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Stay Razor Sharp With 3 Simple Investing Moves

Stay Razor Sharp With 3 Simple Investing Moves

By WallStreetDaily.com Man holding razor


Louis BaseneseThe only thing that worries investors more than a volatile market is a calm one.

Well, as I mentioned yesterday, volatility has flat-lined.

This year, the S&P 500 has gained about 9% but has yet to register a daily move in either direction of more than 2%.

The longer a market goes without action, the higher investor anxiety will get.

Yes, valuations are high at this late stage of the current bull market. And the political risks to the market are many.

But we’re not ready to call a top in stocks.

And with buyers stepping in on every dip… I wouldn’t short the market at large, either.

Here’s senior analyst Jonathan Rodriguez with three simple, strategic moves to make right now…

Ahead of the tape,

Louis Basenese
Chief Investment Strategist, Wall Street Daily


How to Stay Sharp in a Dull Market

Jonathan Rodriguez

With stocks in their least volatile period seasonally (June to August), now is the perfect time to gear your portfolio up for the second half of the year — when things really get moving.

Here are three strategic moves you can make today…

1) Fatten up Your Watch List

Louis Pasteur famously once said, “Chance favors the prepared mind.”

I couldn’t agree more.

The better prepared you are for what the market hands you, your chances of bagging big gains on stocks increase.

As such, an investor should always have a list of well-researched stocks ready to go when an opportunity presents itself.

This goes for long-term buy-and-hold investors and short-term traders alike.

For me, a good stock list has five to ten stocks from different market sectors. I also note the price I’m willing to pay for them and determine a near-term price target (usually one year).

Now, long-term investors don’t really need a price target. But if you’re planning on holding a stock for less than two years, having an upside target can help you to build an appropriate reward-to-risk ratio.

This ratio is simply a trade’s net profit divided by total exposure.

At a minimum, most traders are looking for a 2:1 return on capital. The most aggressive traders are often trading setups of 4:1 or more.

For a price target, you could easily use Wall Street’s consensus one-year price target (which can be found on sites like Yahoo or Google Finance). You could also craft one using your own valuation model, or use an online calculator.

Any way you slice it, armed with a watch list ahead of time, you’ll know exactly what to buy — and when it’s time to pull the trigger.

2) Mind Your Stop Losses

The second most important thing to do in a calm period is to adjust your stop losses.

After all, the best way to make money is not to lose it in the first place.

Most buy-and-hold investors use trailing stops, which automatically trail a stock by a percentage (like 25% or 35%).

And generally speaking, you shouldn’t need to adjust them unless a stock becomes more volatile than usual.

But if you’re sitting on a sizeable profit and you’ve got a hard stop (which is a manually set limit price) on a stock, you might consider raising your stop to lock in your gains.

This is especially true during long periods of low volatility, as they tend to be followed by large moves in stocks.

Louis Basenese uses strict stop losses at our flagship publication, True Alpha. To learn more about this research service — along with a list of new currencies now available to trade — click here.

3) Consider Options to Increase Alpha

Options are one of the best tools available to investors to pull outsized gains out of the market, yet they are widely misunderstood — and, as a result, misused.

When used correctly, however, they don’t only magnify gains over regular stock returns but actually are safer instruments than stocks.

As you may know, volatility is one of the biggest factors in the pricing of options. And when volatility is low, options get cheaper.

So let’s say you’re sitting on a stock that’s doubled in price over the last five years. Furthermore, you think shares have a bit more room to run but you want to take some profit off the table.

Consider selling your shares and using some of the proceeds to purchase a deep-in-the-money call option.

This strategy is called stock replacement, and it allows you capture a stock’s upside at a fraction of the cost to owning shares.

Bottom line: Don’t let this dull market lull you into sleeping on stocks. Let your winners ride and use the time — and these strategies — to prepare yourself for when stocks really start moving again.

On the hunt,

Jonathan Rodriguez
Senior Analyst, Wall Street Daily

The post Stay Razor Sharp With 3 Simple Investing Moves appeared first on Wall Street Daily.

 

 

Yellen’s two-day testimony in focus

Yellen’s two-day testimony in focus

By IFCMarkets

Nasdaq and Dow advance while S&P 500 slips

US stocks closed little changed on Tuesday pairing early losses. The dollar weakened: the live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, fell 0.3% to 95.75. The S&P 500 slipped 1.9 points settling at 2425.53. Dow Jones industrial average gained less than a point closing at 21409.07. The Nasdaq index rose 0.3% to 6193.30 in a third winning session in a row.

