Over the years, analysts have been searching for the holy grail of stock market investing. They feel that if they can find the solution as to when to buy and sell, there will be a guaranteed ability to make money with their investment strategy. This is not entirely wrong. The stock market has shown to move in trends over the years. The emergence of the internet and the ability to track almost real time data has enhanced the analysis of trends. As the famous saying goes, “Don’t bet against the trend”.

One of these trends that have been discovered is known as the Coppock curve. This curve was first published in 1962 in Barrons by Edwin Coppock. It is a technical analytic calculation that will supposedly determine when the market is bullish and when it is bearish. It is set to recognize major bottoms and tops within the stock market. The stock market typically has rounding tops and sharp bottoms, so the Coppock curve may be a viable calculation for the astute investor.

The math goes like this:

1. calculate the percentage gained or lost by the Dow for the past 11 months.
2. calculate the percentage gained or lost by the Dow for the past 14 months.
3. calculate the average of these two figures.
4. calculate a 10 month weighted average by multiplying this months average by 10, last months by 9, the previous month by 8, etc. and summing them. Then divide the sum by 55.

The value obtained in the above calculation is the Coppock value for this month. You can then plot the results on a graph to obtain the Coppock curve. The way the curve works is as follows:

When the curve line is below the zero point (in the negative) and then moves upward, it is a buy signal. If the curve line is above the zero point (in the positive) and makes a move downward, then it is a sell indicator. The chart below indicates how this works based on historical data. The upper panel is the Dow Jones index over the past years. The lower panel is the Coppock curve line. You can see the buy points highlighted in green and the sell points highlighted in pink.

Chart 1: DJIA and its Coppock signals

The Coppock curve is based on a monthly signal. Therefore you need to wait an entire month before you can obtain a reading. This delay may be a problem in a volatile market. I have not tested it, but I wonder if a two week reading would give a more timely reading. It has probably been tested before but bears (no pun intended) looking at. I also wonder what the reading would be for the S&P 500 instead of the Dow Jones index.
Another point is to watch for false signals. This may be possible Comparing the Coppock curve to other momentum indicators and other trending analysis may be helpful to obtain a confirming answer to the buy/sell question.
In one analysis of the Coppock curve indicator as compared to the buy and hold strategy, it was determined that except for the past couple of years, the Coppock curve beat the buy and hold strategy. This has not been the case since 2007 due to the volatile market conditions. Both strategies have basically been moving together during this time period.
The Coppock curve is one more step in the search for the Holy Grail of what the stock market may do. It is certainly a trending line that bears looking into and doing additional analysis on.
All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Buying stocks online is one of the methods you can use if you have decided to invest in the stock market. You have been talking to your friend about the stock market, or you have become concerned about the low rates of return you have been getting from your money market funds. You are trying to decide if you should invest in the stock market, but the current uncertainty concerns you. You are aware that you need to do something to increase the amount of return that you are getting on your investment since inflation is eroding away your portfolio.

If you are thinking of investing in the stock market, then the first thing you should consider is if the money you are investing is going to be needed for something in the short term i.e. less than 3 to 5 years. If this is the case, then you should probably not get involved with the stock market with that money. The stock market does have swings upward and downward, and you would hate to be caught in a situation where you needed the money with the stock market in a bearish situation.

If you want to be successful in buying stocks online, then you should be willing to do some research. Many people do lose money in the stock market because they do not use a systematic approach to their investment strategy. They merely grab a tip from a friend that sounds good and go for it. I am under the impression that when you obtain a sure fire tip that is a guarantee, then you should short sell that stock. This means that you sell the stock which you do not own. Then you buy it back later after the stock has gone down. I am not advocating this approach. I am just trying to make a point. Sure fire tips are not for the beginner.

There are some articles on this website that discuss how to get involved in trading stocks, and what the stock market is. Some good articles for the beginner are under the category, Basic Education. I would suggest you review some of those articles for additional information. I do not want to re-hash this information in this article.

When you choose to buy stocks online, the first step is to find an online brokerage firm. There are many good ones available. These online brokerage firms can be located by searching on the internet. Some of the best ones are E*Trade, thinkorswim, and Charles Schwab.

Many of the online brokerage firms have stock training courses that are available for you. They also offer virtual trading opportunities for you to practice with virtual money. You are given a certain amount of trading money and you are able to put in practice the ideas you have learned without having to suffer from losing your own money. This is a good idea for the beginner. There are also forums where you can bounce ideas off of other investors.

