This was a pretty horrible week for the market with two 100-point days and Friday closing on the lows.

During these past few days Sir Alan told us things are looking up and the economy is basically strong. Mr. Market didn?t hear him. It seems that jaw boning can?t get people to buy. In fact there were more sellers than buyers.

If you go back in history it is a truism that has become conventional wisdom that the stock market goes up during an election year. The reasoning is obvious. The president – who ever he is – in office will pull out all the stops to create the illusion that the economy is in good shape and he is the one who takes credit for it. Both Mr. Bush and the Fed chairman better get their best top hat out and reach way down for that white rabbit.

It is going take some real magic to get folks in a buying mood. The lower it goes the less likely they are to buy. Of course, brokers are calling and telling investors, ?This is the break to buy. Stocks are cheap. Better get on board now. You can?t let this opportunity pass by. You can?t afford to be out of the market.? And on and on with the platitudes. Don?t believe any of that hog wash.

What brokers should be telling investors is to protect their money by placing stop loss orders. You can be sure that won?t happen. The big brokerage firms frown on stops and punish brokers who encourage customers to use them. Fortunately, when I was a broker I worked for company that did not penalize this concept and I refused to take a customer who would not place stops when they bought something. That is why I never lost customers and had them for years.

This year the major indexes (DOW, S&P, and NASDAQ) are down. Not a great deal, but definitely lower. This means for those who invest in index mutual funds that they are running a loss. Brokers always say, ?You are in for the long haul? so not to worry about what is happening now. That?s what they told you in 2000 and you still have not recovered your losses from then.

No brokerage firm tells the true story of the secular bull and bear markets. These have occurred with great regularity for the past 200 years and will, if history continues to repeat, follow the same course. The shortest secular bear has been 8 years and the longest 25 years. At a minimum we are not half way through this one. Prudent investors (and I hope that?s you) will protect their portfolios with stop loss protection on every position. Every broker and financial planner will advise against it, but it your money not theirs.

The market is not magic. Hocus pocus and white rabbits will not make it go up for very long. Illusions are not where it?s at. Forget the brokers? abracadabras and place your stop loss protection today.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

1-888-345-7870; al@mutualfundstrategy.com

The main principle of fundamental analysis is to find profitable companies to invest in by comparing revenues, sales, management, etc. There are two types of drivers to look at in fundamental analysis: internal drivers and external drivers.

Internal drivers are company factors that are directly related to the actual business in question. For example, liabilities, assets, revenue, income, products, management, etc. It is these characteristics in a company that you will be comparing to other companies in the same industry. This allows the trader to get a general understanding of where this company ?sits? in relation to other companies with similar businesses. A trader can also use these internal numbers to calculate many different ratios that will help determine if the company is currently undervalued or overvalued.

Who is the management? What have they done in the past? What is the quality and diversity of the management team? All these questions can lead to a lengthy discussion about the particulars of each individual in management. Traders should use reports, news, internet, and other sources to help make an informed decision about the management team.

What are the company products and/or services? How does it compare to other competitive products? What?s unique? Why is it better? If you would not be willing to buy the company?s product why would you invest in that company? Companies with inferior products, weak development/product cycles, poor quality companies tend not to last very long. (I?m sure there are some exceptions to that rule, but it can be considered bad policy to invest in companies with bad products).

Production is very important when it comes to companies that produce oil/gas, wood, power, metals etc. Their value depends highly on their production output as well as the current value of the product. The more a company produces, the more it can earn. As well, these specific commodities vary in cost, the higher the value of the product, the higher the potential for profit. Oil is a perfect example of this relationship. As global oil prices rise so does the value of oil companies.

Profit margins are important, or for that matter, profit in general is important. Profit can be considered the keystone to fundamental analysis – the more profitable the company, the higher the potential for dividends as well as price growth. Most valuation techniques compare profit in some form or another to that of similar companies.

Companies that have not yet attained net profit are still in the early stages of development. While these companies generally have a larger growth potential, they also have more risk. Companies that are producing net income can generally be considered established in the market place. There is less risk, and typically, the price of the stock will reflect that. The axiom here is that the more the company makes, the more the company is worth.

Is there an institutional presence? The level of institutional presence is determined by the amount of shares outstanding that are owned by institutional investors (mutual funds, pension funds, investment houses, etc). As small companies mature, there is a point where they will be recognized by institutional investors. When these institutions begin investing in a company, the stock price will reflect that recognition (also when they sell out, it will be noticed in the stock price as well). Larger and more established companies typically have larger percentile institutional presence than smaller companies (micro-caps tend to have little to none).

