How to Profit from the Stock Market by Applying Volatility Index (VIX)

The CBOE Volatility Index (VIX) is a sentiment indicator that passively reflects the stock market movements.  Therefore, the VIX is not used to predict the direction of the market.  Instead, it should be applied to identify sentiment extremes and help investors and traders to detect the optimal trading opportunities.   

Dramatic and unexpected stock market deterioration usually causes the extravagant spikes in the VIX reading as panic dominates and penetrates the investor’s mind.  If the spikes go beyond a specific level measured by the moving average of VIX or normal range, then it indicates that a gigantic bearish sentiment can spur a market recovery. 

Technically speaking, when the market drops, the VIX can better detect the reversals. However, if the market in bounding range or upward trending, the VIX does not work well. Under this circumstance, you better combine the VIX with other technical indicators such as RSI, ISEE, TRIN, SMFI, etc.

On the other hand, a sustainable and robust stock market gain yields a gradual downward and comparatively depressed level for this index.  Undue bullishness makes it challenging to foretell if the market is going to continue its trending path.  Therefore, the VIX can better detect the bottom than the top.  It would be wise to apply the VIX accompanied by other technical indicators to identify the imminent market reversals.

Occasionally, an unforeseen debacle might arouse the swell in VIX reading as well.  For example, many investors and traders around the world still remember the outrageous flash crash which occurred on 5/6/2010. This created a broad and inverse impression of the stock market. 

As a matter of fact, the market started its correction from 4/26/2010 amidst the Sovereign debt concern.  However, the “fat-finger” incident just amplified the market moving magnitude.  Even if the market recouped most of its losses at the end of day, the S&P index dipped to an intraday low of 1,065 and managed to close at 1,128.  The S&P 500 index dropped 106 points in total from 4/26/2010 to 5/7/2010.  Within the next three days, the S&P 500 snapped up half of the loss.  Then the market resumed the downtrend after that. 

On 5/25/2010, the market broke its intraday low on 5/6/2010 and reached the low of 1,040.  On 5/27/2010, the VIX had a bigger hike than that of flash crash day. Since the Euro dropped significantly and entered the dangerous zone, the S&P lost 43 points that day. After the big rise of the VIX, the fear was relieved. Therefore, the market bottomed out and made a reversal.

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How to Choose ETFs Suitable for Your Investment Objective

To choose ETFs which fit your investment goals and risk tolerance is crucial to your successful financial life. This article share with you what factors you need to consider when you make your decision on ETF trading.

The following investment questionnaire determines your model portfolio.  It could be applied to your 401k, IRA, and other investments as well.

Investment objectives and goals: choices could be growth, conservative growth, income and growth, capital preservation, etc.

Time horizon (your age) is the most crucial factor in your risk tolerance model. When do you expect to start withdrawing from your portfolio? How soon do you need to access the liquidity? These are the two most important questions you need to answer regarding risk tolerance.

Risk tolerance: this means what degree of investment loss you can tolerate. Is it very high, high, moderate, low, or very low? Do not count your chickens before they hatch. When you plan to trade on ETFs, ask yourself how much you can afford to lose if things go wrong, instead of how much you are going to make. Be aware of risk.  Also, be mindful of “event risk.” This is the risk of an unforeseen occurrence, from a political assassination to a tsunami, playing havoc with the markets.

Liz Weston said, “Risk is part of life.  While you can’t avoid it, you can make sure the risks you’re taking are appropriate for your goals.” This is from her book, The 10 Commandments of Money (page 86).

Ali Velshi has formulated very detailed descriptive model portfolios. He accomplishes this with investment questionnaires and choosing the right types of funds with appropriate risk level. His book is Gimme My Money Back (page 125-134).

As investors, when we buy ETFs we pay the asking price, when we sell we pay the bidding price.  If an ETF has a small trading volume, we might pay a high bid-ask spread, and then add the trading cost. To avoid this scenario, we suggest investors choose ETFs with higher liquid and larger asset values.

After the portfolio model has been established, investors are ready to choose ETFs based on direction (either Bull or Bear), and risk appetite (1X, 2X, or 3X) .

There are a multitude of choices among ETS, based on risk tolerance and the direction of the market.

