Stock Market

How Does the Stock Market Work

How Does the Stock Market Work

Getting start with Exchanges

So, now you have a general idea of what a stock is, why companies issue them and some of the basics of trading. Let’s move on to where to go to start trading stocks and get going with your own brokerage account! Stocks can be found on ‘exchanges’. This is where traders, both buyers and sellers come together to determine what price shares will be traded at. Some exchanges, such as the NYSE (New York Stock Exchange) are at a physical location while others, such as the Nasdaq, are electronic (or virtual) based. As exciting as it would be to be on the floor of the NYSE, screaming prices and running around making deals, I prefer the electronic version while sitting comfortably in my office. The entire reason for a stock market to exist is to aid in the trading of stocks (securities) worked out by the buyers and sellers. This way there is a risk reduction of the trading of the securities (stocks) by consolidating them into one place. Realistically, a stock market – either the NYSE or the Nasdaq – are a common meeting place for buyers and sellers to hook up to trade stocks. Let’s take a closer look at the different types of markets – these being ‘primary’ and ‘secondary’ markets. What is meant by a primary market is one that handles the initial offering of a stock or IPO (this is covered another blog post). A secondary market handles stocks which are not newly issued, these are the stocks that are truly in the ‘stock market’. At this point it is important to note that when you are trading stocks, you are not trading specifically with the company you are buying or selling, simply that you are working within a marketplace.

dividend-stocks (2)

A quick history of the major exchanges

NYSE | The New York Stock Exchange

This is probably the most famous of all exchanges, and has been around the longest in the professional sense. Sometimes called the ‘Big Board”, this exchange focuses only on a limited number of the most successful business in the United States. Companies such as 21st Century, Cigna, and Ford Motor Company. The NYSE is based on face-to-face trading, known as a listed exchange. This may seem like an old school way of doing things, but old habits are hard to break. They still employ ‘specialist’ who get the buyers and sellers together and place the orders at the trading posts. Now this is all great information, but not going to help you get started with your own trading because unless you want to fulfill a degree in financial management, we’ll stick online trading (you can still trade these stocks through your online broker… I recommend eTrade)

And in second place…. The Nasdaq

Really made famous by the fantastic technology boom of the late 90’s and early 2000’s, this is an ‘over-the-counter’ (OTC) market. This exists is a virtual market place (there are several others discussed later). All of the trading of securities is done electronically, congratulations on moving into the 21st century! Some of the stocks found on the Nasdaq include Kraft Foods, Intel, Sirius, Cisco, and Comcast. The difference in how stocks are traded on the Nasdaq (unregulated) as compared to the NYSE (regulated) is the Nasdaq depends on a ‘market maker’. This is a person who monitors and provides the ‘bid’ and ‘ask’ prices within a certain tolerance or ‘spread’ for the shares of companies they represent. This person gets the buyers and sellers together and keep a percentage of shares available in their market to ensure availability when traders come looking to make transaction.

And all the others:

There a bunch of other exchanges out there you can check out including a couple of the more notable ones being the the LSE (London Stock Exchange) or the HKSE (Hong Kong Stock Exchange) Now I don’t personally play in those markets, these would be considered FOREX (Foreign stock exchanges), but they can be extremely lucrative (more information on FOREX markets here) The stocks I mainly focus on are Penny Stocks… and why would I do that? Simple answer: a 30% gain is a 30% gain, whether the stock goes from .03 to .039 as it is if it goes from $30 to $39. The point: I can make a whole lot more trades for substantially less money and make the same gains! The risk: there is little to no regulation in these markets. The bottom line always comes down to getting trained and making educated decisions.   Take away: Get your own etrade account set up here Highly suggested: Get up to date tips on penny stocks here For those of you ready to REALLY get serious check out Autobinary trading Thanks for reading and taking action!

Posted by Judy Romero in Investing, Investment, Long-Term Investing, Stock, Stock Market
How to Find Stocks to Trade

How to Find Stocks to Trade

Just how do we go about finding a great trade?

If you’re getting your trading ideas from friends, your barber or individuals you meet in your everyday life you are up the creek without a bank account.

The next place on the list of worst places to get trading ideas would be free financial chat rooms. Most of these are either the blind leading the blind or a pump and dump scheme.

The blind leading the blind is a room full of neophyte traders (also called green peas) getting ideas from financial websites, magazines, their brokers, etc. Some of these may actually be good trades but nobody in the room knows where the entry, stop loss or exit should be.

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The very worst are the penny stock trading rooms. These may be chat rooms, email alerts, newsletters or whatever. The slower the notification system the worse they are.

Penny stocks are worthless stocks. That’s two words. Worth—less. Most often worth less after you buy them. The reason they are a dime or a quarter or even a buck is for a good reason. They don’t have a viable competitive product, terrible management, not enough cash to run the business or a myriad of other fatal business problems.

Yes, occasionally one will take off, but that is attributable to a change in circumstance within the company. If you find one of these before everyone else knows, please let me know and I will join you in that trade.

These are favorites of the pump and dump crowd. If a stock is only a dime a share even someone with only a few hundred bucks in a trading account will buy thousands of shares. Pump and dump is not limited to penny stocks. If you can’t verify a story through normal news channels it’s probably bogus.

If the pumper is highly followed all they have to do is say they bought and everyone else jumps in. Normally they heard a rumor, an employee told them things are about to pop, (blowup???) or as many reasons as you can dream up. Your buys, and hundreds or even thousands of others, drive the price higher, usually very swiftly.  While you’re buying the pumper is selling you his shares.

Brokers want you fully invested so they can draw their commissions. Fully invested means all your capital is in the market. They also believe that you cannot time your entries and exits and thus believe you should stay in the market even if the indices fall by 50 % or more. They seem to think that if the market is down 25 % and your account is only down 22 % you are doing well. They also are true believers in a diversified portfolio. Whether you are in an index fund (Dow Jones-S&P-Nasdaq or many others) or in a diversified portfolio (15 to 100’s of stocks) the broker’s primary concern are their commissions.

All this and more before you ever make a trade.

As a value trader I may have eight or ten positions open but there is no relationship to diversification.

In this series of posts I will attempt to explain to you the various factors I am paying attention to as I enter and exit a trade. These will not be real time trades but the entries will have been posted in real time.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
What are Penny Stocks? In Depth, but Simple Explanation!

What are Penny Stocks? In Depth, but Simple Explanation!

So I sorted out searches by volume and I got my first task – to answer first question people type about penny stocks into Google which is very straightforward “what are penny stocks?”.
So what I did first, I took two explanations given by Investopedia and SEC websites. I took the commonalities for the provided term and got into more details.
So the main points when answering the question “what are penny stocks?“.
Penny stocks are small companies’ stock. This is very true and to be more exact there is financial lingo term to describe small companies’ size by market capitalization. Professionals call small stocks as small cap stocks. And there a smaller bracket – nano cap stocks and micro cap stocks which are even smaller than small cap stocks.
So when you talk about penny stocks most of the time you talk about nano cap stocks, sometimes micro cap stocks (stocks with market capitalization under 300 million dollars). Why is that? Because size is directly linked the amount of share outstanding which directly links to amount of floating shares.
Now to get to the core the amount that can be traded on an open market is called float or shares float.
So when you have small size company with the small amount of shares outstanding which give us an even smaller amount of floating shares (but not always) this gives us as the result – a small supply of stock. So when we have a small supply of stock and event with high demand for that stock we encounter crazy price volatility which is what penny stocks are well known for. Put simply they are known for huge price swings which are known as volatility. Basically, too many participants are chasing too few stocks so this makes price of a penny stock to move 20%, 50%, 100% or even bigger % per day!!!
But remember that huge volatility is double edge sword – it can provide insane gains but it comes with higher risk.

