Wednesday, September 30, 2009

Stock Market Today Analysis

When you are just starting a stock market investing program, I think it’s a good idea to master what happened in the stock market today and to watch it each and every day. You should do this before you start picking stocks because a lot of the concepts that we are going to review in determining the general market’s direction will apply to our analysis of stocks. Your goal is to figure out whether the market is in an uptrend or a downtrend.

The reason that this is so important to you as an investor is because three out of four stocks will trend with the market. If the market is going up, it will pull the prices of those stocks up as well. If the market is going down, it will pull a stock’s price down. You do not want to fight the general market’s direction because there is a 75% chance that you will lose value. For that reason, invest only when the market’s direction is trending up.

If you have been reading my site, you’ve probably figured out that my approach is developing around the CANSLIM strategy developed by William O’Neil who founded Investor’s Business Daily. I’ve studied his book How To Make Money In Stocks and developed this step by step approach based on what I could understand. While you don’t have to be a subscriber to the IBD, it will certainly help your sense of what today’s stock market did and the overall direction of the stock market.

To refresh our memories, the “general market” refers to the major indexes that summarize the stock markets today. There are four basic ones to focus on. They are:
  1. S&P 500
  2. Dow
  3. NYSE
To make sense of each of the indexes, there are two basic things that you want to know each day. They are:
  • Did the index go up or down and by how much of a percentage
  • Was volume higher or lower than the previous day
The great news is that finding this information is really easy. You can find it right at and it’s free even if you are not a subscriber. At the top of the home page of the site, you’ll see today’s market closes for S&P 500, the Dow and the NASDAQ. For the NYSE, you find the volume up there but not the closing prices or the percentage change. You’ll have to dig a little bit for that.

It’s pretty easy to see if the market closed up or down. You can also see what volume did as well. One of the first things that confused me is that when you look at the charts for the S&P 500, the Dow and the NYSE Composite the index prices are compared to overall NYSE composite volume. This is important if you are creating your own stock charts and not using the ones at IBD. NASDAQ volume is used for the NASDAQ chart.

As far as the indexes market value, you’ll want to note did the index value decrease by more than .2%. When determining this you do not want to round. Also, if the index value went up in value, was it by more than 5% of one of the previous distribution days. I’ll come back to that. As far as volume goes, the main thing you are looking for here is this. Was it higher or lower than the day before. In looking at these numbers, you are trying to figure out is the market selling off -- or under distribution. Or, is it in a confirmed uptrend.
What The Data Means For The Stock Market Today

OK. Let’s take a look at the S&P 500. Today, it closed lower at 1057.08. That was down -3.53 points for -.33%. Volume on the NYSE was higher than the day before.

This is an important day for the S&P 500 because:
  • It closed lower
  • It closed lower by more than .2%
  • Volume was higher than the previous day
What actually happened here is what is called a distribution day. A distribution day is when one of the major stock indexes falls by more than .2% on higher volume (and you do not round the percentage up). It indicates that institutions are selling their positions which makes prices fall. If the stock market is in a confirmed uptrend, a day of distribution doesn’t necessarily mean the uptrend is over. But, you do need to keep track of the number of distribution days each index experiences. Once you reach four or five distribution days in the last four or five weeks, it’s time to sell and get your money into cash.

That being said, a distribution day doesn’t stay with the market forever. It can expire after four or five weeks OR if the market index climbs significantly above the distribution days close by 5% or so. Either of those situations would clear a distribution day off the list.

Today, the Nasdaq also fell, but it was by less than .2% so it didn’t count but the Dow and NYSE Composite all chocked up a distribution day.

Each day, you want to look at the market and determine what happened. The best place to start is by identifying when selling is taking place. I’ll talk about how to tell if the market is rallying in later posts. For now, though, I want you to consider putting together a list of steps that you’ll take each day. Here is what I did to figure out what happened today.
  1. Check each major index’s close
  2. What was the percentage change?
  3. Was volume higher or lower?
  4. Watch the daily market wrap on IBD TV (free to nonsubscribers)
  5. Read the big picture column and the market pulse
  6. Check the general markets page in today’s IBD.
As an aide, I have put together a spreadsheet to start monitoring the stock market today news with, and as I get it smoothed out, I'll make it available.

In the meantime, get in the habit of checking the stock market today and every day to figure out what it means to you as an investor.

Buy Penny Stocks?

