Friday, May 30, 2008

Prepare for a Surprising U.S. Dollar Decline

Forex Headlines Today

On Thursday, the dollar rallied versus its major rivals as it cast off several recent anchors when oil prices declined and markets turned their focus to U.S inflation, boosting investor sentiment in the U.S. currency.

U.S. economy expanded in the first quarter of 2008 at a 0.9% annual pace, in line with economists' expectation. U.S. durable goods orders released on Wednesday fell by a smaller-than-expected 0.5% last month, bolstering the a view that the Fed may increase its interest rates later this year from the current 2.0%.

Fed Fisher's hawkish comments about hiking rates "sooner rather than later" are still reverberating through currency markets.

The USD's resilience may not last much longer now as concern over the US housing market and the continued decline in consumer confidence start to offset expectations of an early Fed tightening of interest rates. Some traders are saying that environment has turned friendly toward the dollar and not only does it seem likely the Fed's round of easing is over, but hikes could be imminent.

University of Michigan Consumer Confidence Report Just In

U.S. consumer confidence levels declined for the fourth straight month in May, hitting a 28-year low.

The University of Michigan consumer sentiment survey for all of May saw the overall index move to 59.8 from 62.6 in April. May's reading was the lowest since June 1980.

April Personal Consumption Report Just In

Consumer spending increased mildly in April, but the gain was obliterated by the effect of rising prices, a government report Friday showed.

Personal consumption increased by 0.2% compared to the month before, the Commerce Department said. March spending had gone up an unrevised 0.4%.

The report showed personal income increased at a seasonally adjusted rate of 0.2% compared to the month before. Income rose 0.4% during March, revised from a previously estimated 0.3% gain.

Bullish Speak and Mixed Data Reports

With mixed data headline reports like this, and the bullish comments lately from the fed, economists, and analysts, whats a forex trader to think and do? Go long the US Dollar now? Not so fast!

Click here to view a free forex forecast video showing where the US Dollar may be surprisingly going.

Thursday, May 29, 2008

High Probability Stock Trades

Last week I forgot to post a private username and password that gave traders a 'sneak peek' inside the members-only website for Bill Poulos's Quantum Swing Trader (QST) home study course. Well this week that doesn't even matter now . . .

I also completely 'blanked out' and forgot to tell you something else . . . it's probably the coolest feature of the whole site.

What is it?

It's a preview of Bill's popular "Profit Feeder" service . . . which is a daily report he publishes after the market closes that shows you exactly which stocks, out of the 8,000+ out there, that meet his specialized QST "search criteria".

This essentially gives you a highly qualified list of those stocks that have the potential to enter into profitable positions in the coming days.

It's almost like an unfair "cheat sheet".

You can see it by clicking here:

After you sign in, just hit the "Profit Feeder" link to gain access.

Now, to be fair to his students, he can't give away EXACTLY what they get; but you get pretty close. You'll see what I mean on the website.

Go check it out now and imagine what it would be like to trade using a hand-holding report like this.

Good day and good trading.

Wednesday, May 28, 2008

How ETFs Work?

ETFs are securities certificates that state legal right of ownership over part of a basket of individual stock certificates. Several different kinds of financial firms are needed for ETFs to come into being, trade at prices that closely match their underlying assets, and unwind when investors no longer want them. Laying all the groundwork is the fund manager. This is the main backer behind any ETF, and they must submit a detailed plan for how the ETF will operate to be given permission by the SEC to proceed.

In theory all that a fund manager needs to do is establish clear procedures and describe precisely the composition of the ETF (which changes infrequently) to the other firms involved in ETF creation and redemption. In practice, however, only the very biggest institutional money management firms with experience in indexing tend to play this role, such as The Vanguard Group and Barclays Global Investors. They direct pension funds with enormous baskets of stocks in markets all over the world to loan stocks necessary for the creation process. They also create demand by lining up customers, either institutional or retail, to buy a newly introduced ETF.

The creation of an ETF officially begins with an authorized participant, also referred to as a market maker or specialist. Highly scrutinized for their integrity and operational competence, these middlemen assemble the appropriate basket of stocks and send them to a specially designated custodial bank for safekeeping. These baskets are normally quite large, sufficient to purchase 10,000 to 50,000 shares of the ETF in question. The custodial bank doublechecks that the basket represents the requested ETF and forwards the ETF shares on to the authorized participant. This is a so-called in-kind trade of essentially equivalent items that does not trigger capital gains for investors.