Penny-Stocks-chart

Penny stocks have a low price. This is true and it is one of the features of a penny stock but not always while even penny stocks trade for pennies or few bucks it sometimes doesn’t end up only at these levels. Penny stocks can even be traded for 10 or 20 dollars per share. What helps to increase this price so drastically? It is the supply of a stock. So again we get back to first point that size matters and only low supply can make such insane moves possible.
BTW Ford motors traded for 1.5$ after 2008 crash. Can we consider this company small? Of course not, so the price is just one of the features of a penny stock.
Penny stocks mostly trade OTC (over-the-counter). Yes, on OTC markets you can find many many penny stocks, but as well I need to tell you that there is as big amount of small companies that trade on regular stock exchanges. And this is what I would recommend to everyone interested in trading small companies – trade nano and micro cap stocks on regular stocks exchanges, while exchange-traded penny stocks are more regulated, have better liquidity and it is easier to find a decent broker to trade them. As well stock that trades on regular stocks exchanges need to disclose more information to the public regarding it financial performance. You get the point! If you are interested in this niche trade penny stocks on regular stock exchanges. Let’s get back to the point now.
Why small companies tend to choose to be listed on OTC markets? Simply due to lower capital that is needed to be listed there and as well because companies need to satisfy less listing requirements than when listing its stock on a regular stock exchange.
BTW because OTC markets have minimum standards for stocks to be listed there is more cases of stock fraud happening there, so remember this.

So what are penny stocks?
To summarize here, penny stocks are stocks of small companies that are highly speculative. Penny stocks are being traded OTC and on regular stocks exchanges. They have low price and low supply of a stock which makes them very volatile.
Now to finish here, I personally think that the main denominator of a penny stock is the size of the company and its market capitalization. Even other points are valid and get us extra features nothing better defines a penny stock as the size of the company and its market capitalization. Period!

Last words
Now if you are interested in fast moving stocks and you like to be in the epicenter of a new emerging and trending industries like marijuana or blockchain industries, this is where it all starts. Micro and nano cap stock niche and in general small cap stock niche is the place to be.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
Risk and Reward in the Stock Market

Risk and Reward in the Stock Market

With so much buying and selling occurring in day trading, things can get very confusing. A day trader must keep up with all of their trades and make sure all of the transactions have been completed. Just because a trade has been submitted, does not mean that it will immediately effect their account. Watching out for details when day trading is extremely important. Overlooking a couple of stocks can be costly for a day trader.
While stock market charts are important for any trader, they are especially important for day traders. Using a chart correctly can indicate what the short term move of a stock is going to be. Since a day trader is trading daily, they really need to know what the stock is doing constantly. Even though reading a stock’s chart is not foolproof, it can help a day trader confirm any feelings that he is having about a stock. There are many different technical indicators a day trader can use. The more indicators that signal the same move, the better a day trader can feel about their current investment.

End-day-trading

Stock options are a great way for a day trader to make money. This is because options eventually expire and need to be watched constantly. Stock options are not a long term investment because they will lose their value. Short term traders can watch the stock options to make sure it is moving the direction they need. If it is not, they can trade and find a different invest. Since day traders are trading often they will also be able to see if options are over or undervalued. Even if the stock has not moved greatly, if the stock option they have purchased becomes overvalued they can turn a profit. This could simply be because of rumors or news that is currently surrounding the stock.
Risk and reward ratio.
With some stock options overpriced, a day trader can have a hard time making a large profit. It is important for them to compare stocks to see which has the largest reward with a limited risk. To make money with some stocks, they must move dramatically. Others can make a small move and give the day trader a large payoff. By comparing different stocks, they will be able to differentiate which would be a better fit for them. The more stocks that are researched will better their chances of finding their best investment. Once an investment with the right risk to reward ratio has been found they can begin to invest. But even after investing it is important for them to continue to research. What is a great stock one day can be horrible the next.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
11 Ways to Trade Penny Stocks

11 Ways to Trade Penny Stocks

Penny stocks are alluring, the reason why millions of people worldwide choose to invest in them. They offer high rewards with minimal investment. The low investment leads to people also treating penny stocks as lotteries. However, these people often hand over their money to more strategic penny stock investors. So, do you want to be in the group that hands out money or the one who makes big bugs with penny stocks? Without a doubt, the latter, follow our tips to trade in penny stocks and you should do better than most investors.

Penny stocks are shares of companies that are new or upcoming, which makes the shares highly speculative. Traditionally, they mean any stock that is priced less than a dollar per share, but more recent exchange definition states penny stocks as stocks that are less than $5 per share.

Penny stocks

When trading in penny stocks, you should respect the risk associated with the trade, avoid any hype, and follow the tips we have shared.

Tip 1: Don’t Buy Into the Hype

The first tip we want to share is about the hype involved in penny stocks. In trading, penny stocks are probably the riskiest in terms of scammers. You should not believe the stories you hear on Facebook, where a housewife or a student made $100,000 investing in penny stocks or any other similar stories. You may also receive anonymous emails with penny stock tips. The people sending these emails aren’t doing it with the good of heart but they are promoting a shading company that’s likely to drown your money. The emails can also come from a website where you exchanged your email ID in exchange for the touted ‘valuable information’.

Tip 2: Don’t Hold the Share Too Long

Most new investors who make a good profit from penny stock get greedy and ultimately end up losing money. A high fad penny stock can quickly turn low fad. When you have made a profit of 20% or 30%, immediately sell the shares because the gains can quickly turn into a loss.

After making a good profit people wait in the hopes of further increasing the profit, which can happen in some cases but the risk is too high. Sell the share after making any profit and move on to the next.

Tip 3: Don’t Believe the Companies

Penny stock is a dog eat dog world. You should not trust anyone and the least the companies who want you to buy their stocks. There are fewer legitimate businesses behind the stocks. The companies want you to buy their shares so they can raise capital and stay in business. In the worst case, there is no company behind the penny stock and it’s a scam to enrich the insiders.

These companies run large promotional campaigns with press releases, ads, and other marketing techniques to lure unsuspecting investors to buy their shady shares.

Tip 4: Don’t Short the Shares Yourself

Shorting shares is difficult. A share may seem alluring due to its pumped-up price, but that can easily be due to a few newsletters that got large clicks or people bought into the hype. Such shares will not sustain and the price will fall leaving you with a huge loss. Leave shorting to the pros.