One additional tip for you is to set reasonable expectations of the amount of money you think you will make. Those investors who swing for the fence usually strike out. I know because I have done it. Being willing to take a slow, methodical process to your investment strategy may be the best approach for you. After all, if you are just beginning to invest in the stock market the best strategy is merely to obtain a better return than you will obtain from money market returns. The other thing you should be aware of is the stock market does go down. However, it also goes up. If you are risk adverse, there are different investing strategies for you. Many of them are also listed on this site, or you can talk to a broker or financial advisor about what may be best for you.

Is volatility really good for online brokers? This question has come up recently as the online brokerage firms discuss what has happened to their volume during the up and downs of the second quarter of 2010. Many investors have opted to get out of their investments rather than watch them go down again like they did in 2008. I know I watched some of my investments decrease by one/half during this period. My investment portfolio did eventually come back in 2009. However, many investors do not have the stomach to watch that happen again. There has been a lot of talk about double dip recession.

The online brokers do have something to say about the outlook of the stock market, and how it relates to their business. Charles Schwab feels that the “worst of the environmental pressure on our revenues is now behind us”. On the other hand TD Ameritrade has cut its fiscal-year earnings forecast due to low intraday volatility and low interest rates. E*Trade indicated that its May volume did increase but was down from where it was the previous year.

There does not seem to be a consensus opinion on where the stock market is going to go. Those investors who feel that the market will turn around may be choosing to invest in online brokerages. This is due to the reward of low commissions and trading costs. If the stock market is going to have volatility, then it would be best to have low trading costs so that the profits from the swings is not eaten up by investment costs. The swing profit may still be there, but could be small. It is possible to make money on the volatility of stock prices if you are able to time it correctly, and you keep your costs down.

The volatility may actually be good for online brokerage firms. Wells Fargo in their analysis of the second half of 2010 feels that the stock market will trade in a range, and that we are in for a bumpy ride. The savvy investor still may be able to make money on their investment strategy if they choose wisely. This may include investing in gold, options or a properly timed swing trading strategy.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

It is amazing how moving average crossovers (MAC) seem to indicate trends in the stock market. One of the problems with MAC is that it inherently contains a lag factor. By the time you realize that the 20 day average is curving upward, you have missed out on a great opportunity to invest your money. I recently observed this when looking at the historical trending of the S&P 500 for the period of June 21, 2010 to July 12, 2010. On June 21st, the stock market crossed over the 20 day average line on its way down to a new low that had not been seen for some time. On July 6th, it begin a climb upward. Around July 10th, it re-crossed the 20 day average line. During that time it went from 1030 to 1075. That timeframe represented a missed opportunity.

One way around this problem is to trade with multiple moving averages. You will probably want to choose a long-term (50 day) and a short term (20 day) moving average. You should then watch for when these averages begin to move toward each other and crossover. Another good thing to watch for is when the stock price crosses over a moving average line. This is similar to what recently happened with the S&P 500 stock price. This is especially important when the moving average line encounters a support or a resistance point. If the case happens where the average tends to bounce off one of these support or resistance points, it can turn into a strong trend-reversal signal.

One of these crossovers is known as the Golden Cross. This occurs when the 50 day average crosses over the 200 day average. This can represent a major shift from the Bears to the Bulls. The Death Cross is when the 50 day falls across the 200 day average. This is an indication of a bearish sentiment. Moving averages do not work during sideways stock movement. They will do nothing more than give false signals. Moving averages will converge to a single flat line during dead, no price change markets. You will need to watch this scenario and not use them during this action.

Theodore Wong, a professor with Stanford, provided some empirical support for the MAC. In his paper he indicated that an investor should go long if the S&P 500 price is above the 200 day average and sell if it falls below the line. He studied trends dating back to 1871 to develop his theory. One of the underlying basis for Mr. Wong’s theory is the Rational Belief Equilibrium (RBE) which was also developed at Stanford University by Mordecai Kurz. RBE represents a significant advance in the study of asset market behavior. RBE can be used to explain why the stock market tends to move in cycles. The key ingredient in RBE is investors ignorance about the future.

Rather than making the assumption that investors behavior is always right, Mr. Kurz takes the position that investors often make mistakes. In Mr. Kurz’s model, market prices are flat-out wrong from time to time. There are significant world events such as 9/11/2001 or 12/7/1941 which will change the way investors look at the stock market and investing. No one can predict these events, so they cause ripples in the stock market.

