 12 per cent this year, where as North America and Europe are nearly unchanged (was up 6 per cent before that huge crash last week).
Interpreting the numbers and predicting the fate of an entire nation is a tough task. Professionals have been wrong before, and they will continue to be wrong in the future. However, it is also these same professionals who are the most qualified to paint us this gloomy picture of China's economy and one can not discount the signs as random. Nine months ago, they all said the US economy was recovering, and they were right. Can these same people be right about China as well?
[1] Bloomberg report
Dead Cat Bounce in the Making
Last night, the European Union unveiled a massive €750 Billion ($962 Billion US) bailout plan to save Greece. As a result, financial markets surged on May 10. European markets shot up between 6 to 10 per cent, with North American markets surging 3 to 4 per cent after a week of severe losses. Asia rose between 1 and 2 per cent as well.
What doesn't make sense to me is that for the past few weeks, it has been known that the EU would bail out Greece, yet the market continued to drop on the contagion concerns. I even hinted it last week in my blog titled "World Markets Tumble that the EU would do all they could to prevent the fall of Greece. Then, earlier today, the bailout was announced; markets rallied as if this information was new to the market. Everyone seemed so delighted today to see an up market, that the end was over, but it seemed like a sucker's rally to me.
One look at the move today and it might be a dead cat bounce, that is, a short-term rally in the value of a declining stock or stock market. The rumours that Greece would get a bailout became official, but concerns and fears still linger. Asian markets rose on Monday, but in Tuesday morning trading, early gains are already wiped out by the lunch break (Yes, Asian markets get lunch! I wish that was implemented in North America).
With exception to the predicted bailout now reality, the working fundamentals have not changed. Concerns in China's growth are still a plenty (a future posting, possibly tomorrow), the bailout makes no guarantees and additional funding may be needed, and although US economic indicators are improving, the rate is not to the world's liking.
Technical indicators have not yet turned around either. The upward momentum of today's market stalled in the first thirty minutes of trading and gradually dropped until the last half hour, a sign of hesitant buyers perhaps. The Dow broke below the 50-day moving average on Thursday, and The Dow did not break above the 50-day moving average today. Technicians consider a sell or buy signal confirmed if the security in question does not go back to the level of support or resistance. Tomorrow is the third day, and if it does not trade and close above that level, expect another bad month of May.
My friend Christian also pointed out that the Volatility or VIX Index, which measures the values of short-term options on a given index and creates a calculated "volatility value," is entering a golden-cross signal, a charting pattern that occurs when a short-term (50 days) moving average crosses above a longer-term (200 days) moving average, indicates an upward move. In this situation, an upward move in the VIX typically means a downward move in the market.
A friendly reminder should be issued here as well - Trade cautiously. The US Bailout of 2008 had very positive first reactions, but was followed by a 20 per cent drop over six months. We could see a repeat of continued selling pressure as Greece concerns remains.
What doesn't make sense to me is that for the past few weeks, it has been known that the EU would bail out Greece, yet the market continued to drop on the contagion concerns. I even hinted it last week in my blog titled "World Markets Tumble that the EU would do all they could to prevent the fall of Greece. Then, earlier today, the bailout was announced; markets rallied as if this information was new to the market. Everyone seemed so delighted today to see an up market, that the end was over, but it seemed like a sucker's rally to me.
One look at the move today and it might be a dead cat bounce, that is, a short-term rally in the value of a declining stock or stock market. The rumours that Greece would get a bailout became official, but concerns and fears still linger. Asian markets rose on Monday, but in Tuesday morning trading, early gains are already wiped out by the lunch break (Yes, Asian markets get lunch! I wish that was implemented in North America).
With exception to the predicted bailout now reality, the working fundamentals have not changed. Concerns in China's growth are still a plenty (a future posting, possibly tomorrow), the bailout makes no guarantees and additional funding may be needed, and although US economic indicators are improving, the rate is not to the world's liking.
Technical indicators have not yet turned around either. The upward momentum of today's market stalled in the first thirty minutes of trading and gradually dropped until the last half hour, a sign of hesitant buyers perhaps. The Dow broke below the 50-day moving average on Thursday, and The Dow did not break above the 50-day moving average today. Technicians consider a sell or buy signal confirmed if the security in question does not go back to the level of support or resistance. Tomorrow is the third day, and if it does not trade and close above that level, expect another bad month of May.