Currently, plenty of resources allow you to filter products, choose asset categories, select Bull ETFs (1X, 2X, and 3X based on underlying securities’ return), and Bear ETFs (-1X, -2X, -3X reversed to underlying securities’ return). You can follow these websites as reference:

Invescopowershares.com

Proshares.com

Direxionfunds.com

Bloomberg.com

 

Thanks for your visiting and reading.

How to Determine Divergence by Relative Strength Index (RSI)

One popular use of the RSI is to determine divergence. Divergence is a compelling tool that can discover looming market reversals, by comparing RSI value and shares’ price movements. 

When you trade ETF, if the trending momentum (which is justified by RSI) does not bolster the price, an implied reversal might be in sight.  Basically divergence can be classified as two different types of divergence: one is bullish divergence, the other one is bearish divergence.

          Bullish divergence takes place when a share’s price reaches a new low, but the RSI does not follow the footsteps. 

The ETF SSO (ProShares Ultra S&P 500), pursues daily investment results that resemble two times the daily performance of the S&P 500 index. It reached the low of that cycle at 37.56 on 8/10/2011.  On 10/3/2011, it touched another cycle low at 35.82, which was lower low, but the RSI (5) was 29, holding above a prior low of 23 on 8/10/2011. The bullish divergence formed between August and October 2011, and SSO went up steadily from the bottom on 10/3/2011. The breakout in November endorsed this reversal momentum.

When a bullish divergence is detected, even if the underlying security is in a declining mode, the sell-off is in check. Bearish momentum is controlled. Thus, the market condition does not deteriorate further, and the fear does not spread to a greater extent. It would be a good time to accumulate shares and wait to grow your profit.

          On the other hand, negative divergence occurs when a share’s price records higher high, but the RSI does not reach higher high accordingly. 

For example, if an ETF is making a new high, while the RSI is not, this is an indication that the uptrend may be ending soon (bearish divergence). The signal usually comes when the RSI line drops below its most recent trench.

QLD (ProShares Ultra QQQ) tallies to two times the daily performance of the NASDAQ-100 index. On 7/19/2007, QLD closed at 49.76 on 7/19/2007, the highest price of that cycle. The RSI (5) reading was 88.  On 10/31/2007, QLD reached a multiple years’ high at 57.79. However, the RSI (5) was 78, which did not close at a higher high.  The negative divergence was formed. The QLD had a sharp dive since then until March 2009.     

Another usage of the RSI is to trade securities after confirming the extreme market condition (top or bottom). You might lose the best trading opportunity, but it is safer for you to make bets. 

Divergence often signals the market could turn around, and it works especially well in a range-bound market. 

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How to Profit from the Stock Market BY Applying Traders Index (TRIN)

The Traders Index (TRIN) is called the ARMS index as well after its creator Richard Arms’ last name.  It is a breadth indicator which is used to capture and gauge market momentum. 

The quotient from Advancing Issues/Declining Issues usually is called AD ratio. On the other hand the quotient from Advancing Issues/Declining Issues is called AD Volume ratio. 

The TRIN is a quotient of the AD ratio and the AD volume ratio. The value is below 1 when the AD Volume Ratio is greater than the AD Ratio, and vice versa. 

Generally speaking, if a strong market gain is spurred by real buying from investors and traders, this should be associated with more advancing volume compared to declining volume. This usually leads to lower AD Volume Ratio by increasing the denominator. Thus, the reading for TRIN will be below 1.  In general, the TRIN moves inversely to the general market. 

Traders can often detect if the market goes up, due to short-covering or real buying from Money Makers, by applying TRIN.  If the TRIN is greater than 1, market runs up very fiercely and the ISEE is very low. You must be aware that the market may not be sustainable, since the major institutions might not have participated in the rally.  On the other hand, the rally might have been driven by short-covering or stock buying mainly from retail investors.

Similar to other momentum indicators, the TRIN has the capability to detect short-term overbought and oversold situations, since it functions as an oscillator.  It is frequently monitored by investors and traders, especially momentum and swing traders.

To smooth the TRIN reading, a moving average is applied to accomplish this goal. 

