Bollinger Bands are an important technical analysis tool. This tip explainsthe term and its relevance to you as an investor.
What is it?
Generally, trading bands are lines drawn at fixed distance around a moving average. The Bollinger Band concept is that a stock usually trades within a predictable range on either side of the moving average. Bollinger Bands vary in distance from the moving average based on volatility. The upper band is the standard deviation above the moving average, and the lower band is the standard deviation below the moving average.
Bollinger Bands are insightful tools helpful for spotting trends. These are valuable indicators of when the markets are overbought or oversold. While technical analysis is not fool proof, it assists the investor to make informed market choices. Sharp moves tend to occur after the bands tighten to the average. A move outside the bands calls for a continuation of the trend. Tops and bottoms formed outside the bands, followed by tops and bottoms formed inside the bands, indicate a trend reversal. A move originating at one band tends to go to the other band.
Tuesday, November 25, 2008
What is sector rotation and why is it important?
Sector rotation is simply the overweighting of some sectors while underweighting others to take advantage of money flows moving in and out of the market.
This is important because, over time, sectors go in and out of favor. Sectors that are the best performers today won't necessarily be the best performers tomorrow, next week, next month or next year. Rotating in and out of sectors as they gain and subsequently lose momentum is a strategy intended to outperform the market over the long term.
After all, the strategy of overweighting some sectors and underweighting others is precisely what many big institutions do. And it's the billions of dollars in money flows they control that move these sectors up and down.
This is important because, over time, sectors go in and out of favor. Sectors that are the best performers today won't necessarily be the best performers tomorrow, next week, next month or next year. Rotating in and out of sectors as they gain and subsequently lose momentum is a strategy intended to outperform the market over the long term.
After all, the strategy of overweighting some sectors and underweighting others is precisely what many big institutions do. And it's the billions of dollars in money flows they control that move these sectors up and down.
Tuesday, November 18, 2008
Newsworthy
John F Kennedy said that a rising tide lifted all boats. That may no longer be the case. Most Americans are worse off now than they were in 2001 at the start of the last stage of economic expansion. And the median, as opposed to average, household income is only marginally higher than it was a generation ago. Is the American Dream fading?
Barbara Ehrenreich, author of the mini-classic Nickel and Dimed (2001), has brought out a collection of her most biting journalism and certainly thinks so. In language only she could deploy, Ehrenreich explains why the debate about whether the US is heading into recession is irrelevant to the large swathes of America that for years have endured flat or declining incomes.
For people living in the "real economy" as opposed to those who measure success by macroeconomic numbers, recession has never been far away. "With all this talk of how to stimulate it, you'd think that the economy is a giant sex organ," she writes. "If we have learnt anything in the last few years it is that the economy is no longer an effective measure of human well-being . . . If there is a real economy, then what in hell is the economy?" To pose the question differently, who nowadays best symbolizes the American economy?
Barbara Ehrenreich, author of the mini-classic Nickel and Dimed (2001), has brought out a collection of her most biting journalism and certainly thinks so. In language only she could deploy, Ehrenreich explains why the debate about whether the US is heading into recession is irrelevant to the large swathes of America that for years have endured flat or declining incomes.
For people living in the "real economy" as opposed to those who measure success by macroeconomic numbers, recession has never been far away. "With all this talk of how to stimulate it, you'd think that the economy is a giant sex organ," she writes. "If we have learnt anything in the last few years it is that the economy is no longer an effective measure of human well-being . . . If there is a real economy, then what in hell is the economy?" To pose the question differently, who nowadays best symbolizes the American economy?
Monday, November 10, 2008
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Tuesday, November 4, 2008
Next Wave of Bankruptcies
Banks have lost over $680 billion because of the huge wave of foreclosures that has hit the market over the past two years. And losses are beginning to ratchet up somewhere else, too: consumer credit card charge-offs.
Charge-offs are debts that a company deems "uncollectible." According to Moody's Investor Services, credit card charge-offs increased by 48 percent in August alone. And Moody's expects them to continue increasing into late next year.
6.82 percent of all credit card debt has now been written off. With unemployment rising and the economy falling into even more dire straits, the credit card charge-off rate is sure to skyrocket.
Which means that banks that have relied heavily on income from credit cards - like Capital One (COF) and American Express (AXP) - are sure to see bigger losses.
Charge-offs are debts that a company deems "uncollectible." According to Moody's Investor Services, credit card charge-offs increased by 48 percent in August alone. And Moody's expects them to continue increasing into late next year.
6.82 percent of all credit card debt has now been written off. With unemployment rising and the economy falling into even more dire straits, the credit card charge-off rate is sure to skyrocket.
Which means that banks that have relied heavily on income from credit cards - like Capital One (COF) and American Express (AXP) - are sure to see bigger losses.
Sunday, November 2, 2008
Spock would say it's not logical!