I think the allure of today's stock market as far as people who buy penny stocks is that they are looking for an opportunity to make money in stocks fast and without a lot of money. While I guess anything is possible, the actual facts as laid out by Investors Business Daily show that the best performing stocks are those that are actually over $30 a share. Nonetheless, it's still a hot topic for a lot of investors because they can experiment cheaply.

I guess if you are looking at buying penny stock online, I'd suggest that you check into a guy who went to MIT named James Connelly who says buying penny stocks made him a millionaire. While that may be true for him, the average investor doesn't fair as well. If you are going to do it, then you might as well check out a stock market investing strategy like his.

Personally, though, I am not interested in looking at even the best penny stocks to buy because it is probably an area of the market dominated by speculators. And, whenever there is money to be made, you can count on them showing up. I think we've seen that even though the market is regulated by the SEC, they obviously don't do a very good job of protecting investors. Like any regulations, is more about disclosure rather than making the rules fair for all. As long as we told you you could get screwed we are off the hook kind of thinking.

The thing with learning how to buy penny stocks or buying any stock for that matter, is that every stock purchase we make has a risk of loss. Why buy stocks that are junk and easier to manipulate because of their market capitalization. Stick to stocks that show strong earnings, strong sales and strong fundamentals. If it turns out that the penny stock you found has strong fundamentals, then maybe it will work out.

While I haven't tried James Connelly system, who am I to say that his system doesn't work. You might click this link to check out the Penny Stock Prophet system which made him a millionaire. If you do, report back here and let us know how the system works for you.

In the meantime, I'll keep you updated on my progress as follow the CANSLIM investing strategy here at Stock Market Investing Today.

Buy Growth Stocks

Today, now that we've weeded down the market some by eliminated the stocks under a certain price, I wanted to move onto rule #2 which is buy growth stocks. A growth stock is a stock that has earnings potential which is greater than the average stock. Our goal is to find these companies. The question is how? When we are looking at stock market investing today, we've got to buy quality. When it's all said and done, and you remove the people trying to outright scam people, the big money on Wall Street knows that you've got to buy quality and you want to look for what they are looking for.

So, our first objective here is to look for high growth stocks. William O'Neil says that we should be looking for three things:
  1. Each of the last three years' annual earnings per share have been up at least 25%
  2. Earnings estimate for the next year is over 25%
  3. Annual cash flow is 20% or more above the earnings per share
The best growth stocks are the ones that are your potential superstars. In the end, it's earnings that drive the market. Institutional investors flock to stocks that show great earnings. As they do that, their buying because of it's sheer size, drives the price of that stock up. Our goal is find it when they do, or show signs that they are buying.

The first concept of stock market investing that you need to grasp is supply and demand. The more buyers there are for a company's stock, the more that the seller can charge. It's a lot like the real estate market. The more people buying houses, the higher house prices go. We saw with the real estate bubble that prices go down when no one can buy.

Investing in the stock market is the same. Big money pays for quality and when it does, it pushes the price of a stock up. This is where you can make money. By focus on a high quality when you buy stocks, you are looking at the same criteria that they do. Look at the growth stock picks they make by reading the Investors Business Daily mutual fund section. The real key to growth stock investing is uncovering their buying through the reading of stock charts. Stock charts tip you off to when they are getting into a stock and it's an area that we will be studying here in more detail as we go along.

Don't Buy Cheap Stocks

OK everybody. Today, I am going to start setting up my stock market investing system according to William O'Neil's CANSLIM strategy and rule #1 is don't buy cheap stocks. Many people look for cheap stocks to buy because they are smaller investors with smaller investment funds. Don't let this be you. With every stock purchase you make, you have a risk of loss. Stocks priced under $15 dollars are even more volatile. While it might seem logical that stocks that are cheaper might have an easier time going up in price, history is working against you -- and so are Wall Street speculators.

You see, you are not the only one looking for cheap stocks to buy. So are the speculators. People with a lot more money than you. They know that they can affect the price of a stock trading at a lower price. They start buying it and from their demand alone raise the price. Then they start advertising it hoping people like you and me start buying it when they start unloading it. Once they are out and we are all in, there is no demand for the stock and the price falls. In the end, you and I get screwed. I believe that this happens at all a levels of stock to some degree and it's why stockbrokers recommend poor stocks to their clients. They are told it's a good deal while it's being secretly unloaded by the same company. Why just the other day I wrote about Macy's being one of the top 20 candidates to file bankruptcy in the next twelve months. On the same day, it was listed as a BUY. Why? Your guess is as good as mine and that is why I think the market is being manipulated by a lot of different people.