My friend Christian also pointed out that the Volatility or VIX Index, which measures the values of short-term options on a given index and creates a calculated "volatility value," is entering a golden-cross signal, a charting pattern that occurs when a short-term (50 days) moving average crosses above a longer-term (200 days) moving average, indicates an upward move. In this situation, an upward move in the VIX typically means a downward move in the market.
A friendly reminder should be issued here as well - Trade cautiously. The US Bailout of 2008 had very positive first reactions, but was followed by a 20 per cent drop over six months. We could see a repeat of continued selling pressure as Greece concerns remains.
Apple iPad vs. Amazon Kindle
On May 3, Apple [AAPL:NSD] announced that 1,000,000 iPad units had been sold in just 24 days. To put that feat into perspective, it took the company 78 days to sell 1,000,000 iPhones back in 2007. Not only that, but the price of the iPad is about twice the cost of an iPhone, which mean this accomplishment deserves much more praise.
The launch of the iPad had analysts and industry professionals questioning if this would put a damper on the Amazon [AMZN:NSD] Kindle, the best selling tablet in the world. Apple has a strong foothold in the music player, computer, and smart phone industry, and its attempts to battle Kindle is being followed closely. Some are proclaiming the Kindle will continue to stay atop, with product publicity rising and positive reviews constantly streaming in.
Critics have termed the iPad as no miracle product and is like a giant iPhone, without the phone or camera capabilities. But what about the comparison between the iPad and the Kindle? Which stacks up better as an e-reader?
Head-to-head, the iPad (left photo) is a much better all around product compared to the Kindle (right photo), but as an e-reader, does the iPad compare? I researched the top five characteristics of e-readers that I thought would be most useful for those interested in one of these devices.
Battery Life
Apple products have always had short battery lives, and the iPad does very little to end this stigma. You would be very lucky if your iPad ran for more than 12 hours without a recharge. Compare that to the Kindle, which can last an entire week without being charged. Good for the electricity bill; good if you're on a weekend vacation; good if you forget to turn off the product once in a while. It's no contest, the Kindle wins on battery life.
Measurements
Size, weight, and even 'holdability' comes into play in this category. The 6-inch Kindle is no match for the 9.2-inch iPad, but that size comes with a cost. The weight difference is significant, a factor for those who carry backpacks or luggage. The iPad registers at 1.5 pounds - four times heavier than the Kindle (Note: The Kindle DX is a larger version of the Kindle and is similar to the iPad's measurements).
Users have also complained that the weight and size makes the iPad harder to hold, making it uncomfortable as a reading device. The Kindle is much smaller and avid readers point out they feel no significant difference with the Kindle or a hard-cover book.
The winner seems to be the Kindle, but if weight is not an issue, the iPad could be considered.
Readability
Both the Kindle and the iPad have had complaints about readability. The Kindle seems to struggle at night, because it uses a reflective screen with no back lighting, like a book, but works well in sun light. On the other side, the iPad's weakness is in the light, but works well in the dark, because it uses an LED backlighting.
Some people also experience problems with backlit screens (iPad), but this is quite rare. The belief is the pixel density is lower in the iPad, giving some people sore eyes and headaches. This problem is less prevalent with the Kindle.
Users and testers have already given the advantage to the Kindle in this category.
Downloading Content
When it comes to purchasing e-books, you can order iPad products from iTunes, and Kindle books from Amazon.com. In a form of irony, you can directly purchase books sold only in iTunes on the Kindle, but this is not reciprocal. The iPad requires you to log on to the Safari browser and purchase it online, even though the iPad has a Kindle app.
The prices of e-books are similar so no distinct differences will be remarked.
The Kindle however, uses AT&T's 3G network which allows users to download content all over the world, where the 3G network reaches. The iPad uses its Wi-Fi system, allowing it to be used in basements and areas with poor coverage. You can also tap into the AT&T 3G network with the iPad, but expect a service charge.
It is a toss up, but I believe the Kindle wins here because of its free worldwide network, universal reading, and ease of purchase.
Price
It's a little unfair to judge the price of the iPad with the Kindle because it is marketed as a multi-media tablet, not just a reading tablet. The Kindle DX, a larger version of the Kindle is $10 less than the iPad's $499 base price and offers much less. The iPad can come fully loaded at a cost of $829 too. The regular Kindle has a price tag of $259.