The neutral value range for the TRIN is between 0.5 and 3 based on a 10-day moving average.  If the TRIN goes beyond a reading of 3, the market might enter the overbought condition. Traders could sell short, take profits on long positions, or buy Bear ETFs.  Likewise, if the TRIN drifts below a reading of 0.5, traders become more optimistic about the market and take action accordingly. 

          The market had been in an uptrend direction since November 2012. It was more likely that the market approached overbought than oversold conditions.  It is obvious that this internal strength is sensed in the above chart.  Hence, the TRIN reveals that the overbought status most often creates bullish signals in the gigantic uptrend market. 

          Thanks for your visiting and reading.

How to Determine Look-Back Periods for Relative Strength Index (RSI) Based on Trading Objective

Relative Strength Index (RSI) was introduced by J. Welles Wilder in 1978.  It is categorized as a momentum oscillator, one of the most popular and practical technical indicators.  It is intended to gauge the velocity (speed with positive or negative direction) and movement magnitude for the entire stock market, or individual stocks.

By default, the RSI is calculated based on 14 day worth of data. This index ranges from 0 to 100.  The relative strength index 50 is the trend line.  When the relative strength index slips below 50, it technically means that the stock's losses are greater than the gains. However, when the relative strength index goes beyond 50, it basically means that the gains are greater than the losses.

Technically speaking, when the RSI reaches 70, this indicates that the market or an asset enters overbought territory.  The market or stock may be getting overvalued and might be due for a pullback. On the other hand, when the RSI goes below 30, this signals that the market or an asset enters oversold condition.  The market or individual stock might consolidate and bottom out in the near term. 

The RSI with the lower look-back period is more suitable for momentum traders who focus on shorter term profit and quick turn-around.  If traders choose RSI (14), most of time, the RSI reading stays in neutral status (between 30 and 70).  The contrast is not that sharp.  In our daily log, we opt 5-day as RSI look-back period. You can adjust it based on your trading habits and objectives, and track it consistently. You will discover its trend, and hopefully it will benefit your trading.

Comparing RSI with 5 as the look-back period with that keeps the default look-back period 14. It is obvious that the RSI (5) has larger scales of up and down movement, and is easier to swing between overbought and oversold conditions. Thus, RSI (5) shows more sensitivity, since the look-back period has been shortened.  The lower the look-back days, the higher sensitivity the RSI tends to have and the easier the RSI is able to reach the extremes (either overbought or oversold). On the other hand, the cycles and extremes are more insightful for RSI with shorter look-back days.

Investors and traders can define the parameters for the RSI by choosing different look-back periods according to their trading purpose. The most common setting for the look-back period is 14. Other popular settings are 9, 7, and 5, which work to increase the volatility and sensitivity of the RSI.

Swing traders often customize the RSI by assigning 5 as the look-back period, while day traders more favor 2 as the option. Some technical analysts use longer periods like 40 and 50, in order to smooth the RSI curve in anticipation of obtaining more reliable signals.

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What Are Advantages of ETF Trading in Terms of Asset Allocation and stock-like features

According to Investopedia, by trading an ETF, traders get the diversification of an index fund as well as the ability to sell short, buy shares on margin, and are allowed to purchase as little as one share. Another advantage is that the expense ratios for most ETFs are very low. There are over 1,000 different kinds of ETFs available. 

ETFs are used to track indices of broad-based US (Dow Jones, S&P, NASDAQ), international, country-specified (Japan, Australia, U.K. etc.), regional (Europe, Pacific Rim, emerging markets, etc.), industry (technology, energy, biotech, etc.), sector-specific (utilities, transportation, finance, etc.), bond, commodity, and market niches (REITs, gold, oil, etc.).

Studies have illustrated that asset allocation and diversification is a key factor responsible for investment returns, and ETFs are an excellent means for investors to build a portfolio that meets specific asset allocation needs. For example, an investor seeking an allocation of 75% stocks and 25% bonds can easily realize that portfolio with ETFs. That investor can even continue to diversify by dividing the stock portion into large-cap growth and small-cap value stocks, and the bond portion into bonds with different maturity dates.

