The Bull Hunters Guide

Today, we’re going to wrap up our series on stock picking strategies. Over the course of this series, we’ve looked at the stock picking strategies that are most commonly employed to great success by those who’ve been in the investment game for a while. While we recognize that no one strategy is going to produce a winner every time, we thought it was worthwhile to look at these notorious techniques to see what each one had to offer in comparison to the others.

As is fitting for a series like this, the last stock picking strategy we’re going to look at is one that is completely different in every possible way from everything that came before. While up until now, the underlying basis of every strategy we’ve covered has been the principle of fundamental analysis, today we’re going to turn that on its head by looking at technical analysis.

Technical Analysis

Technical analysis is focused almost entirely on the view of the market as a whole, with an eye towards its predictable trends and future prices, rather than the makeup and foundation of any one company. As a result, it’s the most predictive of stock picking methods, and in some ways the most radical. It is not without those who swear by it, though.

Technical analysis asserts that just by looking at the prices on the market, we can learn a lot about where that market is moving, because prices tend to move in trends. Working from the maxim that history tends to repeat itself, technical analysts often invest in those companies that show good trends based on market charts, rather than the intrinsic value of the company behind a stock.

Lookout For Market Movements

For that reason, many decry technical analysis as a stock picking strategy with no long term usage. And indeed it isn’t. That said, it never claimed to be. Because a technical analyst is constantly on the lookout for market movements, he or she tends to spend little time sitting on any one stock for very long. They prefer to soak up the profits (or losses) from rapid movements, and then move on, rather than worry about the long term gains to be had from any one stock.

That wraps up our series on the most popular and arguably effective stock picking strategies. Hopefully by now you’ve learned enough to start developing your own strategies, and that they’ll pay off for you in the long run. Join us next time as we embark on an all new avenue of exploration in the exciting world of stock market investment.

Thank you for hanging around for Bullhunter’s second investment series: Part 1 – 10 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Hello fellow Bulhunters

Looking back at the last post, I sincerely hope that you have sorted out the Fundamental Analysis and the Technical Analysis and know how to use both to your advantage. Reading charts is something I love to do and when the various patterns show up, looking for entry and exit points can be fun when you know what to look for. Of course trading is a lot more than just looking at charts so today we will be discussing an advanced strategy known as going short or shorting a stock. More from the Bullhunters Guide eBook…


Going Short - The Napoleon Dynamite Example

When you own a stock, you are said to be long it. The owner of 100 shares of Wal-Mart would be long 100 WMT. When you sell a stock you own, you cancel out your position. You are no longer 100 WMT nor are you short of any shares. But did you know that you can actually sell a stock that you do not own.

Imagine your friend got an autographed picture of John Heder who is the star of Napoleon Dynamite, right after the movie was released on DVD. A few days later you noticed that Heder’s autograph was selling for $500 on eBay. You ask your friend if you can borrow it for a while and he says yes. So you take Heder’s autograph and sell it online for $500.

Six months later Heder has faded back into obscurity. Your friend asks you if he can have his autograph back and you say sure. You go online and see that eBay is flooded with Heder autographs and you buy one for $10. As soon as you receive it in the mail you return it to your friend. He doesn’t even know that you made $490 in the process.

In Wall Street gibberish, you shorted the John Heder autograph. Instead of the old adage, buy low, sell high, you sold high and then bought low. You can do this with stocks and the good news is that you don’t even have to ask permission.


Great Trading Strategy

Well who would have thought. Thanks Sean for bringing this to our attention. How many of you out there even knew this existed. It is another way to bring in some cashflow although it may take some time to actually see the cash depending on how volatile the stock is.

We are powering through The Bullhunters Guide to the US Stock Market and next we will look at an introduction to trading options. That’s right renting shares will be the topic of my next article so stay tuned and subscribe to the feed so you don’t miss out on any of these strategies.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

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Moving along to the next excerpt of The Bullhunters Guide to the US Stock Market we will be tackling the old Fundamental vs Technical analysis which is always rather interesting.  I have met and been in contact with many graduates of the Jamie McIntyre homestudy who are all right about there trading strategies as some only take on the Fundamental analysis and others take on the Technical analysis, and then some use a bit of both.  If it suits your trading system then that’s great.  Whatever works for you is the right thing to do.  Let’s see what Sean has to say in his eBook.

