Although a volatile market provides opportunity for speculative trading, making the right investment decision is a difficult task. Investors use various tools and information sources to help making an investment decision. Market data moving average is a popular charting tools among professional and amateur investors. Therefore the speculative trading portfolio will develop a strategy based on moving average to predict the trend of equity stock market. This can help to adhere to the rule rather than on impulsive decision to initiate or close a trade. On the other hand, as discussed in earlier posts, the speculative trading strategy is based on market participants mechanism, not pure technical analysis. Therefore there should be other constituents in the tools developed to help making a trade decision, other than pure stock price data, but also market participants behaviour. However, it may be difficult to model market behaviour in simple numerical data. As a start, market price and volume data will be used to develop a chart to track market trend. Details will be refined during progress of development.
Volatile week underscores bull market's fragility
U.S. companies, for the most part, are in good financial shape. Earnings are expected to be strong for the first quarter, and they've never had more cash. But world events -- like a nuclear disaster in Japan or a protest in Saudi Arabia -- can quickly jolt investors.
The S&P 500 index is down roughly 5 percent since they reached their recent highs in February, according to Standard & Poor's. That's enough of a drop to qualify for what market technicians call a pullback. There have been 53 such losses of between 5 and 10 percent since World War II, according to Standard & Poor's. Most pullbacks have averaged price drops around 7 percent, and required an average of two months to get back to even.
Looming over all of this is the Federal Reserve, whose $600 billon effort to stimulate the economy and buoy stock markets expires at the end of June. The Fed's stimulus program has helped the S&P 500 gain 19 percent since Fed Chairman Ben Bernanke first hinted at the plan in August. Investors were willing to shrug off bad news about the economy because of their faith in the Fed's powers.
Stocks aren't bound to fall into another bear market, says John Brady, senior vice president at the brokerage MF Global. Companies are largely healthy, he argues. That's what should matter most to investors.
Give it To Me Straight: Are Stocks Cheap or Not?
Alas, there’s never an easy answer. It all depends on how you try to value them.
According to FactSet, the S&P 500 is now trading at 13 times its earnings over the last 12 months. That’s well below its average over the last 20 years of 19.4 times earnings. But a good chunk of those 20 years had to do with the extraordinary stock market bubble of the 1990s. (In other words, that might not be the best average to use if you’re looking for a “normal” period to compare against today’s stock market.)
But even within the last five-years, the S&P average multiple was around 15. So stocks don’t really look expensive through that lens either.
But there are other ways to measure the market. Yale University’s bubble watcher extraordinaire Robert Shiller, who has tracked P/E ratios back to the 19th century, smoothes out short-term ups and downs in profits by using a 10-year earnings average. Into the first week in March, Shiller calculates that stocks were trading at about 23.7 average earnings over the last 10 years. That’s well above the historical average of about 16. (On the other hand, it’s not as clearly overvalued as the multiples of 40 times the 10-year average that we saw during the tech bubble of the 1990s.)
How Now, Dow?
It may seem odd to turn to the Dow Theory for an assessment of the stock market's current prospects.
After all, it was created a century ago, well before nuclear power plants even existed — when fears of a nuclear meltdown were beyond anyone's imagination.
To best appreciate what the Dow Theory is telling us, a bit of background is helpful. According to the theory, a sell signal is triggered only when three conditions are met:
Both the Dow Jones Industrial Average and the Dow Jones Transportation Average undergo a significant correction from joint new highs.
In their subsequent rally attempts following that correction, either one or both of the Averages fail to rise above their pre-correction highs.
Both Averages then drop below their respective correction lows.
Where are we in this three-step schema?
I turn first to Jack Schannep, editor of TheDowTheory.com and the Schannep Timing Indicator, whose interpretation of the Dow Theory has been the most successful in recent years among the three investment services I monitor who base their market timing on the Dow Theory.
Schannep in essence believes that we are still within the throes of Step No. 1. In fact, on his interpretation, attention doesn't shift to step No. 2 until the market stages a 3% rally — and no rally since the market's mid-February high has come even close. Even with Thursday's strong rally, for example, the Dow is just 1.3% above its correction low.
On the assumption that a Dow theory signal remains in effect until reversed, therefore, Schannep remains solidly in the bullish camp.
Hedge Funds Had Bets Against Japan
Even Before the Disaster, Big Investors Were Wagering on Economic Problems
Hedge-fund managers from Kyle Bass of Hayman Advisors LP in Dallas to smaller firms like Commonwealth Opportunity Capital have made money since the earthquake on long-held bets on Japan's government and corporate bonds.
New (and Old) Members of Congress Are Very Rich: Good or Bad For Democracy?