ETFs are traded like stocks, in terms of real time span and continuous price changes during a trading day. You even can trade them at extended hours. ETFs possess characteristics similar to stocks. Thus, investors are allowed to trade on margin to magnify income, and sell short to hedge or protect your portfolio as well. Traditional mutual funds take orders during Wall Street Trading hours, but the transactions actually occur at the close of the market at 4:00 pm EST. The selling price is the sum of the closing day prices of all the stocks contained in the fund.  ETFs, by contrast, trade instantaneously all day long, and allow an investor to lock in a price for the underlying stocks or indexes immediately. 

When you trade ETFs, you only need to closely observe the macroeconomic environment, instead of each individual company’s PE ratio, management, profit margin, etc.  You do not need to do much fundamental analysis on individual companies. Thus, it can save your time and effort for researching. You can concentrate on the investment and trading.

More technical indicators are available for ETFs trading. For example, VIX, ISEE, TRIN, and Smart Money Flow Index, etc., are tracking the general market only. They are not available for individual Stocks.

Thanks for your visiting and reading.

How to Profit from the Stock Market by Following the Smart Money

We have often heard of talk about the Smart Money and the Dumb Money.  We wish more investors were in the Smart Money category. However, what is the Smart Money? 

According to Investopedia, the Smart Money is defined as cash invested or wagered by those considered to be experienced, well-informed, “in-the-know”, or all three.

          People often confuse the Smart Money, with big money (institutional investors), but actually they are quite different. Usually the Smart Money sorts things out, before everyone else becomes bewildered. The Smart Money possesses ample resources and tools, has considerable expertise, is experienced, and especially has the capability to deal with a crisis. For example, the Smart Money successful detected the warning signals before the infamous financial crisis 2007-08. The Smart Money is given an edge over other investors, and has already taken advantage of the discounted prices before everyone else takes action.

The Smart Money sometime seems very abstract. However, the Smart Money can be one individual person or an institution, such as Warren Buffet, Jon Hilsenrath, Goldman Sachs, etc. These people or institutions have the capacity to move the market dramatically.

Just in case, you are not familiar with Jon Hilsenrath, he is a Wall Street Journal Federal Reserve reporter.  You can read the article, “Meet the Man Responsible For Today’s Huge 230 Point Dow Surge” from the following link to see how he is capable of moving the stock market.

http://www.businessinsider.com/jon-hilsenrath-2012-6

When Warren Buffet calls for buying stocks, usually there will be considerable profit.  Just recently, on 3/5/2013 he sent out emails to shareholders to buy stocks. The S&P closed at 1,539 that day.  On 5/6/2013, he said the market would go a lot higher. Sure enough, the S&P closed at 1,617 on 5/6/2013, and it registered a record intraday high at 1,709 on 8/2/2013.

On 12/5/2012, Goldman Sachs said that gold had reached its peak and the real rate would rise. 

ETF GLD, which mirrors the gold bullion supply, made record highs in October 2012. On 12/5/2012, Goldman Sachs declared that gold had seen its highest level.  ETF GLD was closed at 163 that day. It went up a little bit before it drifted all the way down until 6/27/2013. The closing price was 115 and the bleeding finally stopped.  This was equivalent to a 29% drop.

If you follow the Smart Money, you can profit from their trading patterns.

How ISE Sentiment Index Correlates with the S&P 500 from short-term and long-term view

The ISE Sentiment Index is used to gauge the market sentiment by examining bullish bets against bearish bets.

This indicator can be used to detect the short-term trading opportunity. Even if the current ISEE levels are much lower than those prior to the financial meltdown.  Occasionally, the ISEE shot high. 

On 5/21/2013, the Dow Jones Industrial Average closed at a record high 15,388.  The ISEE reading was 142, and touched 186 intraday, a level not seen for quite a while. Next day, the Dow closed down 80 points, and the market had a minor correction until 6/5/2013. The market lost a total value of about 5% during this time period.

On the other hand, The Dow Jones plunged 217 points on 6/5/2013, and ISEE closed at 61, the lowest reading since 5/1/13. The ISEE touched 49 intraday. The next two days, the Dow went up 80 and 207 points, respectively. The market made a reversal since then.  Please be mindful that the ISEE works as a relative number, not an absolute number.  Even if the reading 142 was not high compared with the readings in 2007-08, it reached a high in recent months.

People might think it is just a coincidence that when the ISEE is higher than usual, the market goes down, and vice versa.  