The Kindle wins on price easily, as it is only half the price, but for those who want to buy a larger screen, do not get the Kindle DX, get the iPad.
Overall, the Kindle has seemed to win all five main components for an e-reader. Many users and testers enjoyed the compact and compatibility of the Kindle. The iPad was deemed a larger iPhone with fewer services and did not justify the cost. If you already have an iPhone and wanted an e-reader, the Kindle is sufficient and an iPad would be redundant.
I've provided a link to both the basic iPad and regular Kindle from the Amazon store below, so that you can take a look at each product and make your own conclusion. I would love to see comments later if you do make these purchases and let me know your experiences.
The launch of the iPad had analysts and industry professionals questioning if this would put a damper on the Amazon [AMZN:NSD] Kindle, the best selling tablet in the world. Apple has a strong foothold in the music player, computer, and smart phone industry, and its attempts to battle Kindle is being followed closely. Some are proclaiming the Kindle will continue to stay atop, with product publicity rising and positive reviews constantly streaming in.
Critics have termed the iPad as no miracle product and is like a giant iPhone, without the phone or camera capabilities. But what about the comparison between the iPad and the Kindle? Which stacks up better as an e-reader?
Head-to-head, the iPad (left photo) is a much better all around product compared to the Kindle (right photo), but as an e-reader, does the iPad compare? I researched the top five characteristics of e-readers that I thought would be most useful for those interested in one of these devices.
Battery Life
Apple products have always had short battery lives, and the iPad does very little to end this stigma. You would be very lucky if your iPad ran for more than 12 hours without a recharge. Compare that to the Kindle, which can last an entire week without being charged. Good for the electricity bill; good if you're on a weekend vacation; good if you forget to turn off the product once in a while. It's no contest, the Kindle wins on battery life.
Measurements
Size, weight, and even 'holdability' comes into play in this category. The 6-inch Kindle is no match for the 9.2-inch iPad, but that size comes with a cost. The weight difference is significant, a factor for those who carry backpacks or luggage. The iPad registers at 1.5 pounds - four times heavier than the Kindle (Note: The Kindle DX is a larger version of the Kindle and is similar to the iPad's measurements).
Users have also complained that the weight and size makes the iPad harder to hold, making it uncomfortable as a reading device. The Kindle is much smaller and avid readers point out they feel no significant difference with the Kindle or a hard-cover book.
The winner seems to be the Kindle, but if weight is not an issue, the iPad could be considered.
Readability
Both the Kindle and the iPad have had complaints about readability. The Kindle seems to struggle at night, because it uses a reflective screen with no back lighting, like a book, but works well in sun light. On the other side, the iPad's weakness is in the light, but works well in the dark, because it uses an LED backlighting.
Some people also experience problems with backlit screens (iPad), but this is quite rare. The belief is the pixel density is lower in the iPad, giving some people sore eyes and headaches. This problem is less prevalent with the Kindle.
Users and testers have already given the advantage to the Kindle in this category.
Downloading Content
When it comes to purchasing e-books, you can order iPad products from iTunes, and Kindle books from Amazon.com. In a form of irony, you can directly purchase books sold only in iTunes on the Kindle, but this is not reciprocal. The iPad requires you to log on to the Safari browser and purchase it online, even though the iPad has a Kindle app.
The prices of e-books are similar so no distinct differences will be remarked.
The Kindle however, uses AT&T's 3G network which allows users to download content all over the world, where the 3G network reaches. The iPad uses its Wi-Fi system, allowing it to be used in basements and areas with poor coverage. You can also tap into the AT&T 3G network with the iPad, but expect a service charge.
It is a toss up, but I believe the Kindle wins here because of its free worldwide network, universal reading, and ease of purchase.
Price
It's a little unfair to judge the price of the iPad with the Kindle because it is marketed as a multi-media tablet, not just a reading tablet. The Kindle DX, a larger version of the Kindle is $10 less than the iPad's $499 base price and offers much less. The iPad can come fully loaded at a cost of $829 too. The regular Kindle has a price tag of $259.
The Kindle wins on price easily, as it is only half the price, but for those who want to buy a larger screen, do not get the Kindle DX, get the iPad.
Overall, the Kindle has seemed to win all five main components for an e-reader. Many users and testers enjoyed the compact and compatibility of the Kindle. The iPad was deemed a larger iPhone with fewer services and did not justify the cost. If you already have an iPhone and wanted an e-reader, the Kindle is sufficient and an iPad would be redundant.
