Archive for December, 2009

Double Bottom

•This Chart Pattern is a bullish reversal  pattern that appears at the bottom of a downtrend and is characterized by a definitive bottom followed by a bounce and then a retracement to a second bottom that ceases its decent at or very close to the first bottom.

 • The stock’s volume should be diminishing as it makes the second bottom and then moves boldly up on increased volume ideally exceeding the peak of the bounce off the first bottom.

Double Bottom Psychology

•This pattern is the inverse of the Double Top and appears after a downtrend. 

 •Buying pressure enters the stock at the first bottom and begins to push the stock higher.

 •Shorts begin to cover on the bounce off the bottom as new buyers come into the stock.

 •As the bounce falters and begins to retrace back to the first bottom , buying once again enters the picture as the investment community determines the level to be a good buying opportunity.

 •As the stock comes off of the second bottom, it should do it with increased volume and surpass the middle peak.

ECONOMIC REPORTS

MONDAY 12/21

None

TUESDAY 12/22

GDP – Third Estimate, Existing Home Sales

WEDNESDAY 12/23

Personal Income, Personal Spending, PCE Prices, Michigan Sentiment- Rev, New Home Sales, Crude Inventories

 

THURSDAY 12/24

Initial Claims, Continuing Claims, Durable Goods Orders, Durable Goods Orders- ex Auto

 

FRIDAY 12/25

 Market Closed for Christmas

 

 

EARNINGS OF NOTE

MONDAY 12/21

CAG, WAG

TUESDAY 12/22

 None

WEDNESDAY 12/23

 None

THURSDAY 12/24

 None

FRIDAY 12/25

 None

 

I am beginning a series on key stock market information to help you become a more effective retail trader.  We will begin by investigating Financial Statements.  We will look at the Balance Sheet, the Income Statement and the Cash Flow Statement as well as other key metrics and financial ratios.   We will also look at valuation measures that help give insight into the perceived value of a company.

It may make sense to first talk about the measures that are used to typically try and determine the value of a company.  Market Cap is a term used to describe the size of a company.  Market Capitalization is defined as the OUTSTANDING SHARES x THE PRICE PER SHARE.  OUTSTANDING SHARES are defined as shares held by not just the public, but also insiders.  The FLOAT is the total shares available for public trading. 

So, if the number of shares OUTSTANDING is 1 million and the price per share is $50, then the MARKET CAP for the stock is 50 million.  Stocks are usually categorized into Large Cap, Mid Cap and Small Cap.  Large Cap is over $10 Billion, Mid Cap is from $2 to $10 Billion and Small Caps are between $300 Million and $2 Billion.

Another metric that is used by many investors to  reflect a more accurate value of a company is its ENTERPRISE VALUE.  EV more closely depicts the value of a company because it takes into account not only its cash and equity but also the debt of the company.

The final measure that we will explore today is the P/E Ratio.  This is a valuation measure that is based upon comparing a stock’s price divided by its earnings per share.  PE is many times expressed in relation to its last four quarters or sometimes as its (TTM) trailing twelve months as well as forward projections into the upcoming twelve months.

This is a good start and we will continue our discussion next week.  Best, Robin

The DOW remains in a sideways channel and has been so for the last 19 sessions.  Volume has been unremarkable and as we approach the end of the year, one begins to think that this unprecedented rally off of the March lows is too tired to continue the trek higher.  Looking at a 10 year chart of the DOW reveals massive upside resistance from most of 1999 through late 2001 as well as 2004 and 2005.  In my opinion, a push through 11,000 would be significant and probably unlikely at this point.  I see the index going sideways to down in the near term.  We will know more if the DOW breaks out of its’ current Box.  I will be ready to take advantage either way it decides to go.

The SPX tells a very similar story as the DOW.   The current trading range has spent the last 23 days in “The Box”.  The high in the range is 1119 and the low is 1084.  I am watching closely and expect a break soon.  I tend to think that we will break down out of the range, but will be prepared to follow the trend whichever way it decides to go.    There is also long term overhead resistance from 1100 to 1200 from late 2001 to mid 2002 as well as 2004 and 2005.

The COMPQ is also at an inflection point at current levels.  The index has been in a box for the last 9 trading days and is bumping its head against significant upside resistance and will probably continue sideways to down in the short term.  If the index does break to the upside with increasing volume, that would be notable.

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• Chart Patterns are a “Historical Map” of the stock from a Macro perspective as represented by recognized patterns on a chart.
• The revealed pattern will allow the trader to identify the likely future direction of the stock.
• There are two broad categories of Chart Patterns 1) Reversal Patterns and 2) Continuation Patterns. 
• It will take some practice to become competent at pattern recognition, but once achieved, it will be a skill that will serve you well.
• The stock market is traded by human beings.  Even in an attempt to remove emotion and psychology from the market through program trading the human element is present and visible on the chart.
• Programs are designed by humans and buy/sell triggers are input to reflect specific market conditions such as perceived support or resistance.
• As chartists, we can see the psychology of the market through Chart Patterns as well as other technical analysis tools.

Reversal Chart Patterns & Psychology

Reversal chart patterns are those that denote the end of a trend and the beginning of a new trend.

   When combined with other indicators that confirm the reversal, Reversal Chart Patterns become quite powerful in predicting a turn in the market.

Double Top

This is a bearish reversal pattern that appears at the top of a trend and is characterized by a peak followed by a pullback and then a second peak that stalls at the level of the first peak and then retraces.

Double Top Psychology

• The buyers at the top of the first peak were victims of buying from the “smart money” as they sold to the “dumb money” at the top of the trading range.
• These unfortunate buyers will usually hold, refusing to take a loss and waiting for the opportunity to unload the stock at a break even.
  • When that opportunity presents itself, at the second top, selling pressure increases and drives the stock lower.
  • Other knowledgeable traders who know that the “Double Top” will present an opportunity to short and will do so thereby increasing the downward move.

  

ECONOMIC REPORTS

MONDAY 12/14

None

TUESDAY 12/15

Core PPI, PPI, Empire Manufacturing,  Net Long – term TIC Flows, Capacity Utilization, Industrial Production

WEDNESDAY 12/16

Building Permits, Housing Starts, CPI, Core CPI, Crude Inventories,  FOMC Rate Decision

THURSDAY 12/17

Initial Claims, Continuing Claims, Leading Indicators, Philadelphia Fed

 

FRIDAY 12/18

 None

 

 

EARNINGS OF NOTE

MONDAY 12/14

TTWO

TUESDAY 12/15

 ADBE, BBY

WEDNESDAY 12/16

 HOV, JOYG

THURSDAY 12/17

 DRI, FDX, GIS, NKE, PIR, RIMM, RAD, WGO

FRIDAY 12/18

 KMX