The custodial bank holds the basket of stocks in the fund's account for the fund manager to monitor. There isn't too much activity in these accounts, but some cash comes into them for dividends and there are a variety of oversight tasks to perform. Some managers have leeway to use derivatives to track an index.

This flow of individual stocks and ETF certificates goes through the Depository Trust Clearing Corp., the same US government agency that records individual stock sales and keeps the official record of these transactions. It records ETF transfer of title just like any stock. It provides an extra layer of assurance against fraud.

Once the authorized participant obtains the ETF from the custodial bank, it is free to sell it into the open market. From then on ETF shares are sold and resold freely among investors on the open market.

Redemption is simply the reverse. An authorized participant buys a large block of ETFs on the open market and sends it to the custodial bank and in return receives back an equivalent basket of individual stocks which are then sold on the open market or typically returned to their loanees.

What motivates each player? The fund manager takes a small portion of the fund's annual assets as their fee, clearly stated in the prospectus available to all investors. The investors who loan stocks to make up a basket make a small interest fee for the favor. The custodial bank makes a small portion of assets likewise, usually paid for by the fund manager out of management fees. The authorized participant is primarily driven by profits from the difference in price between the basket of stocks and the ETF and on part of the bid-ask spread of the ETF itself. Whenever there is an opportunity to earn a little by buying one and selling the other, the authorized participant will jump in.

The process might seem cumbersome but it does allow for transparency and liquidity at modest cost. Everyone can see what goes into an ETF, investor fees are clearly laid out, investors can be confident that they can exit at any time, and even the authorized participant's fees are guaranteed to be modest. If one allows ETF prices to deviate from the underlying net asset value of the component stocks, another can step in and take profit on the difference, so their competition tends to keep ETF prices very close to it underlying Net Asset Value (value of component stocks).

From Yahoo Finance Exchange-Traded Funds (ETF) Center

Click here to review more information on Exchange Traded Funds, and the ETF Home Study Course.

Good day, and good investing trading ETF's for lower risk and higher returns.

Tuesday, May 27, 2008

Oil Above $133. What Is Driving Up Prices?

Crude oil futures closed above $133 last week, and again today. An event that was said to be responsible for another big decline in the DJIA last week.

Think that high oil prices are hurting U.S. stocks?

Check out this whole article, and more importantly this free oil forecast video clip, before you say "yes."

Soros: Oil Boom Increasingly Speculative

Soaring oil prices are increasingly the result of speculation, financier George Soros said in an interview published Monday.

The billionaire investor said the money pouring into the oil market increasingly had the look of a bubble, but that it would not burst until both the United States and Britain were knocked into a recession.

"Speculation is increasingly affecting the price," Soros was quoted as saying by The Daily Telegraph. "The price has this parabolic shape that is characteristic of bubbles."

The spike in crude price was also blamed on an "unexpected drop in U.S. stockpiles" and the move by banks to raise "price forecasts…on expectations supply constraints and demand growth will persist." (Bloomberg)

Both of these are perfectly plausible explanations – after the fact. But what if we told you that one analyst foresaw this week's rally in crude and brent several days before it began – and without relying on the supply/demand fundamentals?

At the end of every week, Steve Craig, Elliott Wave International's Chief energy Analyst, records a weekly wrap-up for subscribers of his Energy Specialty Service.

Click here to learn why oil prices change: Collective mood of energy traders changes them.

What you are about to see is a video clip from Steve Craig's May 15 weekly wrap-up, where he makes a forecast for a third-wave rally in crude and brent oil. How did he do it? Elliottwave patterns in crude's charts were predicting another push higher, which showed Steve that oil traders, collectively, were still in a bullish mood. That's it.

OK, but what about supply, demand and "geopolitical instabilities," you may ask? Don't they have any effect on the price of oil? Sometimes they do – in the short term, and many times they don’t. But our analysis suggests the news is rarely – if ever – a factor in the long-term trend in oil prices.

Click here to view this free oil forecast video clip.

Good day, and good investing trading with the price of oil as high as it is.