Tip 5: Don’t Trade in Low Volume Penny Stocks

Ideally, you should look for penny stock that trades a minimum of 100,000 shares in a day. If you buy a share with a low trade, you may not be able to sell it. That would be a tough spot even when you have made a profit. You should also pay attention to the per dollar value of the share. Look for shares that are valued higher than 50 cents. Penny stocks that have less than 100,000 trade per day and are valued at less than 50 cents per share are not liquid enough and sustainable.

Tip 6: Cut Your Losses Fast

Every investor makes mistakes and wrong bets, but cutting your losses in time can save you thousands of dollars. Identify you have made a mistake and cut your losses as fast as possible. If you are into buying pumps, allowing the losses to spiral can deal large financial damage and take you out of the game. If you are trading with a small capital, it only takes one bad decision to end the game for you. So, after you have made a mistake sell fast and start anew.

Tip 7: Practice with Paper Trading

If you are just starting out with trading in penny stocks, it’s best to test your strategies with paper trading. Paper trading does not involve real money. It uses the real stock value to test your strategies. Online websites allow you to paper trade for free. Once you have established your investment technique through paper trading, you can move to real trading.

However, don’t jump the gun and invest a large amount of money at once. Invest small and as your investment stars to pan out increase the amount or keep investing the profits from previous investments.

Tip 8: Don’t Buy OTC Penny Stocks

Any successful investor would advise you to stay away from over the counter (OTC) penny stocks due to the lack of accountability and transparency. Exchange such as NASDAQ or NYSE has strict guidelines that companies need to adhere to in order to be listed. These guidelines include complete financial transparency and maintaining the per stock value above $1. Companies that fail to abide by the rule list their stock in OTC exchanges.

Companies listed on OTC do not have financial transparency and may be in a bankruptcy filing, which makes them a bad investment. The OTC market still functions because people simply do not know much about penny stocks and they treat them as lotteries or are buying due to a tip from a shady broker. OTC stocks can be tricky but we do trade them occasionally, we do perform in-depth research whenever we do. Our findings are general open to share on our free stock alerts.

Tip 9: Stick with What you Know

The best penny stocks are the ones you know about and not the ones you hear from a friend or relative. If you are in a profession such as software developer, it’s likely you know more about tech companies than most people investing in penny stocks. Choose a company that is familiar to you and has potential in the future. Buy stocks that have been rising in value for a long time, but not due to pump and dump schemes.

Penny

Tip 10: Don’t Trade Large Volumes

You need to be careful about trading large volumes. If you have bought a large number of penny stocks from a company selling the share when the stock is taking loss becomes difficult. As a general rule, you should not trade more than 10% of the share’s daily trade volume.

Tip 11: Don’t Get Emotionally Attached to a Stock

The worst mistake you can make trading penny stocks is getting emotionally attached to a particular stock. Companies would make big promises and would present themselves as the next Google or a company about to bring a revolution with advanced technology, but rarely such promises come to be true. You should remember why you got into penny stock i.e. to make quick profit and exit.

Final Thoughts On Penny Stock Trading For Beginners

Overtime penny stocks have had a lot of bad reputation and for good reason, but there are also people who have made a lot of money fast with penny stocks. The difference lies in education. Some people treat penny stocks as lottery tickets, while others have a more strategic approach. People who understand the risk and take calculated decisions are the ones who gain big. If you follow the tips we have shared in the post, most hurdles in penny stock trading will be eliminated and you will have the possibility of making large sums of money.

Posted by Judy Romero in Stock, Stock Market
Why You Need to Understand Stock Float

Why You Need to Understand Stock Float

The stock float is one of the metrics that have the power to greatly influence the price of the stock. So make sure you get familiar with it if you plan to become a trader.

What Is a Stock Float?

To put it simply, the float of a certain stock is the measure of the number of shares that can actually be traded. So in a way, this metric is actually a measure of liquidity. And understanding the float allows the traders to predict the potential volatility of the stock.

General Recommendations Regarding Stock Float

If a stock has a high float, that means that it is more likely for traders to accurately predict its behavior. A large number of tradable shares means that the liquidity of the stock can support significant moves. With high-float stocks, such moves don’t impact the stock too much. However, low-float stocks can experience moves as huge as 40%.

For that reason, it is not always the best idea to trade low-float stocks. The price is reactive and the stock itself can be very volatile. That is especially true during the formative years of the life of a company.

A trader who knows what to look for can measure the goodwill of a company by looking at the float. Moreover, even a novice can measure the interest of the public in the stock. So in most cases, it is advisable to trade high-float stocks.

What Are the Differences Between Free-Float Market Cap and Market Cap

We can’t talk about the stock float without mentioning market capitalization. When you first start researching stocks, you might notice that company categories revolve around the market caps of those companies.

In essence, the market capitalization is a measure of the size of a company. Basically, it is the total value of the outstanding shares of stocks of a company. Those shares include both the publicly traded shares and the shares that are held by insiders.

Calculating the market capitalization of a company is rather straightforward. All you have to do is multiply the number of the outstanding shares of a company by the stock price. Allow us to illustrate with a simple example.

Let’s imagine a nameless company that has 100 shares outstanding. Now, let’s imagine that the company is trading at a stock price of $5. We can now calculate the market share by simply multiplying those two numbers. In our case, the number comes out at $500. Naturally, no company will trade with only 100 shares. In fact, stocks that have a market value of fewer than 250 million dollars are considered to be micro-cap stocks. And to enter a large-cap stock category, companies have to have a market value of over 10 billion dollars.

Now that we have an understanding of what market capitalization is, we can look back at the float. The float only numbers the outstanding shares that the public can trade. That means that the restricted stocks don’t enter the float.

To calculate the float of a company, we have to remove the inside trading shares. After all, they are of no use to the public, and they do reduce the liquidity of the stock. For that reason, major indexes prefer measuring the free float instead of the market cap.

Manipulating the Stock Price with Float

The market follows the rules of supply and demand. So if there are fewer shares available while the demand doesn’t change, the price will go up. And as the float is the measure of shares that the public can trade, people start wondering if the company can manipulate the float and thus impact the stock price.

While high-float stocks are more attractive for traders, reducing the float will actually increase the price. Studies have shown that companies are capable of manipulating the float to impact the price of a stock.

stock float manipulation

Companies can increase the float by issuing new shares. Conversely, they can reduce it by organizing a share buyback. Alternatively, some companies can use a stock split to impact the float.

Another way for companies to influence the float is through insider activity. In the case of a significant number of exercised options, the insider actions can change the stock float.

Furthermore, companies can simply choose to increase the float by selling inside shares. In most cases, companies do so in order to raise cash. However, that doesn’t exclude the possibility of ulterior motives.

And for that reason, investors should be wary of potential manipulations.

Posted by Judy Romero in Investing, Stock Market, Trading

A Beginner’s Guide -Six Stock Market Investing Tips

Bernard Baruch, “The Lone Wolf of Wall Street,” earned a seat on the New York Stock Exchange before turning 30. Furthermore, he became one of the most well-known financiers in the country by 1910. Although a master of his profession, Baruch didn’t have any illusions about the difficulties of prosperous stock market investing. According to him, the stock market’s main purpose is to make fools of as many men as possible. Ken Little, the author of 15 books on personal finance and investing, claims that every individual investor in the stock market should know that the system will always work in its own favor.