RBE helps to explain why cycles occur, because it is a descriptive theory of how markets work that will justify a prescription of what we should do as investors. According to RBE, cycles will emerge whenever the mistakes that investors make become correlated. Bull and bear markets reveal themselves in the form of serial correlation. When conditions in an asset market today can influence likely conditions in the market tomorrow, then knowing something about recent conditions in the market can provide predictive value of what may happen next. Horace “Woody” Brock put it this way. “If it is cold in Kearney, Nebraska today, I can predict with accuracy it might be cold tomorrow. This phenomenon is known as Winter.” Bull and bear markets do have seasons and if an investor is astute enough to decipher them, they stand to be able to make money from their investments.

I would suggest you read the paper which can be found at http://www.capitaladv.com/media/pdfs/Advisor_Perspectives_Article_Sept_2009.pdf. There are also other papers which have been written on RBE. It makes for a fascinating read on stock market cycles and why they behave the way the do.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

In 1993 the Chicago Board Options Exchange created a volatility index that it called VIX. They modified this index in 2003 and it has supposedly since been an indicator of market sentiment. The index uses the amount of puts and calls (options) to indicate what the investors’ sentiment is for 30 days out. It will not measure a particular stock or market sector since it looks at all calls and puts for the S&P 500. A low VIX in the area of 20 – 25 should indicate that investors have become uninterested in the market. If the market becomes fearful, the higher the VIX will move. It will decrease as the investor feels confident about its future direction.

Contrarians will use the VIX as an indicator of when they think the market will move in one direction or another. Some feel that a VIX below 20 is a sign of a bear market. Some contrarians will then view a VIX above 30 as bullish.

The non-contrarians view the VIX as just the opposite. They feel that a move above 30 is a sign of more volatility while a move downward indicates that investors are comfortable with the direction of the market.

Below is a chart showing the VIX for the past year with a comparison to the S&P 500 and the 50 day EMA line.

The blue line is the VIX indicator while the red line is the S&P 500 and the green line is the 50 day average.

In an article dated March 16, 2010, Whitney Kisling writing for Bloomberg stated that in a study completed by Birinyi Associates the analysts did not find in their studies that the VIX indicator was able to predict the market movement. “The VIX is a coincidental indicator with limited predictive value” according to the study by Laszio Birnyi and Kevin Plienes.

After the VIX climbed to a record high of 80.86 on Nov. 20, 2008, the S&P 500 advanced 11 percent through April 2, 2009, according to data compiled by Bloomberg. The VIX sank to a 13- year low of 9.89 on Jan. 24, 2007, and the S&P 500 then rose 6.9 percent through June 4, 2007.
Birinyi analyzed the VIX’s performance since September 2003, including six periods of what he called “extreme” volatility, including the November 2008 record. He analyzed 12 times when the VIX fell 20 percent below its 50-day average and 18 periods when it was 20 percent above since 2003. The following is a table of the S&P 500’s average gain or loss during subsequent periods:
You can see from the chart above that since October, 2009 the VIX has spiked above the 50 day average four times. The market did do a slight downturn but the trend line continues to move upward.

However as you can see from the chart without the comparison, the period of time from November, 2009 to present is below 20. So even though it had spikes upward, the overall indicator was still below 20 which would indicate a satisfied outlook. Certainly the VIX indicator is one more avenue to use in your attempts to predict what the market is going to do.

The stock market tends to move in cycles. The hard thing to determine is when one cycle ends and another one begins. If you as an investor make the wrong determination as to whether to hold or to jump, you might end up being on the sidelines watching a rally or invested, watching your stocks move downward. Trying to read the fundamental and technical signs to determine which stocks to buy now is what it is all about. A farmer knows when to expect rain or sun, but the market is less predictable than nature.

A former hedge fund manager, Andy Kessler, wrote in the Wall Street Journal that “In the long run the market is always right. On any given day, your guess is as good as mine.” Another saying on Wall Street is that “being early is the same as being wrong.” The late economist Charles Kindleberger once said “there is nothing so corrosive to good judgment as watching your neighbor become rich, and, unless you have an iron will, the odds are good that you would have finally capitulated at precisely the wrong moment.”

It is my opinion that an investor can never go wrong with good solid company stocks. During the downturn of 2008 I had investments in stocks that paid dividends. Even though the principle of my stock was going down, I was still making money from the dividends. Investing in dividend paying stocks at any time can never be a bad idea. This is especially true if the dividend is significantly better than what you would get from investing in the money market. One piece of advice then would be to buy shares in solid dividend paying companies.