I've provided a link to both the basic iPad and regular Kindle from the Amazon store below, so that you can take a look at each product and make your own conclusion. I would love to see comments later if you do make these purchases and let me know your experiences.
The Anatomy of a 1,000 Point Drop [Update 3]
May 6, 2010 is a day that will not be soon forgotten. The intra-day drop of almost 1,000 points (998.50) on the Dow Jones was the largest in its history. [Previous errors have been corrected] Shortly after the market drop, stocks quickly recovered, but now the industry is investigating what caused such a large drop. Rumours in the market are pointing fingers at a Citigroup trader who made an error on a trade. But for those of you who were working or had no idea what happened today, this is how it all unfolded.
2:30 PM - Dow Jones falls below 10,600.
At around 2:30 PM EST, the Dow fell below 10,600, triggering a wave of selling. The market at this time, was already down over 300 points. VIX (volatility index) spiked up to 35 and would continue to rise. The market would continue to fall and the Dow reached 9,869.62 (-9.18%).
Index options orders disappeared in the market. I personally had puts before this large drop and it got filled on the way down. Minutes after, all orders seemed to have left the market because nobody was comfortable trading. The bid was 0.00 and the ask was 7.40 for a Diamonds May106 put. It seemed as if traders were seeing what was going to transpire as the Dow reached a circuit breaker.
The stock market introduced circuit breakers in the 1980's. The circuit breakers have never been triggered, but today's drop was the closest seen in our history. 2010 Q2 circuit breakers are 1050, 2100, and 3150. Note, the time of the drop would have not created a halt, as a 10 per cent drop after 2:30 PM would not constitute a halt.
2:45 PM - Dow Jones reaches low of the day.
The market's obvious over selling reached its pinnacle and buyers would start coming back into the market. Many financial websites and their servers crashed during this time, and information was not being fed. BigCharts.com stopped streaming the charts of the US markets and Yahoo! website was down for almost two hours. The market would pare 600 points and was only down approximately 400 points.
Many believe the market rebounded only to prevent the exchange from halting. Although one can also argue the market was over sold, since it has fallen 12 per cent in three days.
2:47 PM - Accenture shares trade at 1 cent
Suspect trades start hitting the market. Accenture shares valued over $41 as of today, traded at one penny, Bloomberg reports. Apple shares also hit $100,000 a share today. Expect these trades to be cancelled.
3:10 PM - Dow Jones sudden rise flattens.
20 minutes after the sharp drop, then subsequent rise, the market started to flatten out. Reports started flowing into the market of computer trading or hedge funds selling.
Computer trading has been blamed for sudden drops in the past, when in 2008, 500-point drop days was a regular occurrence. Computer trading is used by large firms to sell when stocks reach a certain price below the current market price. These orders are called stop-loss orders.
3:45 PM - Reports of Human Error and Trades Questioned
After the market started to flatten out, news published that a trader at Citigroup made an error on a trade. Instead of selling one million shares, he put "B" for one billion shares. People speculated and are unsure if his order would cause a market-wide reaction.
4:00 PM - Proctor & Gamble shares in question.
At the end of the trading day, PG shares were being questioned as the stock plummeted over 35 per cent in a day. PG management does not know what happened, but technical glitches are being blamed.
[Section updated at 1:21 AM EST] A rumour has been swirling in the market claiming a Citigroup trader placed a trade for $16 billion instead of $16 million on stock index futures at the Chicago Mercantile Exchange. The CME has responded saying "[there] does not appear to be irregular or unusual in light of market activity today."
PG trades are only being questioned on the NASDAQ. And the Dow Jones finished lower 347.80 after the roller coaster ride. [Additional information added to this section at 1:21 AM EST] The exchange has said that PG shares, as well as Accenture, Apple, and many others, are being cancelled if they did not appear on the NYSE ticker. It is believed the erroneous trades occurred on the NASDAQ electronic platform.
[Additional information added] The NASDAQ and NYSE have announced they are cancelling orders many securities that deviated 60 per cent away from a trade at 2:40 PM. Here is the official list. You may have received this from your brokerage as well. Click here for list.
This blog may be updated as more information is revealed through out the day. This blog was last updated at 1:36 PM EST (May 7, 2010).
2:30 PM - Dow Jones falls below 10,600.