Still, hundreds of thousands of people are regularly buying and selling corporate securities on regulated stock exchanges or the NASDAQ. And some of them are actually successful. Luck isn’t the cause of a profitable outcome, but the utilization of some straightforward principles. These principles were developed from the experiences of millions of investors over countless stock market cycles.

Although intelligence is a great asset to whatever you do in life, it isn’t a necessary condition for investment success. A renowned Magellan Fund portfolio investor, Peter Lynch, said that everyone has enough mental ability to follow the stock market. According to him, everyone who can make it through fifth-grade math can do it.

Stock Market Investing Tips

People would love to find an easy and swift way to fortune and happiness. It is in our human nature to constantly look for a hidden key or a kind of arcane knowledge that will immediately lead us to the rainbow or result in winning the lottery.

Although it does occasionally happen that some people purchase winning lottery tickets or common stocks that quadruple in short periods of time, this is very unlikely. Only the most desperate or foolish ones would rely on luck as an investment strategy. When chasing success, we overlook some of the most powerful tools at our disposal: the magic of compounding interest and the power of time. If you invest regularly, avoid unnecessary financial risks, and let your money do the job for you over a period of a couple of years (and even decades), you will certainly collect significant assets.

Here are some tips that beginner investors should follow.

1.  Set Long-Term Goals

What made you consider investing in the stock market? When will you need your money back? In six months, a year, or more than five years? What are you saving for? Is it for future college expenses, retirement, to buy a house, or do you maybe plan to build an estate?

Make sure that you know your purpose before investing. Also, you should know when you will need your money in the future. Those who might need their investment returned within the next couple of years should consider other types of investment. Volatile as it is, the stock market cannot provide any certainty. So, you might not be able to take your capital back when you need it.

If you know how much capital you will need, and when in the future you will need it, you can easily calculate the amount you should invest. Also, you should know what type of return on your investment will be required to put together the desired result. There are free financial calculators available online. They could help you estimate how much capital you will need for future college expenses or retirement.

You can find various retirement calculators at Bankrate, Kiplinger, and MSN Money. Depending on your needs, you can either use simple ones or more complex ones. For college cost estimates, use calculators available at TimeValue and CNNMoney. Numerous stock brokerage firms provide similar calculators.

There are three independent factors on which the growth of your portfolio depends upon:

  1. The capital you decide to invest
  2. The amount of net yearly earnings on your capital
  3. The number of years of your investment

It would be best to start saving sooner rather than later. Save as much as possible, and then receive the highest return you can, in accordance with your risk philosophy.

      2. Know Your Personal Risk Tolerance

Risk tolerance is a genetically-based psychological trait, positively influenced by income, wealth, and education (your risk tolerance increases slightly as these increase) and negatively by your age (your risk tolerance decreases as you get older). Basically, it is what you think about taking risks, and how anxious you feel when there is risk present. Ask yourself to which extent you are willing to risk coming up against a less favorable outcome in the pursuit of a more favorable one. Would you be willing to risk $100 to win $1,000? Or $1,000 to win $1,000? People have different risk tolerance, so there is no “correct” balance.

Your perception of risk will also affect your risk tolerance. Back in the early 1900s, riding in a car or flying in an airplane was considered very risky. However, we don’t consider these things as risky today, since they are common occurrences. However, the majority of people today would feel that riding a horse could be dangerous. People would say there is a good chance one could fall or be bucked off. We think this way because we don’t spend a lot of time around horses anymore.

As you can see, perception is important, especially when it comes to investing. When you start learning more about investment – for example, how to buy and sell stocks, how much price change is usually present, and the ease or difficulty of liquidating an investment – you will probably realize that stock investments have less risk than you initially thought. Consequently, you will feel less anxious when investing, although your risk tolerance will be the same, as your risk perception has developed.

When you finally understand risk tolerance, you will be able to avoid investments that are probably going to make you anxious. In general, there is no point in owning an asset that will keep you up at night. Anxiety easily leads to fear, which then triggers various emotional responses (contrary to logical responses). If you can keep a cool head in periods of financial uncertainty and go through an analytical decision-making process, you will always come out ahead.

    3. Manage Your Emotions

One’s lack of ability to control personal emotions and make objective decisions is the biggest obstacle to making stock market profits. Companies’ prices, in the short-term, reflect the emotions of the whole investment circle. When there’s a certain company that worries most investors, its stock price is bound to decline. And when the majority feels good about a company’s future, its stock price will probably rise.

We call someone who feels about the market in a negative way a “bear.” A “bull” is their positive counterpart. There is an ongoing battle between the bears and the bulls during market hours. This battle is reflected in the constant change of securities’ prices. All of these short-term movements are affected by emotions – speculations, rumors, and hopes. It is advised that you use logic – a systematic analysis of one’s company’s assets, prospects, and management.

When stock prices move contrary to our estimate, that creates insecurity and tension. One starts to wonder:”Should I sell to avoid loss? Will the price rebound and should I then keep the stock? Should I purchase more?”

Even when a stock price performs as you expected it, questions arise. Should one take the profit before the price falls again? As the price is likely to go even higher, should one keep their position? Such thoughts can overwhelm you, especially if you keep watching security prices, trying to decide if you should take action. But, bear in mind that when emotions drive your actions, you can easily be wrong.

Always have a good reason for buying a stock, as well as certain expectations regarding the price. Also, decide on a point at which you will put your holdings into liquidation, if the reason proves to be invalid, or the stock doesn’t perform as expected. Before you purchase the security and execute your strategy unemotionally, always have an exit strategy prepared.

4. Handle the Basics First

First things first – learn the basics of the stock market and that market’s individual securities before making your first investment. Remember the saying: ”It is a market of stocks, not a stock market.” So, your focus will be on individual securities, unless you are buying an ETF (exchange-traded fund). It rarely happens that every stock moves in the same direction. Sometimes the averages fall by a hundred points or more, and some companies’ securities go higher in price.

Here are the fields you should be familiar with before you make your first purchase:

  • Different Kinds of Investment Accounts. Cash accounts are the most usual ones, but margin accounts might be required by law for some types of trades. Make sure that you know how to calculate margin and that you understand the difference between maintenance and initial margin requirements.
  • Popular Methods of Timing and Stock Selection. It is vital that you know how technical and fundamental analyses are performed, what is the difference between them, and in which stock market strategy is each used.
  • Financial Definitions and Metrics. Know the definitions of metrics. For example, the P/E ratio, return on equity (ROE), earnings per share (EPS), and compound annual growth rate (CAGR). Knowing how to calculate them and being able to compare various companies that use these metrics is crucial.
  • Stock Market Order Types. Investors use various types of orders. For example, limit orders, market orders, stop limit orders, stop market orders, trailing stop loss orders, etc. You should be able to understand the difference between them.

Keep in mind that risk tolerance and knowledge are linked. According to Warren Buffett, risk comes from not knowing what you’re doing.

