ELLIOTT WAVE

A flat correction differs from a zigzag in that the subwave sequence is 3-3-5, as shown in Figures 1 and 2. Since the first actionary wave,

Fibonacci studies: arcs, fans, retracements, and time

Overview: Leonardo Fibonacci was a mathematician who was born in Italy around the year 1170. It is believed that Mr. Fibonacci discovered..

Indicator

The Negative Volume Index (“NVI”) focuses on days where the volume decreases from the previous day. The premise being that the “smart money” takes positions on days when volume decreases

Basic Technicals

MACD technical analysis MACD technical analysis stands for moving average convergence/divergence analysis of stocks.

Fundamental Analysis

Doubling Stocks Review: Is this a scam? If you are looking for the truth about doubling stocks this is a necessity. One always thought there was something wrong with a doubling of stocks.

Wednesday, November 24, 2010

Demerger

Demerger  is the converse of a merger or acquisition. It describes a form of restructure in which shareholders or unitholders in the parent company gain direct ownership in a subsidiary (the ‘demerged entity’). Underlying ownership of the companies and/or trusts that formed part of the group does not change. The company or trust that ceases to own the entity is known as the ‘demerging entity’. If the parent company holds a majority stake in the demerged entity , the resulting company is referred to as the subsidiary.
The act of splitting off a part of an existing company to become a new company, which operates completely separate from the original company. Shareholders of the original company are usually given an equivalent stake of ownership in the new company. A demerger is often done to help each of the segments operate more smoothly, as they can now focus on a more specific task. opposite of merger.
Example:
The huge glass-panelled window on the 13th floor of NCPA Apartments at Nariman Point offers a breathtaking view of the bay and Malabar Hill – home to another set of Mumbai’s rich and famous. But Sanjiv Bajaj prefers his other home at Akurdi near Pune where life is relatively unhurried, write Shyamal Majumdar and Sumit Sharma.
We are at the Bajaj family apartment in India’s  most expensive residential block – one of the flats was sold two years ago at Rs 1.35 lakh a square foot.
The 41-year-old managing director of Bajaj Finserv isn’t impressed by the common perception that a financial services company should be based in Mumbai rather than Pune.
The youngest son of Rahul Bajaj who took charge of the financial services business after the demerger of Bajaj Auto  three years ago, makes it clear that Pune is where his heart is and he would rather listen to his heart.
“In any case, if Warren Buffett can operate from Omaha, the top brass of Bajaj Finserve can easily operate from Pune,” he says, before ordering breakfast.
Sanjiv had explored two other options for the breakfast venue – the Trident hotel next door and Bajaj Bhawan, a couple of buildings away – but settled for his residence saying the ambience would be more informal.
While we wait for the food to arrive, we ask him about the speculation that he was a reluctant entrant to financial services after the demerger. “It was my decision to move to financial services,” he corrects us.
He has no reason to regret the decision since his financial services empire now spans life and general insurance in association with Allianz and consumer lending through Bajaj Finance. Next month, there’s a foray into wealth management planned, and an asset management company is awaiting approval from the market regulator.
Sanjiv also wants Bajaj Finance to make it big in loans against shares and property, personal loans and lending to small and medium enterprises, a sensible way to hedge risks during a slowdown.

Monday, November 22, 2010

Capital formation

Capital formation is a concept used in macro-economics, national accounts and financial economics. Occasionally it is also used in corporate accounts. It can be defined in three ways:
* It is a specific statistical concept used in national accounts statistics, econometrics and macroeconomics. In that sense, it refers to a measure of the net additions to the (physical) capital stock of a country (or an economic sector) in an accounting interval, or, a measure of the amount by which the total physical capital stock increased during an accounting period. To arrive at this measure, standard valuation principles are used.
* It is used also in economic theory, as a modern general term for capital accumulation, referring to the total “stock of capital” that has been formed, or to the growth of this total capital stock.
* In a much broader or vaguer sense, the term “capital formation” has in more recent times been used in financial economics to refer to savings drives, setting up financial institutions, fiscal measures, public borrowing, development of capital markets, privatization of financial institutions, development of secondary financial markets. In this usage, it refers to any method for increasing the amount of capital owned or under one’s control, or any method in utilising or mobilizing capital resources for investment purposes. Thus, capital could be “formed” in the sense of “being brought together for investment purposes” in many different ways. This broadened meaning is not related to the statistical measurement concept nor to the classical understanding of the concept in economic theory.
Gross and net capital formation
In economic statistics and accounts, capital formation can be valued gross, i.e. before deduction of consumption of fixed capital (or “depreciation”), or net, i.e. after deduction of “depreciation” write-offs.
* The gross valuation method views “depreciation” as a portion of the new income or wealth earned or created by the enterprise, and hence as part of the formation of new capital by the enterprise.
* The net valuation method views “depreciation” as the compensation for the cost of replacing fixed equipment used up or worn out, which must be deducted from the total investment volume to obtain a measure of the “real” value of investments; the depreciation write-off compensates and cancels out the loss in capital value of assets used due to wear & tear, obsolescence, etc.

