Still Too Early to Cheer Housing Starts

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We recently learned that housing starts “beat” expectations in November, rising 3.9% over the previous month. I am not a housing expert, but I thought increasing supply in an already oversaturated market with depressed demand is a bad thing. However, a recent Bloomberg article discusses why more homebuilding is a positive for the economy as it would add a significant amount of jobs to the economy. While this may be true, I believe improvement would be offset by a continuing decline in home prices.Home prices still falling:- Despite the dubious calls that say housing has bottomed or that real estate is the buy of the decade, the fact of the matter is that home prices are still falling in most areas of the country. The most recent Standard & Poor’s Case-Shiller composite home price index showed home prices fell in all 20 cities that the index tracks in October from the previous month. This was even worse than September, when only 18 of 20 metro areas posted declines from the previous reading. In October, the index fell by 1.3% from September, which is good for 0.8% decline year-over-year. That is pretty substantial, folks, especially in the face of the declines that have already occurred.Zillow Real Estate Research estimates that by the end of the year, home prices in the United States might fall by more than $1.7 trillion, which is also significantly higher than the $1 trillion drop last year.Another huge hurdle for the industry is the still-increasing number of foreclosures that add to the housing inventory. In fact, in the third quarter, more than 288,000 homes were foreclosed on a record high that was an increase of 7% over the previous three months and 22% year-over-year increase. The number of foreclosures in the fourth quarter is expected to decline as a result of banks like Bank of America (NYSE: BAC), JP Morgan (NYSE: JPM), and PNC Bank (NYSE: PNC) placing a temporary moratorium on foreclosures because of the Robo-signer fiasco. However, the banks’ issues do not change the fact that many homeowners are still underwater and at risk of foreclosure.Conflicting views on housing:- Some turned more bullish on housing and the homebuilders in particular when Toll Brothers (NYSE: TOL) recently reported a profit after 11 straight quarterly losses, even though the profit was primarily because of tax benefits from a reversal of a valuation allowance. Nonetheless, the company’s CEO said he expects to see improvement in the market in 2011 and that 2012 will be a “big year.”We also recently heard from another good indicator of the housing market: home improvement retailers Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW). While both companies posted decent quarters thanks to cost-cutting and operational efficiencies, neither of their CEOs was bullish on the housing market and said consumers have been slow to spend money on their houses.Lowe’s CEO Robert Niblock does not yet see any upside in the housing market and believes that home prices will continue to fall next year.No home improvement:- The number of new homes being built does remain at historically low levels, which I believe is a good thing as the data I reference shows a housing market in which stabilization has still not occurred and home prices that on average are not poised to rise in the near future. While opinions may differ, I believe the time is still not right to cheer an increase in housing starts. Perhaps the headline this month should read that housing starts “missed” expectations. At least then I could get more bullish on the housing sector.

Investment Products Fixed Deposit Versus Stocks

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Before understanding the importance and the use of fixed deposit calculator it is essential to know the meaning of fixed deposit.Well, a fixed deposit is an investment product. It is one of the most popular options available in the financial market today; especially for people who would like their money to be safe and at the same time seek guaranteed protection from the vagaries of financial markets.In simple terms, a certain amount of money is placed with the bank, as deposit. This deposit earns interest depending upon the prevailing rates.

The accrued interest along with the principle amount is then returned to the account holder at the end of the term which can range from fifteen days to ten years. Interest is calculated on monthly, quarterly, half-yearly or on annual basis and then added to the principle amount.Typically, the funds cannot be withdrawn before the end of the term.Here are some of the advantages of fixed deposits.1. Extremely safe.2. Protection against market vagaries.3. Loans can be availed on such deposits (up to 75%).A fixed deposit calculator is an application to calculate the maturity amount. Many websites offer this software.

The user simply inputs various parameters such as amount, deposit period to get the net amount payable to them after the end of the term.They are Bombay Stock Exchange or BSE and National Stock Exchange or NSE. It is advisable to screen the stocks before buying. Stock screeners are basically research tools, some of which are free, while some come with a big price tag. BSE stock screener helps in identifying the weaknesses and the strong points of a company.Once you have understood the risk factor involved and screened the stock, the next step is to select a broker who will help you in buying or selling as the case maybe.You will also need to learn the technical terms of stock trading, such as market order, stop loss, margins and block purchase. They may sound difficult to interpret but over a period of time and with the help of your broker, these terms may not overwhelm you.Finally, you will need an account with a bank to trade in stocks.