We examined the ISEE extremes occurred between 7/11/2011 and 7/31/2013. Most of these extremes (highs or lows) occurred near the top or bottom of cycles.  Generally speaking, when the market was at a climax, the ISEE was also high. This means retail investors were optimistic about the future movement. However, it ended up with a pullback or correction. When the market was at the bottom, the ISEE was low too, usually less than 100.

The low ISEE readings ranged between 41 and 96, which demonstrated the pessimistic view from the retail investors when the market was at low levels.  These readings are showing the clusters of numbers.  Other numbers around these days revealed the numbers in the neighborhood. 

Please note, if the ISEE reaches the extremes, it usually signals a reversal point in the market or price.  It may not be imminent, but it usually takes place very soon within the next few days. 

          The market usually goes the opposite way of the ISEE reading. We are not saying it works 100% of the time. However, if the reading appears to be out of the box, it is definitely a red flag to watch, especially when you combine this information with other indicators to find out the market is in overbought territory.

          Thanks for your visiting and reading. Happy trading!

                                      

 

 

Where to Open Brokerage Accounts with Free Trades on Regular Basis to Reduce ETF Trading Cost

Most ETFs, especially index ETFs which mirror the general stock market (Dow Jones, NASDAQ, and S&P 500), simply simulate underlying indices. They are not subject to trading fees and commissions on a regular basis, incurred by fund managers who endeavor to beat the general market. Fund managers routinely rebalance their fund portfolio in order to improve funds’ performance. This process incurs fees and costs. Eventually this increasing fees and costs will be imposed on mutual fund holders.

Comparing with mutual funds, ETFs are cost-effective to own and hold over the long time period. This feature makes them specifically appealing to the typical buy-and-hold investors who aim at long-term portfolio growth.

ETFs charge extremely low annual fees, (as low as 0.04% of assets compared with 1.4% for average mutual fund fees (according to Morningstar). You could create a full and well-diversified portfolio utilizing ETFs only! Every investor loves to save management fees, especially those investors who place their most of savings into their long-term portfolios. In helping investors save money, ETFs really compete very well with other securities. ETFs for underlying stock market indices charge even lower turn-over and management fees.

As you might know, the Vanguard 500 Index Fund is often known as one of the least expensive to maintain index funds. The Vanguard fund’s approximate 20 basis points of expense ratio are tremendously lower than the 100 plus basis points which are usually charged by other mutual funds.  However, if you compare the SPDR 500 ETF with the Vanguard 500 Index fund, the approximate 10 basis points expense ratio charged on SPDR 500 ETF are about 50% lower than the Vanguard 500 Index Fund. This puts other equity funds to shame!

Before you are able to trade ETF, you need to set up a brokerage account.  The commission you pay can range from under $10 for discount brokers to several hundred dollars for traditional brokers.  TDAmeritrade, E-Trade, Scottrade, and Interactive Brokers are the most popular discount brokers. 

On the other hand, Wells Fargo and Merrill Lynch provide good deals to qualified investors.

Wells Fargo provides 100 free trades per year if your portfolio meets certain criteria. 

Merrill Lynch provides 30 free trades per month to qualified customers.

You can check websites out from wellsfargo.com and merrilllynch.com, and find out the detailed information before you open accounts with these brokerage houses. Please pay attention to the special requirements in order to get free trades. Hopefully it can help you reduce trading cost, and preserve more profit.

 

How to Detect Market Reversals By Pivot Points

A pivot point is widely used by traders to predict the market movement. This technical indicator aims at confirming the overall market trend for certain time period.

The pivot point is computed based on the average of significant prices, including high, low and closing prices from the prior trading day. The way to determine the market sentiment is to compare the market movement and the daily pivot point. For example, if the market keeps moving above the pivot point is deemed as the bullish sentiment. You can keep your portfolio for the time being. However, if the pivot point drifts down, and the market keeps moving up, it would foretell the potential reversals. It may not be imminent, but it would occur in the near future.

On the other hand, the pivot point technical indicator is frequently used to detect the market support and resistance levels. From this point of view, you can treat it as a trend line indicator. The width of the trading range between the pivot point and the extremes (highest or lowest price level) from the prior trading day is used to determine the first support or resistance levels. Further, the full market movement width between extremes (highest and lowest price levels) is used to compute the second support and resistance levels.

