Technical analysis is the study of the historical price movement of a particular security in order to predict future price movement. Technical analysts look for patterns in charts that often repeat themselves.
Prices are driven by human behavior and our trading decisions are often driven by motivations such as greed and fear. It is common to see the market to run up prices from over-exuberance or over sell from panic. Technical analysis attempts to identify such over bought or over sold conditions so traders can make rational informed and profitable trading decisions.
An underlying assumption in technical analysis is that all relevant information is already reflected in the price action. As such, one does not need to study fundamental metrics to make an informed trading decision.
Some of the most common tools in technical analysis include moving averages, support / resistance, Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD).
Moving Averages are mathematical smoothing methods to make it easier for traders to identify price trends. They are classified lagging indicators as they are computed using past price data.
Simple Moving Average (SMA)
The Simple Moving Average is calculated by taking the average price of a stock over a specific period. Some common periods to use include 5, 20, 50, and 200 day periods. The shorter the period, the less “smooth” the moving average will look. SMAs calculated using shorter periods are referred to as “fast” moving averages and SMAs calculated using longer periods are refereed to as “slow” moving averages.
Exponential Moving Average (EMA)
The exponential moving average (EMA) is applies more weight to recent price data relative to the SMA which weighs all price data over the period equally. However, for EMAs with longer time period, the weighting given to recent price data will be lessened.
Support is a price level stocks have difficulty moving below and resistance is a level it has problems moving above.
The generally expectation is prices will stop and reverse once they touch these price barriers, thus forming a floor and ceiling on the price of a security within a certain time period. This happens because there are many traders willing to buy when the stock approaches support levels and many traders looking to sell when it approaches resistance. Thus, a common application of support / resistance by technical traders is to buy when prices near support and short when prices reach resistance.
Bollinger Bands is a tool used to provide traders with a indication of whether a stock is trading high or low relative to price volatility. The most common formulation is to plot (i) the upper band as the 21 day EMA plus 2 x the 21 day standard deviation and (ii) the lower band as the the 21 day EMA minus 2 x the 21 day standard deviation.
The way some traders apply Bollinger bands to trading decisions is to buy when price touches the lower band (indicating an oversold condition) and to sell when the price touches the upper bank (indicating an overbought condition).
Relative Strength Index (RSI)
RSI is a popular momentum indicator used in technical analysis. It is calculated as 100 – (100 / ( 1 + (Average Gain / Average Loss ) ). The period used to calculate average gains and losses is most often 14 days.
A period of rapid price gains will result in a high RSI and a period of rapid losses will result in a low RSI, with the upper and lower bound values being 100 and 0 respectively. Technical traders often use an RSI value of 70 as an indication that a stock is overbought (and a signal to sell) and an RSI value of 30 as an indication that it is over sold (and a signal to buy).
Moving Average Convergence Divergence (MACD)
The MACD is another popular momentum indicator based on the relationship between a “fast” and “slow” exponential moving averages. It is especially useful because it incorporates both price momentum and trends.
The multi-step computation begins with the MACD Line, which is often the difference between the 12 day EMA and 26 day EMA. After plotting the MACD Line, you can calculate the Signal Line, often as the 9 day EMA of the MACD Line. After plotting the Signal Line, you can draw the MACD Histogram as the MACD Line minus the Signal Line.
Centerline Cross Overs
The MACD is equal zero when the 12 day and 26 day EMAs cross. The MACD value will be positive if the 12 day EMA is greater than the 26 day EMA. This value will increase the more the fast EMA diverges from the slow EMA, indicating that positive momentum is increasing. Conversely, the MACD value will be negative if the 12 day EMA is less than the 26 day EMA. This value will decrease the more the fast EMA diverges from the slow EMA, indicating that negative momentum is increasing.
Signal Line Cross Overs
Technical analysts also use cross overs between the signal line and the MACD line as a momentum indicator. As we learned earlier, the Signal Line is a EMA of the MACD Line and will thus slightly lag the MACD Line. If the MACD Line moves above the Signal Line, this is an early indicator of positive momentum and if the MACD Line falls below the Signal Line, this is seen as an early indictor of downward momentum. You will see the signal line cross overs tend to precede centerline cross overs.