Commodity Trading Blunders I, Part 2 – My Early Days As A Novice Trader

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There is always “year one” for every commodity futures trader. I had mine and made every mistake a trader can make and more. Here’s my story of how I stumbled into the lion’s den, got gored a few times and even made some money. My hope is that beginners will read this and avoid some of the more obvious stuff. Here’s to all new traders!

The final day the Boston Broker From Hell called, I was loaded for bear. I asked him how much?he charged for commissions. He balked and tried to sidestep it. After a while I got him to admit they were taking $4,500 off the top to cover commissions. $4,500 chopped from a $15,000 account! That?s over 30%. He said that over a year’s?trading?I would blow that much in futures commissions anyway. I later figured out they would put you into a futures contract position and let it sit until the margin call came or they rolled it into another trade. If the money grew, they would want another cut off the top. Gads. Needless to say, I insulted him and hung up.

A month later he called back and beat me up again. Sugar future contracts was now at 15 cents and I would have been up $16,000! Well, after their commission chop, make that $10,500. The kid was cockier than before and was really sounding smug. Now he wanted me to get into lumber futures.

But by this time I had read a commodity trading book called, ?Trident – a trading strategy,? written by Lindsey. A young Larry Williams was one of the promoters for the seminars. It was a $1500 seminar. I didn?t attend – just read the book. I was now enlightened. I told the Kid from Boston, ?the swing objective of sugar is 18 cents.? I asked him why I needed to pay his $4,500 commissions when I had all the answers… HA! He realized I was a lost cause and said good bye for good.

As a fitting epitaph, I understand the CFTC shut them down and they were fined for violations years later. I guess I dodged a commission bullet. Despite it all, I might have lucked out and made money?in?this great sugar bull market. Commodity bull markets can often forgive stupid blunders and mistakes along the way. We can be sloppy as heck and still do well at times, until the bull party ends.

Reading can be a powerful thing, especially with today?s wonderful internet. Be fully informed before you make a decision ? especially if you’re new to the game. Just because firms and commodity brokers are registered with the NFA and CFTC doesn’t mean a few won?t try to take advantage of you.

The modern day version is the so called, ?$200 commission commodity houses.? They usually put your entire $5,000 account into five $800 options at a $250 commission each. To demonstrate how heavy these expenses are, if you broke even with entry and exit price on FOUR successive trades, your account would be wiped out from option commissions alone. FOUR trades (five options each trade) equal $5,000 in commissions. Yikes! Then there’s the offshore Forex option scams. Please be careful out there.

Part Three of Four – Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Trading Commodity Futures – Intuitively Day Trading The S&p 500 And E-mini – Part 4

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Every trading market has its own special patterns and oddities that will communicate its intentions. Patterns don’t always work every time of course, but even that can be a clue of underlying extreme weakness or strength. Just like knowing a spouse well, learning to read your special market can pay dividends. Read on to learn more…

More Observations From My Trading Notes:

“After a BIG, major e-mini decline, wait for the secondary test ? the first spike is TOO EARLY ? the second test pays off faster and may even be a better buy. It?s also a chance to see if the ticks confirm a higher bottom, volume comes in and price action looks like the market is going much lower to scare the sheep. If this scary secondary low does not hold, then something is definitely wrong and the market is likely going MUCH lower afterwards.”

Yes, the old panic and double bottom. ?Scaring the sheep? is one of my favorite sayings with the e-mini market. The sheep usually herd themselves into the middle ranges. They love to buy and sell there to feel comfortable.

The middle is a nice place to enter at first, but actually, the risk is higher later. When the e-mini market swings hard to the rails, it always dumps some of the sheep out of the truck onto the road for the wolves to get. The other sheep are watching and hoping it won’t happen to them, also. They hold on tighter but some of them jump to their deaths anyway. That?s what you want to see. If you train yourself to be an extreme range commodity futures buyer and seller despite feeling this fear, then you are progressing. It’s an unnatural thing to do. That’s a good thing.

This fear is a good indication of an intermediate pivot point. It’s nice to be on the sidelines ready to enter. This is a great position in itself. You want to feel scared without even having your money in yet – that?s what you’re looking for. Feeling comfortable about entering an e-mini futures trade is a red flag, believe me. You want a ?shaky hand? on the mouse when it clicks. No one is so good and confident in their forecast not to feel fear, unless they are a market psychic (unlikely) or have nothing personal to lose. (more likely)

Observation:

?Much patience is needed for a move to evolve, once entered.?
?
We?ve talked about this before. I guess I kept writing it down throughout my notes because I often violate it. In fact, if I read over the full fifty-five pages, I see themes that emerge. To become a better e-mini futures trader than you are now, you need to write this stuff down and constantly review it. I?m always amazed at how much I forget, even after reading it over and over.

