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Copyright © 2015 by John Wiley & Sons Singapore Pte. Ltd.

Published by John Wiley & Sons Singapore Pte. Ltd.
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ISBN 978-1-118-93786-0 (Paperback)
ISBN 978-1-119-01951-0
ISBN 978-1-119-01952-7

CONTENTS

Acknowledgments

Element Key

Introduction

Note

PART 1 FUNDAMENTAL ANALYSIS

CHAPTER 1 FINANCIAL STATEMENTS IN OVERVIEW

The GAAP System

Auditing of the Books: Purpose and Process

Stockholder Reliance on the Audit

Methods of Hiding or Distorting Data

The Regulatory Environment

Types of Financial Statements

Annual Reports

Analysis: The Importance of Trends

Simplifying the Financial Statement

Notes

CHAPTER 2 HOW RELIABLE ARE THE FINANCIAL REPORTS?

Publicly Traded Company Reporting

The Need for Financial Reporting

The Value and Purpose of Fundamental Analysis

Long-Term Trends and Ratios

Fundamental Risks

Contrarian Investing from a Fundamental Perspective

Is Buy and Hold Dead?

CHAPTER 3 BALANCE SHEET RATIOS—TESTING WORKING CAPITAL

The Balance Sheet in Review

Flaws in the Balance Sheet

The Importance of Footnotes

The Key Balance Sheet Ratios

CHAPTER 4 INCOME STATEMENT RATIOS—TRENDS AND PROFITS

The Income Statement in Review

Flaws in the Income Statement

The Importance of Footnotes and Management’s Commentary

The Key Income Statement Ratios

CHAPTER 5 FIVE KEY TRENDS EVERY INVESTOR NEEDS

Trend #1: The Price/Earnings Ratio (P/E)

Trend #2: Dividend Yield and Trend #3: Dividend History

Trend #4: Revenue and Earnings

Trend #5: Debt Ratio

CHAPTER 6 THE ANNUAL REPORT AND WHAT IT REVEALS

Sections of the Annual Report

The Annual Report as a Marketing Document

How to Use the Annual Report

Notes

CHAPTER 7 FUNDAMENTALS NOT ON THE STATEMENT

Dividend Yield, Payout Ratio, and History

Market Cap

Contingent Liabilities and Other Liabilities

Market Value of Long-Term Assets

Insider Trading

The Value of Good Management

Notes

PART 2 TECHNICAL ANALYSIS

CHAPTER 8 THEORIES AND WHAT THEY MEAN

The Dow Theory

Efficient Market Hypothesis (EMH)

Random Walk Hypothesis (RWH)

Other Theories

Notes

CHAPTER 9 CHARTING AND ITS VALUE

Types of Charts

Scaling of Chart Values

Candlestick Basics

Single-Session Indicators

Two-Session Indicators

Three-Session Indicators

Reversal and Continuation

Notes

CHAPTER 10 TRENDS AND HOW TO STUDY THEM

Trends as Indicators of Risk

Trendlines

Channel Lines

Triangles and Wedges

CHAPTER 11 MOVING AVERAGES AND THEIR VALUE

Simple and Exponential Averages

Duration of the Moving Average (MA)

Double Crossover between MA Lines

Price Crossover Signals

Support and Resistance and MA Trends

Bollinger Bands for Short-Term Trend Monitoring

CHAPTER 12 PRICE INDICATORS

Support and Resistance

Double Tops and Bottoms

Head and Shoulders

Flags and Pennants

CHAPTER 13 VOLUME INDICATORS

Accumulation/Distribution (A/D)

Chaikin Money Flow (CMF)

Money Flow Index (MFI)

On-Balance Volume (OBV)

CHAPTER 14 MOMENTUM OSCILLATORS

The Nature of Momentum

Relative Strength Index (RSI)

Moving Average Convergence Divergence (MACD)