Saturday, November 20, 2010

Candlestick Formula for Doji

Candlestick Formula:
Doji
(O = C )
Doji Yesterday
(O1 = C1 )
Doji and Near Doji
(ABS(O – C ) <= ((H – L ) * 0.1))
Bullish Engulfing
((O1 > C1) AND (C > O) AND (C >= O1) AND (C1 >= O) AND ((C – O) > (O1 – C1)))
Bearish Engulfing
((C1 > O1) AND (O > C) AND (O >= C1) AND (O1 >= C) AND ((O – C) > (C1 – O1)))
Hammer
(((H-L)>3*(O-C)AND((C-L)/(.001+H-L)>0.6)AND((O-L)/(.001+H-L)>0.6)))
Hanging Man
(((H – L) > 4 * (O – C)) AND ((C – L) / (.001 + H – L) >= 0.75) AND ((O – L) / (.001 + H – L) >= .075)))
Piercing Line
((C1 < O1) AND (((O1 + C1) / 2) < C) AND (O < C) AND (O < C1) AND (C < O1) AND ((C – O) / (.001 + (H – L)) > 0.6))
Dark Cloud
((C1 > O1) AND (((C1 + O1) / 2) > C) AND (O > C) AND (O > C1) AND (C > O1) AND ((O – C) / (.001 + (H – L)) > .6))
Bullish Harami
((O1 > C1) AND (C > O) AND (C <= O1) AND (C1 <= O) AND ((C – O) < (O1 – C1)))
Bearish Harami
((C1 > O1) AND (O > C) AND (O <= C1) AND (O1 <= C) AND ((O – C) < (C1 – O1)))
Morning Star
((O2>C2)AND((O2-C2)/(.001+H2-L2)>.6)AND(C2>O1)AND(O1>C1)AND((H1-L1)>(3*(C1-O1)))AND(C>O)AND(O>O1))
Evening Star
((C2 > O2) AND ((C2 – O2) / (.001 + H2 – L2) > .6) AND (C2 < O1) AND (C1 > O1) AND ((H1 – L1) > (3 * (C1 – O1))) AND (O > C) AND (O < O1))
Bullish Kicker
(O1 > C1) AND (O >= O1) AND (C > O)
Bearish Kicker
(O1 < C1) AND (O <= O1) AND (C <= O)
Shooting Star
(((H – L) > 4 * (O – C)) AND ((H – C) / (.001 + H – L) >= 0.75) AND ((H – O) / (.001 + H – L) >= 0.75)))
Inverted Hammer
(((H – L) > 3 * (O – C)) AND ((H – C) / (.001 + H – L) > 0.6) AND ((H – O) / (.001 + H – L) > 0.6)))
J-Hook Pattern
((L1 = MINL4) OR (L2 = MINL4) OR (L3 = MINL4) ) AND
( (MAXC3 < MAXC4.3)) AND
( (H3 = MAXH15.4) OR (H4 = MAXH15.4) OR (H5 = MAXH15.4) OR (H6 = MAXH15.4) OR (H7 = MAXH15.4) ) AND (((MAXH4.3 – MINL4) / (MAXH4.3 – MINL21.3) > .23) AND ((MAXH4.3 – MINL4) / (MAXH4.3 – MINL21.3) < .62) ) AND
((AVGH3.5) > (AVGH3.8 ) AND (AVGH3.8 ) > (AVGH3.13) AND (AVGH3.13) > (AVGH3.18 ))
Belt Hold
C > O
AND L = MINL10
AND ((C – O) / (H – L)) > .5
AND ((C1 – L) / (H – L) > .6)
AND (H – L) > .2 * ((H5 – L5) + (H4 – L4) + (H3 – L3) + (H2 – L2) + (H1 – L1))
AND H > L1 AND C < H1
Belt Hold
(C > O) AND (H > L1) AND (L = MINL10) AND
((C – O) / (H – L) > .5) AND
(ABS(C1 – L) / (H – L) > .5) AND
( (H – L) > (((H – L + ABS(C1 – H) + ABS(C1 – L)) / 2 + (H1 – L1 + ABS(C2 – H1) + ABS(C2 – L1)) / 2 + (H2 – L2 + ABS(C3 – H2) + ABS(C3 – L2)) / 2 + (H3 – L3 + ABS(C4 – H3) + ABS(C4 – L3)) / 2 + (H4 – L4 + ABS(C5 – H4) + ABS(C5 – L4)) / 2) / 5))
Three Outside Down Pattern
((C2>O2)AND(O1>C1)AND(O1>=C2)AND(O2>=C1)AND((O1-C1)>(C2-O2))AND(O>C) AND (C
Three Outside Up Pattern
((O2>C2)AND(C1>O1)AND(C1>=O2)AND(C2>=O1)AND((C1-O1)>(O2-C2))AND (C>O)AND (C>C1))
Three Inside Up Pattern
((O2>C2)AND(C1>O1)AND(C1<=O2)AND(C2<=O1)AND((C1-O1)<(O2-C2))AND(C>O)AND(C>C1)AND(O>O1))
Three Inside Down Pattern
((C2>O2)AND(O1>C1)AND(O1<=C2)AND(O2<=C1)AND
((O1-C1)<(C2-O2))AND(O>C)AND(C>C1)AND (O< P>
Three White Soldiers PCF
(C>O*1.01) AND(C1>O1*1.01) AND(C2>O2*1.01) AND(C>C1) AND
(C1>C2) AND(OO1) AND(O1O2) AND
(((H-C)/(H-L))<.2) AND(((H1-C1)/(H1-L1))<.2)AND(((H2-C2)/(H2-L2))<.2)
Three Black Crows PCF
(O > C * 1.01) AND (O1 > C1 * 1.01) AND (O2 > C2 *
1.01) AND (C < C1) AND (C1 < C2) AND (O > C1) AND (O < O1) AND
(O1 > C2) AND (O1 < O2) AND (((C – L) / (H – L)) < .2) AND
(((C1 – L1) / (H1 – L1)) < .2) AND (((C2 – L2) / (H2 – L2)) < .2)
PCF’s written in TeleChart  searches for The Major Candlestick Signals