    5. Diversify Investments

Buffett, as well as other experienced investors, avoids using stock diversification as they are confident that the research they performed is sufficient to recognize and quantify their risk. They believe they can spot potential dangers and put their investments into liquidation before facing terrible loss. Andrew Carnegie said:”The safest investment strategy is to put all of your eggs in one basket and watch that basket.” But be careful; you are neither Buffett nor Carnegie, especially in the beginner stage.

You can diversify your exposure in order to manage risk; it is one of the popular methods. Sensible investors have stocks of various companies in various industries, sometimes even in various countries. That is because they believe that an isolated unfortunate event won’t affect all of their holdings, or at least not to the same degree.

Think about this: you own stocks in five different companies, and you expect all of them to continually increase profits. However, circumstances change. When the year ends, two of your companies performed well, and their stocks grew by 25% each. Other two companies’ stocks in a different industry grew by 10% each. Finally, the fifth company’s assets were put into liquidation in order to pay off a huge lawsuit.

Diversification lets you recover from the loss of your entire investment. Imagine if you have invested solely in the fifth company; the outcome would have been much worse. This way, the value of your portfolio dropped by only 6%.

    6. Stay Away from Leverage

When borrowed money is used to execute your stock market strategy, that is called leverage. If you use a margin account, you can take money from brokerage firms and banks to buy stocks, normally 50% of the purchase value. Simply put, if you want to buy 100 shares of a stock trading at $100 for a total cost of $10,000, a brokerage firm could give you $5000 for the purchase.

When you use the borrowed money, it “levers” or overemphasizes the result of price movement. Imagine owning a stock that moves to $200 a share which you decide to sell. The return would be 100% on your investment if you had used your own money. But, if you had borrowed $5,000 for the stock and sold it at $200 per share, the return would be 300% after you repay the loan and exclude the cost of interest paid to the bank or the broker.

That sounds great if the stock moves up. However, consider the other possibility. If your stock fell to $50 per share, then your loss would be 100%. You would lose your initial investment and have to pay the interest to the broker.

Leverage is neither good nor bad. It is a tool recommended to experienced investors who are confident in their abilities to make logical decisions. It is best to limit the risk at the beginning so that you can ensure profits in the long run.

Conclusion

In the course of history, equity investments have enjoyed significant returns, much more than other types of investments. Furthermore, they are easy to liquidate, and they have total visibility, as well as active regulation to make sure the same rules apply to everyone. If you are willing to consistently save, manage your risk appropriately, invest energy and time to gain experience, and be patient, investing in the stock market is a great chance to build large asset value. In order to achieve greater final results, it is better to start sooner rather than later. Keep in mind that you are a beginner; don’t skip any of the necessary steps.

Posted by Judy Romero in Stock Market
Retiring and Looking At Investments?

Retiring and Looking At Investments?

If you are retired and you read this, I would like to extend my sincere congratulations for having the luxury of a pension. I’m sure you’re anxious or maybe the curiosity to understand how to better manage their pensions and activities to help his years as a boarder a comfortable financially so they can concentrate on enjoying life without the inconvenience of worrying about money.

1) to examine the pension plan

The first step you must take is to find himself exactly how your retirement plan in detail. Read the fine print and ask if uncertain. All retirement plans are equal. Normally, you should note if the pension is his whole life, or if it is still a certain age. Pension plan to provide an element of insurance for you? How much you pay each month? Where are the payments are made on an annual basis? Are organizations that provide these benefits to insured and what would happen if these organizations could fail in certain situations? There are ways to get tax credits and reliefs of his pension?
These are some questions you should ask questions about the plan.

Figure 2) for its core activities and liabilities

Now we understand better its security plan is important for you to look closely at the resource base of assets and liabilities that most people have is their home and possibly their own cars or other vehicles. However, these activities can become obligations. If you’re one of those people who have managed to pay their homes and vehicles, without having to rely on contributions, it’s great! But if you’re the majority, who still have your house every month and for vehicles to meet, we must consider whether you can reduce the total long term liabilities.

dollar-appreciation

One possibility is to try to repay their debts as possible. We all know that the payment installments usually involve heavy interest rates and may end up paying three times the original price of the house of the vehicles. Paying their debts before it reduces the interest payable. Now I understand that you should keep the money in hand and there is inflation, if the money later, maybe a bit ‘of money is worth less, but in general, by hand or the bank is an illusion. In fact, it happened in the house and car, why not reduce the amount spent?

At this point you probably have some smart investors who believe that the use of money to invest, we can easily offset the interest earned on our liabilities. But this violates the first principle of investment, for example, you should only invest what is needed (for example, the surplus).
This brings us to our good neighbor, the financial investment, if the mutual funds, shares such as Royal Mail that pay dividends, bonds or other financial products. I remember, was highlighted in our financial profile has changed. For example, the typical owner should review their financial investments and reallocate the funds to ensure that the reduction of the likelihood. For the most part, the days of the need to speculate heavy to be put aside in favor of safer investments.

3) Take care of yourself

Surprised by the fact that it is a financial advice? If you think that the main cause of the cost of many pensioners are actually medical expenses. The little money saved by not going for regular health screening are often overwhelmed by the costs incurred by the retiree discovers he has a serious illness. This is not meant to scare, but it’s just a reminder. Do not bore you with statistics. Suffice it to say that at this age, as older adults face a higher risk of having a serious disease like cancer, heart disease, stroke … and so on.

Now the good news is that if you care of themselves physically, decreases the chances of it happening. Simple things like walking regularly, cut the consumption of tobacco and alcohol, or better still to stop smoking, staying socially and mentally active and higher dividends and so on is the best plan to invest freely. As pensioners, which should include regular checks to detect early signs of disease, preferably twice a year, or at least once a year.

4) Insurance

However, some serious diseases and disasters occur. Fortunately, if you followed the suggestion above, would have been recognized previously, but still pay the bills and so hospital to recover. This is where the insurance cover may seem a waste of money for some, but believe me, those who find themselves suddenly down with a serious illness and harassment by the hospital bills, you probably wished that he had received assurances. It seems ridiculous that people could buy insurance for their vehicles, yet none of their bodies. What is more important?

If you agree that your body is important and that hospital bills are ridiculously expensive, it remains only to find that an insurance company that should, if your retirement plan does not include insurance with him. The good news is that insurance is relatively cheap nowadays and often with a tie in the investment plans. As a pensioner, what is important to you is to ensure that insurance is very affordable and still cover the medical expenses and hospital care. There are more of these policies, and is only a matter of choosing one that suits you.

Another issue to consider is your home. It may be inconceivable to believe that his house, literally, it could burn or destroy, but natural disasters and accidents happen all the time around the world. The smart thing to do is get a basic insurance for your house if you do not already have one.

5) make a will

Why leave things to chance? In several regions, generally the government has sent its lawyer to divide the assets of a person under the laws of succession in that country. But if you want to cut exactly as you want, it’s a good idea to make a will.

6) Finding funds and continue to work

As a retiree, you may want to continue working in any capacity, whether independent or part-time vocations to fill the time. But if you are physically unable to work due to medical conditions or otherwise, you can get financial aid. There are many organizations that can help you if you are in a financial crisis and its retirement plan is not sufficient for their basic needs.