Fundamental analysis uses various metrics to assess the business’ health and future prospects. The most common metrics include price-to-earnings ratio, dividend yield, return on equity, debt-equity ratio, gross margins, earnings per share growth, and net profit. Fundamental analysts will often use these ratios to compare a company to others within its industry. They perform these comparisons to draw conclusions about the efficiency and profitability of its business operations to ultimately determine whether they think a company’s stock is over or under valued.
Price-to-earnings ratio (P/E)
The P/E of a company is its stock price divided by current earnings per share (EPS). It is also commonly referred to as the earnings multiple and may be seen as a measure of investor confidence. P/E ratios are very much industry dependent. For example, companies with mature low growth industries will tend to have significantly lower P/Es than fast growing technology companies. You’ll need to find the right “comps” (comparable companies) to whether the stock is expensive or cheap relative to its peers based on the P/E. Value oriented investors will generally invest in companies with lower P/Es where growth oriented investors will favor companies with higher P/Es.
The Dividend Yield is the per share annual dividends of a company divided by the current share price. Younger fast growing companies tend not to pay dividends, rather reinvesting profits to further develop its business and thus tend to have dividend yields of 0%. Mature established businesses with limited growth prospects will return capital to to investors via dividend payments. Income investors will often look at the dividend yields of various companies to make investment decisions.
ROE is calculated by dividing a company’s annual earnings by average annual shareholder equity. You may note that this is pretty much the mathematical inverse of the P/E Ratio. Thus, higher P/E companies then to have lower ROEs and vice versa.
Via the Dupont decomposition, we know that a company’s ROE is impacted by its profit margin (profit/sales), use of leverage (assets/equity), and operational efficiency (sales/assets). This type of analysis and comparison is very useful for fundamental analysts. For example, although some companies may have similar ROEs, however, one might have lower margins than the others and uses leverage to boost the ROE to meet its peers.
As with previous metrics, ROEs can vary greatly across industries and so its important to identify comparable companies when drawing conclusions with respect to a company’s ROE.
A company’s gross margins is equal to the sales minus the cost of goods sold, divided by the sales. It shows the profitability of a company’s business before including other operational expenses. If gross margins are fairly thin, it means a company does not revenue to support operational expenses, debt service and taxes. Comparing gross margins across companies will allow help fundamental analysts determine which company is able to source cheaper goods overall.
EBITDA stands for earnings before interest, tax, depreciation and amortization. A company’s EBITDA margins is equal to the sales minus the cost of goods sold and operating expenses, divided by the sales.
EBITDA and EBITDA Margins are an especially important metric to fundamental analysts and corporate finance professionals as it captures the company’s cash profit. It excludes non-cash expenses like depreciation and amortization and doesn’t take into account to the current capital structure (mix of debt and equity financing).
EBITDA and EBITDA margins are thus often used when comparing different companies in the same industries with different capital structures or tax obligations. It is also a useful tool for analysis when you think of increasing equity financing percentage (share issuance or debt repayment) or increasing debt financing mix (increasing loans or bonds or share buybacks).
Net profit margin
A company’s net profit margin is sales minus cost of goods sold, operational expenses, interest, depreciation and taxes, divided by sales. It is an assessment of the profitability of a company once all costs are subtracted.
The net profit margin compares a business’ net profits to its revenues. Calculate the ratio by dividing the company’s net profit by revenue. Net profit equals revenue less cost of goods sold less operating expenses, interest and taxes. This figure shows what portion of each dollar the business earns is used to generate profits.
EPS Growth is the year over year change in a company’s earnings per share. This is an important measure of a company’s future business prospects. Company’s with higher EPS growth tend to have higher P/E multiples than their peers.
Price-Book (P/B) Ratio
The P/B is the stock price by net assets (minus intangibles on the books, such as good will). This metric can help investors know more about what they’re paying for a business’ assets.
