In addition to a well thought out Investment Plan, successful Equity investing requires a feel for what is going on in the real world that we all refer to as "The Market". To most investors, the DJIA provides all of the information they think they need, and they worship it mindlessly, thinking that this time tattered average has mystical predictive and analytic powers far beyond the scope of any other market number. A cursory review of New York Stock Exchange (NYSE) Issue Breadth figures (93% of the Dow stocks are traded there) clearly shows how the Dow has neither been prescient nor historically accurate with regard to broad market movements for the past eight years. Additionally, this financial icon that investors revere as the ultimate "Blue Chip" Stock Market Indicator has lost its luster, with less than half its members achieving S & P ratings of A or better, and 20% of the issues ranked below Investment Grade.

Is the 120-year-old DJIA impotent? No, it’s certainly helpful for Peak-to-Peak analysis right now, for example, to see if your Large Cap only Equity Portfolio is as high as it was six years ago. But it’s based upon a seriously flawed Buy and Hold investment strategy and universally used as a market barometer, when its original role was as an economic indicator. This is not just semantics. It’s Wall Street’s rendition of "The Emperor’s New Clothes". Possibly, a weighted average of investor perceived business prospects for thirty major companies is a viable economic indicator, but leading or lagging? Clearly, there is no conceivable way that any existing average/index can measure the progress of the thousands of individual securities (and Mutual Funds masquerading as individual securities) that, in the real investment world, are "The Market". And is there just "a" Market, when REITs, Index ETFs, Equity CEFs, Income CEFs, and even some Preferreds are all mixed together in such a way that most brokerage firm statements can’t quite distinguish one from the other? Investors are dealing with multiple markets of different types. Markets that don’t follow the same rules or respond to the same changes in the same ways. The Dow is dead, long live reality.

Feeling statistically naked? Don’t fret Nell, here are a few real market statistics and lists that are easy to understand, easy to put your cursor on, and useful in keeping you up to date on what’s going on in the multiple Markets of today’s Investment World:

1. Issue Breadth is the single most accurate barometer of what’s going on in the markets on a daily basis! Statistics for each of the Stock Exchanges are tracked daily, documenting how many individual issues have advanced versus how many have declined. Rarely are these important numbers reported, especially if they are painting a picture different from that being jammed down investors’ throats by institutional propaganda. Would you believe, that in 1999 (when the DJIA and other indices) last achieved All Time High (ATH) levels, monthly Issue Breadth on the NYSE was positive only in April, followed by a 12 month paper bloodbath extending through May of 2000. Since then, Breadth has been positive for six consecutive years. Surprise!

2. Pay close attention to the number of issues hitting New Fifty-Two Week Highs (52Hs) and Lows each day: a) for trend corroboration, and b) to obtain a wealth of important information for daily decision-making and periodic performance understanding. The recent NYSE Bull Market (not a typo) is clearly evidenced by six consecutive years (from 04/00) with more issues hitting new 52Hs than new 52Ls… New Highs nearly tripled New Lows. So much for the standard market tracking tools… not to mention Wall Street manipulation of all the news that’s fit to print for investors. Looking at the daily lists of 52Hs and 52Ls will help you determine: a) which sectors are moving in which directions, b) if interest rate expectations are pointing up or down, c) which individual issues are approaching either your Buy or Sell targets and, d) which direction your portfolio Market Value should be moving.

In recent months, REITs, metals, and energy stocks dominated the hot list while regional banks, utilities, and other interest rate sensitive issues were notsos (sic). These lists always indicate what’s going on now, without any weighting, charting, or hype, making your job almost simplistic. Take your reasonable profits in the issues that have risen to new peaks (Sell Higher), and purchase the quality issues among those that are at 52Ls (Buy Lower). High prices often reflect high speculation with Bazooka potential, while lower priced value stocks often turn out to be bargains. Ishares, foreign Closed End Funds, Mining and Energy bloat today’s 52H List while preferred shares and Utilities occupy the 52Ls… a bit more meaningful than "the Dow is near an All Time High", and a bit scarier as well.