In the end, you can try and identify the waves that are forming on the horizon and try and ride them to the promised land or you can accept the notion that doing so profitably over the long term is a difficult choice at best, and instead focus on a trading system couched in solid asset allocation and making current choices that will maximize your returns over the long run

I was recently talking to a broker and indicated a stock I had recently identified was having a good run. He indicated that therein lies the danger of picking one good stock. You tend to think you are infallible and can always pick the winners. It just does not work that way. . In other words, quit trying to be a trader and trying to time the market. You should instead determine good strong investments for the long run and stick with them.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

When investing in the stock market it is important to know about which places to look to pick the stocks with momentum. The stock market is divided into sectors which are a qualification method which looks at the type of business and then groups them based on their similar industries. Stocks within a sector tend to move together due to their being affected by similar market and economic conditions.

John Bollinger, the inventor of Bollinger Bands, stated “Stocks like sheep, move in herds. If you want your sheep to move north, you better pick a sheep in a herd moving north.” Of course a sheepherder would have a different opinion but you get the idea. The trick then is to find the sectors which have momentum and then find the stocks within that sector that have the most momentum.

There are several websites that will analyze the different sectors and stocks within the sectors. One really good site is the site at www.msn.com. The investing tools are really developed to complete stock analyzing. Within that site can be found a sector analyzer. The link is found at http://moneycentral.msn.com/investor/market/top10industries.asp Microsoft shows you the best and worst performing industry groups including the percentage change for each group during the past month. The results are updated nightly.

Another place to look is at www.equitytrader.com. In the toolbar at the top is an option to bring up Lists of stocks that are doing well. In the professional section is the option to find the top sectors. It does require a $25.00 monthly charge but they do offer a 30 day trial so you can determine if the information obtained is worth the charge. It may be worth the charge if it helps you to make more than that with your trading system. http://www.grouppower.com/sector/ is a link to go directly to the equitytrader sector analysis.

At www.smartmoney.com you can find investing tools that will help you Near the bottom of the site under a lot of ads, you will find a selection called investing tools. A direct link is found at http://www.smartmoney.com/tools/. This contains different investing tools to help you pick winning stocks. At http://www.smartmoney.com/sectortracker/ you will find sector ratings.

It will take a little time but you can with some research find the companies to buy shares in that have momentum. Then you can do technical analysis and financial analysis on those companies to determine which ones you want to invest in.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

There are many investors and websites with trading systems designed to advocate that you can beat the market by timing your stock purchases and exits. That is the theory with day traders. They feel that by looking at the historical movements of a stock and where certain technical indicators are, the entry and exit points will be identified. To a small extent, this is possible but not for the long-term growth expectations of making a profit on stock investments.

The thing is that common stocks have volatile returns. That is why they have potential for better returns. Historically investors have suffered negative annual returns 27% of the time. If someone had a crystal ball and could without error predict the turnings of the stock market, they would be rich from their investments and the selling of advice. The truth is that no one has a crystal ball.

Roger C Gibson in his book “Asset Allocation” gives an example. Say in 1925 you found a person who had a crystal ball, so to speak. That is they could predict accurately what the stock market was going to do the next year. You follow their advice and at the end of 1926 your $1.00 investment grew to $1.12. Year after year you follow this market timers advice and never have any down y ears. By the end of 1998 your investment would be worth over $20 million instead of the actual best –performing investment alternative. Small company stocks during the same period had an ending value of $5117.

With this example, Mr. Gibson tried to point out that no one is able to predict accurately every Bull or Bear market. A great investment axiom is “hind sight is 20/20”. Meaning that it is easy to predict what the market or a particular stock is going to do after the fact. It is the before the fact decisions that are difficult.

Trinity Investment Management Corporation analyzed the nine peak to peak cycles that have occurred since 1946. They found that there were about 1.7 times as many up months as down months during this period. The average bull markets is up 104.8 percent versus the average bear market of -28 percent. Bull markets lasted nearly three times as long as bear markets and the shocker is that even in bear markets, there were on average about 3 – 4 up months out of 10 months.

A study by Robert H Jeffrey concluded “ No one can predict the market’s ups and downs over a long period, and the risks of trying outweigh the rewards”. He went on and commented “The rationale for being a full-time equity investor is not that there are more positive real return periods than negative ones in most time frames, but rather that most of the “positive action” is compressed into just a few periods, which tend to follow particularly adverse times for stocks”.

