SUPPORT is that area where buying interest exceeds selling interest,and therefore a previous decline gets halted at this area and turns back up again.It is marked by drawing a horizontal line connecting two or more bottoms.
RESISTANCE is that area where selling pressure exceeds buying interest.It is an area where previous rallies get halted and turn down again.It is marked by drawing a horizontal line connecting two or more tops.
Support and Resistance are not absolute points.They are areas.
When Support breaks to the downside,we call that a Down Side Breakout or Breakdown.When Resistance breaks to the upside,we call that a Breakout.
When we get a breakdown below support,that area of support now becomes an area of resistance.Have a look at the JNPR charts below.That area of support broke down and that same area is now acting as Resistance.
A breakout above Resistance,and that same area of resistance now becomes a new Support.
These are important areas for every trader,either as an entry point or an area to take profits.
Monday, January 28, 2008
Trends Pivot
TREND :PIVOTS
Okay,now that we know that a higher high is when the previous bar's high is crossed,and a higher low is when the low is higher than the previous bar's low,and that a series of higher highs and lows make an uptrend........we retrace a bit and change things around a bit.
Just higher highs and lows alone do not make an uptrend.Yes we have an up-move but an up-move doesn't mean we are in an uptrend.Higher highs and lows form a rally.Lower highs and lows form a decline.
We can have declines in an uptrend.We can have rallies in a downtrend.So now that we know that a series of higher highs is called a RALLY,how then do we define an Uptrend?An UPTREND on a particular time frame is a series of higher pivot highs and lows on that time frame.What then is a downtrend?Nothing but a series of lower pivot highs.
So what then is a Pivot?Okay,we are back to the "Hand" example.Whisk out your right hand again,once again with your right palm facing you.We have our little finger.The ring finger makes a higher high and low as compared to the little finger.The middle finger is higher high and low as compared to the ring finger.We therefore have a RALLY.The index finger makes lower highs and lows as compared to the middle finger.The thumb makes lower highs and lows as compared to the index finger.We therefore have a DECLINE.The middle finger with two lower highs on both sides(ring and index)now forms a PIVOT.
Imagine we have Area A.Rally starts from Area A which is followed by a decline to an area that is higher than Area A.We call this new area where the stock has declined to as Area B.So on so forth..Therefore Area B is higher than Area A,Area C is higher than Area B,so on so forth.We have therefore what is called an uptrend.These areas are pivotal areas where the stock stops its decline and rallies upwards.We refer to these turning points as pivots.
Therefore,in the above example,as each pivot is after a decline,and the pivot is the low after which the stock takes off again,we call them PIVOT LOWS.
Right the opposite in a downtrend.The stock declines from an area and then rallies to an area lower than the first,so on so forth.In this case every pivot is after a rally,and the pivot is that area after which the stock declines further to new lows.
As this pivot tells us of that high after which things go back to its declining ways,we call that a PIVOT HIGH.
So,in an uptrend,we have HIGHER PIVOT LOWS.How did we come to that?Each pivot low is higher than the previous pivot low.Therefore we call it higher pivot lows.
In a downtrend,we have LOWER PIVOT HIGHS.How did we come to that?Each pivot high is lower than the previous pivot high.Therefore we call it lower pivot highs.
In a sideways trend,we have nearly equal pivot highs and lows.
Basically didn't want to introduce the word "Pivots" very early on.......but there really is no other way to tell what a trend is all about.Will take some chewing,and digesting.The only way is to look at the charts and start to make out all the pivot highs and lows.
Okay,now that we know that a higher high is when the previous bar's high is crossed,and a higher low is when the low is higher than the previous bar's low,and that a series of higher highs and lows make an uptrend........we retrace a bit and change things around a bit.
Just higher highs and lows alone do not make an uptrend.Yes we have an up-move but an up-move doesn't mean we are in an uptrend.Higher highs and lows form a rally.Lower highs and lows form a decline.
We can have declines in an uptrend.We can have rallies in a downtrend.So now that we know that a series of higher highs is called a RALLY,how then do we define an Uptrend?An UPTREND on a particular time frame is a series of higher pivot highs and lows on that time frame.What then is a downtrend?Nothing but a series of lower pivot highs.