3. Throughout the trading day, periodic review of three lists called "Market Statistics" will keep you current on individual issue price movements, active issues, sector developments, and more. How you interpret and use this information will eventually affect your bottom line, weather you are a Value Stock Investor or a Small Cap day trader. The Most Active and The Most Declined Lists describe individual and group activity, identify where some more detailed research might be appropriate, and provide potential additions to your Daily Stock Watch List. The Most Active and Most Advanced Lists will identify the hottest individual issues and sectors, identify areas where news stories may be worth reading, and instantly make you aware of profit taking opportunities.

I know you are tempted to shout "Blasphemy" at the top of your lungs, but the DJIA was developed in a pre-internet world (actually, pre-automobile) where the statistics discussed above were unavailable, only the wealthy cared about the stock market, there were no Mutual Funds, and, frankly Scarlet, 95% of the population just didn’t care. Now here’s some blasphemy for you: It is likely that not one person reading this article has an investment portfolio that closely resembles the composition of the DJIA. It is just as likely that nearly everyone reading this article will use the Dow to evaluate portfolio performance. I’ve never understood this phenomenon, and I know that change takes time… but really, the Dow (and the other averages) have had their day, and far too much of your nest egg, for you to ignore this reality any longer.

Steve Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire’s Secret Investment Strategy"

Investing in stocks can be a good thing. But you need to understand the stock market before you invest your valuable cash. The stock market works much like an auction. It is an auction-based market, with a stockbroker acting as an intermediary who matches buyers and sellers of stocks. The price of a stock is determined by how much he buyer is willing to pay and how little the seller is willing to sell for. The prices you see on the Internet or in your local newspaper are from the last trades of the prior day. These vehicles also tell you what the best prices are that buyers will pay for a share, as well as the best price a seller will take. The stock’s prices are constantly changing – going up and down by as little as pennies or as much as a few dollars.

The good news is common stocks have outperformed nearly all other assets. Statistics show that common stocks have an average annual return of about 14% since the end of World War II. Although there have been years when the market dropped 20% or more. These drops are hard to handle, but you must realize that the market has recovered each time and has gone on to reap even greater returns in time.

Most financial advisors will warn you that you should not invest a lot in the stock market if you need cash back in less than five years. But, investing a little is okay. An advantage of long-term investing is saving on taxes. If you hang on to your stocks, or sell at a higher price than you paid, you must pay capital gains on the profit. It you own a stock for less than a year, your short-term capital gain tax rate is the same as your federal tax bracket.

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If anyone ever comes up with the perfect time to buy and sell stocks, that person will own the world. Right now, timing-based stock trading is based on premises only slighly better than magic. There are, however, some good rules of thumb that you can follow which will help you find the best times to sell your stocks high, and when to cut them loose when they start to drop.

The very most important thing in investing, no matter what your goals, is to know the true worth of the company you’re invested with, and to keep track of that worth. You should only buy a stock when it falls below the company’s true value, and then sell it when it seems overinflated compared to that value.

To find those times to buy, look for situations where a company’s stock price is artificially low compared to its value. But the best time to sell is when you think a stock is overpriced and will not quickly grow into its overvalued price. Watch your stocks as they rise and compare the market value to what you think the real value is. One of the rules of the stock market is that whatever rises, tends to continue rising past where you think it should stop (its called "everyone jumping on the bandwagon"). When a stock hits a point where you are sure that it is significantly overvalued, sell.

Buying stocks cheap takes the opposite approach. Only buy stocks that are cheap but which you think are undervalued and likely to significantly increase in price in the future. Stocks can only be purchased cheap by recognizing two facts. First, over the long term, the market is rational, and stock prices will reflect a company’s value. But second, in the short-term, stock prices may undervalue or overvalue a stock. Finding stocks when they are undervalued is the key. But remember, most of the time stocks are selling for close to their real-value. So, most of the time, stocks are trading close to what they’re worth. This gives you reason to be skeptical of stocks with low P/E ratios. But sometimes, low P/E ratios when combined with strong growth and market share gain, can indicate a buying opportunity.

The moral of the story is that you need to have a sense of what you think a company’s stock is worth before you buy and sell it. Just like you need to have a sense of how much a home is worth before you buy and sell a home. Part of the equation is going to be relative to the market, but part of the equation has to do with business fundamentals and how well the company is poised for future growth. If you see a company without a clear vision for how to run its business, then sell the stock before the consequences of poor management hit Wall St. If you see a good company that is way overpriced compared to its ability to grow, again, take your profits. If you see a company that has huge opportunities for business growth but which is undervalued either because investors haven’t properly recognized it yet, or because they’ve unfairly punished it, look to buy.