The stock market rally spurred by expectations of stimulus measures such as tax cuts and infrastructure spending programs pledged by President Trump has stalled as investors question Trump administration’s ability to deliver on stimulus measures. The President has been embroiled in political turmoil centered on allegations of Russian collusion in US presidential election, making the passage of pro-growth initiatives less likely. The news that the Senate is delaying its summer recess until the third week of August to give lawmakers more time to work on key legislative matters, such as a health-care bill, helped the market pare earlier losses. Today investors will focus on Fed Chair Janet Yellen’s two-day testimony to lawmakers scheduled at 16:00 CET with the text of testimony coming out at 14:30 CET. She is expected to reaffirm central bank’s plan on lifting rates at least once more this year and starting a reduction of its $4.5 trillion balance sheet.

European markets retreat

European stock indices ended lower on Tuesday as investors adopted a wait and see approach ahead of US Federal Reserve chair Janet Yellen’s testimony to Congress. The euro rose against the dollar while British Pound extended losses. The Stoxx Europe 600 fell 0.7%. Germany’s DAX 30 lost 0.1% closing at 12437.02. France’s CAC 40 retreated 0.5% and UK’s FTSE 100 fell 0.6% to 7329.76. Markets opened 0.3%-0.4% higher today.

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Asian markets mixed

Asian stock indices are mixed today. Nikkei fell 0.6% to 20081.50 as yen weakness against the dollar continued. Both Toyota and Nissan shares lost 0.6%. Chinese stocks are mixed: the Shanghai Composite Index is 0.2% lower while Hong Kong’s Hang Seng Index is up 0.7%. Australia’s All Ordinaries Index is up 0.1% despite a stronger Australian dollar against the greenback.

Oil higher on US crude inventory draw expectations

Oil futures prices are rising today after the American Petroleum Institute reported 8.1 million barrel drawdown in inventories last week to 495.6 million barrels. Prices advanced yesterday as the Energy Information Agency cut its forecast for US production in 2018 by 1% to 9.90 million barrels a day. September Brent crude rose 1.4% to $47.52 a barrel on London’s ICE Futures exchange on Tuesday. Today at 16:30 CET the Energy Information Administration will release US Crude Oil Inventories. Analysts polled by S&P Global Platts expect a decline of 2.6 million barrels in crude inventories.

Market Analysis provided by IFCMarkets

Note:
This overview has an informative and tutorial character and is published for free. All the data, included in the overview, are received from public sources, recognized as more or less reliable. Moreover, there is no guarantee that the indicated information is full and precise. Overviews are not updated. The whole information in each overview, including opinion, indicators, charts and anything else, is provided only for familiarization purposes and is not financial advice or а recommendation. The whole text and its any part, as well as the charts cannot be considered as an offer to make a deal with any asset. IFC Markets and its employees under any circumstances are not liable for any action taken by someone else during or after reading the overview.

Will Volatility Continue to Flatline?

Will Volatility Continue to Flatline?

By WallStreetDaily.com Will Volatility Continue to Flatline?


Louis BaseneseSo the VIX has flatlined.

It’s been meandering along in a sideways direction for nearly four years.

In fact, the four-year chart of the VIX looks like an electrocardiograph (EKG) of a recently diseased person.

Sure, you’ll see an occasional blip.

But not even a dead person has a ruler-straight EKG line.

Sorry, folks — that long, continuous “flatline tone” when you die is mostly a Hollywood fabrication.

I’m covering the VIX today because it was once a key contrarian indicator.

Perhaps it’s time to announce this patient as dead, though.

Let’s check the vitals…

Also known as the “fear index,” the VIX measures the volatility of the S&P 500.

High VIX levels (above 20) suggest a fearful market.

Fearful markets represent great times to buy.

Low VIX levels (below 20) speak to a complacent market.

Complacent markets represent great times to take some profits.

Generally speaking, the VIX climbs about 4% for every 1% fall in the S&P.

The last notable upward blip on the VIX came in September 2015 as the result of a dovish Fed announcement. And it barely moved the S&P’s needle.

I asked my senior analyst, Martin Hutchinson, a simple question…

Is the VIX is dead… or can it be shocked backed to life with paddles?

Hutch’s full report is below.

Ahead of the tape,

Louis Basenese
Chief Investment Strategist, Wall Street Daily


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Martin Hutchinson: Today I’d like to talk about the VIX — the Chicago Board Options Exchange Volatility Index — and how it’s useful to investors.

VIX shows the market’s expectations of 30-day volatility. It’s a measure of how much the markets are expected to bounce around in the next 30 days.

It calculates the weighted average of implied volatility of eight Standard & Poor’s 500 index options.

What’s implied volatility?

You take the price of the options and shove it backward through the Black-Scholes options valuation model and out spits the implied volatility.

Usually you use the Black-Scholes model to start with volatility and end up with a price. Here, you’ve got the price and you want the volatility, so you feed it through backward.

