12 Things You Need To Know About Financial Statements

Knowing how to work with the numbers in a company's financial statements is an essential skill for stock investors. The meaningful interpretation and analysis of balance sheets, income statements and cash flow statements to discern a company's investment qualities is the basis for smart investment choices. However, the diversity of financial reporting requires that we first become familiar with certain general financial statement characteristics before focusing on individual corporate financials. In this article, we'll show you what the financial statements have to offer and how to use them to your advantage.

TUTORIAL: Advanced Financial Statement Analysis1. Financial Statements Are ScorecardsThere are millions of individual investors worldwide, and while a large percentage of these investors have chosen mutual funds as the vehicle of choice for their investing activities, a very large percentage of individual investors are also investing directly in stocks. Prudent investing practices dictate that we seek out quality companies with strong balance sheets, solid earnings and positive cash flows.

Whether you're a do-it-yourself or rely on guidance from an investment professional, learning certain fundamental financial statement analysis skills can be very useful - it's certainly not just for the experts. Over 30 years ago, businessman Robert Follet wrote a book entitled "How To Keep Score In Business" (1987). His principal point was that in business you keep score with dollars, and the scorecard is a financial statement. He recognized that "a lot of people don't understand keeping score in business. They get mixed up about profits, assets, cash flow and return on investment."

The same thing could be said today about a large portion of the investing public, especially when it comes to identifying investment values in financial statements. But don't let this intimidate you; it can be done. As Michael C. Thomsett says in "Mastering Fundamental Analysis" (1998):

"That there is no secret is the biggest secret of Wall Street - and of any specialized industry. Very little in the financial world is so complex that you cannot grasp it. The fundamentals - as their name implies - are basic and relatively uncomplicated. The only factor complicating financial information is jargon, overly complex statistical analysis and complex formulas that don't convey information any better than straight talk." (For more information, see Introduction To Fundamental Analysis and What Are Fundamentals?)

What follows is a brief discussion of 12 common financial statement characteristics to keep in mind before you start your analytical journey.

2. What Financial Statements to UseFor investment analysis purposes, the financial statements that are used are the balance sheet, the income statement and the cash flow statement. The statements of shareholders' equity and retained earnings, which are seldom presented, contain nice-to-know, but not critical, information, and are not used by financial analysts. A word of caution: there are those in the general investing public who tend to focus on just the income statement and the balance sheet, thereby relegating cash flow considerations to somewhat of a secondary status. That's a mistake; for now, simply make a permanent mental note that the cash flow statement contains critically important analytical data. (To learn more, check out Reading The Balance Sheet, Understanding The Income Statement and The Essentials Of Cash Flow.)
 

3. Knowing What's Behind the NumbersThe numbers in a company's financials reflect real world events. These numbers and the financial ratios/indicators that are derived from them for investment analysis are easier to understand if you can visualize the underlying realities of this essentially quantitative information. For example, before you start crunching numbers, have an understanding of what the company does, its products and/or services, and the industry in which it operates.

4. The Diversity of Financial ReportingDon't expect financial statements to fit into a single mold. Many articles and books on financial statement analysis take a one-size-fits-all approach. The less-experienced investor is going to get lost when he or she encounters a presentation of accounts that falls outside the mainstream or so-called "typical" company. Simply remember that the diverse nature of business activities results in a diversity of financial statement presentations. This is particularly true of the balance sheet; the income and cash flow statements are less susceptible to this phenomenon.

5. The Challenge of Understanding Financial JargonThe lack of any appreciable standardization of financial reporting terminology complicates the understanding of many financial statement account entries. This circumstance can be confusing for the beginning investor. There's little hope that things will change on this issue in the foreseeable future, but a good financial dictionary can help considerably.