Free Cash Flow
Free Cash Flow is Operating Cash Flow minus Capital Expenditures. Reviewing free cash flow is also wise because, corporate earnings seldom reveal the amount of cash profits the business brings in. Even if the business is reporting good earnings, cash on hand might be low if most profits are simply accounting gains (e.g. increases in accounts receivables) or if the company makes significant investments in plant, property and equipment. It will give you advance warning of any liquidity issues a company may face in the future.
International stock markets can be exciting places to trade. Investing in one or more global markets also helps diversify your portfolios. As more investors add international stocks and funds, it’s important to understand the potential impact of currency risk.
Currency plays a major part in today’s global economy and the size of currency market dwarfs the global equity market. One 2014 estimate sees average daily forex volume of $4 trillion versus $84 billion for global stocks. Governments, central banks, corporations, and investors of all types are active participants in the global forex market. Even if you primarily trade stocks, failure to consider the impact of currency risk in your stock trading can be a major oversight. Note that there are many unregulated forex brokers out there so make sure you carefully compare forex brokers before trying forex trading.
Currency Risk in Foreign Stocks
Currency risk is most apparent when you buy a stock in a currency other than that of your home country. It’s possible to have a profitable trade in the local currency, yet lose money overall due to currency risk. There is a video with an illustrative example of a USD investor buying a GBP denominated stock. Despite a 2 pound gain (in local currency), the trader lost money overall due to the decline in the value of the pound versus the dollar below.
Currency Risk in Domestic Currency Securities
So I’m only exposed to currency risk if I buy stocks denominated in currencies other than my home currency, correct? Not so. Currency risk may also be present in assets which are denominated in your home currency.
American Depository Receipts (ADRs)
One good example of this is ADRs. ADRs were created to provide an easier way for Americans to own foreign stocks. Without ADRs, US investors might need to open trading accounts abroad and exchange currency in order to purchase shares in those foreign companies.
ADRs are US exchange listed securities issued by banks that represent an ownership interest in a foreign stock. They trade on US exchanges during US trading hours and meet US regulatory standards. Although the underlying foreign stock is often denominated and pays dividends in a foreign currency, the ADR is denominated and makes dividend payments in USD. As you can see, there is a mismatch in the currency denomination of the assets and liabilities of the ADR, which makes ADR owners subject to currency risk.
An example of an ADR is Japan-based company, Toyota Motor Company (NYSE: TM) for which the performance of the ADR is linked to the price of the yen denominated shares and the JPY USD exchange rate. Between Dec 2012 and Oct 2014, the price of Toyota’s Yen shares increased 74.6%, however, the ADR only appreciated 33.7%. This is because there was a 24% depreciation in the value of the Yen versus USD over this time period.
Many multi-national companies have substantial operations in more than one currency zone. These companies will accumulate foreign currency from overseas sales and incur foreign currency expenses from overseas operations. However, a 2013 study found that close to half of non-financial US companies do not actively manage their foreign exchange risk. This means that a multi-national company’s earnings may be driven by both their global business operations as well as unmanaged currency volatility. This can have a positive or negative impact on company earnings depending on forex markets.
Managing Currency Risk
So what’s a trader to do? Do I need to stick to small domestic stocks if I don’t want to deal with currency risk? Not so. There many time tested methods and instruments to deal with foreign currency risk.
Currency Hedged Instruments
One possibility is to trade currency hedged ETFs or invest in currency hedged funds. There are close to 100 currency hedged ETFs available these days from providers like Deutsche Bank, Blackrock, Wisdom Tree, Invesco, Proshares, etc…
One example, the WisdomTree Europe Hedged Equity Fund (Ticker: HEDJ) tracks an index of dividend paying eurozone companies but removes the EUR / USD exposure via hedging. This might be good fund to trade if you are long term bullish on European companies but afraid to trade because of the potential currency risk emerging from the recent Brexit vote.
Another option is to measure and monitor the currency exposure in your portfolio and actively manage such risk by currently trading. One effective and efficient way to go about this would be via the use instruments like contracts for differences (CFDs). Forex CFDs are over-the-counter financial derivatives (not traded on an exchange). They allow you to speculate on the changes in the value of currencies without actually owning them.