At around 2:30 PM EST, the Dow fell below 10,600, triggering a wave of selling. The market at this time, was already down over 300 points. VIX (volatility index) spiked up to 35 and would continue to rise. The market would continue to fall and the Dow reached 9,869.62 (-9.18%).
Index options orders disappeared in the market. I personally had puts before this large drop and it got filled on the way down. Minutes after, all orders seemed to have left the market because nobody was comfortable trading. The bid was 0.00 and the ask was 7.40 for a Diamonds May106 put. It seemed as if traders were seeing what was going to transpire as the Dow reached a circuit breaker.
The stock market introduced circuit breakers in the 1980's. The circuit breakers have never been triggered, but today's drop was the closest seen in our history. 2010 Q2 circuit breakers are 1050, 2100, and 3150. Note, the time of the drop would have not created a halt, as a 10 per cent drop after 2:30 PM would not constitute a halt.
2:45 PM - Dow Jones reaches low of the day.
The market's obvious over selling reached its pinnacle and buyers would start coming back into the market. Many financial websites and their servers crashed during this time, and information was not being fed. BigCharts.com stopped streaming the charts of the US markets and Yahoo! website was down for almost two hours. The market would pare 600 points and was only down approximately 400 points.
Many believe the market rebounded only to prevent the exchange from halting. Although one can also argue the market was over sold, since it has fallen 12 per cent in three days.
2:47 PM - Accenture shares trade at 1 cent
Suspect trades start hitting the market. Accenture shares valued over $41 as of today, traded at one penny, Bloomberg reports. Apple shares also hit $100,000 a share today. Expect these trades to be cancelled.
3:10 PM - Dow Jones sudden rise flattens.
20 minutes after the sharp drop, then subsequent rise, the market started to flatten out. Reports started flowing into the market of computer trading or hedge funds selling.
Computer trading has been blamed for sudden drops in the past, when in 2008, 500-point drop days was a regular occurrence. Computer trading is used by large firms to sell when stocks reach a certain price below the current market price. These orders are called stop-loss orders.
3:45 PM - Reports of Human Error and Trades Questioned
After the market started to flatten out, news published that a trader at Citigroup made an error on a trade. Instead of selling one million shares, he put "B" for one billion shares. People speculated and are unsure if his order would cause a market-wide reaction.
4:00 PM - Proctor & Gamble shares in question.
At the end of the trading day, PG shares were being questioned as the stock plummeted over 35 per cent in a day. PG management does not know what happened, but technical glitches are being blamed.
[Section updated at 1:21 AM EST] A rumour has been swirling in the market claiming a Citigroup trader placed a trade for $16 billion instead of $16 million on stock index futures at the Chicago Mercantile Exchange. The CME has responded saying "[there] does not appear to be irregular or unusual in light of market activity today."
PG trades are only being questioned on the NASDAQ. And the Dow Jones finished lower 347.80 after the roller coaster ride. [Additional information added to this section at 1:21 AM EST] The exchange has said that PG shares, as well as Accenture, Apple, and many others, are being cancelled if they did not appear on the NYSE ticker. It is believed the erroneous trades occurred on the NASDAQ electronic platform.
[Additional information added] The NASDAQ and NYSE have announced they are cancelling orders many securities that deviated 60 per cent away from a trade at 2:40 PM. Here is the official list. You may have received this from your brokerage as well. Click here for list.
This blog may be updated as more information is revealed through out the day. This blog was last updated at 1:36 PM EST (May 7, 2010).
Sell in May, Go Away!
"Sell in May and go away," or something to that effect is a common theme brought up by financial news outlets during this time of the year. For many of my readers, this may be something you have never heard of, but it is something that should not be discounted.
"Sell in May..." (properly termed the Halloween Indicator) is the phenomenon that the stock market returns low and even negative returns in the summer. Many are unsure as to why this is the case, but statistically speaking, this anomaly occurs frequently enough that many professionals even sell their shares or execute hedging strategies. Once Halloween has surpassed, buying pressures re-enter the market.
As seen in the chart, we see that the months between May to October have historically returned a monthly return of less than 1 per cent.
The most accepted theory as to why this occurs is the belief that traders and professionals take vacations during the summer, as most of us do, and as a result, fewer traders are in the market. Money does not flow into the equity markets. Instead, they are use to fund holidays. This theory has many valid points and does make sense to everyday individuals.