6. Accounting Is an Art, Not a ScienceThe presentation of a company's financial position, as portrayed in its financial statements, is influenced by management estimates and judgments. In the best of circumstances, management is scrupulously honest and candid, while the outside auditors are demanding, strict and uncompromising. Whatever the case, the imprecision that can be inherently found in the accounting process means that the prudent investor should take an inquiring and skeptical approach toward financial statement analysis. (For related content, see Don't Forget To Read The Prospectus! and How To Read Footnotes - Part 2: Evaluating Accounting Risk.)

7. Two Key Accounting ConventionsGenerally accepted accounting principles (GAAP) are used to prepare financial statements. The sum total of these accounting concepts and assumptions is huge. For investors, a basic understanding of at least two of these conventions - historical cost and accrual accounting - is particularly important. According to GAAP, assets are valued at their purchase price (historical cost), which may be significantly different than their current market value. Revenues are recorded when goods or services are delivered and expenses recorded when incurred. Generally, this flow does not coincide with the actual receipt and disbursement of cash, which is why the cash flow becomes so important. 

8. Non-Financial Statement InformationInformation on the state of the economy, industry and competitive considerations, market forces, technological change, and the quality of management and the workforce are not directly reflected in a company's financial statements. Investors need to recognize that financial statement insights are but one piece, albeit an important one, of the larger investment information puzzle.

9. Financial Ratios and IndicatorsThe absolute numbers in financial statements are of little value for investment analysis, which must transform these numbers into meaningful relationships to judge a company's financial performance and condition. The resulting ratios and indicators must be viewed over extended periods to reflect trends. Here again, beware of the one-size-fits-all syndrome. Evaluative financial metrics can differ significantly by industry, company size and stage of development.

10. Notes to the Financial StatementsIt is difficult for financial statement numbers to provide the disclosure required by regulatory authorities. Professional analysts universally agree that a thorough understanding of the notes to financial statements is essential in order to properly evaluate a company's financial condition and performance. As noted by auditors on financial statements "the accompanying notes are an integral part of these financial statements." Take these noted comments seriously. (For more insight, see Footnotes: Start Reading The Fine Print.)

11. The Auditor's ReportPrudent investors should only consider investing in companies with audited financial statements, which are a requirement for all publicly traded companies. Before digging into a company's financials, the first thing to do is read the auditor's report. A "clean opinion" provides you with a green light to proceed. Qualifying remarks may be benign or serious; in the case of the latter, you may not want to proceed.

12. Consolidated Financial StatementsGenerally, the word "consolidated" appears in the title of a financial statement, as in a consolidated balance sheet. Consolidation of a parent company and its majority-owned (more that 50% ownership or "effective control") subsidiaries means that the combined activities of separate legal entities are expressed as one economic unit. The presumption is that a consolidation as one entity is more meaningful than separate statements for different entities.

Conclusion
The financial statement perspectives provided in this overview are meant to give readers the big picture. With these considerations in mind, beginning investors should be better prepared to cope with learning the analytical details of discerning the investment qualities reflected in a company's financials

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Disclaimer…The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell.

6 Dangerous Moves For First-Time Investors

Thanks to online discount brokerages, anyone with an Internet connection and a bank account can be up and trading stocks within a week. This ease of access is great because it encourages more people to explore investing for themselves, rather than depending on mutual funds or money managers. However, there are some common mistakes that first time investors have to be aware of before they try picking stocks like Buffett or shorting like Soros. (To learn more, see Billionaire Portfolios: What Are They Hiding?)

TUTORIAL: 20 Investments To Know

Jumping In Head First

The basics of investing are quite simple in theory – buy low and sell high. In practice, however, you have to know what is low and what is high in a market where everything hinges on different readings of a variety of ratios and metrics. What is high to the seller is considered low (enough) to the buyer in any transaction, so you can see how different conclusions can be drawn from the same market information. Because of the relative nature of the market, it is important to study up a bit before jumping in. (To learn more, see Stochastics: An Accurate Buy And Sell Indicator.)