Stochastic Oscillator

CHAPTER 15 CONFIRMATION, THE KEY TO TIMING

What Confirmation is Not

Proximity and Strength of the Signal

Setting Rules for Yourself

Glossary

About the Author

Index

End User License Agreement

List of Tables

Chapter 3

Table 3.1

Chapter 4

Table 4.1

Table 4.2

Table 4.3

Table 4.4

Table 4.5

Table 4.6

Table 4.7

Table 4.8

Table 4.9

Table 4.10

Chapter 5

Table 5.1

Table 5.2

Table 5.3

Table 5.4

Table 5.5

Table 5.6

Chapter 6

Table 6.1

Chapter 7

Table 7.1

Table 7.2

List of Illustrations

Chapter 1

Figure 1.1 Graphic Summary, Revenues and Earnings

Chapter 2

Figure 2.1 Average Holding Period, Stocks

Chapter 5

Figure 5.1 McDonald’s P/E Ratio

Figure 5.2 DuPont’s P/E Ratio

Figure 5.3 Dow Chemical’s P/E Ratio

Figure 5.4 McDonald’s Dividend History

Figure 5.5 DuPont’s Dividend History

Figure 5.6 Dow Chemical’s Dividend History

Figure 5.7 McDonald’s Revenue and Earnings

Figure 5.8 DuPont’s Revenue and Earnings

Figure 5.9 Dow Chemical’s Revenue and Earnings

Figure 5.10 McDonald’s Debt Ratio

Figure 5.11 DuPont’s Debt Ratio

Figure 5.12 Dow Chemical’s Debt Ratio

Chapter 7

Figure 7.1 Important Dividend Dates

Figure 7.2 Caterpillar—Dividend per Share and Payout Ratio

Figure 7.3 Deere—Dividend per Share and Payout Ratio

Figure 7.4 Cummins—Dividend per Share and Payout Ratio

Chapter 9

Figure 9.1 OHLC Line

Figure 9.2 Candlestick

Figure 9.3 U.S. Steel—Line Chart.

Figure 9.4 U.S. Steel—OHLC Chart.

Figure 9.5 U.S. Steel—Candlestick Chart.

Figure 9.6 Apple—Scaling Five Points.

Figure 9.7 Yahoo—Scaling One Point.

Figure 9.8 Types of Doji Sessions

Figure 9.9 Doji Sessions on Stock Chart.

Figure 9.10 Spinning Tops

Figure 9.11 Hanging Man and Hammer

Figure 9.12 Long Candlesticks

Figure 9.13 Engulfing Pattern

Figure 9.14 Harami and Harami Cross Patterns

Figure 9.15 Doji Star (two-session) Patterns

Figure 9.16 Meeting Lines and Piercing Lines

Figure 9.17 Thrusting Lines and Separating Lines

Figure 9.18 White Soldiers and Black Crows

Figure 9.19 Morning and Evening Star and Doji Star

Figure 9.20 Abandoned Baby

Figure 9.21 Squeeze Alert

Figure 9.22 Tasuki Gap

Figure 9.23 Gap Filled

Chapter 10

Figure 10.1 Trendlines.

Figure 10.2 Up Channel.

Figure 10.3 Down Channel.

Figure 10.4 Flat Channel.

Figure 10.5 Ascending Triangle.

Figure 10.6 Descending Triangle.

Figure 10.7 Symmetrical Triangle.

Figure 10.8 Rising Wedge.

Figure 10.9 Falling Wedge.

Chapter 11

Figure 11.1 Bullish Moving Average Crossover.

Figure 11.2 Bearish Moving Average Crossover.

Figure 11.3 Bullish Price Crossover.

Figure 11.4 Bearish Price Crossover.

Figure 11.5 Moving Average Marking Support in an Uptrend.

Figure 11.6 Moving Average Marking Resistance in a Downtrend.

Figure 11.7 Bollinger Bands as Range Markers.

Chapter 12

Figure 12.1 Rising Channels.

Figure 12.2 Falling Channels.

Figure 12.3 Level Channels.

Figure 12.4 Narrowing Breadth.

Figure 12.5 Widening Breadth.

Figure 12.6 Support to Resistance Flip.

Figure 12.7 Double Top.

Figure 12.8 Double Bottom.

Figure 12.9 Head and Shoulders.

Figure 12.10 Inverse Head and Shoulders.

Figure 12.11 Flags.

Figure 12.12 Pennants.

Chapter 13

Figure 13.1 Accumulation/Distribution (A/D)

Figure 13.2 Chaikin Money Flow (CMF)

Figure 13.3 Money Flow Index (MFI)

Figure 13.4 On Balance Volume (OBV)

Chapter 14

Figure 14.1 Relative Strength Index (RSI)

Figure 14.2 Moving Average Convergence Divergence (MACD)

Figure 14.3 Stochastic Oscillator

Chapter 15

Figure 15.1 Reversal and Confirmation at Support and Resistance

Guide

Cover

Table of Contents

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ACKNOWLEDGMENTS

Many thanks to the editorial and publishing staff at John Wiley & Sons, including Nick Wallwork, Jeremy Chia, and Syd Glanaden; to the production staff in Singapore and Hoboken, notably Chris Gage; and to the illustrator, who has brought this book to life with creative additions.