Wednesday, November 17, 2010

Moving Average Convergence-Divergence (MACD)


Introduction:

Developed by Gerald Appel in the late seventies, Moving Average Convergence-Divergence (MACD) is one of the simplest and most effective momentum indicators available. MACD turns two trend-following indicators, moving averages, into a momentum oscillator by subtracting the longer moving average from the shorter moving average. As a result, MACD offers the best of both worlds: trend following and momentum. MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centerline crossovers and divergences to generate signals. Because MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels.

Calculation:

MACD: (12-day EMA – 26-day EMA)
Signal Line: 9-day EMA of MACD
MACD Histogram: MACD – Signal Line

Standard MACD is the 12-day Exponential Moving Average (EMA) less the 26-day EMA. Closing prices are used for these moving averages. A 9-day EMA of MACD is plotted along side to act as a signal line to identify turns in the indicator. The MACD-Histogram represents the difference between MACD and its 9-day EMA, the signal line. The histogram is positive when MACD is above its 9-day EMA and negative when MACD is below its 9-day EMA.


Interpretation:

As its name implies, MACD is all about the convergence and divergence of the two moving averages. Convergence occurs when the moving averages move towards each other. Divergence occurs when the moving averages move away from each other. The shorter moving average (12-day) is faster and responsible for most MACD movement. The longer moving average (26-day) is slower and less reactive to price changes in the underlying security.
MACD oscillates above and below the zero line, which is also known as the centerline. These crossovers signal that the 12-day EMA has crossed the 26-day EMA. The direction, of course, depends on direction of the moving average cross. Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive values increase as the shorter EMA diverges further from the longer EMA. This means upside momentum is increasing. Negative MACD indicates that the 12-day EMA is below the 26-day EMA. Negative values increase as the shorter EMA diverges further below the longer EMA. This means downside momentum is increasing.