While the study of volume patterns is in the realm of technical analysis, volume can also be used as a fundamental indicator. Does the company you are looking at have enough share volume to sell your shares at a later date?

External drivers are factors which are outside the company?s influence that can affect profitability. For example, the economy, inflation, interest rates, politics, bond market, etc. External drivers can be interpreted differently by different individuals. Remember, there is no magic formula.

Alex Martin is an senior analyst with MHP Systems Inc. http://www.chartfilter.com

Most brokers have not learned their trade – investing. Webster says that means putting money into something (stocks) for the purpose of obtaining an income or profit. When people look at their brokerage statements these days they must wonder where their broker went to school. Investors could have done better with a dartboard.

Brokers are not taught to make money. They are taught all the regulations that come out of Washington that must be followed so the brokerage company will not be sued. To my knowledge none of them are taught the basic fundamentals of increasing customers’ wealth or protecting the customers’ capital from loss.

Brokerage houses hire people to do reports about companies. They call them analysts, but today those jobs have deteriorated into snow jobs to get people to buy stock in a particular company. When you read the report you will find it very professionally done with pretty pictures and graphs and charts. Wow! I’ll buy that. And a few months later you will wish you hadn’t. When you have a loss the standard reply is, Don’t worry. You are in for the long haul. The market always comes back. In your lifetime? Today there are hundreds of stocks that have lost 50% to 90% of their value and there is absolutely no hope they will ever recover those losses. But?.you are in for the long haul. You now have the Buy and Hold philosophy.

Why do so many people cling to this doctrine?

You have a stock you bought for $40 per share that went up to some profitable number and now is down below $10/share. You’re out 75% of your money. You are waiting for it to go back up so you can get out even and I will tell you even is a loser.

Many years ago I heard a story about how they used to catch monkeys in Africa. A hole was made just big enough for the monkey to get his outstretched hand in a hollowed out coconut shell. Fruit and sweets were placed inside. The monkey put his hand in and gripped the goodies, but could not remove his clinched fist. It refused to let go even when the hunter came to put him in a cage. All the monkey had to do was let go of the candy and he could have escaped.

Many investors are the same way about the stock they bought. They won’t let go. The investor does not want to admit he was wrong. You are not wrong until you sell – just broke. Small losses will not hurt you, but holding on can put you in the poverty cage. Buy and Hold conventional wisdom will break you. Learn to let go of the losers quickly and you will preserve your capital.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

al@mutualfundstrategy.com; 1-888-345-7870

If we’re to believe the efficient market hypothesis then the shocked stocks price is reflective of all new information so wouldn’t warrant a purchase (based solely on the price shock.) However, if there are exceptions to the EMH, or if it takes time for the price to reach it’s EMH point, then there is value in studying reactions to price shocks.

In this article we’ll study how stocks recover from various levels of price drops in one day. This will help us understand if there is any advantage to purchasing directly after one of these events.

Analysis Setup

The data was based off a group of randomly selected days from the years 2004, 2005 and 2006. The next few days afterwards were then analyzed to build the statistics below.

Stock price was restricted to those above $1. This was done because penny stocks are very volatile and could skew the data. Studying penny stocks is very interesting as well, but a separate concern.

Stock volume was restricted to those above 25,000 on a daily basis. Again, this was done to prevent skews in the data. Low-volume stocks behave differently than larger volume ones.

Buckets were created for easier representation and analysis, based on the amount of the initial price shock. The buckets were chosen as 1-5% drop, 5-10%, 10-20%, and an extra one for all stocks as a comparison.

Note: The selection of the years 2004, 2005 and 2006 as the period for the test has implications we should expect up-front. The market during this period was generally considered bullish we should expect somewhat different results were we to analyze a bearish period.

Tracking price high after the drop

The first part of the analysis was to examine the price highs achieved several days after a significant downward price shock. We’ll check the performance of the stocks in each bucket for several days after the drop.

Here are the average price highs achieved by each bucket 1, 2, 3, 4 and 5 days after the initial drop compared to the close on the drop day:

• All stocks: 2%, 1.5%, 1.0%, 1.4%, 1.5%
• 1-5% drop: 2.1%, 1.9%, 1.5%, 1.6%, 1.8%
• 5-10% drop: 3.8%, 3.2%, 2.3%, 2.4%, 2.5%
• 10-20% drop: 4.2%, 3.5%, 7.1%, 6.8%, 9.4%

Analysis

First of all, there are no negative values because we’re looking at the highs. It would be very rare for a stocks highest trade price to never reach it’s close on the previous day, especially during a generally bullish market.

