Archives for February 2014

A good article from the archives from September 26, 2011 about buying US Treasuries. Worth posting again as I occasionally like to look back…

Investors are buying US Treasuries in a flight to security as both the European and American economies promise to stay in the doldrums from a prolonged period. Stocks have fallen sharply and risen again several times of late as uncertainty has led to persistent market volatility. Oil futures are down as are stocks. Gold futures are down as well, even in light of a retreat of the NYSE, NASDAQ, and stock markets across the world. It would appear as though those interested in gold investing are also uncertain about the duration of the decade long bull market in the precious metal. Investors are buying US Treasuries in this uncertain world even after Standard and Poors downgraded US debt after the Capitol Hill fiasco in which congress and the president were unable to come to a quick compromise on raising the US debt ceiling. With the use of sound fundamental and technical analysis traders can profit from swings in interest rates when buying US Treasuries and selling them. Candlestick analysis of interest rates helps traders objectively anticipate market trends and market reversal in rates and profit thereby.

Recently investors were buying US treasuries, the ten year note, for as low as a 1.76% yield. US Treasury notes are issues form terms ranging from one to ten years in denominations of $1,000. $1,000 is what the investor will receive if he holds the note to maturity. He will also receive taxable interest every six months for the duration of the note. What he pays when doing this will depend upon the market. By comparison Treasury Bills have maturities of four weeks to a year. They are sold at a discount and the investor receives the par value of Treasury Bills. For those interested in long term investing when buying US Treasuries there is the Treasury bond. These are typically sold as a 30 year bond. Sales of the gold bond have fallen dramatically in last decade or more as those buying US Treasuries have been concerned about inflation eating away at the value of their long term investment. Traders, however, can profitably buy bonds or sell bonds. In a stable currency this is essentially interest rate investing. On the other hand investing in the national debt of several of the so called PIIGS nations (Portugal, Ireland, Italy, Greece, and Spain) is a bet on whether these nations will default on their debt or be bailed out by wealthier members of the EU and foreign investors in the nick of time.

US Treasuries are issued with a fixed rate of interest. One can purchase them directly or in the secondary market, through a stock broker, for example. Traders profit as investors perceive market risk to be too high throughout the world and engage in buying US Treasuries. Traders use Candlestick patterns to anticipate interest rate movement just as they use Candlestick pattern formations in stock trading, options trading, and futures trading. To a degree buying US Treasuries involves foreign currency trading. Investors buy dollars with Euros, Yen, or British Pounds and then, by buying US Treasuries, hold assets in US dollar denominated instruments and hold an investment that has never defaulted. Traders can also profit by keeping an eye on the Forex markets in case of a flight to the dollar as things worsen.

Buying gold, gold exchange traded funds, and gold futures have all allowed traders to ride the bull market on gold to a more than eight fold increase in the last dozen years. However it is in selling gold that the profit lies. Gold is no longer coin of the realm so if you need money for remodeling your new home, travel, paying for a college education or two, or simply investing in stock, bonds, or real estate, selling gold is necessary to pay the bills. Long term investing in gold has proven to be profitable if the term is not too long. For example, after the Nixon administration took the US off of the gold standard in 1971 the price of gold rose from $32 an ounce to over $600 an ounce by early 1980. The right time for selling gold was, in retrospect, early 1980 before market sentiment changed and gold fell into the $200 an ounce range where it remained for twenty years. Many who used sound fundamental analysis as well as technical analysis tools like Candlestick charts were able to profit by accurate anticipation of the end of the gold bull market of the 1970s.

Buying gold is done with currency and in selling gold one receives currency. For many, investing in gold is a bullish play on currency trading. Rather than trading currencies, one versus the other, one trades a commodity, gold, typically versus the dollar. The problem with gold is that it does not produce a dividend yield like dividend paying stocks do or interest like bonds or a savings account. On the other hands short term traders can profit whether gold, gold futures, oil, oil futures, stocks, stock futures, or stock options go up or down.

Traders need to keep an eye on the fundamentals of buying and selling gold but traders know that the markets quickly discount fundamentals. Periods of economic uncertainty lead to market volatility. Market trends turn around in market reversal. With time honored tools such as the easy to read signals of Candlestick analysis traders can anticipate market turnarounds and profit from both buying and selling gold. In fact, there was more money to be made in the last years by buying gold and selling gold at the right times than by holding gold bullion purchased at the beginning of the bull market. With the use of Candlestick patterns and Candlestick trading tactics traders can successfully anticipate movement in any market and profit thereby.

Stock Trading at a Discount

Every quarter companies listed on the NYSE and NASDAQ issue earnings reports. Prior to the issuance earnings reports on stocks the stock market news is full of earnings estimates. Stock trading at a discount to earnings estimates are often profitable for both long term investing and as day trading stocks. In long term buy and hold investing one looks for stocks trading at a discount to future earnings, at a discount to their intrinsic stock value.

A long term investor does fundamental analysis to identify stocks which have the potential for strong and continued earnings. He then looks at price to earnings ratio as well as the ratio of price to projected earnings. He buys stock trading at a discount to future earnings for his stock portfolio with the expectation of profiting from dividends and stock price appreciation for a long time. A long term investor uses technical analysis tools such as Candlestick stock charts in order to understand and predict changes in market sentiment and profit from buying stock, selling stock, and selling short at optimal stock prices.

A day trader may well follow the same stock that the long term investor is watching. However, traders really don’t care if the stock is going to go up or down, in the long term. Using stock technical analysis, traders can successfully predict price movement and profit thereby. Stock trading at a discount to earnings estimates may appear to be under-priced. The earnings reports come out a stock may rise or fall in price depending upon how close estimates were to the actual reports. Traders watch market sentiment and take advantage of price fluctuations prior to reports coming out and the brief period of market inefficiency that can occur after reports are issued. Candlestick analysis allows traders to anticipate new market trends as well as market reversal. During periods of stock volatility traders using Candlestick charts can profit when stock trading at a discount to earnings estimates turn out to be successful and when estimates are wrong as well.

Traders know that fundamentals are important and that the market corrects for new fundamentals very quickly. Therefore stock traders use Candlestick patterns when dealing with stock trading at a discount to earnings estimates in order to accurately and profitably anticipate market sentiment. Stock prices follow patterns. These patterns are driven by stock and economic fundamentals and by market reaction to both fundamentals and to its own movement. Candlestick pattern formations do not care if they are generated by changes in commodity pricing, stock pricing, or foreign currency pricing. It is the price pattern that can predict the next movement in stock, commodity, or Forex price. As earnings seasons approach long term investors look for good deals and traders look for stock price movement and stock volatility. Both can profit by using Japanese Candlesticks to see the future by remembering the past. Using price patterns to profit in markets has been profitable for decades and even centuries. Stock trading at a discount to earnings estimates are no exception in technical trading of the stock market.