As we’ve often see when we travel abroad, currency exchanges at international airports have substantially different buy and sell rates. This means you can lose a lot of just by exchanging physical currency even if they don’t charge commission. CFD brokers allow you to make similar trades with a fraction of the cost, often only a spread of a few “pips.” Note that you can also trade CFDs on individual stocks and stock indicies with these brokers. So it’s possible to do your stock and currency trading under a single platform.
Fundamental analysts study the business’ financial statements at a granular level to determine the value of the company’s securities. Fundamental research requires that an analysts have intimate knowledge of a company’s business. This includes items such as its past and projected earnings, current/projected revenues, expenses, debt levels, etc… They will build a model to determine the company’s fundamental value and provide an investment recommendation based on the valuation.
By contrast, technical analysts focus on a stock’s past price action to make trade recommendations. Technical analysis considers factory such as price history, volume (how many units of the security traded), and the change rate in these factors over various time periods. They analyze this data with a number of different quantitative methods to make trading decisions.
Fundamental vs. Technical Analysis
Here is a short video briefly recapping the difference between fundamental and technical analysis.
Which Approach To Choose?
It is possible to succeed in your trading endeavors whether you choose to apply fundamental or technical analysis. However, the method you use might depend on your personal preferences and trading time frame.
Per above, fundamental analysis involves a lot of financial statement analysis, understanding of the industry and the global economy as well as financial modeling. It is often a fairly labor intensive and time consuming process. Fundamental analysis is also part art and not just science as it requires you to make a many judgement calls in the process: e.g. choosing comps, multiples, estimating sales, earnings, growth, etc… It is not uncommon to see a wide spectrum of recommendations from seasoned professional equity research analysts.
Technical analysis is generally more reliant on quantitative tools. With extensive use of charts and indicators, many can create a rule based trading system based solely on numerical metrics if you so choose. While much of the computation is done automatically via software, a technical analysis still must have deep knowledge of the underlying math in order to provide useful interpretations of the results. Thus, a technical analyst needs to have fairly deep knowledge a wide variety of technical indicators in order to make meaningful trade recommendations.
If you are more inclined to perform a deep dive into a company’s business and financial performance, you might be more suited for fundamental analysis. If you are more included to study charts and numbers, technical analysis might be a better fit.
Trading Time Frame
Fundamental analysis is time consuming process. New financial information from companies usually comes (most frequently) on quarterly basis and that data is already stale upon arrival. One premise of fundamental analysts is that that the market price will at some point revert to fundamental value, however, the time frame for this can vary widely. Traders who based trading decisions on fundamental analysis generally trade a longer time frame (weeks, months, and even years) in search of big movements in price.
By contrast, technical analysis can be a fairly fast process with many technical analysis indicators, metrics and charts automatically populated by software in real time. This means there is little to no lag in contrast to fundamental analysis. A number of technical analysis tools are able to identify short-term patterns over exuberance or panic, allowing alert traders to quickly exploit market sentiment, making it very effective for intraday trading. Technical analysis can be applied to a wide range of different charts (hourly, daily, weekly, etc…) and so it’s possible to use the same tools to make longer horizon trades as well.
If you are more included to make fewer trades and hold positions for an extended period of time, fundamental analysis might be a better method to make your trading decisions. If you love the adrenaline rush and instant feedback of placing and closing many short term trades, technical analysis would be a better method to make your trading decisions.
Why not have the best of both worlds? As we’ve learned, fundamental analysis might be better suited to explain long term price movements and technical analysis might be a better tool to tell you good times to enter into a trade. Some traders will use a hybrid approach where they obtain their investment thesis via fundamental analysis, confirm the direction of the trade via technical analysis and use technical analysis to help them identify good entry and exit points.
However, a hybrid approach will probably mean more work for you and it’s possible to miss out on trades if you get conflicting signals from fundamental and technical analysis. Give each method a try and let us know in the comments what works best for you.
There are many different types of stock trading order types including market, limit, stop loss, stop limit, and conditional orders. Knowing when to use each can greatly aid your trading activity. Choosing the right one can help you avoid or reduce losses, lock in profits and free you from having to spend the entire trading day in front of your screen.