The stark contrast between the 10-20% bucket vs. the others is very surprising. All other categories have a negatively-sloped line but 10-20% has a significant positive slope. If we carried this out further than 5 days we can assume it would achieve a similar slope to the other categories.

Why the swift partial recovery for 10-20%? One point to note is that of all the stocks found in this category their average drop on that initial day was about 12%. We then see them reach an average daily price high of about 9.5% higher than the close on the day of the drop, so that’s about an 80% recovery. One explanation is that often after a large downwards price shock the value investors will come in and start buying at the lower price.

Now, it’s definitely debatable whether analyzing the daily price highs is representative of the true recovery of a stock, so we’ll look at the daily closes next. The highs may be more applicable to active traders, rather than investors.

Tracking price close after the drop

Here are the average price closes by each bucket 1, 2, 3, 4 and 5 days after the initial drop compared to the close on the drop day:

• All stocks: 0.2%, -0.2%, -0.5%, 0.0%, 0.1%
• 1-5% drop: 0.15%, -0.1%, -0.5%, -0.15%, 0.0%
• 5-10% drop: 0.1%, -0.5%, -0.9%, -0.7%, -0.7%
• 10-20% drop: -0.4%, -0.7%, 2.6%, 2.5%, 5.9%

Analysis

The only surprise here is that the 5-10% group dropped more than the 1-5% group. This is a bit counter-intuitive since naturally the 5-10% group has more room for recovery. However, it’s definitely feasible that the reasons for the price drops in the different categories would be different. This would obviously affect how willing investors are to pick up the stock after the drop.

Conclusion

The apparently significant ability for a stocks price to recover after a large downward price shock could be a useful addition to the selection process. Keep it in mind when a strong stock takes a bit hit as the market may be emotionally over-reacting to bad news.

Since the price highs, rather than closes, rebounded much more for the 5-10% and 10-20% drop buckets, compared to all stocks, active investors or traders would probably be more likely to take advantage than the average person.

Neil Thier – http://www.marketfilters.com

Neil is a founding member of MarketFilters.com, an innovative technical analysis tool. We offer easy and powerful scanning and filtering of stocks, back-testing, watch lists, and other tools.

A broader definition of penny stocks refers to the company?s market capitalization instead of its stock price. Market capitalization of a company is calculated by multiplying it stock price by the amount of shares outstanding. This number provides you with the total dollar value of all the shares in the organization at that instance of time.

A case in point can be Microsoft that has a market cap of around $300B and Dell that has a market cap of $70B. The classification of a company in small cap depends on the concerned broker. While for some organizations companies below $2b in market cap are considered to be small cap, for several others, small cap companies will only be under $1B.

Penny stocks have a great significance in the life of investors. With the help of penny stocks investors can incur huge gains in very short period of time as small as minutes and hours. Though the volatile market of penny stocks has many drawbacks yet the outweighing positive point is that investors can incur hefty benefits in nit just few days but in few hours.

Penny stocks are more enticing due to their cost-effectiveness. Unlike blue chip stocks the penny stocks demand less investment that can go a lot farther. For instance accumulating 10,000 shares of a penny stock can cost only $1000 dollars while same number of shares in a blue chip might cost as much as $10,000,000. Similarly penny stocks offer the advantage of occupying a large position in a company for minimum amount of money. For example a $5000 investment in a blue-chip company will provide the investor only a negligible share in the overall company whereas the same amount invested in penny stocks will offer you a complete 1% stake in the public company. Moreover if over the year that company expands and grows successful, your profits and shares can simply multiply.

However penny stocks too have quite a few shortcomings. The foremost disadvantage as is the volatility of the market. If on the one hand the volatility is beneficial for the investor on the other hand it can be fatal too. Investors can incur huge losses if the market fluctuates in an unwanted way. Due to the high-risk factor involved many investors completely stay away from investing in penny stocks and few others invest only a small amount of money in it.

Another drawback is that unlike stocks such as NYSE or NASDAQ, listed on more global exchanges, penny stocks have less financial disclosure requirements and release less reliable financial information in comparison to its other big counterparts. Moreover lack of easily accessible and trustworthy information about these companies provides space for temporary establishment of sham companies that can deceit and harm the investors.

Mansi Aggarwal recommends that you visit Penny Stock Research for more information.

One indication that the market is getting into nervous territory is the tendency for traders to jump in and out of high-flying stocks while spending most of their time parked in less volatile issues or cash. It?s called ?rotation.?

When markets are stuck in a funk, chances are good for managers to sell something and simply go to cash. But when the market is like this, they don’t want to miss anything even though they are nervous about the overall market. So they very often sell something and buy something else.