Value investors most commonly prefer fundamental analysis.  This is the rigorous approach of determining the value of a stock and whether or not it is under or overvalued.  Technical Analysis by contrast, examines the price history and the chart patterns of a stock.  Aggressive growth investors are more concerned with the technical analysis and will never buy a stock without first consulting a chart.

Support and resistance constitute the basics of technical analysis.   As a stock’s price fluctuates over time, it might routinely go down to one price (but no lower) and then rise to another price (but no higher).  This low price is considered its support and the high price is its resistance.

For example, if a stock traded in a range of $25 and $35 over the course of six months, $25 would be thought of as its support and $35 would be considered its resistance.  Support can be thought of as a price floor - the stock isn’t likely to fall through that floor.  Resistance is like a price ceiling.

If a stock does fall through its support (floor), this is a very bearish sign.  Who knows how far it will fall.  Technical investors think it will keep going down until it hits an earlier support level.  By the same token, if a stock breaks through its resistance (ceiling), growth investors think the sky is the limit.

At first glance technical analysis may seem a bit silly but there are several reasons to take it seriously.  For one, if several other investors believe in it (which they do) then their actions will create a self-fulfilling prophecy.  Secondly, support and resistance often represent psychological barriers.  Perhaps a lot of buy and holders keep adding to their position each time the stock hits $25.  But if it ever fell much lower, they all might bail causing the stock to plummet in value.

For these and other reasons it is a good idea for even the most fundamentally focused of value investors to consult a chart before buying a stock.  Luckily, several sources on the internet provide charts free of charge.

To have access to these websites and their free charts please download the eBook now if you haven’t already done so.  This also means that you will have all the information at hand when you need to refer to it.  You will find the links on page 27.

I would like to thank all our readers for the votes you have been giving this blog as it spreads the message that can help many stock market traders out there.  Keep it up and it will send us to the top of the charts.  If you haven’t voted, the icons can be found in the right hand column.  Thanks for your continued support.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

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Hello Fellow Bullhunters

I hope you all got to read Seans post yesterday regarding the success of a couple of graduates of the 21st Century Academy homestudy.  I personally know Maria and Pierre and I have to say that they are a great example of what you can achieve when you put yourself into action and go after your dreams.  Congratulations again on your retirement from your day job and now making a living from trading.

I don’t know about you but I am certainly getting more out of The Bull Hunters Guide to the US Stock Market by breaking it down into small chunks and analysing it.  It’s becoming clearer to me each time I write a post and bringing it all together.  Let’s continue…

The Dow financials are cyclicals as well, but they don’t always follow the same cycle as the industrials.  American Express is the most cyclical of this group.  It performs best when the economy is strong and thus consumer spending is strong.

Citigroup and JP Morgan Chase are the most closely related of the stocks in this group as they are both money center banks.  Banks do well when there is a positive disparity between short-term interest rates and long term interest rates, also known as a normal yield curve.  When long-term rates are lower than short-term rates there is an inverted yield curve which is a nightmare for the banks.  The factors influencing the movements of interest rates are beyond the scope of this book but suffice to say that the inverted yield curves are predictors of oncoming recession and therefore money center banks perform best when the economic future looks strong.

American International Group (AIG) is an insurance company.  It benefits from a strong economy because it invests its assets in the financial markets.  But it is the least predictable of the financials because major events like Hurricane Katrina can have a disproportionate impact on insurers.

Market conditions are dependant on many variables so it is wise to determine the value of a stock and then follow your trading system making use of technical analysis to find your entry and exit points.  Remember that a strong economy is when the financials perform the best.  We cannot predict when natural disasters are going to happen or any disaster for that matter that will have an affect on the stock market at any given time.  Writing put options is one way of protecting yourself if you happen to be new to trading and it’s always wise to start with paper trading until you are confident to put your real money into the market.

Yours in prosperity

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

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Hello Fellow Bullhunters

Let’s look at another excerpt from the Bullhunters Guide to get you a little more acquainted with the material.

If you could purchase a security such as a stock or bond, that would pay you a guaranteed $1000 a year for thirty years, how much would you pay for it.   Clearly, you would pay at least $1000, since you would make your money back after only one year.   Just as obviously, you wouldn’t pay $30,000 or more, because it wouldn’t make sense to pay $30,000 just to receive it back in $1000 increments over the next three decades.  So the vaue of our imaginary security is between $1000 and $30,000. 

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