At the very least, know the basic metrics such as book value, dividend yield, price-earnings ratio (P/E) and so on, and understand how they are calculated and where their major weaknesses lie. While you are learning, you can see how your conclusions work out by using virtual money in a stock simulator. Most likely, you'll find that the market is much more complex than a few ratios can express, but learning those and testing them on a demo account can help lead you to the next level of study. (Watching metrics like book value and P/E are crucial to value investing. Get acquainted with 5 Must-Have Metrics for Value Investing.)

Playing Penny Stocks

At first glance, penny stocks seem like a great idea. With as little as $100, you can get a lot more shares in a penny stock than a blue chip that might cost $50 a share. And, if the two blue chip shares you bought went up $1 you'd only make $2, whereas if 100 shares of a $1 stock went up a $1 you would double your money. Unfortunately, what penny stocks offer in position size and potential profitability has to measure against the volatility that they face. Penny stocks can shoot up. It happens all the time - but they can also crash in moments, and are exceptionally vulnerable to manipulation and illiquidity. Getting solid information on penny stocks can also be difficult, making them a poor choice for an investor who is still learning. (To learn more, read The Lowdown On Penny Stocks.)

Going All In with One Investment

Investing 100% of your capital in a specific market, whether it is the stock market, commodity futures, forex or even bonds is not a good move. Although you may eventually decide to throw diversification to the wind and put all your available capital into these markets once you are familiar with them, it is better to risk a little bit of capital at a time. This way, the lessons learned along the way are less costly, but still valuable. (Diversification entails calculating correlation, learn more about it by reading Diversification: Protecting Portfolios From Mass Destruction.)

Leveraging Up

Leveraging your money by using a margin is similar to going all in, but much more damaging. Using leverage magnifies both the gains and the losses on a given investment. Some forms of leverage, such as options, have a limited downside or can be controlled by using specific market orders, as in forex. Learning to control the amount of capital at risk comes with practice, and until an investor learns that control, leverage is best taken in small doses (if at all). (Read more with Leverage's "Double-Edged Sword" Need Not Cut Deep.)

Investing Cash Reserves

Studies have shown that cash put into the market in bulk rather than incrementally has a better overall return, but this doesn't mean you should invest to the point of illiquidity. Investing is a long-term business whether you are a buy-and-hold investor or a trader, and staying in business requires having cash on the sidelines for emergencies and opportunities. Sure, cash on the sidelines doesn't earn any returns, but having all your cash in the market is a risk that even professional investors won't take. If you only have enough cash to invest or have an emergency cash reserve, then you're not in a position financially where investing makes sense. (To learn more about liquidity's importance, read Understanding Financial Liquidity.)

Chasing News

Trying to guess what will be the next "Apple," a revolutionary produce or a rumor of earth shaking earnings, investing on news is a terrible move for first time investors. The best case scenario is that you get lucky, and then keep doing it until your luck fails. The worst case scenario is that you get stuck jumping in late (or investing on the wrong rumor) time and time again before you give up on investing. Rather than following rumors, the ideal first investments are in companies you understand and have a personal experience dealing with. This connection makes it easier to stomach the time and research that investing demands. (For more on the psychology of trading, read How The Power Of The Masses Drives The Market.)

The Bottom Line

When you are starting to invest, it is best to start small and take the risks with money you are prepared to lose. As you gain confidence and become more adept at evaluating stocks and reading the market sentiment, you can start making bigger investments. None of these investments are bad in and of themselves, but they do tend to be very unforgiving towards rookie mistakes. Leverage, penny stocks, news trading, etc. can all become part of your investing strategy as you learn, should you choose it. The trick is learning to invest in more stable markets before you jump into the wilder areas.

by Andrew Beattie

Andrew Beattie is a former managing editor and longtime contributor at Investopedia.com. He operates the Wandering Wordsmith blog, and can be reached there.

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Disclaimer…The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell.