The other thing working against you when buy cheap stock is that the stock is cheap for a reason. It's fundamentally a poor performer. Why buy stocks like that when there are more quality stocks to choose from? Because the risk of loss is so great with common stocks, you've got to choose the best stocks to buy now instead of looking for cheap stocks to buy now. It's a myth that cheap stocks can double easier and it's less likely.

OK. So, we know now we shouldn't buy cheap stocks. What should we look for. O'Neil says that we should look for stocks priced between $15 and $300 on the NASDAQ and stocks priced between $20-$300 on the NYSE. His research and experience has taught him that most of the histories market winners broke out above $30. He also says to avoid any stock under $10.

Wednesday, September 23, 2009

Best Stock To Buy

Hey there. Back again and today I wanted to talk about the best stock to buy. If you have been around the block a bit, then you know that these kinds of articles typically yield a list of stocks that represent someone's idea of the best stocks to buy now or in a certain year. As I mentioned in my last post about good stocks to buy, I called into question the legitimacy of some of these stock market investing recommendations based on the conflicting news stories. On the one hand, Macy's was upgraded to a BUY from a hold by Citigroup. At the same time, on the same day, no less, Macy's was also predicted as one of the top twenty possibilities to file bankruptcy in the next 12 months. So, who do you believe? If you read my article you also know that Macy's earnings and sales stink right now, so why is anyone really buying that stock to begin with. Your guess is as good as mine. Since their's really no good fundamental reason to buy that stock I think I'll pass.

What Are The Best Stocks To Buy Now

The best stock to buy now (and always for that matter) is one that has three characteristics. Strong earnings, strong sales and strong return on equity. This is always your first check to see whether a stock is worth buying. With so many stocks out there, why choose ones that aren't earning money. It's hard enough to pick winners, why make it even harder by buying one that might be losing money. It really is just common sense. Buy stocks that are the best earners and you'll more likely raise your ratio of winning stock picks to losing stock picks.

Look for companies that earnings per share of at least 25% over the last quarter and over 25% increase in sales as well. You can put your threshold where ever you want because you will find stocks with a lot larger increases than that. As far as return on equity, look to buy stocks that have at least a 17% return on equity.

These are rules developed by William O'Neil who created the CANSLIM investing strategy. The C which is the first letter in the acronym stands for:

C= Current earnings per share should be up 25% or more and in many cases accelerating in recent quarters. Quarterly sales should also be up 25% or more or accelerating over prior quarters.

This takes care of the first letter in the strategy. The next letter, the letter A stands for:

A= Annual earnings should be up 25% or more in each of the last three years. Annual return on equity should be 17% or more.

You'll want to start your stock search to find the best stock to buy by weeding out companies that don't meet that criteria.

Good Stocks To Buy

When you are a beginning investor, once you've started formulating your strategy, you get to the point where ask yourself -- what are some good stocks to buy? You can study all you want, but until your hard earned money is in the market, you really won't know how your decision making will hold up. Here on this site, I'm just getting started and learning to put all of it together. One of the first steps to finding a good stock to buy is by developing good stock market investing screens to help you determine what stocks you should be looking at purchasing.

The goal of stock screens is reduce the overall pool of stocks to choose from to narrow them down into a smaller watch list of stocks to analyze. In my research on stock screens, I came across a site that uses CANSLIM as it's base investing strategy and that talks about stock screens and William O'Neil's strategy and how he's adapted it to his needs. His site is He goes into great detail about how he goes about finding good stocks to buy now and seems like he has perfected and honed his strategy. This is where you want to get your investing system set up. You need to get to the point where you have a specific set of steps that you follow each day, each week through every buy and sell. That's what he's done. You need to do the same.

You've got to set up your own system to uncover the stocks worth pursuing and those are going to be your best bets. Rather than relying on others to to tell you the best good stocks to buy right now, get in the habit of finding them yourself. Here's why. Yesterday, I was reading Yahoo finance and they said that Macy's was a good candidate for filing bankruptcy along with Hertz and a few others. Then, later in the day, on market wrap, they mentioned Macy's stock along with Kohls. In this video, they actually said that Citigroup (I think that's who it was) actually changed their rating from a HOLD to a BUY recommendation. I looked at the stock in daily graphs and the sales and earnings look lousy. Earnings aren't really estimated to get better until 2011. It also showed me that their were some 249 institutions that owned the stock. The quarterly earnings per share percentage change last quarter was a negative -31% and sales were down -10%. Here's a screen shot:

That leads me to ask why was it's recommendation changed to a BUY. Here's the recommendation:

Here's my theory. There are a lot of institutions that have bought into this stock and it's pushed the price up. Now, they need to get out and they need buyers. It seems like common sense to me that the last stock you'd probably want to buy in a recession would be one like Macy's in a retail industry. Everybody's already bought the back to school clothes and now they are waiting on the holiday season.