In a 2002 research, 37 countries were analyzed, and in 36 of them, the phenomenon occurred. They also determined that this effect has been in the market in the United Kingdom since 1694.
However, many professionals in the academics of finance still believe this is superstition and becomes a self-fulfilling prophecy. The selling of equities during the summer months results in drops in stock markets.
One reason why many academics discount this effect is because of the Efficient-Market Hypothesis. The Hypothesis states that people should not consistently be able to beat the stock market's average return and that the stock market should not be predictable. Fair market prices are deemed accurate based on all information available in the market.
Although it has been statistically proven that you can beat the market in any given year by selling in May, we can easily provide evidence that it is not always a good idea. In the summer of 2009, world stock markets continued to rise after a world wide crash, and had returns in excess of 20 per cent in many exchanges. Those who sold in May would have missed out on 20 per cent and would have returned much less than the average.
So you see, although the saying does hold some truth, backed with decades of statistical data, we can see that every few years, returns in the summer can be very strong. Many believe this summer will provide strong returns as well, considering consumers are spending again and businesses have ramped up investments.
"Sell in May..." (properly termed the Halloween Indicator) is the phenomenon that the stock market returns low and even negative returns in the summer. Many are unsure as to why this is the case, but statistically speaking, this anomaly occurs frequently enough that many professionals even sell their shares or execute hedging strategies. Once Halloween has surpassed, buying pressures re-enter the market.
As seen in the chart, we see that the months between May to October have historically returned a monthly return of less than 1 per cent.
The most accepted theory as to why this occurs is the belief that traders and professionals take vacations during the summer, as most of us do, and as a result, fewer traders are in the market. Money does not flow into the equity markets. Instead, they are use to fund holidays. This theory has many valid points and does make sense to everyday individuals.
In a 2002 research, 37 countries were analyzed, and in 36 of them, the phenomenon occurred. They also determined that this effect has been in the market in the United Kingdom since 1694.
However, many professionals in the academics of finance still believe this is superstition and becomes a self-fulfilling prophecy. The selling of equities during the summer months results in drops in stock markets.
One reason why many academics discount this effect is because of the Efficient-Market Hypothesis. The Hypothesis states that people should not consistently be able to beat the stock market's average return and that the stock market should not be predictable. Fair market prices are deemed accurate based on all information available in the market.
Although it has been statistically proven that you can beat the market in any given year by selling in May, we can easily provide evidence that it is not always a good idea. In the summer of 2009, world stock markets continued to rise after a world wide crash, and had returns in excess of 20 per cent in many exchanges. Those who sold in May would have missed out on 20 per cent and would have returned much less than the average.
So you see, although the saying does hold some truth, backed with decades of statistical data, we can see that every few years, returns in the summer can be very strong. Many believe this summer will provide strong returns as well, considering consumers are spending again and businesses have ramped up investments.
Electron Boy Saves the City of Seattle
Sounds like a script to a comic book, but this all happened on April 30th when the Make-A-Wish Foundation granted 13-year old Erik Martin his greatest wish ever - to be a super hero for the day.
The Foundation organized one of the largest wishes ever with the assistance of hundreds of volunteers, including the local police, government, sports team, and tv celebrities. An article written in the Seattle Times provides the scripted events of that day, which I highly suggest you read.
Below is real-life footage of Electron Boy saving the Sounders who were trapped in their locker room.
Here is part 1 of 2 of the transmission seen by Electron Boy and the rest of Seattle. You may recognize the actors because they are the hosts of "Deadliest Catch" on Discovery Channel. Great job Edgar Hansen and Jake Anderson for volunteering your skills for the Foundation.
After watching these videos, I could not help but shed a tear. What a great and heart-warming story. It puts everything into perspective and shows what an entire city can do when everyone works together on a united goal.
2010 NHL Playoff Predictions: Semi Finals
Well, I went 5/8 in the quarter finals. I was not expecting any upsets in the Eastern Conference, with the top teams being such power houses full of offensive skill, great goaltending, and talent. The under dog teams in the East showed resilience and determination. You could sense that some of the top teams did not know what it took to win, take for example Ian Laperriere's blocked shot, which required 50-60 stitches above the eye.
So, which team now has the better chance winning their series? (Note, I have made these predictions before this post, but I was too busy to post this). Let's start in the Western Conference.