4 Factors That Shape Market Trends

Trends are what allow traders and investors to capture profits. Whether on a short- or long-term time frame, in an overall trending market or a ranging environment, the flow from one price to another is what creates profits and losses. There are four major factors that cause both long-term trends and short-term fluctuations. These factors are governments, international transactions, speculation and expectation, and supply and demand. (For more, see Trading Trend Or Range?)

Tutorial: Economic Indicators To Know

Major Market Forces
Learning how these major factors shape trends over the long term can provide insight into why certain trends are developing, why a trend is in place and how future trends may occur. Here are the four major factors:

•Governments
Governments hold much sway over the free markets. Fiscal and monetary policy have a profound effect on the financial marketplace. By increasing and decreasing interest rates the government and Federal Reserve can effectively slow or attempt to speed up growth within the country. This is called monetary policy.

If government spending increases or contracts, this is known as fiscal policy, and can be used to help ease unemployment and/or stabilize prices. By altering interest rates and the amount of dollars available on the open market, governments can change how much investment flows into and out of the country. (Learn more in our Federal Reserve Tutorial.)

•International Transactions
The flow of funds between countries impacts the strength of a country's economy and its currency. The more money that is leaving a country, the weaker the country's economy and currency. Countries that predominantly export, whether physical goods or services, are continually bringing money into their countries. This money can then be reinvested and can stimulate the financial markets within those countries.

•Speculation and Expectation
Speculation and expectation are integral parts of the financial system. Where consumers, investors and politicians believe the economy will go in the future impacts how we act today. Expectation of future action is dependent on current acts and shapes both current and future trends. Sentiment indicators are commonly used to gauge how certain groups are feeling about the current economy. Analysis of these indicators as well as other forms of fundamental and technical analysis can create a bias or expectation of future price rates and trend direction. (Read more on this closely watched economic indicator; see Understanding the Consumer Confidence Index and Investors Intelligence Sentiment Index.)

•Supply and Demand
Supply and demand for products, currencies and other investments creates a push-pull dynamic in prices. Prices and rates change as supply or demand changes. If something is in demand and supply begins to shrink, prices will rise. If supply increases beyond current demand, prices will fall. If supply is relatively stable, prices can fluctuate higher and lower as demand increases or decreases. (See more on this subject in Economics Basics: Demand and Supply and Monetarism: Printing Money To Curb Inflation.)

Effect on Short- and Long-Term Trends

With these factors causing both short- and long-term fluctuations in the market, it is important to understand how all these elements come together to create trends. While these major factors are categorically different, they are closely linked to one another. Government mandates impact international transactions, which play a role in speculation, and supply and demand plays a role in each of these other factors.

Government news releases, such as proposed changes in spending or tax policy, as well as Federal Reserve decisions to change or maintain interest rates can have a dramatic effect on long term trends. Lower interest rates and taxes encourage spending and economic growth. This has a tendency to push market prices higher, but the market does not always respond in this way because other factors are also at play. Higher interest rates and taxes, for example, deter spending and result in contraction or a long-term fall in market prices.

In the short term, these news releases can cause large price swings as traders and investors buy and sell in response to the information. Increased action around these announcements can create short-term trends, while longer term trends develop as investors fully grasp and absorb what the impact of the information means for the markets.

The International Effect
International transactions, balance of payments between countries and economic strength are harder to gauge on a daily basis, but they play a major role in longer-term trends in many markets. The currency markets are a gauge of how well one country's currency and economy is doing relative to others. A high demand for a currency means that currency will rise relative to other currencies.

The value of a country's currency also plays a role in how other markets will do within that country. If a country's currency is weak, this will deter investment into that country, as potential profits will be eroded by the weak currency. (Unique features of the forex market may allow larger players to get a jump on smaller ones; check out The Currency Market Information Edge also read Forex Trading Rules: Always Pair Strong With Weak for more on weak and strong currencies.)