Quentin James writes articles on personal finance for The Common Sense Investor. His latest series of articles focuses on retirement investing and tax efficiency.

Investing money can be tedious and complicated for investors planning to earn money at a faster pace. In general terms, stocks provide long-term growth potential, while bonds provide a steady income stream.

Stocks are certificate of ownership of a fraction of the capital of the company that issued it. The stocks are listed on a stock exchange, and are also called share or equity. On the other hand, bonds are debts issued by companies or governments who guarantee payment of the original investment plus interest by a specific time period.

The stock generally reflects the earning experience of the firm, and whether it shows profit or loss. While investing in the stocks of any company, there is no schedule of repayment and no stated rate of return. There are variations of risk and reward while one invests in stocks. The companies having long histories of producing earnings and paying dividends issue “Blue Chip” stocks. A blue chip company is well established within its respective industry. Small capitalization, or "small cap," stocks represent shares of companies that are less established. This explains the tremendous growth and also translates into higher returns for the investors. The valuation of the shares can also take a downturn, thus hurting the investors severely.

Bondholders receive a fixed return on their investment. This return, stated as an interest rate on the bond, is called the "coupon rate" and is a percentage of the bond’s original offering price. When the bond expires and the principal (original investment) is returned, the bond is said to have matured. The prices of the bond also fluctuate as per the market value and, if sold prior to maturity, may produce a gain or a loss in principal value.

In any investment made in the market, an individual has to analyze the risk he is undertaking. The risk can be only minimized by being aware of market trends and keeping a close eye on the financial statements released by the corporation.

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For most investors, the process of making a stock pick is one of two basic scenarios. The first one is simply starting with a theme, then drilling-down within that theme until you arrive at an individual stock. The second scenario completely bypasses the process altogether, as the equity pick is based on news or a company announcement. On the surface, both scenarios have a certain degree of obvious logic behind them. However, actual investing results may prompt an investor to look for a third methodology in finding stock ideas, as the first two processes don’t yield the expected results often enough to keep using them blindly.

The Flaw In The Theme-Driven Process

One of the classic examples of a theme-based selection process is the search for a beaten-up stock that is deeply undervalued. Superficially, the theme makes sense - buy a stock that’s temporarily underpriced before it recovers, or reverts back to its appropriate price. The flaw here is that it’s a one-dimensional view, assuming that obvious logic prevails at all points in time. However, it does not. Let’s look at an example.

One of the most common starting points for investors searching for good value ideas is the P/E ratio. The lower the P/E, the ‘cheaper’ the stock is. And if a company has a significant drop in its P/E, then most investors would say it makes for a good buying opportunity. However, the theme is much more complicated than that. Take Dell Computer (DELL) for instance. As of December 31st, 2004, its P/E was 34.83, while shares were trading at 42.14. By November 11th, 2005, the P/E ratio was at 22.79. That 34.6% drop in the P/E ratio had many investors thinking that there wouldn’t be a much better time to get into Dell shares at the then-current price of 29.40. By May 12th, 2006, the P/E was 17.26, and shares were at 25.20. Any investor who bought in late 2005 based on a low P/E ended up losing 14.3% on their investment within a few months. In this case, that ‘low P/E’ made perfect sense. However, there was obviously more to the equation that just a cheap stock.

In this case, the fact that the P/E kept dropping highlights one of the key problems with a theme-based approach. Dell shares were indeed cheaper in late 2005 than they were in late 2004, but the stock was still sinking like a rock. The strategy of buying cheap stocks wasn’t flawed - it was the theme itself. It was based on an assumption that cheap stocks rise. The theme, however, doesn’t take into account that stocks can and do develop negative momentum, nor does the theme recognize any absolute P/E levels to use as entry points. Clearly a P/E of 22.79 wasn’t cheap enough to suit the market, but the theme didn’t account for that idea.

The question any investor should be asking themselves about turning generalizations into stock picks is whether or not the generalization is flawed. Obviously no method is perfect, but is it at least complete, with downsides minimized?