That's why when you see lists like "Good Penny Stocks to Buy Now" and "Good Stocks to Buy in 2009", you really need to question how they got on that list and focus on developing your own.

Tuesday, September 22, 2009

How To Buy Stock

If you have been following my stock market investing site for a bit, you know that I have been advocating that you start to learn how to buy stock. I've also been encouraging you to learn how to buy stocks on your own. For too long, we've been delegating the managing of our money to people who are more interested in making fees off of our money than actually helping us. Let me give you an example. When I first started working, I worked for a bank. People thought I had a cool job which was good for the ego but it really didn't pay well. Anyway, what I am getting at is that most of us have or had a lot respect for people who worked as a bank because we assume that since they work there they know about money and can advise us accordingly.

Now, there are a lot of great people who work for these financial institutions and a lot of my friends are in that group. However, the policies of these institutions run counter to the perception we have of them. A good example are all of the rules that are in place to trip us up to earn a fee. Daily cut off times, overdraft procedures, default interest rates that double to triple your rate for being one day late. Now you tell me, does that sound like someone as a whole that cares whether you succeed financially. I don't think so.

The investing profession, not to be out done also has done a disservice. The best example is the mutual fund that stays fully invested all of the time, no matter what the market direction. The advice to always buy and hold. Not telling people with short investment time horizons that maybe, just maybe, they need to reallocate. Last year was a wake up call especially when everyone lost so much money in the market. Where were they, our trusted advisors?

That's why I think it is very important for you to learn how to buy stocks online on your own using your own advice, your own research and your own common sense. Only by being an active participant will you learn what you need to do. Will you make mistakes. There is no doubt that you will. But I'd rather make mistakes and learn from them than leave my money in the hands of someone who won't learn from it.

The first step in learning how to buy stock online is opening a brokerage account. Find one that you are comfortable with. Most will suit our needs. Don't be swayed by the free trade offers as you probably won't use them anyway. Step two is pick an investment strategy. For me, it's CANSLIM by William O'Neil. He also produces a paper called Investor's Business Daily. Become an expert at it. Learn everything you can about it. Eat, drink and sleep it.

Next, study the market daily and start paying attention to the stocks that are showing potential starting with earnings. The IBD can help you here. Finally start using a trading simulator to start picking stocks to buy. Look at this "paper trading" as your gym. It's the practice facility. Start using it. There are a ton of free ones out there.

You'll learn how to place market orders, stop limit orders and all the mechanics of buying stocks. These tools are invaluable. You can learn so much without even leaving your house.

Now start practicing!

Saturday, September 19, 2009

Stock Buying

One of the potential ways to earn a higher return is through stock buying. There are many ways to invest your money, but if you buy stocks, it's easy, it's convenient and can be done from anywhere in the world and in the privacy of your own home. Many people are afraid of stock market investing for fear that they might lose their money. While that is correct, you can lose money in any stock you might purchase, you can lose money in any investment vehicle. The fact is that investing in the stock market can be one of the most lucrative and rewarding strategies you can choose.

Just because the stock market is easy to invest in, doesn't mean that making money in stocks is easy. It will require that you study the markets, study industry sectors and individual companies to buy stock in. Research, while dull and boring, is key. It would be nice if when we turned on our financial cable news, that they would discuss information that would actually make us money, the reality is that this isn't the way it works. By the time the main stream media finds a winner, it's too late. The time for you to find stock market winners is in your own private research.

When looking for stocks to buy, you need the right tools for research. The following tools are what I would recommend:
  • A brokerage account with a stock simulator
  • A watch list of the best stocks to buy at some point
  • A subscription to Investors Business Daily
  • A subscription to Daily Graphs when you can afford it
  • How to buy stocks books in your library for reference
  • Annual reports of companies you are researching
  • Folders and files for each stock you purchase that includes it's purchase price, a printout of it's chart when you bought it and when you sold it.
  • Checklist for procedures you follow to analyze stock purchases
  • Your list of stock rules
Once you have set up your home stock research department, then it's time to start to setting up your step by step checklist or system to make sure you don't leave any stone unturned in your investigation of whether a stock is ready to go on your watch list. For example, you might decide to start your screening of stocks with earnings. Earnings drive the profits of every company. Without earnings that are increasing, there's nothing fundamental to drive up the price of the stock.