[1]San Jose Sharks vs. [5]Detroit Red Wings
The Sharks disposed of the Avalanche in six games and were well prepared for the Wings, especially in game 1. San Jose must continue to count on scoring by committee, because I am still unsure about Nabakhov's ability to win a game. Can Nabakhov play well with the Red Wing's net presence? Holmstrom and Franzen will drive and screen the net, making his life miserable. I do not believe the Avs tested him in this area, but we will see how he prevails.
On the other side of the coin, no matter where the Wings are in the standings, I do not think they will ever be the under dog. The Wings faced the surprising Coyotes in the first round, but only in game 7 did they seem to step up their game. The Red Wings success will stem from rookie goalie Howard and the Wings offensive talent.
Both teams are so evenly matched that I believe this series will go to game 7. It is very hard to figure out who will win this, but I believe the Wings know-how to win will give them a slight edge. Wings in 7. Expect a high-scoring series as well.
[2]Chicago Black Hawks vs. [3]Vancouver Canucks
Last year, Vancouver was eliminated by Chicago in the semi-finals and how fitting that the two teams will face each other again in this year's playoffs. Luongo had told Kane in the Olympics when shaking hands at the end of the gold medal game, "See you in the playoffs." Luongo admitted it was a spur of the moment thing, but funny how fate works. We must now wait and see how this series turns out and if the Canucks can finally reach the third round, something they have not achieved since 1997.
The Black Hawks questions in goaltending were answered, temporarily, in the previous series. However, it was clear that Niemi was not playing at a Stanley Cup Champion calibre. He allowed weak goals, and was unable to make the timely save. Niemi can prove the doubters wrong by shutting down the Vancouver Canucks offensive talent. Secondary scoring will be required for Chicago to move on and getting in front of the net will pay dividends in the series. Vancouver's large defensive core will have their work cut out moving guys like Byfuglien, who loves going to the net, evidenced by last year's performance against Luongo.
The Canucks don't have much to worry about. Good offense, good defense, and good goaltending. Luongo has been able to step up his game, but his inconsistency has been a problem this year. He has allowed almost 4 goals a game against the Hawks this year and if that is to continue, the Canucks will be shown out the door.
Another series that will go down in seven, but I select the Hawks to triumph again over the Canucks. I'm going to select over in this series as well.
[4]Pittsburgh Penguins vs. [8]Montreal Canadiens
Wow! What an underdog story. The Habs beat the Capitals in 7 games, and did it trailing 3 games to 1. The Habs have a good shot at making the Finals if they can dispel the Penguins. The remaining two Eastern teams are ranked 6th and 7th. In 2006, the Oilers were able to make it to the finals when the top four teams were eliminated in the first round, allowing them an easier route, but an impressive run nonetheless.
The Penguins have it all. Scoring from three lines, hard working players like Guerin, a proven goalie, and a strong defensive core. There isn't much the Penguins need to do differently against the Habs, except beat Halak.
The Habs success will only continue of Halak has a strong performance. He did not do well in game 1 of this series, but rebounded in game 2. However, the Habs have lost significant man-power on the back-end, with Markov out most likely for the rest of the season. Subban, Begeron, and O'Byrne will need to rise to the occasion and allow this team to succeed.
This series will go the distance, with the Pens winning game 7. I believe that the fatigue will set in for the Habs and their back-end will not hold against Crosby, Malkin, and Staal.
[6]Boston Bruins vs. [7]Philadelphia Flyers
With the Eastern division leaders all eliminated, what's left? Two mediocre teams that won with grit, heart, and determination. I am a huge Flyers fan, so it pains me to say this, but the Flyers have almost no chance with half their all-stars gone.
The Bruins got some good news in the return of Savard, and how fitting if Savard can play against the Penguins in the Conference Finals and do some damage to Cooke? The Bruins offense will improve drastically with the addition of Savard. Rask must continue to play strong and Chara just has to be himself.
The Flyers have a strong core as well, but without three good forwards, their days are numbered. I would love to see the Flyers win, but Boucher may not be able to out dual Rask. You can only beat the best goalies so many times without run support.
I am not confident the Flyers offense will be strong enough to beat Rask, and Savard's return is both a moral win and offensive uprising. Sadly, I predict the Bruins in 7.
The great thing about all the series is that they will be extremely close, and one laps in the brain could change the respective series. Don't be surprised if all my predictions were wrong, because one mistake changed the momentum in game 4, or a lucky bounce won the triple OT of a game 6. For now, let's just leave it at that and get ready for round 2. The games shown already have all been good to watch.