When we calculate the pivot points, the pivot points themselves are working as the primary support or resistance for the general market.

Traders often utilize pivot points in two ways:

The first ways is to determine trend for the general market which can be tracked by Dow Jones, NASDAQ, or S&P 500. If the pivot points move up sharply and break the resistance to the upward direction, then we treat this market in bullish mode. Likewise, if the pivot points move dramatically low and break the support level to the downward direction, then we should take cautious and bearish stand. However, based on its formula, the pivot points reading is only good for one day. It needs to be recalculated next day. Therefore, this technical indicator can only be applied to short-term trading. That is the reason it is widely used by momentum traders, especially day traders.

On the other hand, pivot points can be used to make up the trading strategies, including entering and exiting the market. Traders can place order by either limit order or stop-loss depends on the movement of pivot points. If the pivot points move above the resistance and show bullishness, traders can set limit order to long stocks. Likewise, if the support level is broken, traders can plug in a stop-loss to sell stocks. If you are experienced traders, you can even short the stocks or market based on the movement and price levels of pivot points.

How to Detect the Market Reversal by Advance/Decline Line (AD)

According to Wikipedia, the advance/decline line (ADL) is a stock market technical indicator used by speculators to measure the number of individual stocks participating in a market rise or fall.

Often time, the price movement of large stocks could have an unequal effect on the general market indices (such as Dow Jones, NASDAQ, and S&P 500). This phenomenon allows traders to perceive how widely this fluctuation impacts on larger clusters of smaller-cap stocks. The formula to calculate the ADL is:

ADL=Today’s Advances Issues – Today’s Declines Issues + Yesterday’s ADL

 

Advances & Declines

	NYSE	NASDAQ
Advances	1,341 (32%)	937 (36%)
Declines	2,639 (64%)	1,521 (59%)
Unchanged	151 (4%)	131 (5%)
Up Vol*	924 (28%)	731 (44%)
Down Vol*	2,259 (70%)	903 (54%

ADL is one of the most aged indicators based on the Advance and Decline figures. You can obtain the Advances Issues and Declines Issues from Yahoo Finance. The above figure shows the data on 9/28/2013. We collected daily data for our trading log. The ADL for 9/27/2013 is 1011 (2499-1488), thus the ADL for today 9/28/2013 is

ADL=(1341-2639)+1011=-287

As long as you have daily reading for ADL, you can plot chart on it with the indices of the general market over a certain time frame, and search for the correlation between them.  Traders and investors are using this indicator to verify the current market trending, and detect the potential market reversal.

For example, the stock market keeps moving up. However, the ADL does not keep the same pace. It might provide warning signals that indicate the internal weakness of the stock market. To accomplish this, you can examine and compare the ADL slope against the indices. If slopes for these two lines go to the same direction, then the market movement direction is confirmed, otherwise, you have to be well prepared for the potential reversals.

ADL is referred as a breadth indicator. The ADL gauges the scale of participation in a market rise or decline. The relationship between ADL and the underlying index can foretell the market sentiment either bullishness or bearishness. If an ADL advances and reaches a new record high, and the general market index moves up with same pace, then the market shows the bullish sentiment.

On the other hand, if the stock market records a new high, but the ADL does not follow the pace, then the bearish sentiment is detected. The methodology behind this correlation is that degree of stock participation is able to undermine the market strength. Likewise, when the market is moving downward, the market shows strength if the ADL does not reach the new low correspondingly. This might indicate the potential market reversal.

Of course, no any single technical indicator can work perfectly 100% of time. To better detect the market sentiment and potential market reversals, you had better combine ADL with other technical indicators.

Thanks for your visiting and reading.

Google’s 15th Birthday on 9/27/2013

Google company celebrated its 15^th birthday yesterday. This search engine giant has become ubiquitous in our corporate and personal life around the whole world. Its business covers Google Map, Gmail, video site YouTube, self-driving cars, Google Docs, smart phones, etc.

Google’s have been focusing on collecting information. It is going to concentrate on applying information to every aspect of business in the future.

Fifteen years ago, if you type Google, you only obtained about 200k results. However, you get over 9 trillion results. It is amazing.