This would then be the first step on your checklist. Brainstorm every step in your buying process and get it on your checklist. Over time, you'll fine tune your stock buying into a well oiled machine.

Buy Cheap Stock

For people that lack enough investment funds to buy good quality stocks, they often look to buy cheap stock. If my mom bought individual stocks, she'd be that type of investor, I think. She's always going to sales looking for a bargain. Once I went to a sale with her and brought home a copy machine that I got for a dollar. My wife thought I was crazy, but at the time, I thought I got a bargain. It's only a dollar. Turns out that it would have taken a lot of money to fix it up and it wasn't such a great deal. Normally, I like to think that I look for quality and I'll spend more for a good product. It's the same for stocks, you usually get what you pay for.

Why Do People Buy Cheap Stocks?

I have a theory why people buy cheap stocks, like penny stocks. I think there are two factors at work. They are:
  • Small investors want to buy round lots of a 100 shares of stock because they think commissions are lower than if you buy in blocks of 100 shares.
  • The misconception that's it's easier for a stock to double in price from a $1.00 to $2.00 than it is for a stock to double from $25.00 to $50.00.
  • While they want to buy stocks that are cheap, they don't want to appear cheap by buying 10 shares of a quality stock instead of a 100 shares of penny stock.
If you are looking for cheap stock to buy, you are looking in the wrong place and here's why. The average investor like you and me has no impact on the market price of a stock. This is important because institutional investors like mutual fund managers do impact the market and in a major, major way. Which type of purchaser is more likely to affect the price of a stock more:
  • You buying a 100 shares of a stock.
  • A mutual fund manager buying millions of shares.
If you said the mutual fund manager, you'd be right. It is those guys, buying millions of shares, that really drive up the price of a stock. And you know what else is important to know about that, they don't buy cheap stocks or stocks less than $10 - $12 bucks or so. They are not buying penny stocks. 

This means if they are not buying stocks that are cheap, there' no one to drive up the price for you to follow along with.

The best cheap stock to buy online is not the one you got a hot tip across the fax machine about. It's not the stock market investing tip you got in an email promises riches because they've cured a disease or developed a fantastic new product. Don't you think that if there was a stock that was really worth it, that you and I'd be the last to know about it? Wouldn't THEY want to get rich off of it's increase in value? Why the sudden goodwill of letting you in?

The reason is simple. People with enough money to manipulate the smaller capitalization of penny stocks can influence the price of a penny stock. They buy and buy and drive the price up. Then they are faced with a dilema. We need someone to buy cheap stock, stock they inflated. They need buyers and that's why they start advertising via fax and email. They need suckers like us to bail them out and hand them the profit. Because you know, like I do, that the moment you buy that stock, it's going to start going down and before you know it, they are out quickly at the higher price. And now that's when you regret buying stock online cheap, because it's even cheaper than when you bought it and there's no one to bail you out. They have moved onto the next cheap stock to buy now hoping you'll make the same mistake twice. Now you know that you should only buy quality stocks regardless of how expensive they are and regardless if you buy the stocks in oddlots.

Friday, September 11, 2009

Stock Trading Education

The best stock trading education you can get is from experience actually trading. That's why yesterday, I went ahead and picked a stock to buy because we can only learn by doing. You can spend all the time you want studying and reading about stock market investing. But you learn more by actually working with real stocks and numbers.

I put in a market order for High-Tech Pharmacal (HITK). I ended up getting the stock at $21.92. It was up again today on higher volume. I need to watch the stock now to see that it doesn't go below 7-8% of what I purchase it for. A seven percent decline is $20.39 so I'll set that as the price I will get out at if it goes down. I think the stock has power but I didn't do all the steps in picking the stock and probably bought it extended from it's base and may get stopped out because of it.

That's all part of the stock market trading education you get when you paper trade first. You can analyze your buys and sells without pressure.

The market did well today with all three of the major indexes up in higher volume or close to and that's a good sign. It's also a good sign that my stock was one of the leading stocks today up over 4% on above average volume. That's what you want to see when the market goes up. Your stock being one of the leaders.

As far as an online stock trading education, I know that my broker Optionsxpress provides a lot videos and seminars. The IBD also has many videos and lessons on line. The mock trading simulators are the best though because they can show you the mechanics of how it all works and get you in on the action before you might be officially comfortable trading.

Anyway, keep studying and I'll check back in with you later.

