Financial carrier » Market

Evaluating the Tabulations

admin — Wed, 24 Jun 2009 20:21:27 +0000

Although gains were recorded in most months during both the favorable unfavorable six-month periods, there has been a considerable difference in magnitude of the average gain achieved during favorable seasonal periods unfavorable periods. (Stocks advance approximately 75% of the time but, apparel there are advances and, then again, there are advances.)
Returns during unfavorable six-month periods have averaged just a bit than 1% per period, with the rate of return while invested approximately 2% annum, less than risk-free interest rates in most years. As a rule, investors which have been better off in the stock market for just six months each year and six months than being fully invested at all times (although this is not true for every year, of course).
The performance of this seasonal six-month period timing model has been essentially similar to the Nasdaq/NYSE Index Relative Strength Indicator and the 3- to 5-Year Monetary Indicator, which also produce virtually all net market gain within defined and limited holding periods. These “mood indicators” are not precise on their own in terms of market timing, however, so they are probably best employed as an influential backdrop to inveshnent decisions based upon more specific timing tools or as a consideration for decisions regarding the extent to which you want to be invested at any time.
There certainly do appear to be significant differences in performance between the favorable and unfavorable six-month periods.

Measures of Market Breadth

admin — Sun, 31 May 2009 18:31:47 +0000

One useful measure of market breadth lies with the advance-declme lie, a cumulative total of advancing minus declining issues on each of the various exchanges. You can start these cumulative lines from any level, using daily readings for daily-based advance-decline line readings, or weekly readings for weekly advance-decline line measurements.
For example, if you started an advance-decline line of the New York Stock Exchange at an arbitrary level of 10,000, and on the first day there were 1500 issues advancing in price on that exchange and 1,000 declig (unchanged issues are not
included), there would be 500 more issues advancing than declig that day The advance-decline (A-D) line would advance by +500 units, from 10,000 to 10,500. If there are 200 more declines than advances on the subsequent day, the A-D line would decline from 10,500 to 10,300.
We will return to applications of the advance-decline lines of various market indices, but first we take a more detailed look at the relationships of the number of issues rising to new highs and falling to new lows. This is another area that reflects the internal breadth and strength of the stock market.

The “Internal” as Opposed to the “External” Stock Market

admin — Sun, 24 May 2009 18:31:36 +0000

Financial news reports tend to focus on gains and losses recorded by a selective group of popularly followed stock market indices. These include the Dow Industrials, with 30 issues, unequally weighted (higher-priced issues have a larger influence, on the index); the Standard & Poor’s 500 Index, with 500 stocks (weighted by capitalization so that the index is unequally weighted, with larger companies more influential than smaller companies); the Nasdaq Composite Index, with approximately 3,500 separate issues (heavily weighted by capitalization so that at times perhaps only a dozen or so issues cany a very disproportionate effect); and the New York Stock Exchange Index, which includes all issues on the New York Stock Exchange (also weighted so that larger companies most heavily influence the average).
Another index, the Value Lie Arithmetic Average, includes approximately 2,000 issues traded on various exchanges and is not weighted by capitalization: All companies in that average are afforded equal weight.
Arguments can be made for or against the weighting inherent in most of these market indices, but the simple fact is that there are often serious discrepancies between the movements of one or more of the weighted indices and the movement of the typical listed stock. It is very possible for a weighted market index to advance in price as a result of strength in a handful of larger companies while the majority of stocks is actually declining. Popular market indices represent the “external stock market,” a view of the market most frequently observed. Indicators that measure the numbers or proportions of issues that actually participate in market advances and declines are measures of the internal strength or breadth of the stock market, a generally her reflection of the strength of the typical stock and mutual fund.
As a general rule, the stock market is on firmer ground when market advances are broad and include large percentages of listed issues than when they are selective, with advances in market indices created by strength in a relatively narrow group of highly capitalized issues. This is actually quite logical. If larger percentages of stocks are participating in market advances, the odds of selecting and holding profitable positions increase. If only a relatively small number of stocks are carrying market indices upward, the odds of successful stock selection narrow. Investors are more likely to fmd themselves taking losses in a stock market that seems to be rising if judgments are based on weighted indices, but that, in fact, is rising only selectively External readings are strong. Internal breadth measurements indicate otherwise.