Any Given Trading Day
Thursday, January 17, 2008 | John M Is this Spam?Rating:
Any Given Trading Day By John Micheline
2008 started with 5 straight down days. Is this an early indication of the year to come?
Historically, the "Stock Traders Almanac" indicates November, December, and January constituting the year’s best three-month time frame with the S&P 500 averaging 4.9% gains.
Since November 1st "2007", the S&P 500 fell 144 points from 1545.79 to 1401.02, loosing 11%.
Where is my 4.9% damn it!
January’s auspicious beginning has many investors thinking 2008 will be a tough year.
Looking to the almanac for an indication would tell you; the last 21 times the markets traded down for the first five days; ten years were followed by down markets. Less then %50 percent accurate, not presenting a true indication either way.
My point; the almanac offers an indication of how the market may perform in the future based on historical performance.
By indicator I mean; any source of information used in order to assess the markets and individual securities. Indicators applied correctly should paint a picture of how the market may trade, MAY TRADE!
Most investors have a hard time deciding what indicators to use and where to place the most importance.
I say, you should utilize as many as possible and try to refrain from becoming to reliable on any one particular source.
When looking at indicators always remember they cannot account for human emotion or sudden events. Nevertheless, each factor plays a significant role in the markets and neither can be charted.
Indicators lack the concrete reliability investors crave, THERE IS NO EXACT SCIENCE!
Have you heard the football term, “Any Given Sunday”? The term implies no matter how good or bad one team may be, on that particular Sunday anything can happen.
This sentiment rings true for the stock market as well. No matter how sound the company may seem on paper (fundamentally), they still have to play the game (trade in the market), where anything can happen on any given trading day.
In order to be truly prepared to play the game, you need the whole picture including a complete game plan.
I break Indicators down into 4 groups by order of importance: Fundamental, Technical, External, and Perception indicators.
I look too fundamentals for my initial indication because I want to own quality companies. My logic; if I own a quality company I have less exposure to external and perception factors.
1. Fundamental Analysis
Fundamental analysis creates a picture of a company’s financials, management, and business operations among others. These indicators are used to give you an impression of how the company may grow in the future, increasing share value.
You may find increasing revenue, earnings, margins, or some other indication of growth.
Then look for secondary fundamental indicators such as strength of management, company innovation, products and or services, products demand, and operational objectives.
2. Technical Analysis
Technical analysis is capable of painting many aspects of the market including; volume, trends, relative strength, bullish percent, moving averages, buy and sell signals, among many, many others.
You may see positive indications in moving averages, sector BPI, relative strength, or trends pointing to buy signals and entry points.
With all those positives, one is tempted to make an investment with out any other indications. Be careful! Investing based strictly on technical analysis is unwise. Your picture is incomplete!
3. External Factors
External (not limited to): All or one of these factors could severely affect a stock even as the company is otherwise attractive or vice versa.
• Political Effects: New legislature, increased manufacturing standards, and new political agenda’s are but a couple of political issues effecting market performance.
• Economic: How the economy affects the markets. Ex. A slowdown causes decreased consumer spending affecting the retail sector.
• Economic Data: Reported housing start-ups or jobless claims are examples.
• Sector Trends: Earnings releases within sector and other sector related pressures.
• International Pressure: Foreign economic problems, international crisis, issues in international trade, and rising oil consumption are juts a few pressures stemming from the international community.
4. Perception Factors
Perception is created by the Media and public sentiment.
• Negative news on a company.
• Legal troubles.
• Negative Public Perception: A recall may have created a perception your goods are no longer quality or in Apples case the perception of innovative products.
Wal-Mart (WMT) is a perfect example of the effects of perception. Significant financial growth and strong organizational direction, nevertheless Wal-Mart ran into problems over non-union workers and benefits. The media attacked them and public sentiment deteriorated, causing the stock to slide.
No fundamental or technical analysis could have warned you. However, reading a little everyday would have given an indication, political/legal troubles were on the way.
Some prefer technical over fundamental, which is fine, but many lean to heavily on one particular indicator with little concern for others.
For Me: Fundamentals limit my basket of potential stocks, then technical analysis indicates entry points, support, and momentum.
After I have a few stocks of interest I begin to look at their external and perception indicators, paying close attention to their immediate surroundings.
After you have familiarized yourself with your preferred indicators, you should have an educated feel of the market.
Remember these tools are just indications of what may happen. They are indicators until they are no longer!
If you are unable to create a picture pointing you one way or another, you may want to stay in cash until you can get a better indication of the market’s direction.
So what do we know about today’s market from the vast percentage of indicators? We know the majority is pointing at a bear market.
We know the Industry Bell Curve is showing 39 of 44 broad sectors in bear status. A picture worth a million words!
I have been pilling through charts, news (domestic and international), company financials, economic reports, and the picture they keep creating is dark.
Nevertheless, the market may begin to trend higher on any given day, that’s just the nature of the beast!
Nothing in the market is certain, but the clearer the picture your indicators paint, the better your chances of making the right moves at game time!