So, which team now has the better chance winning their series? (Note, I have made these predictions before this post, but I was too busy to post this). Let's start in the Western Conference.
[1]San Jose Sharks vs. [5]Detroit Red Wings
The Sharks disposed of the Avalanche in six games and were well prepared for the Wings, especially in game 1. San Jose must continue to count on scoring by committee, because I am still unsure about Nabakhov's ability to win a game. Can Nabakhov play well with the Red Wing's net presence? Holmstrom and Franzen will drive and screen the net, making his life miserable. I do not believe the Avs tested him in this area, but we will see how he prevails.
On the other side of the coin, no matter where the Wings are in the standings, I do not think they will ever be the under dog. The Wings faced the surprising Coyotes in the first round, but only in game 7 did they seem to step up their game. The Red Wings success will stem from rookie goalie Howard and the Wings offensive talent.
Both teams are so evenly matched that I believe this series will go to game 7. It is very hard to figure out who will win this, but I believe the Wings know-how to win will give them a slight edge. Wings in 7. Expect a high-scoring series as well.
[2]Chicago Black Hawks vs. [3]Vancouver Canucks
The Black Hawks questions in goaltending were answered, temporarily, in the previous series. However, it was clear that Niemi was not playing at a Stanley Cup Champion calibre. He allowed weak goals, and was unable to make the timely save. Niemi can prove the doubters wrong by shutting down the Vancouver Canucks offensive talent. Secondary scoring will be required for Chicago to move on and getting in front of the net will pay dividends in the series. Vancouver's large defensive core will have their work cut out moving guys like Byfuglien, who loves going to the net, evidenced by last year's performance against Luongo.
The Canucks don't have much to worry about. Good offense, good defense, and good goaltending. Luongo has been able to step up his game, but his inconsistency has been a problem this year. He has allowed almost 4 goals a game against the Hawks this year and if that is to continue, the Canucks will be shown out the door.
Another series that will go down in seven, but I select the Hawks to triumph again over the Canucks. I'm going to select over in this series as well.
[4]Pittsburgh Penguins vs. [8]Montreal Canadiens
Wow! What an underdog story. The Habs beat the Capitals in 7 games, and did it trailing 3 games to 1. The Habs have a good shot at making the Finals if they can dispel the Penguins. The remaining two Eastern teams are ranked 6th and 7th. In 2006, the Oilers were able to make it to the finals when the top four teams were eliminated in the first round, allowing them an easier route, but an impressive run nonetheless.
The Penguins have it all. Scoring from three lines, hard working players like Guerin, a proven goalie, and a strong defensive core. There isn't much the Penguins need to do differently against the Habs, except beat Halak.
The Habs success will only continue of Halak has a strong performance. He did not do well in game 1 of this series, but rebounded in game 2. However, the Habs have lost significant man-power on the back-end, with Markov out most likely for the rest of the season. Subban, Begeron, and O'Byrne will need to rise to the occasion and allow this team to succeed.
This series will go the distance, with the Pens winning game 7. I believe that the fatigue will set in for the Habs and their back-end will not hold against Crosby, Malkin, and Staal.
[6]Boston Bruins vs. [7]Philadelphia Flyers
With the Eastern division leaders all eliminated, what's left? Two mediocre teams that won with grit, heart, and determination. I am a huge Flyers fan, so it pains me to say this, but the Flyers have almost no chance with half their all-stars gone.
The Bruins got some good news in the return of Savard, and how fitting if Savard can play against the Penguins in the Conference Finals and do some damage to Cooke? The Bruins offense will improve drastically with the addition of Savard. Rask must continue to play strong and Chara just has to be himself.
The Flyers have a strong core as well, but without three good forwards, their days are numbered. I would love to see the Flyers win, but Boucher may not be able to out dual Rask. You can only beat the best goalies so many times without run support.
I am not confident the Flyers offense will be strong enough to beat Rask, and Savard's return is both a moral win and offensive uprising. Sadly, I predict the Bruins in 7.
The great thing about all the series is that they will be extremely close, and one laps in the brain could change the respective series. Don't be surprised if all my predictions were wrong, because one mistake changed the momentum in game 4, or a lucky bounce won the triple OT of a game 6. For now, let's just leave it at that and get ready for round 2. The games shown already have all been good to watch.
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