"On balance members of Congress are just exponentially wealthier than the constituents that they represent," says David Levinthal, editor of CRP's OpenSecrets.org.
The latest batch of new Senators are even wealthier, averaging a net worth of $3.96 million. In total, the combined new class is worth half a billion dollars, according to CRP.
On the one hand, don't we want the ambitious and successful representing the people? Isn't it a noble calling for someone who's had success in the private sector to then want to give back to the public good?
On the other, are these multi-millionaires in touch with the needs of the people? A vast majority of Congress are millionaires, yet 1% of the broader population can make that same claim.
Does being wealthy make these members of Congress less susceptible to special interests and corruption? Or, does it make them less likely to raise taxes on the nation's highest earners?
D.C. Disconnect: Congress Represents Big Interests, Not YOUR Interests, Sachs Says
“Washington is unrealistic. They are not talking about real things,” like military spending and entitlement programs, he tells Aaron in the accompanying clip. Instead, Congress and President Obama seem set on cutting civilian discretionary spending, including on education, that directly impacts mainstream America.
Sachs goes on to say that our fiscal house would be in much better shape had Congress not extended the Bush tax cuts at the end of last year. “All the politicians in Washington have one strategy, don’t say 'taxes' at all,” he says. “But if you know the budget if you really know the numbers, you know that without taxes at least at the top, there is not even a chance of one in a million of getting anywhere close to a responsible budget.”
“What they are doing is taking cuts out of the hide of the poorest people in this country….[leaving] those who have massive wealth completely unscathed,” he says. “It is all a game for next year’s campaign financing: In other words, don’t touch the big boys, they got to pay for your campaign.”
“There is such a disconnect between what the American people say, and what Washington does, you wonder if this is a democracy,” Sachs says. “The American people say 'get out of Afghanistan, stop wasting money on the military, raise taxes on the rich and [opt for a] public option on health care.' Of course, the interests, the powers that be oppose all of that.”
The New Robber Barons: All Politicians "In the Hands of the Super Wealthy," Sachs Says
But Sachs says the "real story" is much bigger than Wisconsin: It's about stagnant wages of public and private sector workers alike, and the increasing and increasingly pernicious role of big money in politics.
The following statistics speak to Sachs' first point:
Since 1973, the median take home pay of full-time workers is virtually unchanged on an inflation-adjusted basis.
The top 11,000 households in America have more income than the bottom 25 million.
Since 1976, 58% of real income growth has gone to the top 1% of Americans.
"We've reached the greatest income [and] wealth inequality in history," Sachs says. "This is a new ‘Robber Baron' era, of course."
China Ends America's Century Old Manufacturing Dominance
Ending a 110-year run for America as the world's dominant producer, China has overtaken the United States as the world's largest manufacturer. According to economics research firm IHS Global Insight, China manufactured 19.9% of the world's goods in 2010, while the U.S. accounted for 19.4%.
True as that might be, it doesn't mean the world's most populated country is destined to hold the crown for as long as the U.S.. China is already suffering the growing pains of higher labor costs, labor shortages and a push for better working conditions in its factories.
There is, however, plenty of reason the U.S. should use this as a wake-up call. America must recognize China is no longer just producing low-end cheap products, it's now home to many high-tech components that live in Apple devices and other consumer electronics. Thanks to better technology, education and infrastructure the Chinese will continue to move up the production food chain, including highly sophisticated weaponry.
States push harder for online sales tax collection
Tax-free shopping is under threat for many online shoppers as states facing widening budget gaps increasingly pressure Amazon.com Inc. and other Internet retailers to start collecting sales taxes from their residents.
Billions of dollars are at stake as a growing number of states look for ways to generate more revenue without violating a 1992 U.S. Supreme Court ruling that prohibits a state from forcing businesses to collect sales taxes unless the business has a physical presence, such as a store, in that state.
States are trying to get around that restriction by passing laws that broaden the definition of a physical presence. Retailers are resisting being deputized as tax collectors.
Until recently, the Supreme Court ruling has meant that Wal-Mart Stores Inc., based in Bentonville, Ark., would collect taxes from shoppers in all states with sales taxes, whether those shoppers buy items on or off the Web, because it has stores nationwide.
But Amazon, based in Seattle, wouldn't collect taxes from Floridians because it doesn't have a presence there. Although in such cases, shoppers in Florida are supposed to pay the tax directly to their state, few actually do.
Congress could give states authority to require tax collection by out-of-state retailers. Michael Mazerov, a senior fellow with the Center on Budget and Policy Priorities, believes such a federal law would be the best way to ensure that states get their taxes, but he understands why such efforts have stalled in Congress.
"It's tough legislation politically because you're asking Congress to pass legislation where they will be unfairly and inaccurately criticized as imposing a new tax," Mazerov said.
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