Monday, May 26, 2008

Weekly Stock Pick

As I scanned the stock charts this week, I didn’t find any suitable low risk high reward long trade setups. I did find a bunch of short sale candidates sorry to say for those who are looking to go long for some reason.

The “trend is your friend”, and long term the trend still looks down to me as many fundamental reasons will attest. And just because prices look cheap now, doesn’t mean it’s time to buy. Those low prices could still go lower, for the opposite reasons as those prices went higher and higher before.

Actually this stock pick of mine here has been going higher and higher since December 2007 unlike most of the US stocks heading south since New Years, although we’ve had an upward correction, which I would call a dead cat bounce. My opinion, it’s back down from here for awhile, but we’ll have to let time play it self out and see. Don’t you just love this speculation business? Buy sell, and don’t forget to use stop-loss to trade and invest another day.

Short Sell Fomento Economico Mexicano SAB de CV. Ticker FMX

FMX Trade Setup:

Accumulate sell positions at current prices of $46.70 up to $51.00.

Stop-Loss at $52.15 to $56.90

Take Profit Areas: Short Term $44.66. Intermediate Term $42.93. Long Term $39.65. Longer Term $37.93

FMX Company Profile

Foment Economico Mexicano SAB de CV (FEMSA) is a Mexico-based holding company engaged in beverage sector. It operates through subsidiaries, including Coca-Cola FEMSA SA de CV, FEMSA Cerveza SA de CV, FEMSA Comercio SA de CV. Coca-Cola FEMSA SA de CV is engaged in the production, distribution and marketing of certain Coca-Cola trademark beverages in Mexico, Guatemala, Nicaragua, Venezuela, Colombia, Brazil, Costa Rica, Panama and Argentina. FEMSA Cerveza SA de CV produces, distributes and markets various beer brands in Mexico and Brasil. FEMSA Comercio SA de CV is engaged in the operation of the chain of OXXO convenience stores. As of December 31, 2007 FEMSA Comercio SA de CV operated 5,563 stores in the main cities of Mexico. The Company is headquartered in Monterrey, Mexico.

My Analysis to Short Sell FMX

On a fundamental basis, FMX price to earnings ratio is 123.49 and the industries PE is 41.91. I know the emerging markets are growing strong, but this PE is excessive in the short and intermediate term in my opinion. I would be a possible buyer when earnings increase or the stock price decreases, or both. Right now that magic point for me would be under $40.00 a share. If earnings to catch up, the raise that buy price target proportionally.

On the hype basis, when I see most of the analysts recommending buying this stock, I start to get interested in selling it. Remember when some big brokerage was recommending a buy on a stock, and the price started heading south right after you bought it? I do. Live and learn or go bust.

On a technical basis, I see FMX completing its 5th wave in the long intermediate and short term. So my main reason for selling it at current prices, and if the price keeps going up, accumulating more sell positions at higher prices in this stock. See my FMX Trade Setup information above. For those who don’t know “The Waves” thing, I’m speaking of Elliott Wave Analysis. Its trading based on human emotion and psychology. History repeats it itself people, and you can book profits on it all the way to the bank. Check it out below.

Click here to review and Trial For Free the Trading Software we used in determining our short position on FMX.

Good day, good investing and trading!

Saturday, May 24, 2008

The Free Trading Vault

I have a pretty sweet trading surprise for you . . .

For the next few days, my personal stock trading mentor is tearing open the "digital doors" to his exclusive Members Website Preview for his groundbreaking stock trading home study course.

(This thing sold out 6 times over the past 2 years already!)

You can access it by clicking here:

Here's what's waiting for you on the site:

Video Trading Vault: Get complete access to a 24-part library of trade videos including actual trades that his students have placed using his 30+ year tested techniques.

CD-ROM Previews: Get an up-front and personal preview of each and every video tutorial CD-ROM included with this 'insiders' course. You'll see exactly what appears on your screen as a student.

Trading Guide Preview: Get a taste of my mentor's teaching style with a digital preview of the actual course reference guide. This is the same manual that arrives in full color on your doorstep when you raise your hand & become a student.

. . . and tons more.

I think you'll find the "Video Trading Vault" alone worth your time. It's jam-packed with several dozen different eye-opening videos.