In the example above,

The yellow area shows MACD in negative territory as the 12-day EMA trades below the 26-day EMA. The initial cross occurred at the end of September (black arrow) and MACD moved further into negative territory as the 12-day EMA diverged further from the 26-day EMA. The orange area highlights a period of positive MACD, which is when the 12-day EMA was above the 26-day EMA. Notice that the 12-day EMA remained below 1 during this period (red dotted line). This means the distance between the 12-day EMA and 26-day EMA was less than 1 point, which is not a big difference.

Monday, November 15, 2010

Self-regulatory organization

A member-operated organization that establishes and enforces minimum standards and rules of conduct. The National Association of Securities Dealers, the National Futures Association, and the New York Stock Exchange are examples of self-regulatory organizations.
Non-government organization which has statutory responsibility to regulate its own members through the adoption and enforcement of rules of conduct for fair, ethical and efficient practices. Examples include NASD and the national securities and commodities exchanges.
A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could be applied in addition to some form of government regulation, or it could fill the vacuum of an absence of government oversight and regulation. The ability of an SRO to exercise regulatory authority does not necessarily derive from a grant of authority from the government.
In United States securities law, a self-regulatory organization is a defined term. The principal federal regulatory authority—the Securities and Exchange Commission (SEC)—was established by the Federal Securities Exchange Act of 1934. The SEC originally delegated authority to the National Association of Securities Dealers (the NASD) and to the national stock exchanges (e.g., the NYSE) to enforce certain industry standards and requirements related to securities trading and brokerage. On July 26, 2007 the SEC approved a merger of the enforcement arms of the NYSE and the NASD, to form a new SRO, the Financial Industry Regulatory Authority (FINRA). In addition, Congress created the Municipal Securities Rulemaking Board (the MSRB) as an SRO charged with adopting investor protection rules governing broker-dealers and banks that underwrite, trade and sell tax-exempt bonds, 529 college savings plans and other types of municipal securities.

Tuesday, November 2, 2010

The sentiment of investors

Investors are not all alike and neither is their sentiment. The sentiment of Wall Street strategists is unrelated to the sentiment of individual investors or that of newsletter writers although the sentiment of the last two groups is closely related. Sentiment can be useful for tactical asset allocation.  There is a negative relationship between the sentiment of each of the three groups and future stock returns and that relationship is statistically significant for Wall Street strategists and individual investors.
The sentiment of investors, large and small