The Participant Effect
The analysis and resultant positions taken by traders and investors based on the information they receive about government policy and international transactions create speculation as to where prices will move. When enough people agree on direction, the market enters into a trend that could sustain itself for many years.

Trends are also perpetuated by market participants who were wrong in their analysis; being forced to exit their losing trades pushes prices further in the current direction. As more investors climb aboard to profit from a trend, the market becomes saturated and the trend reverses, at least temporarily. (Find out what effect institutional investors have on the stock market and individual traders, read The Market Participant Playbook.)

The S & D Effect
This is where supply and demand enters the picture. Supply and demand affects individuals, companies and the financial markets as a whole. In some markets, such as the commodity markets, supply is determined by a physical product. Supply and demand for oil is constantly changing, adjusting the price a market participant is willing to pay for oil today and in the future.

As supply dwindles or demand increases, a long-term rise in oil prices can occur as market participants outbid one another to attain a seemingly finite supply of the commodity. Suppliers want a higher price for what they have, and a higher demand pushes the price that buyers are willing to pay higher.

All markets have a similar dynamic. Stocks fluctuate on a short and long-term scale, creating trends. The threat of supply drying up at current prices forces buyers to buy at higher and higher prices, creating large price increases. If a large group of sellers were to enter the market, this would increase the supply of stock available and would likely push prices lower. This occurs on all time frames. (The A/D line highlights buying and selling pressure to confirm existing trends; check out Trend-Spotting With The Accumulation/Distribution Line.)

The Bottom Line

Trends are generally created by four major factors: governments, international transactions, speculation/expectation, and supply and demand. These areas are all linked as expected future conditions shape current decisions and those current decisions shape current trends. Government affects trends mainly through monetary and fiscal policy. These policies affect international transactions which in turn affect economic strength. Speculation and expectation drive prices based on what future prices might be. Finally, changes in supply and demand create trends as market participants fight for the best price.

by Cory Mitchell

Cory Mitchell is an independent trader specializing in short- to medium-term technical strategies. He is the founder of www.vantagepointtrading.com, a website dedicated to free trader education and discussion. After graduating with a business degree, Mitchell has spent the last five years trading multiple markets and educating traders. He has been widely published and is a member of the Canadian Society of Technical Analysts and the Market Technicians Association.

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Disclaimer…The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell.

Rental Property Investment

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The chief goals of any property investment are appreciation, cash flow and tax savings. Rental property investment is the only property investment that provides you all these three benefits at the same time.

The main rental property categories consist of single family rental properties, multi-unit residential rental properties, commercial rental properties and holiday homes. The first category includes long term single family renting, the second category includes apartments, buildings for multiple families while the last category includes shopping centers, office buildings etc. for a long tem renting purpose. Here are other points to consider with real property investments:

1) Methods like repossessions, ugly homes, and probate homes are useful for buying property. Lease purchases can be extremely useful which help you to leverage investment money and reach a positive cash flow from renting. Buying fixer upper homes or repossessions can help to reduce investment money and improve cash flow and appreciation.

2) One cannot expect a considerable cash flow from property with one tenant. In this case, the main goal is to cover the mortgage and current expenses.

3) Research on a potential rental home should include significant financial planning for years ahead, like expenses of property management, repairing, vacancy, emergency etc.

4) The apartment and the 2-4 unit homes are the main classes of the multi-unit residential property investments.

5) With apartment investments the main profit comes from the rental cash flow. A lease to purchase option and leveraging investment money is quite useful in this case. The most significant factors in this case are the financial evaluation and property management. With a steady cash flow from a number of tenants, it is possible to hire a manager for the property management. It helps to increase the cash flow and the value of the apartment building. Underestimation may damage the investment and lead to loss.

6) Commercial properties investments include office buildings, retail shopping centres, industrial properties and the like. The market value of these properties is decided on the cash flow (net rental income). The main objective of rental in these cases is to generate enough cash to exceed the cost of mortgage, insurance, maintenance, future improvements. This is not an easy task to handle. It requires analysis of many things. But if done properly it could prove to be lucrative.