Wednesday, September 9, 2009

Stock Purchase

Today the markets were up and the Nasdaq in particular. The Investor's Business Daily changed its market direction to a confirmed uptrend clearing the way for a stock purchase. Since thus far, I haven't purchased any stocks and thought we would do that and start learning. Rather than use my own money, I am using the virtual trading option in my online brokerage account at Optionsxpress so this wasn't a direct stock purchase. Since it was after hours, it won't be placed until the morning and at that time it will go through.

I purchased is High-Tech Pharmacal (HTIK). According to it's website, Hi-Tech is a specialty pharmaceuticals manufacturer and marketer of generic prescription and branded OTC products. So, we can use it as an example, I purchased on a whim only because it was up huge in volume.

You can't tell on the chart, but the stock shot up today to 21.42 on really heavy volume. This is a sign of heavy buying. I did check the stock checkup on IBD which was a 98. Other than that, I did not other checking.

View the full HITK chart at Wikinvest

This is not the right way to learn how to purchase stock. But I am doing it for a few reasons. First, so we can analyze the stock market investing decisions here and secondly to show exactly what I shouldn't do in making my stock purchases. Since this is a "paper trade", I thought it would make a good case study to get us started.

I did however, do the first thing right and that was didn't purchase stock online until the market was in a confirmed uptrend. I did not go the additional step of confirming sales and earnings. So, let's start by taking a look at that now.

Our first two rules are to make the best stock purchase is to see if earnings per share are over 25% and sales are over 25% and both accelerating.

I found this blurb on Yahoo! finance today.
"Hi-Tech Pharmacal released first-quarter results, posting record earnings of 73 cents per diluted share, up from 13 cents per share for the same period last year. Net sales jumped 175% to $43.5 million from $15.8 million a year ago. Shares surged 24.1% gaining $4.16 to close at a new 52-week high of $21.42."
But that didn't really give me the full picture in an easy to see concise format. So, what I did was sign up for a 14 day free trial to the Daily Graphs Service.

The earning per share and sales figures were as follows:

  • Jul 08 +152%
  • Oct 08 +213%
  • Jan 09 +229%
  • Apr 09 +999%
  • Jul 09 +462% (Increase over the +152% from the quarter prior
  • Jul 08 +56%
  • Oct 08 +58%
  • Jan 09 +95%
  • Apr 09 +83%
  • Jul 09 +175%
From the earnings and sales figures, I appear to be in pretty good shape. They're both over my 25% threshold and are accelerating. The chart hadn't been updated yet (as far as eps and sales), but I think September was good as well since those figures were released today and the stock went way up. As far as the exact buy point, we haven't gotten that far yet, so I am not sure that I bought it correctly. Plus there are some other things we need to do to screen our stock purchase properly.

Update: Oh, and I almost forgot to add that I need to establish my sale price which is 7% below what I purchase it at. I will update that tomorrow. I've also put a list in the sidebar of the trades we will making.

Tuesday, September 8, 2009

Best Investment

Even with the uncertainty of the market, I still think the best investment you can make is in common stocks. The indexes were a no brainer today as all were up today on higher volume. This was a good sign but the markets are still under some selling pressures. It's not enough though to pick any stock. You've got be selective about which ones you buy.

The best investments you can make before you invest is your time. After you are sure which way the market is headed, take time to research a stocks fundamentals and it's chart before you invest. You can't base a stock's value on fundamentals alone or on it's chart by itself. It's a combination of the two that really help you hone in on whether a stock is a buy or not for your portfolio.

OK. So what are you looking for?

The very first test you are wanting your stock to pass, is earnings. We call this test a stock screen. To clarify, we are looking at earnings per share or eps compared to same quarter a year ago to take out seasonal factors. We're looking for the percentage change. It's recommended by the CANSLIM stock strategy that eps be at least 18-20% higher than the year before. Set a minimum threshold for the stocks you choose. It's not uncommon for people to make that threshold a 25% increase. Look at least the prior two quarters.

The second test that you want to see is if earnings are accelerating or decelerating. You should be looking at an eps that is growing each quarter and not looking smaller. While a stock may go up in price with earnings decelerating, you don't necessarily have to purchase it. Patience in the market will serve you well. Strong earnings per share is the number one factor you should use in your stock selection.

Once you've confirmed that earnings per share meet your requirement, the next screen you want use is sales. Make sure that sales are increasing over the same quarter from the previous year at a rate of at least 25% or more in the last two or three quarters as well.