ELEMENT KEY

unnumber Definitions
This symbol is found in boxed notations providing specific definitions of options terms. These are placed within the book to accompany and augment discussions relevant to each definition.

unnumber Key Points
These highlighted sections emphasize key points or add observations, rules of thumb, resources, and added points that options traders can use.

unnumber Valuable Resources
These sections provide links to websites where you will find added value for particular options discussions, to further expand your options knowledge base.

unnumber Examples
Numerous examples illustrate points raised in context and provide a view of how the issues might apply using actual options trades. This is intended to demonstrate practical application of the principles being presented.

INTRODUCTION

Throughout history, people with new ideas—who think differently and try to change things—have always been called troublemakers.

—Richelle Mead, Shadow Kiss, 2008

Do you favor fundamental or technical analysis?

Many market observers favor either fundamental analysis or technical analysis, exclusively. But both offer value, in different ways. This book makes a case for using both systems together to identify quality companies and their stocks, and to then time trades to increase profits and improve timing of trades.

Fundamental analysis is often associated with conservative and long-term investing. It is the reliance on financial statements and other financial information about a company, intended to identify the levels of capital safety and strength, as well as earnings potential. The drawback of fundamentals is that the information is outdated by the time it is used; for example, financial statements normally are issued several months after the end of the fiscal year.

Technical analysis is focused exclusively on current price and trading volume information: the study of price movement in the stock versus the fundamental emphasis on financial attributes of the company. Price is judged on charts, with the shape and speed of price movement used to anticipate trends and reversals. Reliance is not only on the price level itself but also on volume of trading, moving averages of the price over time, and momentum of trading. The drawback of technical analysis is that none of the indicators can be relied on consistently; short-term price movement is random, so technical analysis is not an exact science.

Even with the drawbacks of fundamental and technical analysis, many analysts recognize that the two disciplines affect one another, and are clearly related. Used together, investors and traders may improve the selection of stocks and the timing of trades to improve profitable outcomes in their portfolios.

The idea that combined use of two different approaches to analysis could produce improved results is intriguing. For many years, great energy has been put into perfecting analysis, notably with widespread use of automated systems and advanced algorithms, methods of calculating likely movement of price based on variables. The algorithm is too complex to calculate by hand, so high-frequency traders (HFTs) rely on sophisticated programs to time large-dollar value trades based on very small changes in price. This technical system today accounts for as much as 50 percent of all trades on U.S. markets. Other issues surrounding the problems associated with HFTs and regulating them highlight the growing importance of this trading trend. Interest in automated systems that give an edge to some traders over others has led to controversy and even regulatory steps to curtail high-frequency trading activity.¹

The advantage that HFT trading provides is clear; but it is less clear how much negative impact the practice has on individual trading. The high concentration of dollars traded has led to many losses among institutions, but for individuals the impact is not as clear. This book is concerned with methods that investors and traders can use to improve overall profitability in investing and trading stocks, not as part of larger-volume trading practices but in the management of an individual portfolio. The premise is that a typical individual does not have access to algorithms and other tools, and must rely on exceptional analytical methods to beat the averages of market investing and trading. To accomplish this goal, the book is designed to present the basics of both fundamental and technique analysis in two parts.

Part I (Fundamental Analysis) contains seven chapters designed to introduce and examine the essential fundamental sources—financial statements, annual reports, and fundamentals not found in reports. This section also explores the many ratios and trends that are valuable to anyone employing the fundamentals to select companies as viable investment candidates. The section also devotes an entire chapter to a detailed analysis of five key trends every investor needs to track, including an explanation of how to track and interpret them.

Part II (Technical Analysis) provides an equally in-depth examination of the major technical attributes and indicators and has eight chapters. It includes analysis of market theories and what they mean; charting analysis and interpretation, trends; and moving averages. This section also provides chapters on price indicators, volume indicators, momentum oscillators, and confirmation.

The purpose of this book is beyond explaining the indicators and their meaning. It is designed to show how the combined use of fundamental and technical indicators can be put into action to create an effective program to build a portfolio, manage its risks, and time entry and exit based on ever-changing indicators. This helps generate additional income while preserving the conservative standards that most investors need and want.

Note

¹ Carol Clark, “How to Keep Markets Safe in the Era of High-Speed Trading,” Chicago Fed Letter, October, 2012, www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cfloctober2012_303.pdf.

PART 1
        FUNDAMENTAL       
                ANALYSIS       

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!