(How many times can you remember being handed 'snooping rights' to an otherwise private website?)

Why is he doing this?

You might ask: Why is he doing this? Well, he's one of the few mentors that really 'gets it' and understands that there's a ton of information out there on trading, and he wants to help you make an informed decision on whether or not his course fits your
trading style.

Let's face it - trading is a very personal activity - so, quite honestly, his course may not be a good fit for you . . . but it could be the PERFECT fit for you, and here's a quick, sure-fire way to find out NOW.

Once again, you can 'sneak in' to the preview site by clicking here:

Good day, good investing and trading!

P.S. This members website MAY close down at some point in the near future, so be sure to login today for a taste of what your trading COULD be like using his insider techniques and methods:

Monday, May 19, 2008

Weekly Stock Pick

My weekly stock pick comes from a play on China. I love the China growth story just as much as anyone, but when the trader in me sees fear and greed going on in the markets I take notice. I see greed on the following stock near term as I will explain below. I do consider this pick a buy longer term, but near term, I’m looking for it to sell off before major buying support comes in for longer term investors.

Short Sell: Home Inns & Hotels. Ticker HMIN

HMIN Trade Setup

Sell-Stop Entry at $25.43 with Fairly Tight Stop-Loss at $26.50

Or Sell Limit Entry at $27.26 with Stop-Loss at $29.50

Another possible scenario could see prices of $29.23 to $30.20 before the possible correction I’m anticipating unfolds. Major support now sits at $23.59 to $22.80. A break of this level would indicate a sell signal. If the price holds at $23.59 or higher, this could mean higher prices are on the way.

Take Profit Areas: $23.41 to $22.40, $17.83 - $16.67

I would be looking to buy if and when HMIN price goes below $20.00.

March 4th HMIN gapped down to a close of $24.51 with the share price hitting a low on March 19th of $17.79. The gap has been filled now with May 16th closing price at $26.15.

This could mean two things.

The price could keep heading up to my other possible scenario or a low risk high reward trade to short sell is now setting up based on my analysis above. A correction below the recent low of $17.79 would be a nice long entry position after cleaning out any further weak hands on this stock.

Home Inns & Hotels Management Inc. is a China-based economy hotel chain. The Company develops and operates economy hotels across China under its Home Inn brand. The Company either leases real estate properties, on which it develops and operates hotels or it franchises its brand to hotel owners or manages these hotel properties. The Company refers to the former type of hotels as leased-and-operated hotels and to the latter type of hotels as franchised-and-managed hotels. As of December 31, 2007, the Company’s Home Inns Hotel chain consisted of 195 leased-and-operated hotels in operation with an additional 78 leased-and-operated hotels under development and 71 franchised-and-managed hotels in operation with an additional 37 franchised-and-managed hotels under development, covering 82 cities in China.

A main bullish topic about Home Inns & Hotels is that it will be a beneficiary of the Beijing Olympics. Conventional wisdom would agree. In reality currently, it may not have much effect as Home Inns & Hotels is already filling up its room’s, with an average of almost 90% occupancy. The month during Olympics rooms could see 100% occupancy, and that's not very far from where current occupancy is right now. So tell me where more earnings are coming from near term to support a Price Earnings Ratio on this stock at 195.

I also think HMIN stock price will continue heading south because of currency losses as the dollar has tanked even more since the 4th quarter 2007. Also more and more Chinese hotel operators are spending substantial amounts of money into expansion and not into shareholders equity and the company bottom line EPS. Home Inns is an excellent investment longer term, but I don’t see sustainable growth in the short term. So my reasoning for this short sell.

Home Inns Takes Loss in 1st Quarter 2008.

The Shanghai, China-based Home Inns first quarter had a net loss of RMB 50.29 million or RMB 0.71 per share, compared to a net income of RMB 2.96 million or RMB 0.04 per share in the year-ago quarter.

First quarter adjusted net profit was RMB 3.8 million, excluding share-based compensation expenses of RMB 4.0 million, foreign exchange losses of RMB 50.0 million. Loss per ADS was RMB 1.42. Excluding share-based compensation expenses and foreign exchange losses, non-GAAP adjusted earnings per ADS were RMB 0.10.