We find evidence by looking at the smaller cap issues. On a day when the big guys are getting cracked over the head, often we see the small issues pick up a few points. That means they don’t want to take their money home, so to speak. They want to stay fully invested, but they don’t want to get killed if something goes wrong.

Have you noticed how analysts do some very interesting things when the market is running full tilt? Sure, they will come out on the high flyers, but you will also see them upgrade paper stocks and energy. There is a reason for that. They want those safer havens looking attractive as they rotate money out of extremely overextended stocks and into something else that has a chance of making even more. If the coast is still clear in a day or two, they can come back into a high flyer for hopefully more short-run profits.

For our money, we?d follow the same type of management style also. If you see the NASDAQ futures down a ton in the morning, consider doing what the Street will do–take some profits out of your big gainers and put them into smaller cap stocks or even safety stocks for a day or so. Chances are good the big guys will be doing the same, and the smaller issues have a good shot at moving up.

For a FREE report on HOW TO TRADE FAST, enter your email address at:

http://lb.bcentral.com/ex/manage/subscriberprefs?customerid=12826

MISTAKE ONE

Lack of Knowledge and No Plan

It amazes us that some people expect to trade the stock market successfully without any effort. Yet if they want to take up golf, for example, they will happily take some lessons or at least read a book before heading out onto the course.

The stock market is not the place for the ill informed. But learning what you need is straightforward ? you just need someone to show you the way.

The opposite extreme of this is those traders who spend their life looking for the Holy Grail of trading! Been there, done that!

The truth is, there is no Holy Grail. But the good news is that you don’t need it. Our trading system is highly successful, easy to learn and low risk.

MISTAKE TWO

Unrealistic Expectations

Many novice traders expect to make a gazillion dollars by next Thursday. Or they start to write out their resignation letter before they have even placed their first trade!

Now, don’t get us wrong. The stock market can be a great way to replace your current income and for creating wealth but it does require time. Not a lot, but some.

So don’t tell your boss where to put his job, just yet!

Other beginners think that trading can be 100% accurate all the time. Of course this is unrealistic. But the best thing is that with our methods you only need to get 50-60% of your trades right to be successful and highly profitable.

MISTAKE THREE

Listening to Others

When traders first start out they often feel like they know nothing and that everyone else has the answers. So they listen to all the news reports and so called experts and get totally confused.

And they take tips from their buddy, who got it from some cab driver?

We will show you how you can get to know everything you need to know and so never have to listen to anyone else, ever again!

MISTAKE FOUR

Getting in the Way

By this we mean letting your ego or your emotions get in the way of doing what you know you need to do.

When you first start to trade it is very difficult to control your emotions. Fear and greed can be overwhelming. Lack of discipline; lack of patience and over confidence are just some of the other problems that we all face.

It is critical you understand how to control this side of trading. There is also one other key that almost no one seems to talk about. But more on this another time!

MISTAKE FIVE

Poor Money Management

It never ceases to amaze us how many traders don’t understand the critical nature of money management and the related area of risk management.

This is a critical aspect of trading. If you don’t get this right you not only won’t be successful, you won’t survive!

Fortunately, it is not complex to address and the simple steps we can show you will ensure that you don’t blow up and that you get to keep your profits.

MISTAKE SIX

Only Trading Market in One Direction

Most new traders only learn how to trade a rising market. And very few traders know really good strategies for trading in a falling market.

If you don’t learn to trade both sides of the market, you are drastically limiting the number of trades you can take. And this limits the amount of money you can make.

We can show you a simple strategy that allows you to profit when stocks fall.

MISTAKE SEVEN

Overtrading

Most traders new to trading feel they have to be in the market all the time to make any real money. And they see trading opportunities when they’re not even there (we?ve been there too).

We can show you simple techniques that ensure you only pull the trigger when you should. And how trading less can actually make you more!

David Chandler

For free mini-course on stock and options trading click the following link:

http://www.StockMarketGenie.com

Or visit our blog at: http://stockmarketgenie.blogspot.com/

Ordinary People Making Extraordinary Profits!

The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn’t worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.

Just about thirty years ago there were only full service stock brokers, offering order execution and investment advice at extremely high costs. Then the first discount brokers came in with low fees just for trade execution. They gained market share pretty quickly because many investors were making their own investment decisions and were just looking for cheap order execution at the stock exchange.

The trend continued with the help of the computer technology and the invention if the Internet. Today online discount brokers are huge companies in a multi billion dollar industry. Order execution by phone got rare. Now self-educated investors and traders get highly sophisticated trading platforms from their stock brokers at no additional costs.