If you are unsure, contact with other retirees in their region to share information. Or simply use the Internet and the public to ask where to find help. The leaders of the local community, his former company, friends and local religious leaders are all people who can give an idea on how to get help.

7) Calculate the costs

Now that you have an idea of its assets, liabilities, insurance requirements, income and the like, it’s time to create an actual plan for how the cost of the amount you can pay each month.

Do this slowly. All guides on-line is essentially the same as a guide. No matter how many articles to read, nothing can replace this process for every elderly person is unique and has its own needs and desires. I really recommend you get a good solid financial consultant for this step, or someone very good with the finances that you know and trust. There is often a good financial planning professionals who are ready to run your finances at a very low cost.

However, to avoid this step, remember that the situation may change in future and, if possible, some basic plans should be taken into account.

Once done, you’re on track to enjoy their retirement. Although the management and knowing your finances may seem like a conventional accounting of all, I’m sure the financial freedom and confidence that comes with it is worth the time and effort.

Posted by Judy Romero in Investing, Investment, Stock Market
Building Blocks for a Better Portfolio

Building Blocks for a Better Portfolio

There’s a big change coming in the second half of 2016 and you might not even be aware of it.

Manufacturing and construction, two of the building blocks of the U.S. economy, are on the upswing.

Why should you care? After all, manufacturing is just 10% of the overall U.S. economy now.

But it has such a big psychological impact when it is doing well, that optimism in manufacturing has the ability to really light a fire under the rest of the economy.

Construction, which has been in the doldrums since the housing bust, can have a similar impact. It provides thousands of good paying jobs over long periods.

If both manufacturing and construction are humming at the same time, the U.S. economy becomes virtually unstoppable.

We could be in for a whole new paradigm in the second half of 2016.

The Manufacturing Turnaround

With oil in the midst of its worst price plunge of the last 50 years and China slowing, U.S. manufacturing slowed in 2015 as well.

For 5 months, American manufacturing was in a slump. The ISM for Manufacturing was in contraction, with readings under 50, from October 2015 through February 2016. Many were calling this a “manufacturing recession” complete with job lay offs, especially in the energy sector.

In February, however, crude prices bottomed and reversed course.

I don’t think it’s a coincidence that oil and manufacturing bottomed at the same time.

Take a look at this chart for the ISM for manufacturing since 2013.

It’s not surprising that it started to weaken in 2014, just as crude prices did, and then slumped right into the worst of the crude sell off.

For 4 straight months, manufacturing has picked up steam with June 2016’s reading of 53.2 the highest since February of last year. New orders, at 57, were the highest since March.

All indicators are pointing to manufacturing gaining strength.

Is it out of the woods? Is the manufacturing recession over?

Some indicators in the index continue to remain weak, such as employment. While employment is rising, the numbers indicate that companies are being cautious in adding new members to the team.

This would be normal, however, given the length, and severity, of the downturn. It’s going to take more than a few turnaround months for the companies to believe that the strength is here to stay.

Better Portfolio

Construction Continues to Pick-Up

The construction industry is made up of three segments: residential, non-residential and public.

This is an important distinction to remember because most people pay attention only to residential activity but non-residential and public construction are also big drivers of the economy.

Since the 2008 housing bust, new construction in the housing market has been well below the average seen in the last decade. Of course, that was distorted by the bubble.

Single family and multifamily construction, however, has been on the upswing. They are moving in the right direction.

Multifamily, in particular, has been extremely hot in the last few years although most of that has been concentrated in 12 major metropolitan areas in the form of luxury apartment buildings.

Since 2010, construction starts, for all three segments, have shown annual year over year gains including a 10% gain in 2015.

Big Projects are Heating Up

In May, the $3.8 billion Dakota Access Pipeline was started. It will stretch across several states including North Dakota, South Dakota, Iowa and Illinois. It will connect the Baaken to existing pipelines in Illinois.

This is a big project in an area that has seen lots of layoffs due to the crude plunge.

Highway and bridge construction also increased in May thanks to the passage in late 2015 of the new transportation bill.

In June, according to the Dodge Momentum Index, which tracks construction starts across the country, 14 new projects worth $100 million or more entered the planning stages in the month, nearly double that of May.

Since these are just planning, or starting, that would indicate the construction spending will rise later in the year and into 2017 as these projects get underway.

Low Rates Means More Construction

The construction environment remains favorable for the remainder of this year.

Long term interest rates remain low which means its cheap for builders to borrow and the banks are wide open to lending right now. One area of caution, however, is in multifamily construction where some banks are tightening lending in over saturated markets like Houston.

States are also able to finance construction through bond measures which means more construction in the months to come.

The Federal government may be likely to spend even more money on infrastructure, depending on the tone and direction of the election. Donald Trump has pushed transportation infrastructure spending in his agenda, in the form of new airports and roads.

Non-residential construction is now just below the 2009 peak and it still has upward momentum.

Residential construction is also moving in the right direction. I don’t expect it to approach the bubble highs, if ever, for quite some time as that demand was artificially inflated. But the millennials are a big generation and they will need housing, especially in the urban areas.

The Building Blocks

Manufacturing and construction are two of the building blocks that the U.S. economy needs to pick up steam.

They are also being ignored by investors. Now is the time to start snooping around in these sectors. I’m expecting the earnings estimates to continue to rise over the next few months which means better Zacks Ranks.

1. How to Play Manufacturing

“Manufacturing” can mean a lot of different things from the pure play big industrial manufacturers with global reach to the company that is making washers to ship to the Home Depot.

I like to play this area by buying the chemical companies. It’s the chemical companies that make the products that go into many of the manufacturers end-products. You start with the chemistry first.

The chemical companies are also a large, diverse group so it can be overwhelming, but I started by looking for the best, high ranked Zacks stocks.

1. Koppers Holdings (KOP)

I discovered Koppers when the corporate insiders bought a bunch of shares two months ago. The shares were already trading near a new high when the insiders jumped in which means they had to have a lot of confidence that things were turning around at the company to buy in.

Koppers is a small cap company that makes carbon compounds and commercial wood treatment products, especially for the railroad industry.

It is really focused on its Performance chemicals segment, especially that used in railroad maintenance and on home roofs. An improving housing market actually benefits Koppers as well.

Koppers is a Zacks Rank #1 (Strong Buy). Shares are trading at 16x despite the shares being at new record highs. This is still an attractive valuation especially given its expected earnings growth.

2016 earnings are forecast to rise 27.7% and another 29.7% in 2017. Not too shabby.

2. Trinseo S.A. (TSE)

Trinseo is a mid-cap company specializing in emulsion polymers and plastics. It used to be part of Dow before being spun-off.

Its key end markets are rubber, latex and plastics and it also has a big styrene business.

Shares were on a wild ride after the Brexit on fears that the European business would be hit, but UK revenue, as a total of the entire business, is under 5%. So it’s a little too early to have a full scale panic.

The stock is dirt cheap. It trades with a forward P/E of just 6.9.