How Google’s new core search algorithm Hummingbird works?

A month ago, Google launched a significant change to its original core search algorithm. The new algorithm was nicknamed as “Hummingbird”. This dramatic change aims to deal with conversation search inquiry. It sounds like Facebook’s graph search.

On the latest version of Chrome, you can speak to your microphone by clicking on it in the search box. For example, you can ask “Who is the Chairman of the Federal Reserve?” You are going to get the answer “Ben S. Bernanke”. You can ask further question “How old is he?”, amazingly you are going to get answer “59 years (December 13, 1953)”. I said “amazingly” because this new algorithm can “memorize” and refer to the previous query.

You can also try on Google’s Search App for Mobile. 

How the U.S. Government Shutdown Would Impact US Economy

This morning, the stock market gapped down and opened significantly lower compared with yesterday’s closing price. The reason behind it is that investors warned of the potential damage to US economy caused by government shutdown.
On the other hand, the sluggish income growth and consumer spending would curtail the economic recovery.

Some analysts estimated that a shutdown of the U.S. government would cut Gross Domestic Growth (GDP) by over one percent in the fourth quarter this year.

During the shutdown period, government workers are furloughed and lose income source. On the other hand, businesses would keep back investing, and consumers would reduce spending. These factors primarily impact US economy and GDP.

Please note that the government shutdown may impact those home buyers who are looking for government-backed mortgages.  The loan process should be expected to delay during the shutdown. The Federal Housing Administration (FHA) is not functioning during the shutdown.

The S&P 500 future dropped 16 pointes before the stock market opened on 9/30/2013 on probable government shutdown. 

 Thanks for your visiting and reading!

 

Senator Ted Cruz Beat the Record for the Longest Speech this Year To Advocate for the Defunding of ObamaCare.

As we know, Senator Ted Cruz, 42, recorded the longest speech this year in the morning on 9/26/2013. He tried to persuade other senators to defund ObamaCare.

ObamaCare is also known as Health Care Reform. It is a national health care plan which was designed to allow more Americans to obtain affordable health care with improving quality.  

What does ObamaCare do:

·         Improves the quality of health care

·         Provides low-income families with discounts

·         Eliminates pre-existing conditions

·         And much more

However, high-earners will pay more toward the health care, insurance companies will increase insurance cost on everyone, and businesses may cut employee hours to accommodate this regulation.

Wow, the Apple Stock Really Made a Comeback like the Oracle Team in America’s Cup

Wow, the Apple Stock Really Made a Comeback like the Oracle Team in America’s Cup

As we know the Oracle Team USA won the America’s Cup on 9/25/2013. It experienced one of the greatest historical comebacks. It reminds me of the Apple Stock.

Why do some stocks with apparent great potential underperform? It is not hard to notice that some stocks do not follow the general market trend, such as Apple Inc. Once a red-hot stock, Apple Company’s total value could have been greater than a country’s wealth, at its apex! You never know when the tide will change for an individual stock, even when the general market is robust.  Apple stock reached its all-time high closing price on 9/19/2012 at $702. Actually, on 9/21/2012 it reached an all-time intraday high of $705. 

 

Chart1 AAPL vs. NASDAQ from 9/19/2012 to 6/25/2013.

Source: Line Graph Outline form Yahoo Finance.  Actual data compiled by blogger.

 

From the above chart, you found that Nasdaq-100 gained about 10% from September 2012 through June 2013, but Apple stock plunged about 40%. If you picked the wrong stock, you might be very frustrated and lose money in large quantities.

The stock market retreated in the past few days mainly due to the Fed worries and government budget concern. However, the Apple’s stock shares jumped 5% on 9/23/2013 since its IPhone 5S sales significantly exceeded the expectation. It made a great comeback!

As retail investors might feel the difficulty to trade on this kind of individual stock which did not follow the trend of the general market, then trading on ETFs might a better choice.

If you want to know more about the ETFs, you can visit:

http://top5indicators.blogspot.com/2013/09/how-to-take-advantage-of-etf-trading.html

http://top5indicators.blogspot.com/2013/09/how-to-use-etf-as-trading-tool.html

 

                Thanks for your visiting and reading. Happy Trading!