Many traders will place orders with their brokers or financial advisors without conditions or restrictions when they buy or sell stocks. Clients simply authorize their broker-dealer to buy or sell a given quantity at the current price. This authorization is called a market order. The order is unconditional and a broker-dealer executes the trade immediately at the current market price.
Conditional Market Orders
There are several types of the market orders.
All or None
A slight variation of the market order is the all or none order. Let’s say only a few thousand shares of ABC trade each day. If the investor wants to own 3,000 shares of ABC now, he or she can tell the broker to place the trade “All or None.” The investor must receive all the shares in a single trade and not receive partial fills of the order. That way, if there aren’t enough shares offered for sale—if the supply is too small—the trade is cancelled at market close.
Fill or Kill
In comparison, a fill or kill (FOK) order can be used when buying or selling stock. The investor placing the order instructs the broker-dealer to buy or sell all (fill) or not (kill, or cancel).
Good Til Cancelled
Placing a good til cancelled (GTC) order instructs the broker-dealer to work on the client’s transaction until it’s completed or canceled. Without the instruction of GTC, the client’s order expires at the close of trading session.
It’s also possible to instruct the broker to complete the order during the trading session by placing a day order. If the trade isn’t completed in the day the client gives the day order, his or her trade is cancelled.
Time of Day
There are times when an instruction of buy/sell on the open or on the close can make a huge difference in trading results. For instance, the investor owns shares of an actively traded new issue, XYZ. The shares double in price on the first day and, to book the profit, the investor authorizes sell on the close of the trading session.
In the market order, the trader only specifies the quantity and direction of a trade. However, in a limit order, the trader specifies the quantity, direction and price. A limit order instructs the broker-dealer to buy shares up to but not exceeding the “limit price” or sell shares up to but not below the “limit price.”
• In a buy limit order, the transaction is executed only when the stock price is equal to or less than the limit price. For example, an investor wants to buy 1,000 shares of ABC with a limit of 25. The limit buy order is filled at 24-7/8.
• In a sell limit order, the transaction is executed only at an equal or higher than limit price. For instance, an investor instructs the sale of 1,000 shares of ABC at 25. The limit sell order fills at 25-1/8.
This can have some risk reduction benefits especially when the market gaps rapidly. If the price rapidly rises, a limit buy order prevents you at buying at a price that might be too high. If the price rapidly declines, a sell limit order may prevent you from selling and closing out a position at a price that is too low. Obviously, placing a limit order can mean that the trade isn’t executed at all. However, establishing limits can potentially reduce the volatility of your trading portfolio.
Day traders tend to place more limit orders than other investors as small price movements more greatly affected the profitability of their trades. However, all investors can benefit from the use of limit orders. For example, if you are long term bullish on a stock but expect it to decline in the short term, you can put in a buy limit order below to current market price and wait for the order filled when it hits your limit price. Further, if you waiting for a stock to reach your long term profit target, you can enter a good til cancelled sell order which will be triggered when the market price hits your limit price.
Stop Loss Orders
Entering a stop loss order may help a trader limit the downside risk of a trade.
Stop Market Order
For illustration, supposed a trader purchased 1,000 shares of ABC at $24 and it is currently trading at $26. The investor wants to protect his $2,000 unrealized gain but doesn’t want to sell shares yet. The investor places a stop loss order for 1000 shares of ABC at $25. If ABC falls to $25, the investor’s shares are automatically sold. Although the trade has moved against him, the trader will make still make $1,000 profit on this position (net of commissions).
Traders will often like to keep the “stop” price close to the market price of a stock. Having “tight stops” allows them to limit the downside risk while still benefiting from increases in the stock price over time. However, manually adjusting the “stops” can be rather labor intensive so many brokers offer something known as trailing stop orders.
A trailing stop order automatically adjusts the “stop” price to be either a certain dollar amount or percentage below closing price of the stock as of the previous trading day. Putting in a trailing stop order allows traders to avoid having to manually adjust stop prices while still giving similar downside protection and upside potential.