It’s also one of those chemical companies that has been around forever so it rewards shareholders. Trinseo pays a dividend currently yielding a healthy 2.7%.

Trinseo is a Zacks Rank #2 (Buy). Earnings are expected to rise 42.4% this year, with a big chunk of that based on strong styrene margins.

2. How to Play Construction

In making a plan to get into the construction industry, your first instinct may be to buy the home builder stocks or builder ETFs.

Yes, that would give you exposure to the residential side of the construction industry.

But I don’t believe that’s where the big gains are going to be made.

There are plenty of big infrastructure projects going on, such as the Dakota Access Pipeline I discussed above, which specialty construction firms will be a part of. Look to the general contractors for opportunities.

There are several top picks in this space. These companies cover different aspects of the construction industry.

For instance, Zacks Rank #1 (Strong Buy) Dycom Industries (DY) is a big player in wireless infrastructure.

MasTec Inc. (MTZ), also a Zacks Rank #1 (Strong Buy) is big in communications and pipelines. It will be involved in the building of the $3.8 billion Dakota Access Pipeline.

Neither of these stocks are cheap, even though fundamentals are strong. Dycom is trading at 21x while MasTec has a forward P/E of 18.

My best pick in this area, however, has both double digit growth as the others do, but also has really cheap fundamentals.

3. Tutor Perini (TPC)

Tutor Perini is a $1.2 billion market cap general contracting firm that works on subways, tunnels, sports stadium and other big infrastructure projects.

As of Mar 31, 2016 it has a near record backlog of $8.2 billion, up 9% year over year. That’s the largest backlog since the third quarter of 2008.

It continues to get new projects. It recently won a $100 million contract for the expansion of the Maryland Live! Casino.

After a lackluster 2015, the company has really turned it around on the growth front. Earnings for 2016 are expected to jump 76.2% and another 16.5% in 2017.

Shares are cheap even though they’ve been hitting new 52-week highs. Tutor Perini trades with a forward P/E of 11.6. It doesn’t pay a dividend.

Tutor Perini is a Zacks Rank #3 (Hold).

Think Expansion, Not Contraction

What if the economy is actually starting to gain steam, instead of losing it?

Construction and manufacturing is where you want to be coming out of a slowdown. They are the first to reap the benefits of a growing economy.

With record low interest rates and a solid job market, I’m bullish on America in the second half of 2016.

The strong double digit growth rates for all of these companies show that the analysts are bullish too. Keep an open mind on value opportunities. They are always out there somewhere, even when the stock indexes are hitting record highs.

Happy Investing.

Posted by Judy Romero in Investment, Stock Market, Trading
Get Ready for the Breakout to New Highs

Get Ready for the Breakout to New Highs

It’s been a volatile year so far, and we’re only 6 months in.

The markets looked pretty shaky in January and February when they plunged more than -11% in one of the worst starts to a year ever. But then they just as quickly made it all back and then some.

The Brexit vote’s surprise outcome the other week sent stock reeling once again. But within days, the markets were right back to where they were when they started.

After all of the market’s machinations, the S&P is now up 2.89%.

Even though the bears were growling each time the market pulled back, the bulls won out as they have been doing since this bull market began in March 2009.

And now it looks like the markets are poised for a massive breakout sending stocks to brand new all-time highs.

Fundamentals

The fundamentals of the market look strong.

It’s true that Q1 2016’s GDP gave pause to the market with its advance estimate of only 0.5%. (This was in sharp contrast to Q4 2015’s 1.4% reading.) But the revised Q1 ’16 estimate a month later showed the economy did better than originally thought at 0.8%. Then, just last week, the final estimate for Q1 GDP showed the economy grew by 1.1%, which was even better than all of the Q1 estimates along the way.

But historically, at least over the last couple of years, Q1 has been notoriously weak, only to surge higher in the next quarter. Take Q1 ’14 for example, which came in at -0.9%, but then exploded higher in Q2 with a 4.6% print; or Q1 ’15 at just 0.6%, which was then followed by a Q2 growth rate of 3.9%. Both of those years saw the S&P trek higher as the US economy continued to expand.

We won’t get Q2 ‘16’s GDP estimate until July, 29th. But the Federal Reserve Bank of Atlanta’s ‘GDP Now’ forecast is putting it at 2.6%, painting a picture of a strengthening US economy.

Underscoring this is the robust Employment numbers showing unemployment at a 9 year low at 4.7%, with an average of nearly 200,000 new jobs created each month over the last year.

Consumer Confidence is also strong at 98.0, putting it within just a few points of its best reading since this bull market began. A strong consumer is an important metric when you consider that consumer spending accounts for roughly 70% of the US economy.

The list of improving economic reports goes on and on, from Manufacturing, to Services, to Housing, and more.

Let’s also not forget what the professional investors are doing since they are the ones who truly move the market. And one look at the State Street Investor Confidence Index (which tracks actual buying and selling of stocks from institutional investors), shows that the smart money is still bullish. A reading above 100 shows portfolio managers adding equities to their portfolios, which is a sign of confidence in the market. The latest report showed a combined reading of 105.9 with all three major regions including North America, Asia, and Europe, all recording scores above the 100 threshold.

chart Economy

Technicals

The technicals of the market are also strong.

When the market plummeted in the beginning of the year, I remained confident that it was nothing more than a long overdue correction, rather than the start of a bear market.

Why? For one, a bear market doesn’t officially even begin until the market falls by at least 20%. And from its peak in May of 2015 to its lows in Feb. of 2016, it was ‘only’ down -15.21% at its worst.

But why was I so confident the market was going to turn around? The chart said it all.

In the chart below (long-term weekly chart), you can see a trendline drawn from the lows in March of 2009 (beginning of the bull market) to the second point of the trendline in October 2011 (the lowest point following the highest high that preceded it). That trendline remained intact for the entire bull move, but had not yet been tested since those two points were established.

Knowing that a mature trend should successfully test that trendline at least once after it’s been established (resulting in at least three touch points), said to me that we’d find strong support at that level, which was just under the 1,800 mark.

As it approached that line, getting as low as 1,810.10 on February 10th, the market showed its resilience and strongly bounced backed. The Relative Strength Index oscillator at the bottom of the chart also foreshadowed the rally to come as it flashed bullish divergence while the market took out last August’s correction lows, and January’s lows as well, but registered ‘higher lows’ on its RSI readings. (The ‘higher low’ RSI readings while the market is making ‘lower lows’ in price shows it’s being made on less strength and conviction.)

Within the next 11 weeks, it soared 16.63%, closing higher in all but 3 of those spectacular weeks as it regained the closely watched 2,100 level.

Currently, the market remains above 2,100, and is above the downward slanting resistance line that connects the all-time high from May ’15, to the reactionary high in November ’15, to last month’s high in June ‘16. And with the market trading above all of its moving averages (10-day, 20-day, 50-day, and 200-day moving averages), it appears to have the momentum at its back to push onto new highs.

Targets

I’m expecting the market to make new all-time highs by the end of this upcoming earnings season (if not sooner). With the market only 1.49% from the old highs, it won’t take much to do so.