But after a long time of reviewing, it becomes second nature and part of your instinctive intuition. That?s your goal. You want the lessons and rules you have observed over time to trigger something inside your body whenever an e-mini turning point is taking place. When it happens with me I feel this funny swinging of my head, like I?m getting into balance. I also get a fearful feeling knowing that I soon need to put myself at risk. Your own trading trigger will probably be different.

Effective, intuitive, discretionary, e-mini commodity futures trading is acting on your own internal signals when they occur in real time. (read that again) It’s not easy. If it was easy for everyone to learn, the market would not pay much for this skill now, would it?

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Commodity Futures Trading – What Is Your Trading Edge? – Part 3

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Finding your very own unique commodity trading edge is a worthwhile goal. Without one you are lost in the masses, struggling to push your head above the sea of expenses. Trading edges do exist, though for short periods of time. Psychological edges are more permanent. You need many. Read on to find how to go about finding yours.

It?s breathtaking to watch a certain trading method working well and then see the market find a way to destroy these same participants in one sharp move. An example is when commodity option traders are writing (selling) options over an extended period of time. They?re taking in premiums like fat cats. Happy. Quiet market. The percentages can be upwards of 90% accuracy selling way out-of-the-money futures options in a dull or choppy market. The profits are small, but consistent.

Then the day of reckoning arrives and a move way out of the standard deviation spikes like a lightning bolt. They drag some option writers out by their boots. A well known example was in 1998 when a famous money manager was selling thousands of out-of-the-money S&P 500 puts. The market took a free fall dive. He lost a big chunk of his $100 million+ managed commodity fund in a few days. I remember it well because a partner and I were long an eighty-lot of put options on the other side of his trade. We made the biggest score of our lives. But it had much to do with luck and being there at the right time. It happens at least once to everyone. Heck, just being born is the longest shot going.

Right now I love the S&P 500 futures contract (e-mini) day-trading game. I?ve traded it actively for the last twelve years. It pays to focus on one or two commodity futures markets and learn it well. This is the key to getting an edge when day-trading. Some day-traders can spread themselves out and apply similar techniques to many commodity markets. God bless them. But I find I need to learn all the patterns, habits, and idiosyncrasies of one market to be competitive. Just like doctors who specialize.

Can you imagine a heart surgeon trying brain surgery, or even doing plastic surgery? It?s the same with markets. The more you focus and specialize, the better job you can do competing against the best minds in the commodity world out there. I have some methods I will suggest in later articles to focus and better learn your favorite futures market. This doesn’t mean you can’t hold long-term positions of other commodities while day trading. You can do both, but for day trading itself, you should focus on only one or two markets.

As I?ve said before, it’s so important to train your brain to intuitively and subconsciously identify likely turning points as they occur. With practice, you will find signals going off in your body. It?s different for everyone. Your body will let you know when it?s time to put on or take off a commodity trade. But, it takes training and looking at the right indications with a trained mind. More to come in future articles.

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

The Australian Share Market A Brief Summary of a Global Economy

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The Australian Share Market A Brief Summary of a Global Economy
But, it can also be very rewarding to the patient investor who is willing to learn the skills necessary to cash in on the markets.Remember that investing in whatever global stock market can be a risky task. Based on the Global Stock Market Review by Standard and Poor’s, Australia’s stock exchange is the 9th largest worldwide in total market capitalisation terms and the 2nd largest in the Asia-Pacific region, after Japan’s.Strategies and outlook as of April 2010, the Australian share market is now 1 year on from the turn in the markets as the potential financial disaster was averted as well as domestic economy started its recovery. Certainly, Australia has one of the strongest economies across the world in keeping with the present major players. Stock Analysts possess the experience and training to more accurately predict likely activity on the Australian share market. The market has re-rated back to its long-term valuation, contingent on a recovery in earnings of 20% in the 2011 financial year.

Sydney’s timezone offers companies the unique opportunity to make the most of the full trading day in Asia while also bridging the closing in the American markets and the opening of the European markets. Since the 6 March 2009, the Australian share market rose by 27.3% through June 30, and the US share market by 34.9% in local currency terms. The Australian Securities Exchange (ASX) based in Sydney is the first major market to open internationally each day. Its ability to withstand quite a lot of external and internal events, including a major drought, a housing boom and the Asian financial and economic crises also demonstrate the depth and liquidity of the Australian share market.Comprehending the Australian Share Market

Sensex 12000?12800?13000… What To Do?

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Sensex 12000?12800?13000… What To Do?
It is time for review when we see an all time high in the market. There is fear that the market will collapse, is this rally genuine? There is lurking desire that the best is yet to come. Then there are those who never invested in the market, seeing the prosperity of the market they would wish to be part of the action. The question that is posed by most investors is what do I do?