We study three groups of investors, small, medium and large: small individual investors, medium writers of investment newsletters and large Wall Street strategists.Newsletter writers are often described as semi-professionals, midway between amateur individual investors and professional Wall Street strategists.
We find that the sentiment of the three groups of investors does not move in lockstep. There is a positive relationship between changes in the sentiment of individual investors and that of newsletter writers but there is virtually no relationship between  changes in the sentiment of Wall Street strategists and that of either individual investors
or newsletter writers.
The sentiment of all three groups points in the wrong direction; there is a negative relationship between sentiment and future S&P 500 Index returns.  The sentiment of individual investors and Wall Street strategists are reliable contrary indicators; the negative relationship between them and future S&P Index 500 returns is statistically
significant. Newsletter writers do well relative to their sorry associates. The negative relationship between the sentiment of newsletter writers and future S&P 500 Index returns is not statistically significant.
Individual investors are wiser in their investment actions than in their sentiment.While there is a negative and statistically significant relationship between the sentiment of individual investors and future S&P 500 Index returns, there is a positive, although not statistically significant, relationship between the stock allocation in portfolios of
individual investors and future S&P 500 Index returns.
Does sentiment move in lockstep?
Individual investors grow bullish when newsletter writers grow bullish, but not inlockstep.  The correlation between changes in the monthly sentiment of the two groups is 0.47, highly statistically significant but hardly perfect. The relationship between the sentiment of Wall Street strategists and the sentiment of the other two groups is not
nearly as strong. Changes in the sentiments of Wall Street strategists are virtually unrelated to changes in the sentiment of individual investors or newsletter writers. Then correlation between changes in the sentiment of individual investors and Wall Street7 strategists is 0.01 and the correlation between changes in the sentiment of newsletter
writers and Wall Street strategists is 0.03.
The sentiment of Wall Street strategists, like the sentiment of individual investors, is a reliable contrary indicator for future S&P 500 Index returns. We find a negative and statistically significant relationship between the sentiment of Wall Street strategists and S&P 500 Index returns in the following month.  An increase of one percentage point in
the sentiment of Wall Street strategists associated with a decrease of 0.24 percentage points in S&P 500 Index returns in the following month. There is also a negative relationship between the sentiment of Wall Street strategists and CRSP 9-10 Index returns in the following month, but that relationship is not statistically significant. The combination of the sentiment of the three groups provides a good tool for forecasting future S&P 500 Index return. A multiple regression of S&P 500 Index returns in one month on the sentiment of the three investor groups in the preceding month yields
an R2 of 0.08, a figure that is statistically significant at the 0.01 level.  An R2  of 0.08 might seem low, it indicates that  returns. But the 0.08 figure is properly interpreted as high. Clarke, Fitzgerald, Berent and Statman (1989) showed that information reflected in such R2 can add substantial value to a tactical asset allocation program.
What makes investors bullish?
Stock returns are prominent among factors that affect sentiment. But do investors forecast continuations of past returns or do they forecast reversals? Common investment proverbs provide no good answers because they reflect diametrically opposite perceptions of the processes underlying stock returns. For every proverb that implies one should expect reversals , there is a proverb implying that continuations are the rule
Stock returns affect individual investors as they affect newsletter writers. We find, consistent with De Bondt (1993),  a positive and statistically significant relationship between S&P 500 Index returns and changes in the sentiment of individual investors. A one percentage-point increase in S&P 500 Index returns is associated with a one percentage- point increase in the sentiment of individual investors. However, stock returns have little effect on the sentiment of Wall Street strategists. While there is a positive relationship between S&P 500 Index returns and changes in the sentiment of Wall Street strategists, that relationship is not statistically significant.
Individual investors do follow their sentiment with investment actions but not forcefully. There is a positive and statistically significant relationship between the monthly changes in the sentiment of individual investors and the monthly changes in the stock allocation in their portfolios but the Adjusted R2  of the regression of changes in allocation on changes in sentiment is only 0.02.
It turns out that individual investors are wiser in their investment actions than in their sentiment. While there is a negative and statistically significant relationship between the sentiment of individual investors and future S&P 500 Index returns, there is a positive, although not statistically significant relationship between actual stock
allocations and future S&P 500 Index returns.
Conclusions
Studies of the sentiment of investors are important for two reasons. First, they teach us about biases in the stock market forecasts of investors. Second, they teach us about opportunities to earn extra returns by exploiting these biases. We study the sentiment of three groups of investors, large and small: “small” individual investors, “medium” newsletter writers and “large” Wall Street strategists. Wefind that the sentiment of the three groups does not move in lockstep. The correlation between changes in the sentiment of individual investors and newsletter writers is high12 but hardly perfect and there is virtually no correlation between changes in the sentiment of Wall Street strategists and changes in the sentiment of the other two groups. The sentiment of both small investors and large ones are reliable contrary indicators for future S&P 500 Index returns. The relationship between the sentiment of individual investors and future S&P 500 Index returns is negative and statistically significant and so is the relationship between the sentiment of Wall Street strategists and future S&P 500 returns. While the relationship between the sentiment of newsletter writers and future S&P 500 Index returns is also negative, that relationship is not statistically significant. A combination of the sentiment of the three groups provides forecasts of future S&P 500 Index returns that can be used in a tactical asset allocation program.

Monday, November 1, 2010

Leverage

Finance, leverage is a general term for any technique to multiply gains and losses.Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives.
A public corporation may leverage its equity by borrowing money. The more it borrows, the less equity capital it needs, so any profits or losses are shared among a smaller base and are proportionately larger as a result.
A business entity can leverage its revenue by buying fixed assets. This will increase the proportion of fixed, as opposed to variable, costs, meaning that a change in revenue will result in a larger change in operating income.
Hedge funds often leverage their assets by using derivatives. A fund might get any gains or losses on $20 million worth of crude oil by posting $1 million of cash as margin.
Measuring leverage
A good deal of confusion arises in discussions among people who use different definitions of leverage. The term is used differently in investments and corporate finance, and has multiple definitions in each field.
Corporate finance
Accounting leverage has the same definition as in investments. There are several ways to define operating leverage, the most common.



Financial leverage is usually defined:
Operating leverage is an attempt to estimate the percentage change in operating income (earnings before interest and taxes or EBIT) for a one percent change in revenue.
Financial leverage tries to estimate the percentage change in net income for a one percent change in operating income.
The product of the two is called Total leverage, and estimates the percentage change in net income for a one percent change in revenue.
There are several variants of each of these definitions, and the financial statements are usually adjusted before the values are computed. Moreover, there are industry-specific conventions that differ somewhat from the treatment above.