Why earnings season? For one, it’s been a great catalyst to propel the market higher. Over the last 29 earnings seasons (going all the way back to Q1 2009 when the bull market began), the median return for the S&P 500 was 2.35%. And 21 out of the last 29 periods (72%) were winners.

Moreover, there’s a greater chance (70%) of having a positive earnings season if the last earnings season was positive as well. And last earnings season saw the market up 2.38%.

Combine that with all of the good news out there both fundamentally and technically and it’s hard to come up with a good reason why it won’t make new highs.

Some may point to Brexit fears as potentially holding the market back. But, I’m highly skeptical it will even happen. And the narrative that’s taking shape right now suggests that the powers that be are looking for a political way to walk that non-binding referendum back and stay within the EU. But even if it does happen, Article 50 isn’t expected to be triggered for at least 3 months until a new Prime Minister is elected (or possibly not even until next year). And from that point, the Brexit still won’t go into effect until a two-year long process takes place for Britain and the EU to negotiate new trade agreements that will govern economic, labor, and immigration activity once they leave.

Even though it appeared as if everything had changed over there with the recent vote, in all actuality, it doesn’t seem like anything has changed at the moment, and maybe never will.

When the market finally does breakout, I’m expecting it to be big and fast. With bullish sentiment from retail investors at an 11 year low, and neutral sentiment at a 16 year high, there are a lot of people expected to pile into the market once this happens in a fear-of-missing-out-rush to get back in.

I’m expecting a move to 2,250 and even 2,300 to take place by year’s end, which would represent anywhere from a nearly 7% gain to more than a 9% gain from current levels.

And if that’s what’s in store for the indexes, then there are even bigger gains to be seen in the right individual stocks.

Three Picks for the Coming Breakout

Here are three picks that should benefit from the upcoming breakout and are poised to gain even more in the process.

1) iShares Russell 2000 Small-Cap ETF (IWM)

The iShares Russell 2000 Small-Cap ETF tracks the performance of the Russell 2000 Index. It represents virtually all the different sectors, but with a greater weighting towards the more aggressive Technology (16.69%), Financial Services (16.23%), Industrials, (13.39%), and Healthcare (13.33%) sectors, which make up nearly 60% on the index.

Granted, it holds thousands of stocks (hence the 2000 part of its name), but the ETF’s top 10 holdings are: Steris (STE), CubeSmart (CUBE), Treehouse Foods (THS), West Pharmaceutical (WST), MarketAxess (MKTX), Tyler Technologies (TYL), Sovran Self Storage (SSS), Manhattan Associates (MANH), Piedmont Natural Gas (PNY), and Vail Resorts MTN).

As far as valuations go, it has an average P/E ratio of 19.65 (just above the S&P’s 18.57), a P/B ratio of just 1.84 (below the S&P’s 2.57), and a P/S ratio of only 1.10 (vs. the S&P’s 1.80).

Performance-wise, the Russell has some catching up to do to the broader market. While the S&P is up 2.89% YTD, the Russell is only up 1.02%. And even though the broader market is just 1.49% away from their all-time highs, the Russell has to rally 10.74% to match their best levels. But that’s exactly what I’m expecting them to do and then some with a price target of 1,350 by the end of the year for a potential gain of 16.70%.

2) Lowe’s (LOW)

Lowe’s Companies is a retailer of home improvement products with a special emphasis on retail do-it-yourself and commercial business customers. They offer products and services that cover virtually every area of your home improvement needs including home décor, home maintenance, home repair, lawn & garden care, and more. They also provide solutions for commercial buildings and customers as well.

They are a Zacks Rank #2 Buy, with a VGM Score of A, in an industry (Building Products-Retail/Wholesale) ranked in the top 7% of Zacks Ranked Industries. With retail and housing/construction both doing well, this is a great stock to straddle both spaces.

Valuation-wise, they also have a Style Score rating of A, which is underscored by their industry beating and market beating PEG ratio of 1.27 vs. 1.48 and 1.79 respectively. Their P/S ratio also comes in below the market at 1.11 vs. the S&P’s 1.80. And growth-wise (also an A rating), they’re outperforming the market as well with a projected sales growth rate of 7.27% and projected earnings growth of 22.47% in comparison to the S&P’s sales and earnings outlook of 2.83% and 5.95%.

Looking at their chart, you can see they have traced out a large bullish rectangle pattern for more than a year. They finally broke out to the upside in May, although they quickly retested (albeit successfully) their old resistance area turned new support, before shooting back up. My short-term price target over the next 3 months comes in at $89.90 for a 12.94% increase. Longer-term, over the next 6-12 months, I’m looking for a move to $102.50 (before it goes even higher) for a potential gain of more than 28%.

3) Thermo Fisher Scientific (TMO)

Thermo Fisher Scientific, headquartered in Waltham, Massachusetts, is in the Medical Instruments industry and they provide analytical instruments, equipment, reagents & consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics.

They are a Zacks Rank #3 Hold, but their industry is ranked in the top 37% of Zacks Ranked Industries. The Healthcare industry is also one of the top job creators generating more than 487,000 new jobs over the last 12 months making it the top job creating sector. And more new jobs goes hand in hand with an increase in economic activity to warrant all the new hiring. And an increase in economic activity usually means more new sales and an increase in earnings.

You can see this in their projected sales growth numbers at 5.88% (which is more than double the S&P) and their projected EPS growth at 9.97% (which is nearly a 70% lift over the market). And all the while their net margins are coming in at 11.49%, beating both the broader market and their industry.

Chart-wise, they too have been tracing out a large bullish rectangle pattern before recently breaking out to the upside. But the recent Brexit inspired pullback sent TMO back down to successfully retest their previous breakout point (which was not that far off from their supporting 200-day moving average either). Since then, TMO has bounced back nicely and are poised to continue their gains. They report earnings on 7/27 and that could be the catalyst to send prices to new all-time highs. And with 28 positive EPS surprises in a row, I’m betting they positively surprise once again. My near- term price target is focused on $164 for a 9.90% increase, while longer-term I’m looking for $190 for a potential gain of over 28%.

Summary

Even though this bull market has gone on for more than 7 years now, I don’t think it’s about to stop anytime soon.

And we’re still years away for it to become the longest running bull market in history.

But history is being made right now. And this bull market’s story is still being told.

Could some of the economic numbers be better than they are? Of course. But the slower growth (key word being growth), and lack of excesses in the economy, has elongated the typical 5 year boom and bust cycle to a potential 8-10 year cycle if not longer.

Also, when you stop to consider the earnings yield on the S&P 500 (5.70% using F1 Estimates) in comparison to the yield on the 10-year Treasury (1.46% and seemingly going lower), there’s almost nowhere else to go to get a better return than stocks.

For stocks to be considered the better value, their risk-based earnings yield should trade at least at a 200 basis point premium to the 10-Year’s risk-free return. With the S&P’s earnings yield trading at more than a 400 basis point premium, stocks should enjoy exceptional demand for a long time to come.

Make sure you’re positioned for the potential upcoming breakout and be a part of history.

Thanks and good trading.

Posted by Judy Romero in Investing, Stock Market, Trading