 

 

 

 

 

 

 

 

 

What Factors Determine Oil Prices

As of 9/25/2013, the Crude Oil Nov 13 (CLX 13. NYM) reached 102. What factors incur the constant movement of the oil prices?

Oil has played more and more important role to the global economy since the oil is widely used in our production and personal consumption.  The crude oil can be refined into the petroleum products which allow us to use them in different purposes. For example, the petroleum can be burned to generate energy which is used to start and propel vehicles.  Gasoline is consumed as the primary petroleum product in the United States.

Like other products and service, the demand and supply decides the oil prices. Based on the economics concepts, when the demand of a product increases or the supply decreases, price of the product goes up, vice versa. Therefore, during the summer travelling season, the oil price tends to go higher. The oil price usually drops after Labor Day each year.

However, many other factors may cause the fluctuation of the oil prices, such as war (Syrian incident), natural disaster (Katrina hurricane), and other unexpected events. On the other hand, since the oils prices are measured by US dollar. If the US dollar value strengthens, the oil price will drop assumed the other conditions hold, likewise. The Federal Reserve Bank policy shift will impact interest rates. Eventually, this consequence will affect the US dollar value.

On the other hand, the oil prices are based on the contracts’ value in the oil futures market. Since the oil contracts are tradable, the sentiment of futures traders will intensify the movement of the oil prices. Usually these traders transact oil contracts for hedging or speculation purpose.

The rising oil prices usually hurt the overall economy. The reason is very straightforward. The higher oil prices directly increases the cost for production. Then, the consumers are going to suffer the expensive goods and service. When the consumers feel squeezed by goods, service, and gas pump, they become anxious and conservation, and naturally reduce consumption. Eventually, the reduced consumption will curtail the production. This will cause the malicious cycles. If this situation persists, it might cause the recession which is defined as negative GDP.

For example, during financial crisis, the oil prices went up, many people lost job. The Wal-Mart declared it had very bad business since its customers could afford to the gasoline.

Therefore, the oil prices are closely watched by the market and the Federal Reserve Bank. The inflation bench mark (less than 2%) is the baseline when the Fed discusses about the economic stimulus program.

 

How Short Sellers Take Advantage of ETF Trading

Usually the stock market always run from overbought to oversold condition, then from oversold to overbought territory. Most investors take buy-and-hold strategy. This strategy works very well when the stock market or a security keeps moving up. For example, this existing bull market which bottomed out in March 2009, just made historical records not long ago. However, if the market plunged like the infamous financial crisis 2007-08, those long-term investors who adopted the buy-and-hold strategy could have huge loss.

Some experienced traders adopted the short selling strategy when they believe the market or a security is going to fall from the top. Practically, these traders borrow shares of securities from brokerage houses, and sell them first. For example they sold Google stock at $900/share. After a while (depends on the market situation and traders’ profit expectation), the share price of Google stock dropped to $850/share, these traders can buy back shares and make profit at $50/share. It sounds pretty good. However, these short-sell traders have to pay the interest on the deb (the securities short sellers borrow from brokerage houses). On the other hand, if the share price of Google keeps moving up, the short sellers might take loss and cover the short at higher price (for example $950/share). Since the stock market goes higher most of time, people tend to have bullish sentiment. This phenomenon might have negative impact on short sellers. Usually they are nervous and uneasy. Moreover they have to pay interest on debt. They can’t afford to lose money.

ETFs have gained popularity since it was launched. One of the reasons is that ETFs allow traders to profit from both directions of the stock market. The Bear ETFs provide this kind of function. Many companies offer Bear ETFs products.

For example, the ETF company ProShares provides exposure to different securities based on risk level (1X, 2X and 3X) and moving direction (Bull and Bear). You can filter ETFs by choosing fund group (global fixed income, hedge strategies, geared, and inflation and volatility), and asset category. The geared choice allows trades to choose Bear ETFs (-1x,-2x, and -3x), Bull ETFs (2x,3x). If you want to short the market, you can trade on Bear ETFs, and do not need to pay interest on debt. You can follow this link to find out more information: http://www.proshares.com/funds/.

However, please keep in mind the short selling is risky trading behavior. If you are not experienced enough, you might want to avoid this kind of traction.