Archive for January, 2010

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•This pattern is formed after a downtrend and is the inverse of the Head and Shoulders and is a bullish reversal.

 

•The pattern is comprised of three lows, the left shoulder, the head and the right shoulder.

 

•The first low is the left shoulder on increasing volume and then bounces up to form a reaction peak before retracing on low volume to form the head.

 

•The stock then makes a second reaction high which will form the neckline with the first reaction high before moving down to form the right shoulder before moving up with volume to break the neckline.

 

•The downtrend is failing after the Head is formed on low volume and reacts back up to form the neckline.

 

•The right shoulder is a higher low which confirms that the continuing bearish trend is tiring.

 

•When the stock moves up to challenge and break the neckline it will usually be on increased volume which will confirm the reversal of trend.

ECONOMIC REPORTS

MONDAY 1/4

Construction Spending, ISM Index

TUESDAY 1/5

Factory Orders, Pending Home Sales, Auto Sales, Truck Sales

WEDNESDAY 1/6

Challenger Job Cuts, ADP Employment Report, ISM Services, Crude Inventories

 

THURSDAY 1/7

Initial Claims, Continuing Claims

 

FRIDAY 1/8

 Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Wholesale Inventories, Consumer Credit

 

 

EARNINGS OF NOTE

MONDAY 1/4

None

TUESDAY 1/5

 SONC, MOS

WEDNESDAY 1/6

 BBBY, FDO, BLUD, MON, RT

THURSDAY 1/7

 APOL, STZ, LEN, SCHN

FRIDAY 1/8

 None

 

One of the key factors in the success of any company is the effectiveness of management.  Decisions made on the management level can dramatically enhance or hurt the performance of a company.  There are two measures that we will touch on today that can give us insight into how well management is performing 1) Return on Assets and 2) Return on Equity.

Return on Assets is an indication of how effectively a company can achieve a return relative to the amount of total capital invested.  The formula for ROA is Net Income divided by Total Assets.  The higher the number generated by the formula the better.  If management through the myriad of decisions and resources available to them can achieve a high return, then that management team is performing well.  It is best to compare performance against the company itself quarter over quarter or year over year.  It is also prudent to compare performance to other companies in the same or similar industries.

Return on Equity is similar to ROA in that it is a measure of management performance and their ability to generate a return.  ROE measures how well the company can yield a return in relation to the shareholders equity or stock holdings.  The formula for ROE is Net Income divided by Shareholder’s Equity.  The higher the number generated by the formula the better.   As with ROA the measure is most meaningful by comparing the company over time against its’ own performance as well as a comparison against other companies in similar industries.

When considering whether or not to invest in a company, management effectiveness should be a crucial part of your due diligence and these measures will help you in that decision.  Robin