Traders can benefit from declines in stock prices by “shorting” stocks. Traders borrows stock from a broker-dealer and then sells the shares short (without actually owning them). A short sale is in inverse of a long stock position. The investor makes money if the share price declines. The amount of money he or she makes is equal to the borrowed shares’ value at sale minus the cost needed to repurchase the shares:
Suppose a trader is bearish on ABC. They sell short 1,000 shares of ABC at $25. If the share price declines to $23, makes a $2000 profit, less margin and transaction costs. If the share price increases to $26 and they decide to close out the short position, they will purchase the shares at the prevailing market price of $26 and sustain a $1000 loss.
Shorting stocks is generally reserved for advanced traders given the additional logistical complexity. There is also some element of additional risk to shorting stocks over only buying stocks.
For a long only trader (who doesn’t use margin), a stock price cannot go below zero so the most you can lose if your initial outlay. For a trader who also shorts stocks, stock prices do not have upper bound limits which means there is the potential for infinite losses.
Orders are different types of tools in a trader’s tool kit. A skilled trader will choose the one that best suits his purposes.
For easy reference, here is a short video with some recapping some of the different order types.
Stock trading is not as easy as some say. There are many people promising some unrealistic results with little effort. It’s easy to see why some people get caught up in the hype and end up making some very simple but costly mistakes.
I am here to help prevent this from happening to you. My hope is that you take some of these simple suggestions and incorporate them in your stock trading activity.
Choose your Broker Wisely
It’s not a bad idea to use online discount brokers, but you need to be careful with whom you get involved with. Many of them will try to loop you in with low commissions but include a number of other service fees, inactivity fees, statement fees, etc.. Commissions are not the only factor you need to should watch out for.
Please also be sure to make sure they have good trade execution practices, offer timely and accurate price data, provide access to good equity research, and have a good, clean regulatory record.
Only trade with money you can afford to lose. Do not use money you need for basic living expenses. I have seen it happen. You would be amazed how many feel they have a “sure bet” and load up on a position. They end up losing and getting being behind in their bills.
Set aside disposable income for trading. Funds you are not afraid to use. I am not trying to scare you, but many of you will end up with losing trades in the beginning. It’s important to manage the size of your positions such that the amount you risk is acceptable and losses do not cause your trading portfolio to implode.
Don’t Jump on the Hype Train
There are going to be stocks who rises quickly seemingly with no end in sight. There can get to a point where they are too expensive to buy. You’ll need to perform detailed fundamental and technical research to assess if there is any more upside potential. Learn how to be skilled at knowing the difference between an over-hyped stock and something that is a good buy.
Use limit orders instead of market orders. A limit order places a maximum price you are willing to pay per share. If you place a market order, you could end up paying a lot more than you expect if the stock price suddenly gaps up.
Let’s say a stock is trading around $11.95. You are comfortable buying it at up to $12.10 but think anything more would be too expensive. If you place a market order and the price suddenly increases to $12.25, you would end up overpaying for the shares. If you placed a limit order of $12.10, your order would simply not be filled.
Those who fail to plan, plan to fail. Make sure you plan your stop losses and take profit levels when initiating a trade. Beginners tend to have a bad habit of letting losers run. This can turn a small loss into a big one unless you sell your losers. One good way of enforcing trade discipline is to set stop loss orders shortly after your position is established.
Conversely, some novice traders don’t plan exits for profitable trades with enough care. If you hold onto a stock for too long, the price can also dip over time. It’s advisable to have pre-determined take profit levels where you will sell at least a portion of your shares so you can lock in a profit.
Learn from Your Mistakes
Be patient. Everyone has some bad days in the market. It’s important to have the patience to stick it out and wait for better days. Learn to take your mistakes and grow from them. Hold yourself accountable for your trading decisions. Make sure you keep a detailed trading journal so you can document your good and bad trades, analyze what you did well and where you could improve. Journalling is a important tool to developing your skills as a trader.
The first half of 2016 began with dire warnings followed by a decisive downward spiral to the overall stock positions in the United States of America and around the world. There are naysayers and pundits advising another economic plunge like the economic crisis of 2008. George Soros has been at the head of the pack of attack dogs and pundits warning investors to buy gold or put your savings under the mattress, now that Panama is off limits. But there will always be opportunities in every market; naysayers may be waiting outside the lines or shorting the S&P 500 or the Dow Jones Industrials, while the savvy investor who is hearing and heeding world news and making his investment choices based on what could and should be happening. It’s the rumor not the news that investors need to listen to in order to make an investment.