Note that the implied volatility is the market’s forecast of volatility. It doesn’t actually represent real volatility or what the volatility’s going to do. It’s merely what options prices think volatility will be.

The VIX is around 10–15 in calm times. It’s about 10 at the moment. It goes above 30 as markets get choppy. Today, at around 10, the market’s very flat and complacent.

VIX acts as a fear index even if the market isn’t more volatile in a bear market. In other words, even if the market doesn’t move much, VIX goes up anyway.

That means that Standard & Poor’s 500 index puts are a good deal. As the index drops, the implied volatility will rise, so the index puts will rise more than the index drops.

The Chicago Board Options Exchange enables you to trade VIX options, but only out six months.

There are ETFs tracking the VIX, such as the ProShares Ultra VIX Short-Term Futures ETF (UVXY). That takes a two times leverage on VIX, but it has a huge tracking error. That means unless it goes your way very quickly, you’ll tend to lose money on it.

My conclusion is that you should use VIX as an indicator of what the market’s mood is and as something that helps you with out-of-the-money puts.

But don’t trade it directly; it’s a real Las Vegas sort of game.

This is Martin Hutchinson, signing off.

Smart investing,

Martin Hutchinson
Senior Analyst, Wall Street Daily

The post Will Volatility Continue to Flatline? appeared first on Wall Street Daily.

 

Technology stocks lead US market higher

Technology stocks lead US market higher

By IFCMarkets

S&P 500 and Nasdaq advance while Dow slips

US stocks closed higher on Monday led by gains in technology and materials stocks. The dollar edged higher adding to Friday’s gains after stronger than expected June jobs report: the live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, gained 0.1% to 96.056. S&P 500 added 0.1% settling at 2427.43. The Dow Jones industrial average slipped less than 0.1% to 21408.52, with a 2.8% drop in Wal Mart shares outweighing gains in Visa and Nike. The Nasdaqcomposite index rose 0.4% closing at 6176.39.

Treasury yields declined after remarks by European Central Bank policy makers that any shift to tightening from current ultra-loose policy will not be soon as inflation is yet below the ECB target of near but just below 2%. Investors are focusing now on quarterly earnings with Citigroup, JP Morgan and Wells Fargo reporting their earnings on Friday.

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German stocks lead European markets

European stock indices finished higher on Monday led by German shares after upbeat exports data. Both the euro and British Poundended extended losses against the dollar. The Stoxx Europe 600 index rose 0.4%. The DAX 30 closed 0.5% higher at 12445.92. France’sCAC 40 gained 0.4% and UK’s FTSE 100 added 0.3% to 7370.03. European stocks opened 0.1% – 0.3% higher today.

German stocks led European markets higher after Germany’s statistics office Destatis reported German exports jumped 14.1% in May compared with a year ago due to strong demand from outside the European Union. German government bond yields declined further despite comments by ECB officials over weekend suggested the ECB is not planning a tapering of its €60 billion monthly purchases of bonds. Government bond yields have been falling last two weeks after policy makers of major central banks including Federal Reserve, ECB, Bank of England and Bank of Canada signaled a readiness to end the ultra-loose monetary policies as economic performance improved.

Asian stocks mixed

Asian stock indices are mostly mixed today as investors await Fed Chair Yellen’s testimony on monetary policy on Wednesday. Nikkeiclosed 0.6% higher at 20195.48 as yen weakness against the dollar continued, with yen hitting four-month low. Chinese stocks are lower: the Shanghai Composite Index is down 0.3%, while Hong Kong’s Hang Seng Index is 1.6% higher. Australia’s All Ordinaries Index is up 0.1% despite continued rise in Australian dollar against the greenback.

Oil up on strong US demand expectations

Oil futures prices are extending gains today on strong demand outlook for coming weeks. Prices got a lift from a Bank of America Merrill Lynch report weekly US gasoline demand data “compares favorably to the five-year average and miles driven also continue to grow year-on-year.” Prices ended higher previous day on talks Organization of the Petroleum Exporting Countries is considering putting a cap on how much oil Nigeria and Libya can produce. The two members were exempt from the OPEC agreement among major oil producers to cut around 1.8 million barrels per day (bpd) of production between January this year and March 2018. However OPEC exported 25.92 million bpd in June, 450,000 bpd more than in May as Nigeria and Libya increased output. September Brent crude gained 0.4% settling at $47.06 a barrel on London’s ICE Futures exchange on Monday.

Market Analysis provided by IFCMarkets

Note:
This overview has an informative and tutorial character and is published for free. All the data, included in the overview, are received from public sources, recognized as more or less reliable. Moreover, there is no guarantee that the indicated information is full and precise. Overviews are not updated. The whole information in each overview, including opinion, indicators, charts and anything else, is provided only for familiarization purposes and is not financial advice or а recommendation. The whole text and its any part, as well as the charts cannot be considered as an offer to make a deal with any asset. IFC Markets and its employees under any circumstances are not liable for any action taken by someone else during or after reading the overview.