The Flaw In The Event-Driven Process

The event-driven process is notably different than a theme-driven process. Rather than taking a broad idea and finding a stock that fits within that mold, an event-driven selection process starts and finishes with a specific stock or company in mind. Classic examples of even-driven picks are buying stocks after strong earnings are announced, buying after a key FDA approval, or buying after a positive news story in a high-profile investing publication. There are flaws with this strategy too, however. Namely, positive news is too often released after a stock has experienced most of its gain potential. Let’s take a look at a couple of examples.

Going back to the Dell Computer scenario, many investors were excited that Dell hit record earnings levels (1.02 billion) in September of 2005. The results topped off what was almost a perfect five-year streak of earnings improvements, and the stock had nowhere to go but up, right? In September of 2005, Dell shares reached as high as 41.02. By the end of April 2006, Dell shares were at 26.20. Good news for the company wasn’t good news for shareholders. It was quite the opposite, in fact. One could argue that the following quarter’s earnings dip was the culprit, and that the pessimistic view was the reason shares sank. Perhaps that’s the case, but it doesn’t explain the fact that Dell’s earnings popped back up to 1.012 billion the quarter after that, yet Dell shares are still well under the 40 level they were at when earnings were just a fraction higher, at 1.02 billion. The point is, earnings announcements clearly yield inconsistent results for stock owners, even when the news is consistent.

Favorable write-ups in periodicals lead to equally problematic results. In the February 20th, 2006 issue of Barron’s, these blurbs appeared on the cover:

1) "Texas Roadhouse (TXRH) is looking tasty."
2) "Toll Brothers (TOL) is a buy again."

Between February 21st (the first trading day that the news was actionable) and May 12th, 2006, following the advice would have been more than disappointing. Texas Roadhouse shares fell by 13.3 percent. Toll Brothers fell by 6.2 percent.

Could the two bullish recommendations just have been through a very unexpected run of bad luck and marketwide selling? Maybe, but not likely. The S&P 500 was up just fractionally (+0.3 percent) during the same timeframe. So, the two stocks in question had no major barriers to overcome; it was just poorly-timed (or completely errant) advice.

And what if three months wasn’t the timeframe the journalists intended? Good point. The problem is, in both cases, the only stated timeframe was a vague reference to one calendar year. There were no specific target prices or stop-loss prices. Since the stories ran, there has been no follow-up from Barron’s on either stock.

An Alternative Method

Rather than scouring the newspapers and absorbing the constant flow of information from television, an investor may be well advised to pick stocks from a completely bottoms-up approach. In simplest terms, that means reverse the process with which you choose stocks. A specific course of action could be……

1) Scan and sort for stocks that are starting to trend higher (chart action)
2) Check the underlying fundamentals to see if they justify any further growth
3) Scan for those stocks that are relatively the ‘cheapest’ (P/E comparison)
4) Compare any individual stock to its broad sector - Is it fighting the current?
5) Verify that the market is indeed going higher, since a bear market can drive even the best stocks lower.

You’ll notice that the steps involved may not be all that different than the top-down approach most investors already use. What’s different is the sequence, which ultimately means that the order in which you weed out stocks will lead you to a completely different list of potential buy candidates. What you’re likely to find are names that you’ve never even heard of. That’s ok - those are usually the best purchases. Stocks that are bounced around the media are always subject to big let-downs and a lot of investor emotion, since they’re hyped by the media. Plus, odds are that any theme-based strategy an investor is using is being used by most other investors as well. That doesn’t give you an edge, since everyone else is doing the same thing. Look for good names and quality stock ideas in ways and places that nobody else is. The best way to start doing that is by using scan and sort tools to find the obscure, undiscovered ideas that the news sources and other investors haven’t even thought of yet.

There are many free websites that can provide basic scan and sort features.

James Brumley is the chief analyst at Bluegrass Portfolio Management (http://bluegrassportfolio.com/). After spending time as a broker, he established an independent investment research firm. He now manages portfolios, and you’ll find his market commentary and analysis on several financial websites.