Here are my 5 stock picks for the second half of 2016.
Trading around $30, the once mighty producer of appliances for American kitchens has switched tracks and is emphasizing its Train production facility part of which is located in Erie, Pa. Erie like most of the Northeast has fallen on hard times. Once the Northeast was the production capital of the world, but the center of commerce has lost its titles to California and Silicon Valley. General Electric has not had any interest in producing computers but uses computers to design and drive its very successful train division. A company that has built an air hockey type of handling system for the movement of entire trains by one person deserves credit, a lot of credit. That process is still held in secret by G.E. and can be seen on TV but not in person. A multi-billion dollar contract was announce between G.E. and India. When a customer is an entire country, economists should realize that success beckons for the future of G.E.
A quick glance at the 5-year chart of G.E. is reassuring they have been on a an uptrend and $25. per share has been designated as a support level that has not been successfully breached since October 2013. Whenever the price action went below $25. per share it always climbed back, recovering and slowly inching upward.
Dicks Sporting Goods (NYSE:DKS)
Dick’s has established itself as a big box sports retailer with an effective Internet ordering system in place. Boys of any age like to go to any sports store while moms shop for clothes and items for the home. Dick’s covers the gamut of sporting needs, and now that Sports Authority is closing stores; Dick’s will have no competition. The two giants both were contenders but neither a titleholder, now Dick’s wins by a technical knockout.
PayPal (NASDAQ: PYPL)
$39. PayPal is everywhere and users feel secure when using PayPal. The price action of the stock has a problem topping the $40. mark; it is a strongly tested resistance, but when it breaks past $40. there will be no stopping it. PayPal represents the best of the alternative electronic pay systems and will continue to grow as it is discovered around the world. Elon Musk may be a magician on the order of Thomas Edison whose efforts started General Electric. Musk has not let success go to his head or relaxed on his extreme wealth, as he is revolutionizing aerospace at the present time. PayPal was his baby and PayPal can only continue to grow around the world as its influence is widened and felt in foreign nations.
Facebook, Inc. (NASDAQ: FB)
Nasdaq $118. Three years ago Facebook was the most controversial of IPOs. The IPO plunged to half of its suggested starting price but has since more than quadrupled in value, Facebook has withstood the test of time and new applications are bringing those past users back to the fold. What will drive Facebook is growth of computers and smart cell phones in under-developed nations. These nations have a reliance on cell phones; visit any third world country and watch teenagers and adults walk past fully focused on their cell phones. Computer use can only grow in these areas and the impact of the Summer Olympics in Rio this summer will further fuel computer and smart phone use.
American investors are part of a world economy. In the current economy any company that does not extend its borders into foreign countries will not be as successful as those that see opportunity everywhere, despite the economic conditions of the foreign country. The American economy is not only globalized but changing; retailing was once the dominant force in consumerism, but is changing from a brick and mortar based system to an Internet based ordering system. Sophisticated cell phone applications are making it possible to take a photograph of any desired item and to have the app find the product with the colors and sizes available and the location of the retailer. This app will complete the order for the user and sent it to the customer’s home. Sears and Roebucks started thinking outside the box in 1986 and with the first catalog issued in 1988 became multi-dimensional. Will Sears be able to competent in this social media frenzied world. It will be tough for Sears and it is not a pick.
Uber (Privately Held)
Uber started in San Francisco and is currently expanding explosively around the world. The third world and other less developed countries are reliant on the use of cell phones and apps like WhatsUp and Uber, and are being used by third world countries in larger numbers. Uber is a privately held company with billions of dollars in reserve, but rumor has them growing even more by the launching of a initial public offering (IPO) later this year. In this case the smart investor should be willing to buy the IPO based on this rumor and don’t hesitate; don’t wait for the news. Uber is a powerhouse of a smart phone app and will be a important player for business and as a savvy investment. This is a definite pick, a definite buy.