So what then is a Pivot?Okay,we are back to the "Hand" example.Whisk out your right hand again,once again with your right palm facing you.We have our little finger.The ring finger makes a higher high and low as compared to the little finger.The middle finger is higher high and low as compared to the ring finger.We therefore have a RALLY.The index finger makes lower highs and lows as compared to the middle finger.The thumb makes lower highs and lows as compared to the index finger.We therefore have a DECLINE.The middle finger with two lower highs on both sides(ring and index)now forms a PIVOT.
Imagine we have Area A.Rally starts from Area A which is followed by a decline to an area that is higher than Area A.We call this new area where the stock has declined to as Area B.So on so forth..Therefore Area B is higher than Area A,Area C is higher than Area B,so on so forth.We have therefore what is called an uptrend.These areas are pivotal areas where the stock stops its decline and rallies upwards.We refer to these turning points as pivots.
Therefore,in the above example,as each pivot is after a decline,and the pivot is the low after which the stock takes off again,we call them PIVOT LOWS.
Right the opposite in a downtrend.The stock declines from an area and then rallies to an area lower than the first,so on so forth.In this case every pivot is after a rally,and the pivot is that area after which the stock declines further to new lows.
As this pivot tells us of that high after which things go back to its declining ways,we call that a PIVOT HIGH.
So,in an uptrend,we have HIGHER PIVOT LOWS.How did we come to that?Each pivot low is higher than the previous pivot low.Therefore we call it higher pivot lows.
In a downtrend,we have LOWER PIVOT HIGHS.How did we come to that?Each pivot high is lower than the previous pivot high.Therefore we call it lower pivot highs.
In a sideways trend,we have nearly equal pivot highs and lows.
Basically didn't want to introduce the word "Pivots" very early on.......but there really is no other way to tell what a trend is all about.Will take some chewing,and digesting.The only way is to look at the charts and start to make out all the pivot highs and lows.
Trends 2
TRENDS(CONT.)
We had discussed yesterday that trend has three directions,that is : Uptrend, Downtrend,Sideways Trend.
An example I had given many times just has to be repeated here........Look at your right hand with the palm facing you.First we have the little finger.The Ring Finger takes out the high of the little finger and therefore makes a higher high and low as compared to the little finger.The middle finger makes a higher high and higher low as compared to the ring finger.We have therefore an uptrend.The index finger makes a lower high and a lower low as compared to the middle finger.The thumb makes a lower high and low as compared to the index finger.We have therefore a downtrend.
Just as trend can be classified according to the direction,so too can we categorise trends into 3 categories
MAJOR ,INTERMEDIATE and NEAR TERM TRENDS.
Simply put,major trends last for greater than 6 months.Intermediate trends last between 3 weeks to 6 months.Near term trends last from a few days to 3weeks.
From a charts perspective,the major trend is seen by looking at the monthly charts.The intermediate trend from the weekly charts,and the near term trend from the daily charts.
What is seen as a downtrend on the daily charts may be nothing but a pullback on the weekly charts,and is not even evident on the monthly charts.What is seen as a downtrend on the weekly charts and a catatrophic crash on the daily may be nothing but a monthly pullback.
It is important as traders to know these different time frames and trade accordingly.The practical aspects of profitting from this knowledge,we can come to later.
For now,we don't know much......but a step at a time for now.We have our charts.All we know is that in any chart of any time frame,we can have only 3 possibilities in direction,and only 3 possibilities in categorisation.The eye can only see what the brain knows........these early days are to be spent in teaching the brain so that the eye sees the pattern from a mile.Pour over your charts and train yourself in detecting which trend the stock is in currently.It is a first step but an important first step.
We can discuss Support and Resistance tomorrow.
We had discussed yesterday that trend has three directions,that is : Uptrend, Downtrend,Sideways Trend.
An example I had given many times just has to be repeated here........Look at your right hand with the palm facing you.First we have the little finger.The Ring Finger takes out the high of the little finger and therefore makes a higher high and low as compared to the little finger.The middle finger makes a higher high and higher low as compared to the ring finger.We have therefore an uptrend.The index finger makes a lower high and a lower low as compared to the middle finger.The thumb makes a lower high and low as compared to the index finger.We have therefore a downtrend.
Just as trend can be classified according to the direction,so too can we categorise trends into 3 categories
MAJOR ,INTERMEDIATE and NEAR TERM TRENDS.
Simply put,major trends last for greater than 6 months.Intermediate trends last between 3 weeks to 6 months.Near term trends last from a few days to 3weeks.
From a charts perspective,the major trend is seen by looking at the monthly charts.The intermediate trend from the weekly charts,and the near term trend from the daily charts.
What is seen as a downtrend on the daily charts may be nothing but a pullback on the weekly charts,and is not even evident on the monthly charts.What is seen as a downtrend on the weekly charts and a catatrophic crash on the daily may be nothing but a monthly pullback.
It is important as traders to know these different time frames and trade accordingly.The practical aspects of profitting from this knowledge,we can come to later.
For now,we don't know much......but a step at a time for now.We have our charts.All we know is that in any chart of any time frame,we can have only 3 possibilities in direction,and only 3 possibilities in categorisation.The eye can only see what the brain knows........these early days are to be spent in teaching the brain so that the eye sees the pattern from a mile.Pour over your charts and train yourself in detecting which trend the stock is in currently.It is a first step but an important first step.
We can discuss Support and Resistance tomorrow.
Trends in charts
Most important thing that we all have to remember,Trading is very simple.Our minds being complicated is the reason why we try to over complicate a simple thing.So as in anything simple,we try to leave it as simple as we can.
There are various types of charts :
Line Charts,
Bar Charts,
Japanese Candlesticks Charts..........
Basically your preference,whatever you are most comfortable with.I personally use the Candlestick charts,because it makes it more visually obvious to me.I have to strain to see the same in a bar chart.But basically upto you....
Whether we take a bar chart or a candlestick chart,each bar/candle tells us of the Open,Close,High and Low of that particular time frame.Therefore,in a daily chart,the high is the high of the day.The close being the close of that day.But in a 15min chart,each bar represents the trade in a 15minute time frame,therefore the high of that bar is of course the 15minute high...so on so forth.
We have three trends :
UPTREND,DOWNTREND,SIDEWAYS TREND
UPTREND :An uptrend on a chart of any time frame is nothing but a series of higher highs and higher lows.
DOWNTREND:A downtrend on a chart of any time frame is nothing but a series of lower highs and lower lows.
SIDEWAYS TREND :A sideways trend is nothing but relatively equal highs and lows.
TRENDLINES :
An UPTRENDLINE is nothing but a line that connects two or more LOWS,in a chart in an uptrend.The more points that meet up to this line,the stronger this line is.This trendline acts as support,as prices blast off,then pullback to this line before taking off again.Therefore,in an UPTRENDLINE,the 2nd point is always higher than the 1st point,and the 3rd higher than the 2nd.
A DOWNTRENDLINE is nothing but a line that connects two or more highs in a downtrend.Once again,the more number of points that connect,the stronger the line is.This downtrendline acts as resistance.Each down move is followed by a pullback rally to this trendline which acts as resistance only to be met with more selling and lower prices.In DOWNTRENDLINE,the 2nd point is always lower than the 1st,and the 3rd lower than the 2nd.
A break in the UPTRENDLINE signals a possible change in trend.So too with the break in the DOWNTRENDLINE.
There are various types of charts :
Line Charts,
Bar Charts,
Japanese Candlesticks Charts..........
Basically your preference,whatever you are most comfortable with.I personally use the Candlestick charts,because it makes it more visually obvious to me.I have to strain to see the same in a bar chart.But basically upto you....
Whether we take a bar chart or a candlestick chart,each bar/candle tells us of the Open,Close,High and Low of that particular time frame.Therefore,in a daily chart,the high is the high of the day.The close being the close of that day.But in a 15min chart,each bar represents the trade in a 15minute time frame,therefore the high of that bar is of course the 15minute high...so on so forth.
We have three trends :
UPTREND,DOWNTREND,SIDEWAYS TREND
UPTREND :An uptrend on a chart of any time frame is nothing but a series of higher highs and higher lows.
DOWNTREND:A downtrend on a chart of any time frame is nothing but a series of lower highs and lower lows.
SIDEWAYS TREND :A sideways trend is nothing but relatively equal highs and lows.
TRENDLINES :
An UPTRENDLINE is nothing but a line that connects two or more LOWS,in a chart in an uptrend.The more points that meet up to this line,the stronger this line is.This trendline acts as support,as prices blast off,then pullback to this line before taking off again.Therefore,in an UPTRENDLINE,the 2nd point is always higher than the 1st point,and the 3rd higher than the 2nd.
A DOWNTRENDLINE is nothing but a line that connects two or more highs in a downtrend.Once again,the more number of points that connect,the stronger the line is.This downtrendline acts as resistance.Each down move is followed by a pullback rally to this trendline which acts as resistance only to be met with more selling and lower prices.In DOWNTRENDLINE,the 2nd point is always lower than the 1st,and the 3rd lower than the 2nd.
A break in the UPTRENDLINE signals a possible change in trend.So too with the break in the DOWNTRENDLINE.
Asian Stocks fall fearing US Recession
Asian stocks fell for the first time in four days on concern a slowdown in the world's two largest economies will weaken consumer demand and drag on global growth.
Mitsubishi UFJ Financial Group Inc. led declines in Japan after Goldman, Sachs & Co. said the nation's economy is probably in a recession. Komatsu Ltd., Japan's largest maker of construction machinery, slid after CLSA Ltd. slashed its rating. Advantest Corp. slumped after Merrill Lynch & Co. advised investors to sell shares of the maker of memory-chip testers.
``The U.S. is either also close to a recession or already in it,'' Hans Goetti, chief investment officer of LGT Bank in Liechtenstein AG, which manages $10 billion, said in an interview with Bloomberg Television. ``The question is, is the U.S. consumer going to hold up.''
The MSCI Asia Pacific Index dropped 2.1 percent to 142.93 as of 11:59 a.m. in Tokyo, taking its losses so far this year to 9.4 percent. A measure of the benchmark's volatility jumped to 61, the highest since October 1998. About eight stocks retreated for each that advanced.
Japan's Nikkei 225 Stock Average lost 2.6 percent to 13,274.93. Benchmarks in other markets open for trading declined. Australia is closed for a holiday.
U.S. stocks slid on Jan. 25, sending the Standard & Poor's 500 Index lower for the first time in three days. European shares dropped, dragging the Dow Jones Stoxx 600 Index to its seventh straight weekly decline.
MSCI's Asian index plunged 10 percent in the first two days of trading last week on concern that a weakening U.S. will affect economies elsewhere. A rebound following the Federal Reserve's surprise interest-rate cut failed to offset earlier losses.
Banks Decline
Mitsubishi UFJ, Japan's largest publicly traded bank, slid 5.2 percent to 986 yen. Sumitomo Mitsui Financial Group Inc., the second-biggest, dropped 4.6 percent to 805,000 yen.
U.S. growth probably slowed to a 1.2 percent annual rate from October to December, a quarter of the previous three months' pace, according to the median estimate in a Bloomberg News survey. The GDP report is due on Jan. 30.
Japan's economy probably entered a recession amid ``a slump in domestic demand,'' Tetsufumi Yamakawa, Goldman Sachs chief Japan economist, said in a report today.
Kookmin fell 2.1 percent to 61,100 won. DBS Group Holdings Ltd., Southeast Asia's largest bank, slid 2 percent to S$18.56.
Komatsu dropped 6.3 percent to 2,460 yen. The shares were cut to ``underperform'' from ``buy'' by Takeaki Ueno, an analyst at CLSA.
Mitsubishi UFJ Financial Group Inc. led declines in Japan after Goldman, Sachs & Co. said the nation's economy is probably in a recession. Komatsu Ltd., Japan's largest maker of construction machinery, slid after CLSA Ltd. slashed its rating. Advantest Corp. slumped after Merrill Lynch & Co. advised investors to sell shares of the maker of memory-chip testers.
``The U.S. is either also close to a recession or already in it,'' Hans Goetti, chief investment officer of LGT Bank in Liechtenstein AG, which manages $10 billion, said in an interview with Bloomberg Television. ``The question is, is the U.S. consumer going to hold up.''
The MSCI Asia Pacific Index dropped 2.1 percent to 142.93 as of 11:59 a.m. in Tokyo, taking its losses so far this year to 9.4 percent. A measure of the benchmark's volatility jumped to 61, the highest since October 1998. About eight stocks retreated for each that advanced.
Japan's Nikkei 225 Stock Average lost 2.6 percent to 13,274.93. Benchmarks in other markets open for trading declined. Australia is closed for a holiday.
U.S. stocks slid on Jan. 25, sending the Standard & Poor's 500 Index lower for the first time in three days. European shares dropped, dragging the Dow Jones Stoxx 600 Index to its seventh straight weekly decline.
MSCI's Asian index plunged 10 percent in the first two days of trading last week on concern that a weakening U.S. will affect economies elsewhere. A rebound following the Federal Reserve's surprise interest-rate cut failed to offset earlier losses.
Banks Decline
Mitsubishi UFJ, Japan's largest publicly traded bank, slid 5.2 percent to 986 yen. Sumitomo Mitsui Financial Group Inc., the second-biggest, dropped 4.6 percent to 805,000 yen.
U.S. growth probably slowed to a 1.2 percent annual rate from October to December, a quarter of the previous three months' pace, according to the median estimate in a Bloomberg News survey. The GDP report is due on Jan. 30.
Japan's economy probably entered a recession amid ``a slump in domestic demand,'' Tetsufumi Yamakawa, Goldman Sachs chief Japan economist, said in a report today.
Kookmin fell 2.1 percent to 61,100 won. DBS Group Holdings Ltd., Southeast Asia's largest bank, slid 2 percent to S$18.56.
Komatsu dropped 6.3 percent to 2,460 yen. The shares were cut to ``underperform'' from ``buy'' by Takeaki Ueno, an analyst at CLSA.
What is Fundamental Analysis
Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.
Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.
Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.
Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.
When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.
While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.
Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.
Earnings per Share – EPS
Price to Earnings Ratio – P/E
Projected Earning Growth – PEG
Price to Sales – P/S
Price to Book – P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity
No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.
Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.
Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.
Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.
When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.
While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.
Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.
Earnings per Share – EPS
Price to Earnings Ratio – P/E
Projected Earning Growth – PEG
Price to Sales – P/S
Price to Book – P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity
No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.
SRL Ranbaxy Plans IPO
SRL Ranbaxy Ltd plans to raise Rs 2-2.5 billion through an initial public offer of shares by September, a senior company official said on Wednesday.
SRL Ranbaxy, which operates a chain of pathology laboratories across India, is also in talks to sell up to 20 per cent stake to private equity firms ahead of the IPO, the official said on condition of anonymity.
"The meetings are on, we hope to close that in a month's time," the official said referring to the pre-IPO sale. The proceeds from the issue will be used to add to its network of about 35 laboratories across India, he added.
The company plans to have a network of 100 such labs in a few years. SRL is controlled by the promoters of Ranbaxy Laboratories Ltd.
Last May, Fortis Healthcare, another company controlled by the Ranbaxy promoters, went public with a Rs 4.97-billion IPO. This was followed by the listing of financial services arm, Religare Enterprises in November.
Indian companies are expected to raise up to $15.8 billion from new listings this year, nearly doubling from last year's record of $8.3 billion, according to Thomson Financial data.
SRL Ranbaxy, which operates a chain of pathology laboratories across India, is also in talks to sell up to 20 per cent stake to private equity firms ahead of the IPO, the official said on condition of anonymity.
"The meetings are on, we hope to close that in a month's time," the official said referring to the pre-IPO sale. The proceeds from the issue will be used to add to its network of about 35 laboratories across India, he added.
The company plans to have a network of 100 such labs in a few years. SRL is controlled by the promoters of Ranbaxy Laboratories Ltd.
Last May, Fortis Healthcare, another company controlled by the Ranbaxy promoters, went public with a Rs 4.97-billion IPO. This was followed by the listing of financial services arm, Religare Enterprises in November.
Indian companies are expected to raise up to $15.8 billion from new listings this year, nearly doubling from last year's record of $8.3 billion, according to Thomson Financial data.
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