In another study Jess S Chua and Richard S. Woodward concluded “Overall, the results show that it is more important to correctly forecast bull markets than bear markets. If the investor has only a 50 percent chance of correctly forecasting bull markets, then he should not practice market timing at all. His average return will be less than that of a buy-and-hold strategy even if he can forecast bear markets perfectly”.

William F. Sharpe concluded that “a manager who attempts to time the market must be right roughly three times out of four, merely to match the overall performance of those competitors who don’t. If he is right less often his relative performance will be inferior”.

The conclusion then is the long term investor, which is what we should all be, should enter for the long run. Establish a good strong diversified portfolio and stick with it through the ups and downs.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Some real estate investment advisors state that to make money in the real estate market, you should leverage your investment. This means to invest around 10% of your own money and borrow the rest. This expands the capacity you have to invest. The stock market has its own version of leverage. This is known as margin purchasing. Another term is buying stock on margin.

When you buy stock on margin, you are borrowing from the broker. The securities and exchange commission (SEC) and the Federal Government have set rules in relation to margin purchasing. They have stated that you cannot borrow more than 50% of what you actually have in your own investment. That is, if you wanted to purchase $1000 of stock but only had $500, you could borrow the rest. There would be an interest that you would need to pay on the borrowed funds.

There is also a tremendous risk associated with this borrowing. If the price of the stock goes up, you win. When it goes up to your exit point, you can sell the stock, pay off the loan and pocket the difference. The risk comes to play if the price of the stock goes down. You must maintain the 50% ratio. Thus if the value of the investment falls down from the 50% ratio, you are subject to what is known as margin calls. This means the broker requires more funds from you. If you have the funds available, you can cover the margin buy reducing the debt. If you do not have the funds available, you must sell enough of the stock to make up the funds required. Since the forced sell comes when the price of the stock is below your purchase price, you are forced into an investment loss. This can be very heartbreaking. You have the potential to lose a lot of money this way.

The difference between leveraging real estate and leveraging your stock market investments is that if the real estate market goes down, you only have to pay the interest payments and wait. With the stock market margins, you have your margin calls. It is a pretty scary way to go. I know because I have lost a lot of money by purchasing stock on margin. I will not go that way again.

If you choose to buy stock on margin, you need to realize the risks. Make sure you have done all the financial and technical analysis and that you can afford to cover the margin calls if there are any. I would not recommend this for the beginning investor.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Everyone you talk to including your Uncle Dan has a winning system to make money in the stock market. It seems there are as many systems out there as there are people. The question is, how does a novice beginner make sense of it all. How do you mitigate the risks and how do you pick the correct stocks.

The first thing to do is to learn what works for you. Just because Uncle Dan has a can’t miss system, it may not be the best for you. Do some research. Try some ideas. Some sources advocate using paper trading sites to finesse your trading system. This is where you do not actually trade with your money. You are given some paper money and you go up against other traders to see how well you can do. This is a good process for deciding what will work for you. One drawback of this process is that if it is not your money, you have no emotion in the outcome. It is easy to pull the trigger when it is not your money. You may do quite well with play money and not so well with your money.

That brings us to the next part of the equation. After you determine how you are going to pick stocks, what will determine when you enter the market and what factors indicate to you to exit a particular stock, do not let emotions tug you in a different direction. You need to follow what has worked for you in the past. Too often when our personal financial stake is at risk, we fall apart and are unwilling to pull the plug or make the plunge. Leave your emotions in your back pocket when you invest.

In determining when you should buy a particular stock, you must first determine what type of stock you are investing in. Growth stock expect the high rate of stock price growth to continue. Value investors are looking for stocks that are undervalued for the amount of earnings the company has or is expected to have.

The p/e (price earnings ratio) which is calculated by taking the price of the stock divided by the earnings per share is a good determiner of the value of a stock. Some stocks may be a good buy even though their p/e is above 20 while others may not be a good buy with a p/e below 20. The thing you need to look at is how the company compares to other companies in their industry and what the historical p/e has been for the company. So the answer of when to buy a stock is when the p/e is lower than its peers and you can not find anything wrong with the company.

Proper analysis is the correct method to use when determining the stocks to purchase. Buying on speculation rarely wins. Someone gives you a hot tip. Run from that situation. If a stock is expected to boom but does not have the earnings background to support the expected price, it is not worth the gamble. It may go up but eventually will come back down. This is known as “pump and dump”. Those giving the tips are trying to pump the stock up so they can dump. Don’t fall for it.

So even though there are many different trading systems, probably the correct system is to determine the types of stock investments you want to concentrate in, do sound analysis, perform proper asset allocation in your investments and then go for it.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.