The best investing methods focus on a companies earning and sales that are up substantially and accelerating. Why waste time stock market investing with subpar numbers. Spend your time focusing on the real deals. The ones that are actually earning good money. This is what the institutional investors are looking for and if you find it when they do, and come along for the ride, you are going to get some of the best investment rates going. That's our objective here at Stock Market Investing Today.

Monday, September 7, 2009

Stock Trading Advice

Hey there. I am back here on Stock Market Investing Today to share some stock trading advice. As always you've got to remember to check the overall markets first and make sure they are trending up. After you know the market is going up and the pressure to bring stocks down by the general market is not there, it's time to start putting together a stock buying and selling strategy.

I know that over the course of my stock market investing experience, I've noticed that just because a stock increases in value doesn't meant that it will always go up. In fact, I'd always notice that one year an industry sector may be 20-25% down while another may be up 20-25%. The following year, it might be the opposite. The overall lesson here is that stocks go down in value at some point, even the best ones. This leads to one important question and that is why hold on to it through thick and thin. The buy and hold philosophy when it comes to individual stocks should not be in your vocabulary. You are going to guarantee yourself that at some point it's going to come down in value and lose your gains. It might make sense to buy and hold mutual funds, but not individual stocks you purchase for your portfolio.

So when you go into a stock purchase, you need rules for two things.
  1. You must know when you want to buy a stock
  2. You must know when to sell it.
Holding a stock indefinitely is not an option. The reason why is because when the demand institutional buyers place on a stocks price disappears, the price falls. Let's say you someone gives you some online stock market advice to buy a stock. Let's say that it' a good recommendation and you quickly see the stock price go up. You are thrilled. Then, after a few weeks, you see the stock come down a little bit, but then that voice in your head, that's been ingrained by the market to never let go of a stock kicks in. The free stock trading advice you've always been given. Buy for the long term.

Meanwhile, the price goes down a little further and, unknown to you, the institutional buyers are in the process of getting out. A little while longer, and they are completely out. Then the news comes that earning are out and it plunges farther and buy then you've lost what you gained and are now below your purchase price wondering what happened.

The markets are driven by these big institutional buyers. When they are buying a stock it has to go up based on the huge demand they place on it's price. When they sell, the exact opposite happens. Your job is to tune into these clues and it works just like watching the general market. What you want to see is the stock going up in price on higher volume. If you see it going down in price on higher volume, that is your clue that something is going on.

Before we get into that, let's talk about two specific sell rules that you should have in place.
  1. Sell any stock you buy that goes down in price 7-8%
  2. Sell any stock that goes up 20-25% (unless it goes up very, very quickly which we talk about later.)
By following these two rules, you only need to be right one in four tries to make money. You might strike out three times and the fourth time, you'll pick a winner. I'll call it hitting singles. By picking stocks and containing your losses, you protect your money to invest another day.

Wednesday, September 2, 2009

Buying Shares

Before I start buying shares, I've got to continue my look at how the stock market has been performing lately. If you remember from my previous posts, if the market is in a downtrend there is a 3 out 4 chance that your stock will go down. Today in looking at the three major indexes, the S&P 500, the Dow and the Nasdaq Composite all three finished lower than yesterday. The volume for the New York Stock Exchange was lower than yesterday as well but higher than the daily average volume. The Nasdaq volume was lower than the day before and also lower than the daily average.

If I want to buy shares today, my first question would be did it matter that NYSE volume was down from yesterday but still higher than the average daily volume? When I saw that, the first place I checked was the IBDtv Market Wrap. They did not highlight that fact. So, I guess that we can conclude that the market while down, did not count as a distribution day because volume was lower on all three exchanges than the day before. And, evidently that's what matters most when you fine tune your stock market investing rules.

A distribution day is one where the index moves lower than the day before on volume higher than they day before. My next question that I'll need to confirm was does it matter if volume was higher than the day before but lower than the average daily volume for it to count as a distribution day. I am going to say that it probably doesn't. That it will still count.

What that means for us as investors is that the market is still on the same course as the day before. According to the Investor's Business Daily Big Picture column the uptrend in the stock market today is under pressure. So, I am cautious about moving forward about what shares to buy now.

But the point of today's post on Stock Market Investing Today is to talk about how to buy shares. Most of us that manage our investments buy shares online through our online broker. In my case, I use Buying shares online is really easy these days and once you have done it, you'll see just how easy it is. What's harder than buying shares online is actually pick the stock you want to buy.