Net revenues for the quarter increased to RMB 334.85 million from RMB 172.58 million in the comparable quarter of the previous year. Total operating costs and expenses increased to RMB 342.67 million from RMB 156.67 million a year ago.

As of March 31, 2008, Home Inns had an additional 131 hotels under development, which comprised 86 leased-and-operated hotels and 45 franchised-and-managed hotels. During the first quarter, the occupancy rate declined to 81.4% from 85.9% in the same quarter of the prior year.

Home Inns Outlook for Second Quarter 2008

Looking ahead, Home Inns expects to open about 200 new hotels in 2008 and anticipates its fiscal 2008-second quarter total revenues in the range of RMB 440 million or US$62.8 million - RMB 460 million or US$65.7 million.

Click here to review and Trial For Free the Trading Software we used in determining our short position on HMIN.

Good day, good investing and trading!

Friday, May 16, 2008

No Recession? How About "No Supporting Evidence"

Over the past week or so, some prominent columnists and news analysts have suggested that it's premature to declare that the U.S. economy is in recession.

I found these stories somewhat remarkable -- not because they appear to be contrarian, but instead because "news" can still appear in print based upon a premise that has absolutely no supporting evidence.

In fact, the only real argument they offer is: "economists note that though two main pillars of the economy, the labor market and consumer spending, have faltered, they have not collapsed as they did in past recessions." Which, I guess, is to say that things could be worse...

Don't get me wrong. It's not like I'm cheerleading for more bad news. I've even been known to resort to the "could be worse" argument, if only for the momentary psychological boost it offers. But let's be realistic about the scale of the problem(s). In other words, try the "could be worse" line on one of the 7,000 families that saw a home foreclosure notice filed today (that's the running daily average for such filings).

"Rosy Scenarios" are nice to look at & think about, but the truth is that most economists did NOT see the real estate crisis coming, and failed to see the economic downturn until it too obvious to ignore. Ready for a hard nosed -- and very credible -- alternative? Click here for charts and forecasts you simply cannot find elsewhere.

And what about "news" stories that offer no facts? Well, let's just say that by now, Pollyanna arguments regarding the condition of the economy won't keep pace with events for very long. Here are a few headlines (from stories that do include facts) that I came across just today:

Industrial Output in U.S. Drops More Than Twice What Economists Forecast

Manufacturing in Philadelphia Area Shrinks for Sixth Month as Orders Drop

World Economic Growth Forecast Slashed to 1.8% by UN on U.S. Housing Slump

Homebuilder Confidence Index in U.S. Unexpectedly Falls as Slump Persists

Bernanke `Strongly' Urges U.S. Banks to Raise More Capital

Since it's apparently significant that the labor market and consumer spending "have not collapsed," you at least deserve a look at where their respective trends are going.

Click here to take a look at the graphs of the non-farm payroll and personal consumption trends.

Wednesday, May 14, 2008

Investors Superconference June 5 - 8 Orlando

Who else wants to be part of this history-making event?

“Give Me 3 ½ Days Next Month in Orlando, Florida – And I Promise An Experience That Will Change Your Life Forever. You’re About To Discover Certain Trading, Investing And Other Financial Secrets Never Before Revealed To The Public (In One Place).”

It’s true! Some of the world’s foremost financial experts are about to descend on Orlando, with the sole purpose of releasing their cherished secrets to a small circle of people… for the very first time.

Click here to review the Investors Superconference lineup of experts and to register.

Imagine how your life would change for the better if you had – at your beck and call for 3 ½ days…

Donald Trump’s Chief Negotiator, Head Counsel, and “right hand man” revealing his billionaire-making negotiating skills – and how you can apply them to your life and business!

Ever dreamed of trading for a living? You can see the guy who wrote the book on how to do that. Imagine being able to survive and thrive… anywhere in the world… with just a laptop computer and an internet connection…

One of the world’s top experts in the stock, futures, and Forex markets, with a brand-new indicator hardly anyone knows about yet - that’s annihilating the market averages – you can be one of the first people in the world to find out what this indicator is, and how to profit handsomely from it!

The Queen of Short Term Trading – renown for taking rank beginners to expert traders in record time – letting you in on how to exploit and trade what some are calling the “world’s perfect investment vehicle”…

A respected trader and author who will tell you the best market to trade at the time of the event – and exactly how to trade it for maximum gains!