Changes in the economic conditions usually have a pronounced impact on these types of real estate investments than on residential property investments. And as office buildings and industrial properties are more susceptible to these changes, it is wise to keep extra capital to support those investments if something does not go as expected. In this case, a money-leveraging approach (lease to purchase option) is very useful.

7) A holiday home can be used in two ways. It can be a property home or an investment property. This category includes resort properties, mountain homes, or beach homes. With holiday rentals, the main profit comes from the appreciation. Cash flow generated from renting is usually used for current expenses like property management, mortgage and insurance. These are short-term rentals and require intensive maintenance.

About The Author: Parmdeep Vadesha is the founder of the largest online community of property entrepreneurs who buy below market value properties from distressed sellers facing repossession, divorce and bankruptcy. Join 70,000 property investors & subscribe to his FREE newsletter www.property-system.com/

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Invest in Farmland

Mark Twain once said, “Buy land, they're not making it anymore”, and he was absolutely right. Farmland is a tangible asset that will hold its value no matter what happens. Farmland is an appealing investment because you can receive income from rents and get appreciation that tends to run ahead of inflation.

My family is in the orange farming business and we don’t make much money by selling the oranges after all the labor costs. But on paper, we have made a boatload of cash from land appreciation. That really doesn’t matter because we will never sell our land, as it’s a great long- term investment. Let me explain.

Many farmers are getting a lot more income due to higher crop prices, growing food demand and increasing demand for bio-fuels. So it’s not surprising that farmland prices are on the rise.

A government can always print more currency, but it can’t make new farmland.



Investing in farmland is a great idea because the world’s population will continue to grow and so will the demand for farmland. The farmland is necessary to grow the food for all these extra people. So land is essentially the most valuable thing that you can possibly own.

How to invest in farmland

If you have the time and money, then buy a farm in Iowa and farm it or rent it out for the income. Good farmland in Iowa goes for about $4,500 per acre and you can aim for a 12% per year return with rental income and land appreciation.

If you have lots of time, you could pick up cheap land in a developing country for a few hundred bucks an acre and bring it into production or improve it to raise yields. My wife and I looked at some farmland the last time we were in Brazil in 2004 and we could have picked up some cheap land for only $100 an acre. The problem is the land was in an extremely remote area. We decided against it because it would have been difficult for us to develop since we live in the US and don’t speak Portuguese.

If you don’t have the time to become a farmer, then I suggest you buy stock in a timber producer. One of my favorites is Plum Creek Timber (PCL). PCL owns and manages millions of acres of timberland in the United States and its products include lumber products, plywood, medium density fiberboard, and related by-products, such as wood chips.

Best Wishes,

Ted Peroulakis

feedback@investorsdailyedge.com

Disclaimer…The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell

One Sector Destined to See Higher Prices

Predicting the market can be easy, once you know what to look for. And one of the biggest catalysts for higher stock prices in a sector is government spending.

We all know one of the biggest spenders we’ll ever see is Barack Obama.

So there should be plenty of sectors he will prop up, but there is one that is my favorite. Not only do I love the sector because it makes me feel better about myself, but I love it because up until this year, it had been growing by nearly triple digits every single year.

I’m talking about alternative energy. And despite lower gas prices, alternative energy consumption will rise over the next five years.

Obama will make sure of it. He has plans to pump $150 billion into this sector over the next ten years. $15 billion a year is nothing to sneeze at. And the truth is, who knows how much more money will pour into this sector in the coming years.

I say that because Obama also has plans to allocate money to alternative energy from his upcoming $500 - $700 billion stimulus package due early next year.

With hundreds of billions pouring into this sector in the next few years, I don’t see how stock prices can’t move higher. It’s not that the government will directly buy shares of solar and ethanol producers. The government will instead incentivize installing solar panels to your home. The government will also force utilities to get more of their power from alternative energies.

