P: = Paul Mullen (Interviewer)
J: = James (Equities Analyst)
You can listen or download this interview by clicking this link:
Equity Analyst Interview
P: Hello, and welcome to everyone. My name is Paul Mullen. I'm also known as Trader333 and I'm the Content Development Editor for Trade2Win.
Today, I'm interviewing James, who is an equities analyst working in London, so a very warm welcome to you James. We'll start straightaway by asking you what is an equities analyst, assuming that is what you are?
J: Yes, that is what I am. It's quite a complicated role because I think the way it's perceived is people see the end product being written reports, generally, with recommendations and price targets, and so on. That's actually a very...
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Articles
Part of the learning process is for you to understand the different types of traders. In essence there are two, and these are a fundamental trader or a technical trader. For you to succeed as an online trader you must understand the differences. Both have very different views in the techniques they use to assess market conditions and the direction an instrument may take.
Whilst there is some overlap, these are two very distinct methodologies, and you need to be comfortable with one or the other. You will come across this terminology all the time. Whilst there are huge differences in the approach, it is safe to say that most large financial institutions now employ both methods as both have their strengths and weaknesses. Fundamental...
Ever wonder what makes a winning trader consistent? In my opinion that consistency is due to the trader having his own "edge" over other traders. This "edge" is what each trader must find for himself. Often traders focus on their results so much that they forget that every other trader in the world is doing the same thing: Trying to profit from price action alone. Trading this way can make you money, but what if you had an added edge to your strategy? In Commodity Futures, we have something called Open Interest that just may provide that advantage.
What is This Open Interest?
Open Interest is the total number of outstanding contracts that are held by market participants at the end of the day.
Contracts that are held overnight have...
You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing!
What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -
Why?
They aren't going anywhere. Some of the stocks that make the headlines every night were leaders of the market 20 years ago. New cycles bring new leaders; this has been proven year in and year out. So many of these TALKING HEADS shout out about "buy and hold" but what are they really holding? They hold old...
Many traders are seeking out assistance in their trading decisions from decision support tools we call technical indicators. While these are helpful, they are only to be used as support for our decision to buy where demand outstrips supply or to sell when supply overwhelms demand. We see this supply/demand imbalance on our charts as support and resistance. However, there is another useful data set that is independent of price that will give us clues as to the possible future of the markets. This data can be found in the Commitment of Traders report.
The Commitment of Traders (commonly referred to as the COT) report has been published by the Commodity Futures Trading Commission since 1962 and provides information on the open...
The end of 2007 was characterized by extreme values in various indicators of stock market analysis. In this article I will review and analyze four of them. I will use the term "indicator" here not necessarily according to the technical analysis jargon but rather as a set of clues (either measurable or not) under the same idea which can reveal specific internals of the stock market and imply bullish or bearish projections.
The First Indicator: Commercials Versus Small Speculators
The Commodity Futures Trading Commission releases weekly information known as Commitment of Traders (or simply COT) report about various markets which can be used to approximate the net open interest for futures and options in each of the following three...
Commodities Fundamental Analysis Getting Started The History of Gold and its relationship with Currencies
Much has been written about the current bull market in gold and how it compares to previous moves, in particular during the 1970s when the metal soared to at the time unimaginable heights.
On this basis it is worth looking at the background to the value story on gold, and this may shed some light on why its bull market may have significantly further to go for CFD traders in coming years.
The Gold Standard
The UK, which at the time was the world's dominant economic powerhouse, adopted a gold standard in the early 19th century. Other currencies then looked to have gold backing, and towards the end of the century, various European countries joined the standard, though some chose for a time use a joint gold and silver standard.
The...
Recently the IMF said that the UK's property was overvalued and this could result in a spectacular slump. House prices in the US have slowed down considerably since 2005.
The UK avoided the Recession in 2001 when many countries went into deep recession. Post 9/11 the UK interest rates were at the lowest for many decades, this resulted in a boom in the UK housing market as the cost of mortgages was at its lowest. The low cost of borrowing also saw a boom in the buy to let market with many investors having a big portfolio of properties.
Not only was the UK government on a spending spree but also the UK consumer, due to the easy availability of credit. Currently the UK personal debt level has exceeded more than £1 trillion. It is...
Newton's Third Law of Motion states that
"for every action, there is an equal and opposite reaction."
Such 'action' can be by direct contact, such as from friction, tension or applied forces. Then you have such 'actions' as a result of gravity, electrical and magnetic.
Forces come in pairs. For every action, there is opposite reaction. The size of the reaction is equal to the size of the action. Nature is filled with such evidences of this law. For example, when a bird flies it uses its wings to push air downwards. As a result, the air reacts by pushing the bird upwards. The size of the force on the air equals the size of the force on the bird. The direction of the force on the air is opposite the direction of the force on the bird...
A brief look at the three commodities that are said to drive inflation - silver, sugar and soybeans.
In the commodity markets, many inter market relationships exsist. Crude Oil, Gasoline, and Heating Oil are an example, the same for the bean complex with Beans, Bean Oil, and Bean Meal all being obviously related. The reason for the relationship is simple and easy to understand. They are all comprised of a common ingredient the.... Mother Commodity
However history has shown that there is many inter market relationships that are not as obvious. The reason for the relationship may not be as clear and, like many legends, could be subject to interpretation. They also are not necessarily as tight or as in sync as the aforementioned...
First of all, congratulations to everyone who made money on the recent Japanese Yen rally. One of my students caught some nice chunks of the recent move lower in USD/JPY, earning 70 pips and 85 pips on successive trades. Way to go, M!
The recent strength in the Japanese Yen created some terrific moves, but we should keep things in perspective - the gains made during the recent move lower in NZD/JPY (New Zealand Dollar/Japanese Yen), GBP/JPY (Great Britain Pound/Japanese Yen), and EUR/JPY (Euro/Japanese Yen) and other Yen pairs are nothing compared to the huge profits earned by long-term traders who were short the Japanese Yen when these pairs were rallying. For a case in point, have a look at the daily chart of NZD/JPY (see figure 1)...
If you buy a stock for $50 and it reaches an all time high of $100, but you sell at $75, why do you feel that you've made a loss?
Minds and Markets
In most people's minds finance and economics are the domains of clear, quantitative thinking. Economists merely uncover financial truth one after another as they develop new mathematical tools for modeling capital and how wealth is created. Markets, likewise, are ethereal natural forces tapped into rather than created. In truth, the assumptions that underly the pricing models used for the past three decades are based on two basic principles:
Meanwhile, down the hall on university campuses, researchers in cognitive science have uncovered evidence that humans are not quite the rational...
Shorting the Japanese Yen has been one of the best and easiest Forex trades over the past six months. Japan's anemic benchmark interest rate of 0.25% makes it an easy target for the "carry trade", allowing Yen bears to collect interest on their trades. Banks, hedge funds and other traders have shorted JPY vs. higher yielding currencies such as the Great Britain Pound, the New Zealand Dollar, the Australian Dollar, and the Euro to take advantage of this interest rate differential. This has ignited a downtrend in the Yen, which has been exacerbated as these institutional traders add to their short positions. Fears that the Bank of Japan would embark on a campaign of interest rate hikes, which would make the carry trade less viable, has...
How has another year come and gone so quickly? It seems like someone hit the fast forward button. And once again, all too soon, it is time for me to demonstrate my masochistic nature and write a forecast issue. Rather than going into details on every topic, I will try and stick to the big picture and leave the fine points for later letters.
Each year as I do this forecast, I look for a theme. What will be the driving factor which will set the stage for the economy? In 2001 it was the coming recession; in 2002 it was a weak recovery and the beginning of the Muddle Through Economy; in 2003 it was Surprise and Transition. In 2004 it was the Silver Lining Economy; in 2005 it was the See-Saw Economy. Last year it was The Gripping Hand, as...
In this article we look at the fundamentals behind stock prices and why the P/E ratio is not perhaps the best indicator.
I use the P/E ratio as a secondary indicator for buying and selling stocks but I don't use the ratio in the same a manner as many value investors teach. I will explain the difference in my methodology for using the P/E ratio to your advantage.
Many value investors will pass on a growth stock that has a P/E ratio higher than a predetermined level. For example, they may discard all stocks that have a ratio of 15 or higher, no matter what industry group they come from. Some investors will discard any stocks that have P/E ratios above the industry group averages, concluding that they are grossly overvalued. I am not...
The emerging market meltdown that occurred between May 12 and June 13, 2006, had an impact on currencies, the carry trade and incredible growth in derivatives over the last decade, as described in Part 1.
In summary, here are the issues we will be examining in part 2.
An index that has been uncannily accurate in providing advance warning of emerging market trouble and what it is saying now.
What the yield curve inversion for the third time in the last six months means. How accurate has it been in the past in warning of a pending slow down?
Based on the importance that real estate and related construction activities play in economies around the globe, what impact will a real estate correction have?
Real wage growth, a principal...
It was once one of the darlings of the FTSE, but over the past year the telecommunications sector has had a rough ride. So is it out of woods yet, or is there worse to come?
Changes in the telecom sector since the turn of the century have made the telcos a markedly different investment proposition since the high flying days of the tech boom. At the height of the bubble incredibly optimistic industry growth projections propelled the share prices to record heights. Inevitably the bubble burst, and in the aftermath investors shunned the sector.
However, today company balance sheets are stronger, prospective earnings multiples are generally in the low to mid teens, and surplus cash is flowing back to shareholders via increased dividends...
What effect does conflict and war have on the stockmarket? In this article we look at past wars/conflicts and examine what the future might be with the current conflict in the Middle East.
Maybe I should stop taking my two-week Nantucket trip each summer. Last year during our stay we were glued to the news over the London terrorist bombing, and this year it was Hezbollah's kidnapping of two Israeli soldiers, prompting the current fighting in the Middle East.
There's a thought on Wall Street that investors should be
"buying when the cannons sound and selling when the trumpets sound."
When thinking about this view I harkened back to mid-March of 2003, when on the eve of the current Iraq war, Schwab's Investment Strategy Council (which I...
A look a the current market correction - the 'canary correction' and what may have caused it.
When the Morgan Stanley Emerging Markets Index Exchange Traded Fund (EEM) hit an all-time high of $111.10 on May 9, 2006, it marked a meteoric rise from its humble launch price of $33.37 a little more than three years before. Volume had also grown exponentially from a mere 36,300 shares on April 11, 2003, to an average daily exchange of more than 3.5 million shares by early May 2006.
caption: Figure 1 - The Morgan Stanley MSCI Emerging Market ETF (EEM) dropped sharply between May 9 and June 13, 2006. May registered the biggest monthly decline in the history of the index, and the drop was only half over.
Chart provided by www.Genesisft.com...
A look at why we might not yet have seen the top of the oil price rise.
The above quote came from one of our companies earliest reports, published on 16 January 2001. The simple equation of supply and demand was the basis for our bullish view and remains so today. Demand is increasing every year, while supply is constrained by a lack of past investment, as well as the absence of any sizable new discoveries.
Five years on from our bullish prognosis, energy prices remain at the forefront of financial headlines. While oil has displayed significant volatility during the ascent to all-time highs above US$70 a barrel, we remain resolutely bullish about the direction of prices over the longer term.
The case for a high oil price is as...
A look at the yield curve and why it is said to be the most accurate forecast of looming recession.
I have written about the yield curve more than any other single topic in the almost six years of writing. There is a justifiable reason to pay attention to the yield curve. In certain very specific circumstances, it has been the single most reliable predictor of recessions. Let's examine what those circumstances are.
First, the yield curve is a graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Normally, you expect to get more interest paid to you for holding a longer maturity, as in theory there is more risk to holding a bond for ten years than for 90 days, or for 30...
Open interest is without a doubt the least used bit of market data by chart watchers. Conventional wisdom; prices up on increasing O.I. being bullish, is just as often found to be bearish.
What I want to show here is the relationship of O.I. and the buying patterns of the Commercials for the Commitment of Traders (COT) report.
I'll begin by showing a chart of gold with an indicator I'm sure you have never seen before, a 13 week stochastics of just Open Interest. Yes, this index is simply an oscillator of O.I. What we see is that, generally speaking, low levels in this index are found at market bottoms.
Thinking about it makes sense as what it is telling us is there is little interest, open or not, in the market we are studying. I...
The current account (CA) represents the sum of goods and services balances, income, and unilateral transfers
Studies show that industrialized countries running a current account deficit in excess of 5% of GDP will undergo exchange rate and/or price adjustment; currently the US CA deficit is hovering 6%.
In light of the market's overall focus on the sizable US current account deficit, the following note defines and explains the balance and its components.
What is the current account?
The current account measures a country's international transactions, and includes four main components:
Goods: Physical objects whose ownership is transferred across borders. Goods include both general merchandise (retail goods) and capital goods (i.e...
Based on comprehensive studies of the greatest stock market winners going back each decade, the biggest winners of all time consistently show the same seven performance common characteristics before they make huge price advances. These are the stocks that produce 100%, 500%, sometimes even 1,000% and a lot more in returns. Most of these winners were not yet household names, and yet, they were well-managed companies that began to build profits, and the necessary steam to make major price moves. CAN SLIM™ represents a checklist for those common performance characteristics, with each letter standing for a key trait any great stock will possess in its emerging stages. Independent studies by The American Associate of Individual Investors...
Some of the best investing and trading results I have had in recent years have been from riding on the coat tails of investors far brighter than myself, investors who have done far more research on a company than I will ever be inclined to do myself.
It can be a tedious process following all the dealings that get reported through the RNS announcements, but I try to maintain a list of major stakes and holdings in nearly three hundred UK companies. This allows me to keep track of who is increasing or decreasing their stakes in certain key companies. (see this sample)
Companies Act disclosure requirements allow private investors to keep track of the activities of shrewd investors who have a proven track record of successful investing...
It is appreciated that Trade2Win is first and foremost a "technical analysis" site. Those that know of me from T2W may be aware that my methodology is one of "fundamental analysis". From this rather black and white perspective, what do I have to offer the committed technical analyst? I offer you the
price/earnings ratio.
The P/E ratio, as it is more commonly referred to, lends itself well to the non-financial analyst for a number of reasons. I shall suggest a methodology that is hybrid in nature, combining the P/E ratio (exclusive of any knowledge, or reference to, the financial statements) with a technical chart that acts as a filter for the P/E ratio, imbuing the P/E's calculation with a factor of safety. We shall end up with a...
Why is this a good time to invest in the U.S.? Believe it or not, but it may be because of the deficit! Amid all the hand ringing and gnashing of teeth by politicians of both political parties over growth of the federal budget deficit, evidence suggests that right now may be the best time in a decade to be saving and investing.
Revisiting the bursting of the bubble
To fully appreciate why now may be a good time to invest in U.S. stocks despite record high deficits, it would be time profitably spent to revisit the spring of 2000 just before the tax deadline. The government was running a record budget surplus for the third straight year, and the stock market was at an all time high. During the week leading up to April 15 indices started...
Most traders tend to use technical analysis to pick their entry and exit points when trading, and swear by those methods, but if it were really that good why are there so many variations? More importantly, why do so many technical traders lose money? The answer is quite simply that they are using charts to predict the probable future price movement, based on patterns. Now that is okay but it is only slightly different from a gambler who might say that, based on the fact that there are 36 number cards and 16 face cards (excluding the 10s), there is a 9/13 chance of drawing a numerical card and as such he will place his money on that.
Now that is acceptable if one were to view the accumulation of wealth as a gamble, but for the serious...
Two of my favorite trading subjects are cycles and seasonality. In this feature, I'll discuss seasonality in agricultural markets.
I want to start out by emphasizing that seasonality or cycles, by themselves, do not make good trading systems. However, they are great "tools" to add to your "Trading Toolbox."
Seasonality in agricultural markets is a function of supply and demand factors that occur at about the same time every year. For agricultural markets, supply stimuli can be caused by harvest, planting, weather patterns and transportation logistics. Demand stimuli can result from feed demand, seasonal consumption and export patterns.
Livestock futures, too, have seasonal tendencies. Hog and cattle seasonals tend to be caused by...
Without a doubt, more people follow the price of Gold than any other commodity in the world, and with good reason. Gold, that archaic, barbaric, precious metal men and women have coveted since the dawn of mankind, not only presents wonderful opportunities for making money, it also continues to have a major impact on currencies, interest rates and markets across the globe.
Four factors that influence Gold
While there are many factors that have some impact on this glittery metal the ones that I have found to have the most impact are:
The US Dollar Relationship
The Seasonal Pattern
The Commercials
Stockmarket Crashes/ Depressions
Let's start by looking at the relationship between gold and dollar index , specifically the United...