A well-known trading psychologist who’ll tell you how your mind is sabotaging your trading and investing… and how to banish that problem forever!

A 15-year options floor trading veteran who’ll reveal two trading strategies once the tightly-held secrets of the top traders on Wall Street… and who’ll let you know how the coming Nasdaq options market can literally make you wealthy… if you know the right “new rules” to play by! (Others will be in the dark, while their portfolios languish… but not you!)

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Armed with the rock-solid, insider information from this event (which I’m sure will be making history due to the powerful content soon to be released to the public), you’ll be able to enjoy life to the fullest – with full confidence in your newfound investing and trading skills.

So wherever you are in your financial journey – whether you’re already retired, near retirement, or just thinking about it someday…or if you simply want to gain an “edge” over your peers with exclusive, insider information known only to a handful of traders and investors in the world (for now).

You Need To Be At This Event!

Click here for more information, reservations for the Investors Superconference Jun 5 - 8 in Orlando Florida.

Good day and good super investing!

P.S. That information page will also reveal how you can bring a buddy or “significant other” for next to nothing, the “back door” to saving even more on the event, how to get nearly $997 in investing and trading education for f.r.e.e., why you should
bring your spouse and kids, how there is no risk to you at all for attending - and other exciting details.

Tuesday, May 13, 2008

1.618 Reasons To Learn About Fibonacci Trading

When something sounds esoteric – like Fibonacci trading – the brain sometimes goes into avoidance mode. "Don't make me think that through," it says, "just let me get it quickly." Many people who come to Elliott wave analysis understand the concept of the underlying patterns of 5 waves in one direction and 3 waves in the other, but they stop short at what they perceive to be a strange Italian name for difficult math. For a quick and easy lesson on the Fibonacci [pronounced fib-oh-notch-ee] sequence and why the golden ratio (also known as 'phi') is important for trading, we turn to Bob Prechter in a question-and-answer session with a reporter from his book, Prechter's Perspective.

Excerpted from Prechter's Perspective

Question: Who was Fibonacci and why is his mathematical sequence so important?

Bob Prechter: Leonardo of Pisa was the son of a successful merchant named Bonacci, thus "fi" for "son of" Bonacci. Fibonacci introduced the Arabic number system to the Western world and was the most famous mathematician of his time. In the 13th century, he would entertain royal courts with mathematical problems. One of those problems was the famous rabbit problem [that is, How will a pair of rabbits multiply in an enclosed space?], the answer to which is the sequence named after him: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, and so on.

The Fibonacci sequence is a self-generated sequence obtained by adding two adjacent figures to obtain the next. Start at the number 1 and add the preceding number. There isn't any, so you get another 1. Add the preceding number, 1, to that 1, and you get 2; take 2 and add the preceding number, which is 1, and you get 3; take 3 and add the preceding number, which is 2, and you get 5; take 5 and add the preceding number, which is 3, and you get 8, and so on to 13, 21, 34, 55, etc. Actually, Fibonacci re-discovered the sequence and the ratio that governs it, which had been known by the Greeks and as far back as the ancient Egyptians. It has been treated as a very special thing by mathematicians and scientists that far back, and to this day.

Want To Learn More About Fibonacci Trading?

Then click here to take a look at our brand new webinar, called How You Can Identify Turning Points Using Fibonacci (Parts 1 & 2).

In this new two-part online course, EWI's Senior Tutorial Instructor, Wayne Gorman, presents you with valuable tools to help you trade using a combination of wave analysis and Fibonacci relationships. It's the second webinar listed on our webinar page.

Q.: How does this sequence relate to the market?

Bob Prechter: In the stock market, the simplest description of a bear market is a straight line down, one wave. The simplest description of a bull market is a straight line up. R.N. Elliott found that bear markets most often subdivide into three waves: down, up, down. Bull markets subdivide into five: up, down, up, down, up. It takes one complete bear market and one bull market to make a cycle. At the simplest level, that is 1 rise and 1 fall, for a total of 2 waves. The bear market subdivides into 3 waves, the bull market into 5, and the total is 8. When you drop to the next subdivision, you find that a bear market has 13 waves, a bull market has 21, and the total is 34. And so on to infinity: each new number is the sum of the previous two. That is the Fibonacci sequence.

Q.: Can you explain what the Fibonacci ratio is?

Bob Prechter: As the Fibonacci sequence progresses, the ratio between adjacent numbers is always 0.618, called phi [pronounced "fie"], which has an inverse of 1.618; that is, .618 times 1.618 equals 1. It is the only ratio whose inverse is itself plus 1. This ratio governs all additive progressions of this type, no matter what number you begin with. [Editor's note: So, for instance, take 34 and divide by its adjacent number, 55. You get 0.618 – the golden ratio.]

Q.: Wait a minute. Start with three instead of one.

Bob Prechter: Sure, The result is 3, 3, 6, 9, 15, 24, 39, 63, 102, and so on to infinity. What always remains constant? The Golden Ratio between the numbers after the first few terms. Let's hit the calculator and see. In this example, 63 divided by 102 = 0.61765

Q.: So, in essence, nine is a Fibonacci number, also.

Bob Prechter: While the specific numbers making up the Fibonacci sequence may be more natural in that they begin with the number 1, they are not essential to the ratio, which governs a basic law of geometric progression.

Q.: What's the significance? Why is this relationship so critical?

Bob Prechter: The fact that the ratio governs all additive sequences derived by adding a term to the previous to get the next makes it ideal mathematics for growth patterns. That is undoubtedly why it is found in growth and decay patterns and in expansion and contraction patterns throughout nature. Many things – plants, animals, spiraling galaxies, cloud formations, hurricanes – display characteristics of motion, growth, and, in some rare cases, decay in ways that reflect the workings of the Fibonacci ratio. As a result, this ratio has fascinated scientists and mathematicians for centuries.

Q.: Why should it be this particular ratio?

Bob Prechter: Phi, or 1,618…, governs spirals, such as those seen from the nautilus shell to galaxies. In contrast, pi, or 3.1416…, another irrational number, governs the geometric shape known as the circle. The circle is a static shape. It doesn't imply motion; it implies stasis. A spiral, on the other hand, implies expansion and contraction, progress and regress. The stock market, as a direct reflection of the popular valuation of mankind's productive enterprise, is a record of man's progress or regress in that regard. Like other things in nature, then, human history seems to be following a pattern that conforms to a natural law based upon the same ratio. That mankind is producing a natural, spiral growth pattern throughout history may be a grand concept, but it is hardly fantastic.

Q.: So how do you use the ratio in markets to do Fibonacci trading?

Bob Prechter: One example of the use of the Fibonacci ratio in the Elliott Wave Principle is to establish targets based upon common relationships among waves. Ralph Elliott pointed out one example of when an impulse was likely to display a Fibonacci relationship among its components. I have catalogued a whole lot more.

Learn More About Fibonacci Trading

Here's the link again. Click here to review the Fibonacci Trading Webinar

Good day and good Fibonacci investing and trading!

Monday, May 12, 2008

Weekly Stock Pick

My weekly long stock pick this week is a heavy weight in United Kingdom cable television market.

It’s British Sky Broadcasting. Ticker BSY.

BSY Trade Setup

Buy Stop 41.24
Stop-Loss 37.94 or less if you like including commissions.
Take Profit Areas: 41.88 – 42.20, 47.15 – 48.13, 48.68 – 49.69, 52.69 – 53.37

British Sky Broadcasting Group plc and its subsidiaries (operate a pay television broadcast service in the United Kingdom and Ireland, as well as broadband and telephony services. The Company acquires programming to broadcast on its own channels and supply certain of those channels to cable operators for retransmission by the cable operators to their subscribers in the United Kingdom and Ireland. British Sky Broadcasting Group plc retails channels (both its own and third parties) to direct-to-home (DTH) subscribers and certain of its own channels to a limited number of digital subscriber line (DSL) subscribers. The Company also makes three of its channels available free-to-air via the United Kingdom digital terrestrial television (DTT) platform as part of the branded Freeview offering. It operates principally within the United Kingdom and Ireland, with activities conducted primarily from the United Kingdom. On November 17, 2006, the Company acquired 17.9% of ITV plc.