Investors looking to buy penny stocks might well avail of advice from the established brokers. Further, they can also look into newsletters published by various penny stock brokers. These newsletters carry analysis of the possible market trends in penny stocks along with other details like special focus on select stocks. Buy and sell recommendations supported by hints at possible triggers are also published in such newsletters.

Background information on specific penny stock companies along with a peek into their ongoing business development activities is also provided in these newsletters. Besides, transaction records published by the pink sheets and over the counter bulletin board (OTCBB) on penny stock trading on a daily basis can also come in handy for these investors.

Brokers specializing in penny stock trading also maintain their own databases on historical market trends, especially in those stocks which are actively traded. They also keep a close eye on unveiling of significant market and business investment plans. In addition, they also watch out for any signs of an imminent big move on the part of penny stock companies that would fundamentally alter investor sentiments on their stock when this information becomes public.

In addition, a growing body of information on web-based networks and blogs can also provide useful insights into penny market trends. This source of information can be used by investors to cross check veracity of their information gathered from the other sources. Insights picked up these sources will help you to some extent to avoid any likely financial traps that scammers may have laid for gullible investors of penny stocks. For investors in penny stocks, avoiding such traps should assume a high priority, considering the empirical evidence that fraudsters have been rather conveniently targeting these stocks.

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Penny stock aspirants need not worry too much over how they can get started. For the procedure required to be followed in the case of penny stocks is similar to those applicable to other stocks. In other words, you have to open a brokerage account. However, actual trading in the penny stocks is not as simple as in the case of (for example) blue chip shares, because the market intelligence required to make the right investment decision is not easily available. You have to collate this information from different sources using your individual effort.

However, if you have a broker, you job is half done. The broker can provide enough information for you to get initiated into penny stock trading. Further, you can also get insight from your broker into possible market trends in the near, short and long term. In addition, your broker can also advise you on when to buy a penny stock and when to sell that. These brokers know your specific requirement and accordingly give suggestions on investment matters. Moreover, they are always there to help you out with their expert opinion. You broker will charge a specific commission on every transaction that you make using his account. The broker may additionally charge for the advice provided to you.

Alternatively, you can also look up the details on penny stock bids and quotes yourself. These are published in the pink sheets and over-the-counter bulletin board (OTCBB) on a daily basis. In addition, key details on the traded companies can also be obtained from the same sources. Earlier, these details would not be available as the traded companies were not obligated under law to share these details. However, subsequent rules framed by the national association of stock brokers (NASB) require sharing of key details on the listed companies. In addition, some penny stocks are also listed on the NASDAQ and AMEX and hence their price movement can be easily tracked.

Many news letters are also published by brokers to provide information on trading of penny stocks. You can also pore into such new letters to collate the required information besides tips. You can tap this source to collate the required information, without spending too much money. But all said, there is nor sure-fire way to gain success in penny stock trading. You have to tap into informal sources as well to gain sufficient insight into the complexity of the markets. Further, you should also be able to come out with an analytical thinking to make a success of penny stock trading.

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Successful traders learn to follow a set of rules consistently. These set of rules are called a trading system. When using stock options, it is very important to use a stock option trading system. Traders really need to backtest several stock option trading systems and avoid commonly taught systems that result in a net loss over time. A ‘fun’ stock option trading system involves high flying stocks Google, CME, or RTP. I call this a ‘fun’ system because you should only trade with money you can lose. In this system, you should really trade no more than three contracts. The system is for illustration purposes. Remember - options involves risks - including losing your whole account if you do not manage your risk and size you positions properly.

The leverage of stock options can cut both ways. You can lose faster as well as win faster with stock options. Therefore, you want to get past the point of trading because of emotions or addiction and trade by your rules. Of course, your stock option trading system needs to be backtested with lots of samples to ensure you have positive expectancy.

Positive expectancy means that when you trade many times over the long run, you will have a net profit. You will be surprised that some stock option trading systems being taught or sold may have a NEGATIVE expectancy in the long run. That is, you will be trading at a net loss. They may have worked in a strong trending market a few years ago but they do not work in our current 2005-2006 stock market.