It’s something that’s already happening, really. Most states require that utilities get 10 percent of their power from renewable energy. But that’s nothing.

Governor Arnold Schwarzenegger signed an executive order calling on utilities to provide one-third of their power from renewable resources by 2020.

Florida, Power and Light just broke ground on a 75-megawatt solar / natural gas hybrid plant (it generates solar power during the day and at night runs on natural gas) that would power about 11,000 homes. And because it uses solar during the day, it would prevent 2.75 million tons of greenhouse gasses from hitting the atmosphere. That’s like removing 18,700 cars from the road.

More and more, I’m hearing of proposed solar and wind power plants all across the globe. Wind power alone has grown more than fivefold globally from 2000 to 2007. In recent years, the US has added more wind power to the grid than any other country. Just last year, it grew by 45 percent, making the US the world’s largest wind power producer.

This trend will undoubtedly slow down due to the global credit problems. If people can’t finance new plants, then they can’t install wind power. It’s as simple as that.

And that has really slammed the prices of alternative energy stocks. Some of them are down over 80 percent from their peaks. This is a good thing.

It’s good because what this recession will do is help eliminate the weakest alternative energy producers. Any company that can survive this downturn should do extremely well once the economy picks up speed again. So really, it’s separating the wheat from the chafe.

It’s also letting you buy shares of solid companies at steep, Wal-Mart like discounts.

This is one of the most attractive buying points I’ve seen in years. But I’m still holding back from buying until I see a solid bottoming pattern.

A bottoming chart pattern basically shows you when stocks have stopped dropping. And there are various patterns to look for. For the sake of simplicity, I’m going to highlight two here.

The Double Bottom

The double bottom is one of the easiest patterns to spot. The pattern is made of two bottoms that are roughly equal, with a moderate peak in between. Take a look at the chart below (thanks to stockcharts!).





The trick to this pattern is waiting for confirmation once you believe you’ve seen a double bottom. Confirmation happens once the stock price goes over the peak between the two bottoms (in this case, $39). Once the pattern is confirmed, you should buy.

Another similar pattern is the triple bottom. It’s the same as the double bottom, but with two peaks and three troughs. Again, it’s important to wait for confirmation before becoming a buyer because theoretically, the stock could stay range bound for years.

The Rounding Bottom

Another reversal pattern is the rounding bottom. This is a longer-term pattern that can take upwards of 30 weeks to finally form. It’s easy to spot because a) it takes a long time and b) the prices look rounded on the chart. Take a look at the chart below…





Again, waiting for a confirmation of the rounding bottom is essential if you plan on making money. In this case, the confirmation point would be the high before the stock began the rounding pattern (in this case four bucks a share). Once you see the stock pass that previous high, you should become a buyer.

Other Bottoms

There are various other bottoming patterns you can look out for like an inverted head and shoulders and a falling wedge. I suggest you become acquainted with these patterns so that you’re more likely to find a bottom with any stock you are watching.

As with everything, these patterns won’t always signal a bottom. But more often than not, they can be relied on. In the end, you’ll want to use these patterns along with other signals to make your own determination if a bottom has been found.

You can be sure though, that with all the government money pouring into alternative energy, combined with the historic sell-off we’ve seen, the odds on are our side when it comes to buying opportunities.

It’s quite likely that in the next two to three years, we’re going to see much higher alternative energy prices.

I hope you can enjoy them as much as I will.

Stay free,

By Charles Delvalle

Posted 13Dec2008

Disclaimer…The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell

Bargain Stocks

246000 workers at Ford, 252000 at GM and not to mention Chrysler workers, and car part suppliers...all hinge on $25 billion bailout money from the Federal Reserve. Bad news should be good news for Honda or Toyota but the whole market is down. It is definitely good news for patient investors willing to invest and wait for the long term. These bargain prices come once in a lifetime. Currently Warren Buffett's stocks are the most attractive to me as buying below his price provides me with a margin of safety. Buying cheaper than the world's greatest investor who ever lived definitely allows me to sleep better at night..