These software trading platforms offer everything from instant order execution at all US stock exchanges to real time quotes, news and charts. Even advanced technical analysis is available today at minimal costs. Transaction costs came down so much that they are not really an issue anymore. Only day traders who do sometimes up to several hundred trades a day have to watch their trading costs.

The full service broker is still an option for many. If you don’t have the time to watch quotes and read the news all time then you may want to have somebody who does this for you. This is where the full service broker comes into play. He offers personal service and attention, takes care of your financial planning, gives you investment advice, discusses all trading decisions with you and executes the trades for you. All these at a higher price of course.

If you don’t even want to bother which stocks to buy and why, then the money manager is your choice. He makes all the decisions for you and just reports to you what has happened.

The online discount brokers can also be divided into three groups. The first one is the classic discount broker which offers extremely cheap order execution through a simple and easy to use software platform. The second type of discount broker offers additional services upon request, for instance phone orders at extra costs or access to research information.

The third type of online discount broker targets professional private or institutional traders who need advanced order execution and direct access to different markets and order routing ways. They give you the option to choose between dozens of order routing ways and order types to improve the order execution speed or quantity.

No matter what broker you want to use, he should be member of the SIPC in the case the discount stock broker gets into financial problems. Then your account is insured up to $500,000.-

David A. Sorenger is a stock market expert and provides detailed information on online discount stock brokers at his web site http://www.StockTradingABC.com.

If valuation is the key to buying stocks then there should be some kind of a formula to determine what is undervalued and over-valued. In every industry there are formulas for standards of performance. For cars we want to know the zero to 60 miles per hour in how many seconds. For soap we want it to be 99 and 44/100 percent pure. For alcoholic beverages it could be how long it has been aged. And on and on.

Yet in the stock market we have no hard and fast set of rules by which to judge a company performance. Ah, and there?s the rub! No matter how good a company performance might be it may have no bearing on the price performance of the stock. You can find good companies that are within a sector that is doing poorly and yet one company can be making huge profits and sales, but the stock price is going nowhere. There need not be any correlation.

When you are in a bull market almost every stock goes up ? even the dogs. When you are in a bear market almost every stock goes down ? even the best ones. We ended an 18 year bull market in 2000 and almost without exception every stock headed for the exit.

Bull and bear markets follow relatively standard patterns of about 16 to 18 years up and 16 to 18 years down and the valuations go right along with them. If you own stocks or especially index funds during the bear periods you will be lucky to have broken even at the end of the 16-year cycle. Cash in your mattress will outperform market returns while the bear is in charge.

During these bear times there will be periods when the market will have a nice advance such as the one we saw start in 2003. These intermediate rises can ultimately bring many investors back into the market only to lose it when the rally is over and true valuation returns.

One valuation measurement for the overall market is the Price/Earnings ratio of the S&P500 Index. The median number for the historic purposes has been around 14. Today it is running about 21 which is considered high. When bear markets end the P/E can be about 6 or 8. There are other factors to be considered when buying any stock or fund, but the one thing that is most important is to have an exit strategy. Without one you will give back your profits.

No one knows exactly where the top or bottom of a market move will be. Knowing conventional valuations is one tool to help your buying and selling decisions.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

In the column next to them there is a list of Top 25 Growth Funds for the past 3 months for the year 2000 to date. Only 2 had increases in price for the year 2000, 4 were even and all the rest are showing losses for the year.

Now pay attention and think about this next sentence. Not one mutual fund appears in both lists.

What is the significance of this? It very simply tells you that buy and hold is NOT the way to make money with mutual funds.

I have been preaching for years to buy only no-load mutual funds and hold them only as long as they are going up. When they stop going up you sell them (paying no commission) and find another fund that is going up as the place to have your money. In this current bear market the latter is hard to find so what do you do? Put your money in a money market account and don’t worry about the market going down and dragging your investment with it. Protect your capital!

Don’t throw up your hands and say I can’t do that because my broker says to buy and hold – the market always comes back. It is not his money. It is yours. You must be the one to initiate the action to protect your capital. Brokers are not taught how to do this. I know – I used to own a brokerage company.

Brokers have been smart enough to learn, but taught all the wrong things when it comes to investing money. They claim you can’t time the market. WRONG again. They never encourage you to place stop-loss orders so you won’t lose all your money when you buy a new stock or fund and they never encourage you to use a trailing stop to protect the profits you have made.

I know there are people reading this column who have had stocks that have doubled, tripled, even more and now have that same stock that is now selling for less than they bought it.. Where was your broker when all this was happening? If he is so smart why didn’t he tell you to sell at the top? This also applies to mutual funds.

What I am trying to get across is the simple message that you cannot buy and hold. The secret every knowledgeable investor knows is to protect his capital first and then to protect his profits second.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005