One way to see explosive results is to focus on stocks that are expensive and that have a high intra-day range – or average true range. Google, CME, and RTP are in the $200 to $500 range. In fact, there are not many other stocks over $200 that have options besides those three. Normally, options two strikes out of the money are relatively expensive for these stocks – except during the expiration week. Remember, options basically trade on the stock price difference, whereas stocks trade on the total stock value. A $200 stock with a 5% intra-day range has a ‘difference’ value of $10. That $10, in absolute terms, can cause some wild swings in option prices during a certain time of the month.

Let’s look at a stock option trading system that tries to take advantage of expensive stocks fluctuating during the time of the month when options are the cheapest:

1. On the Monday before option expiration, buy three strangles on Google, CME, or RTP that are 2 strikes out of the money for that expiration. For example, on Monday, May 15th, with expiration Friday on May 19th, Google is at 400. Buy the 420 call and the 380 put. If it is not earnings month, the strangle should cost around $300 to $350.

2. You’ll have to watch the price quote most of the day for Tuesday, Wednesday, Thursday, and even Friday

3. Try to estimate based on chart patterns whether a certain time is close to the high or low for the day. Better than that, if the price of the total strangle is profitable by $60 or more per strangle, sell one. That’s a 20% profit. The normal intra-day range for these three stocks swings enough to cause some profit.

4. Repeat step 3 on Wednesday and Thursday. Many times a year, there is a news event that can cause a $10 to $30 move on a single day. These are the home runs you are looking for that can more than cancel the strike outs of the relatively inactive days.

This stock option trading system has precise definitions for entry and relatively precise definitions for exit. Trade like a robot one week a month. In future articles the detailed backtesting results of this system may be presented.

Steve Burke http://www.breakthroughbacktesting.com

Steve Burke is president of Perazzim Capital Management, Inc.
Perazzim Capital Management strives to give you the confidence to trade stock option trading systems that have a high probability of profit based on backtesting with lots of samples. An e-Book is available that describes how to use backtesting results for three common stock options trading systems to trade profitably & remove fear.

Penny stock investment is supposed to be risky - and therefore a possible way to earn handsome returns. It all depends on how well someone chooses his penny stock portfolio. If you can spot potential of undervalued stocks, they might turn out to be a possible goldmine for you. On the other hand, you may also end up losing your shirt if you somehow misread the fine print of any upward market movement in penny stocks. In this context, investors will be well-advised to do a through research on the target penny stocks before putting in their money.

Potential investors of penny stocks can easily smell fraud if they have some sense of stock market functioning. Suppose, an investor wants to buy a particular, then he should check it out to find the recent history of market movement in that particular stock. Whether that stock was dormant earlier and then started rising too sharply all of a sudden without any significant change in the fundamentals of the related company.

Knowing the latest developments in the company’s business plan and financial performance can provide insight as to whether the sudden movement is spontaneous or a result of rigging by some vested interests. Sometimes scammers buy a penny stock in large numbers and then spread positive murmurs about the related company in order to jack up the price. Then they cash in on the euphoric investor mood in a surging capital market. And when the target stock later reaches abnormal heights, they just exit, leaving the late investors to hold the can.

When this happens, the risk is that a gullible investor will lose heavily. Another risk is that after burning his fingers so badly in a penny stock, the investor may behave later like someone “once bitten, twice shy” in regard to stock markets.

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The Dow dropped late last night and so I expect the FTSE to do the same this morning. But looking at the charts, it looks like nobody is really sure. The charts are more or less level with small peaks and dips.

The analysts are useless. Again all giving contradictory statements - some say the market will continue to fall, others say it will rise. Nobody knows anything.

Many stocks have dropped significantly and so, if this is a temporary glitch, then there’s money to be made on the rally. I can feel investors at their screens, just itching for sign of a break out.

Last night - I don’t know if I was taking advantage of an opportunity or simply being greedy - I set a lower price on my Limit Orders. If they kick in, I think I’ll be getting a bargain. See, you can make money on a falling market without hedging or shorting.

A lot of talk about inflation rising. I don’t know about you, but I live in London and inflation has been a lot higher than the official figures. I think they must use bread and milk as the measure. But inflation is misleading: the real driving force is house price increases and people borrowing and spending based on their capital appreciation; Govs want to increase interest rates to control inflation, which will mean more incentive to save / mortages go up > consumers won’t spend > demand will decrease.

Personally, I think there will be a small rally until everyone gets spooked again by the Fed / interest rates next month.

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