Although British Sky Broadcasting has had trouble with their share price performance in the last 52 weeks with its price down about 30% to what it was 9 months ago, I’m seeing a potential turnaround in their stock price now, while some other analysts are still pessimistic near term. Longer term moving into next year BSY is positioning itself to benefit, and those benefits are starting to happen with its subscriber base still growing.

BSY Basic Data

Market Capitalization: 18.03B
Dividend: 0.56
Beta: 0.91
Average Daily Volume: 34,000.00
EPS: -0.04
Institionally Owned: 2%

BSY Interim Management Statement for the nine months ended 31 March 2008

Customer growth up 10%; revenue growth up 10%; on track for full year

Operational Performance: Customer growth in line with targets.

Net customer growth in the quarter of 56,000 to 8.888 million.

New customer additions of 289,000.
Lowest third quarter churn for four years at 10.5%.
ARPU increases to £424.

Total gross product sales of 1.2 million in the third quarter included:

Growth in Sky+ households of 262,000 to 3.393 million
Multi-room growth of 40,000 to 1.571 million
HD growth of 43,000 to 465,000
Broadband growth of 229,000 to 1.428 million
Sky Talk growth of 180,000 to 1.095 million

BSY Financial Performance: Strong top-line growth

Revenue increased by 10% on the comparable period(1) to £3,706 million

Gross margin increased by one percentage point on the comparable period to 65%(2) (excluding exceptional item)

Operating profit of £504 million included £127 million of investment in
residential broadband and telephony, £20 million of investment in Easynet Enterprise and an exceptional charge of £17 million

Adjusted operating profit of £521 million(3) reflected strong product volumes

Adjusted earnings per share of 17.0 pence (2007: 19.5 pence); basic loss per share of 6.8 pence includes net exceptional items of £415 million(4)

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Tuesday, May 06, 2008

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Good day, good investing and trading.

Monday, May 05, 2008

Weekly Stock Pick

With the current market conditions, I’m still finding it hard to find low risk high reward investments in the equity markets. Nonetheless, I believe there are good values in the market now going forward with a long term time horizon. This doesn’t mean prices will not keep going down, but now good investments on selected case by case basis are now available I think longer term.

My stock pick this week comes from the energy sector. Sunoco. Ticker SUN. My chart work suggests that Sunoco stock price is bottoming.

Sunoco announced a loss of $59 million, in the first quarter, because a $123 million loss in its refining and supply business. Sunoco's revenue was $12.8 billion in the Q1 2008 quarter An increase from $9.3 billion in Q1 2007.

Sunoco said the loss in its refining business to lower margins and higher expenses. SUN said the lower margins came from higher crude oil prices and lower demand, while the higher expenses came from increased costs for fuel.

All of Sunoco's other business’s had increased earnings in the Q1 2008 quarter compared to a year ago. Sunoco’s chemical business earned $18 million, up from $9 million. Its coke business earned $25 million, up from $11 million, and its logistics business, which consists of its 43 percent stake in Sunoco Logistics, earned $15 million, up from $9 million.

Sunoco Current Market Data & Ratios

Market Cap: 5.44B
P/E: 8.52
Forward P/E: 13.68
Dividend: 0.30
Average Daily Volume: 3.56M
EPS: 5.43
Institutionally Owned: 81%

Review Q1 2008 Earnings Call Transcript at the following Seeking Alpha page. Basically lower margins and higher expenses caused Sunoco Q1 loss.

Sunoco, Inc. (Sunoco), through its subsidiaries, is principally a petroleum refiner and marketer and chemicals manufacturer with interests in logistics and cokemaking. Sunoco’s petroleum refining and marketing operations include the manufacturing and marketing of a full range of petroleum products, including fuels, lubricants and some petrochemicals. Sunoco’s chemical operations comprise the manufacturing, distribution and marketing of commodity and intermediate petrochemicals. The petroleum refining and marketing, chemicals and logistics operations are conducted principally in the eastern half of the United States. Sunoco’s coke making operations are conducted in Virginia, Indiana, Ohio and Vitoria, Brazil.

Sunoco, Inc. Announces Dividend Increase Feb 7, 2008

Sunoco, Inc. announced that its Board of Directors has approved a 9% increase to the quarterly dividend to $0.30 per share. The quarterly dividend is payable on June 10, 2008, to shareholders of record at the close of business on May 9, 2008.

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Good day, good investing and trading.