Goldman Sachs at $55, Warren got it over $100 (preferred stock).

General Electric $14, Warren got it over $20 (preferred stock).

Wells Fargo $24, Warren added to his position at around the same price.

Kraft $25, Warren got it above $28.

Conoco Philips $46, Warren got it above $60.

Aside from those stocks, book value no longer matters to Wall Street anymore. It's incredible.

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Disclaimer...The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell.

Focus Can Now Shift To The Collapsed Housing Market

With the election now over, focus will turn back to what ails the economy. And front and center will be the continuing housing crisis. Foreclosure rates keep going up and the $700 billion bailout has yet to spur lending.

So what is a bank with a collapsing loan portfolio to do? Take matters into their own hands. Bank of America previously announced it would work with delinquent borrowers to try and stave off foreclosures, and now JP Morgan Chase is doing the same.

JP Morgan Chase has announced it will delay foreclosure proceedings while it works with struggling homeowners. Over the next 90 days, the bank will look at loans and determine if the loan is eligible for a reduced interest rate or loan balance. The company has already helped over 250,000 families with over $40 billion in troubled loans, and over the next two years plan to help another 400,000 homeowners with over $70 billion in loans. Loans held by Washington Mutual and EMC Mortgage Corp, which were recently acquired by JP Morgan Chase, will also be eligible for revision.

What remains to be seen is the effect this will have on foreclosure rates. Reducing a borrower’s interest rate slightly doesn’t necessarily translate to a large reduction in a mortgage payment. A drop of $75 or $100 a month in the mortgage payment would be welcome for the homeowners, but the savings could quickly be eaten up by rising costs elsewhere.

Hopefully the plan relies more on reducing principal balances to more accurately reflect fair market values. This would help by stabilizing home values at fair-market levels, rather than letting foreclosures decimate neighborhoods.

For example, if a home bought a few years ago for $250,000 gets re-appraised for $180,000 and the borrower can now afford the payments and avoids foreclosure. This drops the value down to $180,000 for comparables, but avoids a potential drop to $125,000-140,000 if the home goes into foreclosure and gets sold at auction. Not a perfect solution, but anything is better than another foreclosure.

By Christian Hill

Posted 05 Nov 2008

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Disclaimer...The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell.

Top 20 Trading Rules

This Sometime to remember each time i trade.

1. Don't blame the market.
You must take responsibility for your financial security and all of your actions.

2. Study and learn all you can.
Choose one market to trade, many suggest the Dow Jones futures market, and become an expert in your area.

3. Be prepared for problems.
Have a back-up phone ready with your brokers information in case of problems.

4. Have a notepad, pencil and calculator at hand to record trades.

5. Know the days and times when economic data is released.

6. Never let a winning trade turn into a loss.

7. Start with a little capital.
Only place small stakes or paper trade if you are relatively new to trading.

8. Have a trading strategy and stick to it.
It is no good saying one thing and doing another.

9. Always keep records of all your trades.
Analyse these weekly or monthly to see if you can improve you performance.

10. Don't be greedy.
You can soon build up considerable wealth with just 1% daily profits.

11. Never trade if you are tired.
Any medications that could affect your responses or you have a headache or you are worried about something.

12. Wherever possible always try and obtain value when placing a bet.

13. Never trade on tips or what experts say.
Invariably throughout the day there will be several experts with opposing views. Trade what you see happening.

14. Vary your stakes.
If market movement is a little slow use lower stakes.

15. Look for reversals in the market and trade with this new trend.

16. Do not over trade.

17. Try to make a small profit every day and be happy with that.

18. Don't let the market get away from you.
As soon as you can get out.

19. If you are losing just get out.

20. If in doubt GET OUT!

extract from www.qwoter.com

Disclaimer...The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell.