Technical side: Chart Patters what are they?

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source: http://www.chartpatterns.com/

Here is what Investopedia.com has to say about patterns:

In technical analysis, the distinctive formation created by the movement of security prices on a chart. It is identified by a line connecting common price points (closing prices, highs, lows) over a period of time. Chartists try to identify patterns to try to anticipate the future price direction. Also known as "trading pattern".

So generally chart patterns are formations made by connecting some points of the stock's movement for a period of time. With this definition one chartist may see a different chart pattern from another chartist if they have different time period and different movements as a connecting point.

Chart patterns can be made whether one uses a Candlestick chart, a Bar Chart, or a simple Closing Price Chart. These patterns are not exact and accurate answer to everyone's question if a stock is a buy or a sell but mainly it guides one to at least know what is the probable price action of the stock in the next couple of days base on historical price movement.

Patterns can be classified as Bullish pr Bearish chart patterns. 

source:http://www.torycapital.com

Bullish chart patterns are patterns that signify an upward trend meaning price action is predicted to go up because sellers are pushing the price up and buyers are willing to buy at a higher price believing that stock price are still going up due to an expected market recovery or boom in the economy.

Bearish chart patterns are the opposite of a bullish market. A bearish pattern signify an expected decline in prices brought about by fear of economic downfall or an expected poor economy. Such fear spur panic to investors thus sellers sell down to grab as much profit they can take before market gets stuck. Buyers on the other hand bargain hunt thus they bid for lower prices.

Patterns as well can be viewed as a Reversal or Continuation.

Source: http://tradegartleypattern.blogspot.com/

Reversal patterns indicate a opposite action from what has already been happening in the stock's price. If the stock has been on a downtrend for sometime a reversal pattern will indicate an expected upward thus investors anticipate such reversal and thus buy more of the stock to capitalize on the stocks lower price.

Continuation pattern on the other hand indicates that the stock price will be expected to go up further. With this expectation investors will buy more to ride with the stocks seemingly continuing rise.

Investing word of the day: Beta

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source: http://tiie.com

I always see this word in the analysis of finance websites like Reuters.com and Bloomberg.com but when I searched what is it and what use is it for me Investopedia's video has answered all my questions. So see the video below and learn how you can use Beta in your stock trades.

Oops I know you didn't quite get it so let me explain.

Beta coefficient or simply Beta is a measure of volatility or risk as compared to the market as a whole. Philippine listed stocks are compared to the PSEi to compute their Beta.

In a way it is a multiplier which uses the PSEi as the base comparison.  As the video said it is a way of knowing the movement of the stock as compared to the base it is compared to. Below is the generalized assumption as quoted from Investopedia.com

A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market. 

To sum it up:


If Beta is = 1 stock follows the trend of the PSEi
If Beta is > 1 stock is more volatile than the market thus  
                   unpredictable
If Beta is < 1 stock is less volatile than the market thereby slow 
                   moving than the market but stable

Investing word of the day: YoY or Year on Year

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Year on Year or sometimes Year over Year is a terminology that means a comparison of the current year against last year.

Let us use the data below for a simple analysis of a company's performance.

To compute YoY ratios we follow this simple formula(remember to click your "%" in your Microsoft Excel to express the value below in percentage:

Now base on the above information Sales of the company have grown or risen 10% year on year while Cost of Goods Sold(COGS) have also risen into a whopping 44.44% as compared last year.

Though there was a 10% increase in Sales the big 44.44% increase in COGS contributed to the decrease of Gross Profit by 18.18%. A decrease in Expenses by 20% as compared to last year curbed the big chunk of decrease caused by the increase in COGS but not enough to eliminate such impact bringing the Net profit decrease to only 16.67% as compared to last year.

source: http://www.beijing-kids.com

Too technical?

It only means that the decrease of Net profit was  due to  big increase of cost of sales but thank goodness a decrease in expenses lessened the impact of such increase.

source: http://www.allposters.com

Technical side: What are Candlesticks?

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source: http://www.candlestickpicks.com/

First of all lets know where Candlesticks came from. Let's borrow some history information from Investopedia.com

The candlestick techniques we use today originated in the style of technical charting used by the Japanese for over 100 years before the West developed the bar and point-and-figure analysis systems. 

source: http://optionalpha.com

In the 1700s, a Japanese man named Homma, a trader in the futures market, discovered that, although there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders. He understood that when emotions played into the equation, a vast difference between the value and the price of rice occurred. This difference between the value and the price is as applicable to stocks today as it was to rice in Japan centuries ago. The principles established by Homma are the basis for the candlestick chart analysis, which is used to measure market emotions surrounding a stock. Read more

The Concept of Candlesticks

source: http://stockcharts.com

A candle is formed as per above illustration. A candle has 3 parts: the upper shadow/wick, the body, and the lower shadow/tail. Relevant information as shown above correspond to the Open, High, Low, and Close information we get from trading.There are two basic candles one is the hollow candle(which is mostly green on other charting programs) and the filled/black candle(which is sometimes red in charting programs). 

A Hallow Candle is a bullish candle because it shows that the stock closed higher than its opening. Filled or black candle is a bearish candle indicating that the stock closed lower than its opening. Now the difference between the opening and closing can be seen in a candle's body length. An elongated candle means that the opening and the closing are far apart indicating a very high interest of the market. On the other hand a short body indicates a low interest and may even indicate that the stock is bound to consolidation.

Below is the candlestick chart of PSEi as of July 27, 2011 for our illustration:

PSEi as of July 27, 2011

As you can see above the green candle indicates a bullish trend from mid-June to the first week of July. Also if you noted in the end of June a successive long green candles led to one of the all time high of the PSEi with a sudden reversal indicated by the red candles but then it recovers with another series of elongated green candles that led to the 4506 finish of PSEi.

Candlesticks has become popular because it gives the stock analyst the feeling of the general market through the color and length of the body and shadows. In a glance one can see what is the market action and what is the likelihood of the next. The body of the candle generally indicates when a stock is bullish or bearish. The more it is elongated, the more it states how bearish or bullish it is. 

The wick or the tail also indicate at what price investors are willing to buy or sell. If the wick and tail is short it indicates that price action is within the range of the candle's body while longer shadows indicate that trading has gone beyond the range of the open and closing. 


Note: This is the first part of the topic regarding candlesticks. More postings will be made in the future.

  

Bible quote of the Day: Matthew 13:44-52

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sources: http://commonmansbiblejourney.wordpress.com and http://list-of-birthstones.com

Jesus said to his disciples: “The kingdom of heaven is like a treasure buried in a field, which a person finds and hides again, and out of joy goes and sells all that he has and buys that field. 

Again, the kingdom of heaven is like a merchant searching for fine pearls.When he finds a pearl of great price, he goes and sells all that he has and buys it. 

Again, the kingdom of heaven is like a net thrown into the sea, which collects fish of every kind. When it is full they haul it ashore and sit down to put what is good into buckets. What is bad they throw away. Thus it will be at the end of the age. The angels will go out and separate the wicked from the righteous and throw them into the fiery furnace, where there will be wailing and grinding of teeth. 

Do you understand all these things?” They answered, “Yes.” And he replied, “Then every scribe who has been instructed in the kingdom of heaven is like the head of a household who brings from his storeroom both the new and the old.”

The gospel today talks about Value. What for you is valuable?

In stock investing we look for stocks of value by using Fundamental analysis. We research and study companies who has potential to be of worth in the coming months or years. 

But far more than knowing the value most people forget that when Value is being sought after one has to make the same amount or maybe near the same amount of sacrifice to obtain such valuable item which in case of the stock market is the stocks.

Far beyond the stock market what are other things valuable that you will sacrifice anything to obtain it? Probably your family, your wife, your work, your house, or maybe your collection. In doing so you on other hand sacrifice something to keep such valuable things that you posses and at times you have to choose because one thing is more valuable than the other like sacrificing your barkada nights to be with your wife, or sacrificing a out of town trip with your college friends to support your childs basketball game.

We have different things we value, we also have different standards when deciding which is valuable. But at the end of the day we must ponder upon if we have been valuable to others. God sees us valuable that He is able to sacrifice His son for us. 

Often times we forget this. There are times that God knocks on our hearts for a charitable work but instead say no to Him because we have been saving up money for that new phone, or we have set that date for your Boracay getaway, or maybe Harry Potter's last movie is out and you want to see it.

P.S. Would like to invite you for something that you might be able to share a little bit of your time, or your blessings, or your skills. There is a GK Build at Bulaklakan Quezon City this coming Sunday, July 31. For more details you can check my blog post at Share Your Helping Hand.

Analyzing two companies of the same industry

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source:http://getyourbizsavvy.com/

 

The best way to determine whether one company is better than the other is by comparing one to another company of the same industry.

For illustration purposes lets look at ABS and GMA7, Philippines top channels.

ABS   GMA7  Closing Price 08/06/2010             45.30           5.95 EPS               2.23           0.58 P/E %             20.36         10.26 52 week range  25.50-45.30   5.60-8.80  Par               1.00           1.00 2009 Income  1.7B   2.8B  Board Lot           100.00       100.00

Based on the data above one can make decision which stock to buy.

If you look at the two there is a huge difference in the price. Higher EPS indicates two things, one is that the other company has a bigger net income and the other company may have a smaller number of shares outstanding. As you compare GMA7 has a higher net income than ABS but ABS has higher EPS meaning ABS has a smaller number of shareholders...meaning the income is shared by a smaller number of people. P/E % of ABS is higher than GMA7 which might indicate that more people have confidence in ABS but it also means because of this confidence level ABS might be overpriced as compared to GMA7.  With these bits of info one can decide which to invest in. One pointer is that both companies are doing well... both has a high P/E %, Price range is wide meaning catching either stock at its lowest could possible go up again to that high level giving you profit when the timing is right. The only decision point now will be how much free money can you put in. If you have a limited fund GMA7 might be a better stock to buy but if funds are handy go for ABS. Again the above simple analysis are just sample analysis. Every person has his own way of looking at the data. Others rely on Technical Analysis which is a price change based analysis which is studying the price trend and looking at the buy and sell indicators.