Let us first understand what the rise in index signifies. Index as a statistical formula is the weighted average of the market capitalization of selected stocks. Stocks are selected on basis of certain criteria such as liquidity i.e. number of shares traded per day, number of shareholders, company performance i.e. profits and divided payment, corporate governance, size of capital etc. Care is taken to ensure that majority of the industries are represented in the index. Market capitalization (cap) is nothing but the total shares the company has issued multiplied by the current price of the share. For eg if a company has issued 100,000 shares and the current price per share is Rs. 1,000 then the market cap is 100,000 x 1,000 i.e. 10,00,00,000 ie Rs.10 crores.

Taking a simple average of the share prices is not enough, since the market cap varies of each company (depending of size of capital) it is necessary to assign weights, i.e. company with higher issued capital will get a higher weight. Hence weighted average price of all shares is taken for the purpose of calculation. Obviously, increase in price of Reliance will impact the index more than say a smaller company such as Cipla. Another important concept is free float index. Since not all shares are available for trading, to the extent that the shares are in lock-in or held by promoters, the share capital is reduced by such number of shares. This thus makes the index totally liquid. It should not so happen that the index keeps going up or down without trading or liquidity.

Index is always computed with reference to a base year. The change in share prices is as compared to share prices prevailing at a particular point of time. In case of Sensex the base year is 1978 and in case of Nifty it is 1995. The base index was 100 for Sensex and 1000 for Nifty. Adjustment is made in the share price for corporate actions such as splits, bonus dividends etc. Companies such as Tisco, ACC and Grasim have been part of index since inception. Prices of these shares have grown by about 128 times since inception during last 28 years, since the Sensex has grown from 100 to 12800.

The Sensex which is the most popular index is owned by BSE Ltd and has 30 stocks in it, whereas the most frequently traded index, Nifty 50 tracked on National Stock Exchange has 50 stocks. There are many more indices such as BSE 100, BSE 500, Tech Index, Mid cap index etc. Newspapers also have identified certain stocks and they are also have devised certain indices and are regularly computed. Index is computed every few seconds when the share prices keep changing. The companies that form part of index are also reviewed periodically and advance notice is given when a company is removed or added to the list. Sectoral indices indicate how a particular sector performs on the market.

Some people ask as to what happens to all the wealth that is created when it goes up and vice versa! Well, both the creation and destruction of so called wealth with market movements is only notional till someone actually encashes it, and no body can buy or sell the whole market at one shot. Your wealth will increase proportionately only if you own shares that are part of the index in same proportion. Further even if you own other share it may not go up in same proportion as index. A 10% appreciation in index does not translate to 10% increase in each and every stock. The increase will be determined by weightage. Some shares will appreciate more than the others.

Index is said to be an indicator of the economic health of the country. Unfortunately since very few industries are represented on the exchange this statement is not true. Important sectors that contribute to the GDP of the country are not listed. Transport sector companies such as Indian Railways, Air India, Indian Airlines, National Highway authority ports etc are not traded on the exchanges. Insurance companies such as LIC, GIC and its subsidiaries are not listed. Mineral sector is not represented. Banks continue to have a large shareholding by Reserve Bank and Government of India. The list goes on. Hence Index can at best represent the collective sentiment of Indian investors towards the economy.

A review should happen when the market reaches all time high. The sentiment is most positive at such times, hence you may get a good price for your share if the growth story associated with your share has been achieved and you have reached your targets. It is not advisable to sell off just because the index is all time high, your share may still be under valued. At the same time despite a sustained increase if your company share has failed to appreciate, then a hard look at company performance is warranted. If the share cannot perform in a very positive environment then it is difficult to do so in normal times.

For newcomers it is a good strategy to stick to index stocks since there is a reasonable certainty about the liquidity, quality of management and financial performance of the company. However entry into such shares should always be in correction phase. An all time high index is not an entry point. A correction is a good time to enter. There is nothing like missed opportunity. The zigzag graph that we see of index signifies that there are constant corrections in the market and straight lines are few and far between.

If you are unclear which stocks to buy then index is a good bet. You can buy index in derivatives market. Index futures as well as options are available. Nifty Futures is a highly liquid instrument that is available on National Stock Exchange. If you expect the market to go up then you can buy nifty in futures or a call option on nifty. If you expect the market to go down then a nifty can be sold in future or you can buy a put option. But to revert to the first point of review when the market is all time high, what do I do? Well it is an occasion to celebrate, but any action taken of buy or sell should be based on review of company valuations and future prospects.