“Invisible Force” Claims Responsibility for Everspin’s Ascent

“Invisible Force” Claims Responsibility for Everspin’s Ascent

By WallStreetDaily.com


Louis BaseneseWhat’s the deal with Everspin Technologies Inc.?

The company is under heavy buying pressure, and momentum will likely push shares above $30 before the end of the month.

Whenever momentum hits such levels, I always take a peek under the hood.

Is it possible that Everspin is disrupting an existing industry?

Here’s what I discovered…

Everspin specializes in the development of random-access memory (RAM), which has been around for over 50 years.

Not a single technology invented in the 1960s can push shares from $9 to $22 in six weeks.

So it must be “special” RAM, right?

Well, kind of…

Everspin calls it “MRAM” — a type of memory that retains information even in the absence of power.

Knowing that MRAM can survive a grid meltdown or a catastrophic power failure gets us closer to quantifying the stock’s vertical ascent.

The company also touts a few high-profile customers like Broadcom, NXP and STMicroelectronics.

Heck, even sales are up 27% in the latest quarter.

Still, those metrics alone don’t justify the stock doubling since late May.

This is simply a case where momentum has overpowered reason.

Momentum is a powerful force to invest behind.

My senior analyst, Martin Hutchinson, is regarded as an expert on momentum.

Hutch’s full report on momentum can be found below.

Ahead of the tape,

Louis Basenese
Chief Investment Strategist, Wall Street Daily


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Question: Today we’ll be discussing momentum investing, which is founded upon the belief that stocks in motion will tend to stay in motion.

Let’s jump right in, Martin. How do you define a momentum stock?

Martin Hutchinson: A momentum stock is one that has shown stronger and persistent trends recently. So a momentum investor buys stocks with positive momentum and sells short those with negative momentum.

And there are a number of advantages of this, and the first is the fundamental fact that the market is not efficient. It doesn’t move in a random walk. If the market were a random walk, which is what people believed for a long time and modern financial theory says it is, then momentum investing wouldn’t work.

But the fact remains is that trends do persist more than would be indicated by chance. So there is some value in momentum investing. It’s just difficult to do. But you can make money doing this.

You can make money jumping into strong stocks in bull markets and weak ones in bear markets. If the stock and the market are going the same direction, the momentum is obviously more likely to persist.

There are cases where this has been highly profitable.

The most obvious case recently is holding on to the FAANGs for a long period. If you’d bought Facebook, Apple, Netflix, Google or Amazon, say, five years ago, then the thing to do wasn’t to jump in and out of those. The strategy was just to shut your eyes and hold onto them. And of course, you’d have made eight, 10 times your money, depending on the stock.

On the bear side, it can also be useful. Stocks can enter a death spiral where they can’t get finance. So selling companies with strong negative momentum, or buying puts on them, can be a very profitable strategy.

Question: Hutch, tell us, what are the snags?

Martin Hutchinson: There are a number of disadvantages.

Firstly, with momentum investing, you tend to buy stocks that have gone up a lot. So you may be buying stocks that are overpriced.

You’re paying no attention to fundamentals, and those can be important. You’re paying no attention to value, and that can be important.

And fashions can change, and markets can crack — quickly.

An example of that is oil in 2014, which went from $100 to $50 a barrel, and all the oil stocks fell out of bed.

Momentum investing is a short-term strategy because momentum factors can change quickly. So you can get whipsawed by sudden change.

Question: OK, Hutch, before we break, let me give you the final word on momentum investing. What do you suggest? What strategy should our readers be putting forth?

Martin Hutchinson: I don’t think you should use it as your only investing strategy. But you can certainly combine it with value, dividends and other strategies — and use it for short-term trading.

If you’re just looking to make a quick profit in the next two or three months and there appears to be a really strong trend, then by all means, momentum investing can work.

Question: So it’s fair to say you better have genuine conviction to go short in a bull market on a stock that’s under positive momentum. And then conversely, the same thing in a bear market — where a stock is in negative momentum. You better have genuine conviction if you’re going to pull that trigger. Is that accurate?

Martin Hutchinson: That’s absolutely right. And in particular, if you’re buying put options or taking a bear position in a stock that looks very expensive, you’d better not do it while it’s still going up.

Question: OK, fair enough. Thanks for your time today, Hutch.

Martin Hutchinson: Great to be with you.

Question: This is Wall Street Daily, signing off.

Smart investing,

Martin Hutchinson
Senior Analyst, Wall Street Daily

The post “Invisible Force” Claims Responsibility for Everspin’s Ascent appeared first on Wall Street Daily.

 

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