Like all bear-market rallies, last week's was utterly illogical, irrational, certifiably insane.
Look. All the fundamentals that caused this bear market are stronger than ever:
The financial disasters that have gutted world stock markets this year are accelerating; NOT slowing.
Debt defaults are soaring; NOT going away.
Global economies are cratering; NOT growing.
Consumer confidence is crashing. Corporate earnings are vanishing. And, it's all coming unglued FASTER with every passing week.
Look. All the fundamentals that caused this bear market are stronger than ever:
The financial disasters that have gutted world stock markets this year are accelerating; NOT slowing.
Debt defaults are soaring; NOT going away.
Global economies are cratering; NOT growing.
Consumer confidence is crashing. Corporate earnings are vanishing. And, it's all coming unglued FASTER with every passing week.
Wednesday, October 29, 2008
A Day of Shame
While all eyes were focused today on the Fed's rate cut, the big news was the Fed's latest cockamamie effort to save world.
Just when you thought the insanity couldn't get crazier, the Fed announced it's now going to funnel a massive $120 billion of U.S. funds into Brazil, South Korea, Singapore, and Mexico! We're circlingthe toliet bowl and we're sending money to other countries!
And that's on top of the IMF bailouts already committed to the Ukraine ($16.5 billion), Iceland ($2.1 billion), and Hungary ($25.5 billion)!
In response, some folks are cheering with glee, blindly believing that Mr. Bernanke can play Santa Claus, the Pied Piper and the Fairy Godmother all in one act. What idiots!!!
Anyone with any experience with the real world is quickly coming to the realization that Mr. Bernanke is Desperate — resorting to the radical measures of all time.
Playing his last cards — realizing that if these last-ditch rescues don't work, it's game over.
Taking huge risks — that his rescue-the-whole-world schemes will in the form of falling confidence in the U.S. government as a whole! Meanwhile, the much ballyhooed Fed rate cut was a dud!
After all the hope and prayer implied in yesterday's stock-market surge, today, the market literally saw a ghost: Just in the final 12 minutes of trading — from today's post-rate-cut high to the closing bell — the Dow nosedived by an alarming 372 points! And the fools on TV were tellingyou we had hit the bottom! What morons!!!
Not exactly a polite "thank you" note to Mr. Bernanke for his half-point rate cut! He sure does not get my "thank you"!
Bottom line: Some investors can be fooled some of the time. But the investors that move the market are painfully aware of one simple fact:
Mr. Bernanke cannot drop interest rates below zero!
He cannot force banks to lend money!
He can't compel consumers to borrow, or make people spend. Of course, ourso called "wise" leaders are doing plenty of it for us!
Nor can he turn back the clock to undo decades of financial sins ... or repeal the law of gravity and stop investors from selling.
Indeed, all of this week's wild events merely underscore that we are indeep, deep trouble and the Fed and that group of bandits and the politiciansare selling us out. I'm ashamed of my country, I really am!
Just when you thought the insanity couldn't get crazier, the Fed announced it's now going to funnel a massive $120 billion of U.S. funds into Brazil, South Korea, Singapore, and Mexico! We're circlingthe toliet bowl and we're sending money to other countries!
And that's on top of the IMF bailouts already committed to the Ukraine ($16.5 billion), Iceland ($2.1 billion), and Hungary ($25.5 billion)!
In response, some folks are cheering with glee, blindly believing that Mr. Bernanke can play Santa Claus, the Pied Piper and the Fairy Godmother all in one act. What idiots!!!
Anyone with any experience with the real world is quickly coming to the realization that Mr. Bernanke is Desperate — resorting to the radical measures of all time.
Playing his last cards — realizing that if these last-ditch rescues don't work, it's game over.
Taking huge risks — that his rescue-the-whole-world schemes will in the form of falling confidence in the U.S. government as a whole! Meanwhile, the much ballyhooed Fed rate cut was a dud!
After all the hope and prayer implied in yesterday's stock-market surge, today, the market literally saw a ghost: Just in the final 12 minutes of trading — from today's post-rate-cut high to the closing bell — the Dow nosedived by an alarming 372 points! And the fools on TV were tellingyou we had hit the bottom! What morons!!!
Not exactly a polite "thank you" note to Mr. Bernanke for his half-point rate cut! He sure does not get my "thank you"!
Bottom line: Some investors can be fooled some of the time. But the investors that move the market are painfully aware of one simple fact:
Mr. Bernanke cannot drop interest rates below zero!
He cannot force banks to lend money!
He can't compel consumers to borrow, or make people spend. Of course, ourso called "wise" leaders are doing plenty of it for us!
Nor can he turn back the clock to undo decades of financial sins ... or repeal the law of gravity and stop investors from selling.
Indeed, all of this week's wild events merely underscore that we are indeep, deep trouble and the Fed and that group of bandits and the politiciansare selling us out. I'm ashamed of my country, I really am!
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