In future lessons, once we get a greater understanding of how the overall market is performing, we will discuss what to look for. These lessons will focus on a stocks most important fundamental which is a company's earnings and sales. In addition, you don't want them to have a debt problem.

Anyway, once you pick a stock that you want, you have to figure out how many shares to buy. In the past, brokers always recommended that you buy and sell shares in what are called round lots or in amounts of 100 shares because the commission worked out in your favor. It was more cost effective. Don't be afraid to buy stocks and shares in odd lots of some other number. What's important is that you choose the best shares to buy for your portfolio.

I know at Optionsxpress, I can choose to buy a certain dollar amount of a stock instead of choosing a number of shares. All I do is list the dollar amount. To get practice on how to buy and sell shares, you should use a stock simulator to help you get the hang of it. In most cases, you'll enter what's called a market order which means that the shares are bought the moment the order is executed. In addition, the order usually will be good til cancelled.

Below is a video that walks you through the virtual simulation that they provide on Optionsxpress on buying shares.

Tuesday, September 1, 2009

Stock Market Today

OK. If you remember from my last post I talked at length about knowing the overall market's direction before you invest in any stock. The reason was because if the market direction is trending down, then your stock, no matter how good it might be has to fight the overall market trend to go up. That's a tall order. If you want to make money in the stock market investing today, first get a full handle on where the market is going. Each day, this is where the discussion is going to start. What did the market do today? What is the market? The stock market today news is where you should always start. But start where?

The overall market is actually a snapshot of three different indexes that we need to look at to ascertain whether it is going up or down. The first index we need to look at is the S&P 500, then the Dow Jones Industrial Average and finally the Nasdaq Composite Index. In addition, we need to compare the first two to the volume of the NYSE for the day. And while you can look at the stock market today on CNN, they will gloss over some of the most important information. Where you really need to look at is the home page of All the data you need is to assess the market is free to you if you aren't a subscriber. Individual stock information is not. It's listed at the very top of the front page online each day.

The Standard and Poors 500 (S&P 500)

The S&P 500 closed today at 998.04 which was down -22.58 points or -2.21%. Right away we know our first important clue, that the index went down. That means it might be a potential distribution day depending on what the NYSE volume for the day was. If you saw today's data, you can kind of tell the NYSE volume was 1,631 (mil) up 259 points or 18.88 %. This gives us our second clue that volume was higher as the index fell lower which tells us that their were more stocks being sold than bought. O'Neil would refer to this as a distribution day and that this is an indication that the institutions are selling. When the market index closes higher on higher volume, this is called accumulation. Right now, we are only focused on what one day tells us. Today told us that the S&P 500 had a distribution day. A market on the uptrend can have a day of distribution and still rise higher. But once we see a day of distribution, it's a clue that we need to start watching for more distribution days. Let's move on to the next index.

Dow Jones Industrial Average

The next step is to look at the Dow Jones Industrial Average and see what happened and also compare it to the NYSE volume which we already know was higher than the day before and if you look at the chart at IBD for September 1, 2009, you'll also notice that it was above the daily moving average as well. The Dow closed today at 9,310.60, down -185.68 points or -1.96%. This puts the Dow today in perspective, that it was also a distribution day for this index. Let's take a look at the final index.

Nasdaq Composite Index

We will need to pieces of to complete our review of the stock markets today. The value and volume of the Nasdaq composite. This index was also down today -40.17 points to close at 1968.89 or a decline in value of an even -2.0%. The volume was 2,684 (mil) up 517 or 23.90% increase in volume. These two pieces of data tell us that the Nasdaq also had a distribution day.

So our stock market report today would indicate that the overall market was widespread distribution. Because volume was pretty high compared to the prior day and to the average daily volume, we can conclude that institutions today were probably selling off today.

As far as review then, when the market closes lower on higher volume, it's a distribution day and when it closes higher on higher volume, it's an accumulation day. This is how you analyze the stock market prices today and the volume information of the three major indexes. Each day, get in the habit of determining what kind of day the market it was. Were their more stocks bought or more sold. Once we have an eye for how the market performs on once specific day, then we can start to look at the overall trend. The stock market for today doesn't give us the overall trend. We need to look at a period of days to determine what direction we are headed. However if today was all of the information we had, we would know it's not the day to get started.

Another great resource is IBDtv's market wrap which goes over the these same numbers in a video presentation. As a subscriber of the paper, you'll also have access to the column, the Big Picture which keeps track of the overall trend. Our overall goal is to make money in the stock market, and this is the foundation. Master it before you move on to the next lesson on Stock Market Investing Today.