Wednesday, March 22, 2017

A Day in the Ditch

Per a News Report on the T.D Ameritrade website on March 21, 2017.

"U.S. stocks, the dollar and government-bond yields pulled back Tuesday, as major indexes notched their steepest declines of the year.

Bets that President Donald Trump would prioritize business-friendly policies led investors to pile into stocks and the dollar following the election while selling bonds. But lately, some investors and analysts have expressed concerns that popular trades are getting overbought, making them vulnerable to a sharp pullback .

Many also say the prospect that House Republicans will be unable to gather the votes they need this week to dismantle the Affordable Care Act is adding to doubts that Mr. Trump will be able to push through tax cuts. That could put further pressure on stocks that have been trading near records and at historically high valuations .

"People are nervous that if the health-care bill doesn't passed and right now it doesn't look like it will‚ what it means for other policies," said Ian Winer , a head of equities trading at Wedbush Securities .

The Dow Jones Industrial Average fell 237.85 points, or 1.1%, to 20668.01, posting its worst day since September. The S&P 500 fell 29.45 points, or 1.2%, to 2344.02 and the Nasdaq Composite lost 107.70 points, or 1.8%, to 5793.83."

The Author does not pay much attention to market news such as these market wrap ups. First, they are noise that does not provide useful trading information. Journalists that are paid to write stock market news write them because they are paid to do so. They are also attempts to gauge "investor sentiment," which provides little trading information. Supply and demand are the important quantifiable forces that move markets, especially markets that contain numerous investment products (i.e., equities, bonds, commodities, precious metals, currency, options, ETFs and derivatives of nearly everything.)

They also extrapolate from political or other current events that may not be relevant, and even if relevant, might not apply as contemplated.  Example, "the trump market." Markets have improved over nearly eight years to record highs. These recent moves seem a lot like the froth from low knowledge investors that think the stock market is "headed higher because trump won." In sum, the recent move and steep pullback is an oversold market, not a huge headache over the political problems over trumpcare. And speculation about tax cuts failing is misplaced. There is nothing the majority party is better at than blowing up the deficit to transfer massive amounts of wealth to the top .01%.


The Authors' trade and invest based upon technical indicators which are well described in the March Newsletter. But an understanding of fundamental analysis is a skill that all investors should develop. And for investors that do not have the time or inclination to trade, it is the most effective methodology to obtain investment success. 

An excellent way to develop fundamental analytical skills is through "Better Investing," the monthly magazine of NAIC (National Association of Investment Clubs). Better Investing has a "Stock Selection Guide" that analyzes factors such as Return on Equity, Growth in Earnings per Share and in Sales per Share and Dividend Yields.  The author learned fundamental analysis by filling out many Stock Selection Guides with a pencil, a calculator and loose-leaf volumes of Valueline.

Investment clubs were in vogue in the mid-to-late 1990s. There are some still around that are very impressive. Forming a good club would be an effective way of learning fundamental analysis skills if all members of the groups worked hard at selecting stocks. 


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