MARKET READER: A picker or a follower
BY: Den Somera
There are two methods commonly practiced in investing or speculating in stocks. The first is the use of external or fundamental information such as the profit outlook of an individual company or an economic forecast.
This is known as the bottom-up or top-down strategy. Many make use of it to guide their decisions and it is replete with success stories.
The other method uses internal or technical information that ignores fundamentals and focuses instead on the actual price patterns created by actual buying and selling activities in the marketplace.
As I have said, we would be turning our attention to the various indicators of technical analysis. Compared with the tools of fundamental analysis, they are regarded as more reliable in timing the market. They are persuasive pieces of evidence showing their better practical value in market timing particularly for professional market players.
The various tools devised for studying price trends and cycles have arise from the technical analyst's preferred method of forecasting and timing the market. This is why you may get startled with this question from technical analysis purists: "Are you a picker or a follower?"
What on earth is a picker or follower, you may ask. Let's tackle that. First, who is a picker? Well, a picker is someone who tries to pick the bottom or the top price of a stock. He focuses on predicting the bottom or top prices.
The idea of being a picker is captivating. The trick is to get in (buy) before the price of the stock really goes up and get out (sell) just before the price of the stock goes down.
For being faithful to this type of discipline, one earns the designation of a picker - a bottom or a top picker.
Pickers can be easily spotted by the way they talk. By their language, you can see them in the crowd like I have learned to identify them earlier on in my long years of stock trading. You hear their patent call "This is it, now's the time to buy (or sell)." When the stock price appears to have sunk very low, you will hear this familiar exclamation from bottom pickers: "It can't go any lower!"
So who is a follower? The follower is someone who, rather than trying to catch the entire move, from top to bottom and vice versa, is more concerned about getting confirmation that the price of a stock is indeed trending in one direction. Then, and only then, will the follower jump on board to buy or sell the stock.
The follower is somewhat more conservative. He watches price movement trends. So, he is called trend follower and is better known for the philosophical saying that "By being late, you will be actually ahead in the market."
There are many computerized programs commercially available for trend followers and bottom/top pickers. Trend following indicators include moving averages, MACD (moving average convergence-divergence), MACD-histogram, the directional system, on balance volume, accumulation/distribution, and many others.
For bottom/top pickers, there are many exciting computerized packages for oscillators. Oscillators are cycle-measuring tools that identify turning points, such as when the stock is overbought or oversold. They include momentum or rate of change, stochastic, the relative strength index, Williams %R and other exotic price cycle analysis tools.
A classic reference book on technical analysis is the one written by Robert D. Edwards and John Magee, Technical Analysis of Stock Trends. Another good read is one by Victor Soperando and T. Sullivan Brown, Principles of Market Analysis and Forecasting and the one by William F. Eng, The Day Trader's Manual.
There are more books on the subject written in simpler presentations. Scan the Internet, if these are not locally available.
November ended as another volatile and disappointing month. But November's last trading week was a special treat as Wall Street proceeded to go on a four-day rally that buoyed the Philippine Stock Exchange index (PSEi), even as it closed a day earlier on Thursday in observance of Andres Bonifacio day.
Thanks to this shortened trading week and its resulting long weekend. The market was spared from unnecessarily reacting to the tension brought about by the call of Senator Antonio Trillanes and company for the ouster of the President on Thursday.
Hopefully, we may face better prospects this week. In the US, Treasury Secretary Henry Paulson is expected to announce today the rescue plan for struggling homeowners that investors are pinning their hopes on to help prevent the subprime problem from pushing the US economy to recession.
On the local front, we have new public offerings. The board of the Philippine Stock Exchange has approved the public offering of oil and gas bulk carrier Petrolift, Inc. and mining firm Oriental Peninsula Resources Corp.
Petrolift, with BDO Investments as lead underwriter, intends to offer an average of P3.5 billion worth of primary and secondary shares while Oriental Peninsula, with Asian Alliance Investment Corp. as sole underwriter, has decided on an P894-million initial public offering.
From latest sources, Petrolift has decided to reset its public offer while Oriental Peninsula is set to kick off its domestic road show today. The offering will start on Dec. 5 and end on Dec. 11. Listing is tentatively set for Dec. 18.
(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach The Market Reader at densomera@yahoo.com).
This is known as the bottom-up or top-down strategy. Many make use of it to guide their decisions and it is replete with success stories.
The other method uses internal or technical information that ignores fundamentals and focuses instead on the actual price patterns created by actual buying and selling activities in the marketplace.
As I have said, we would be turning our attention to the various indicators of technical analysis. Compared with the tools of fundamental analysis, they are regarded as more reliable in timing the market. They are persuasive pieces of evidence showing their better practical value in market timing particularly for professional market players.
The various tools devised for studying price trends and cycles have arise from the technical analyst's preferred method of forecasting and timing the market. This is why you may get startled with this question from technical analysis purists: "Are you a picker or a follower?"
What on earth is a picker or follower, you may ask. Let's tackle that. First, who is a picker? Well, a picker is someone who tries to pick the bottom or the top price of a stock. He focuses on predicting the bottom or top prices.
The idea of being a picker is captivating. The trick is to get in (buy) before the price of the stock really goes up and get out (sell) just before the price of the stock goes down.
For being faithful to this type of discipline, one earns the designation of a picker - a bottom or a top picker.
Pickers can be easily spotted by the way they talk. By their language, you can see them in the crowd like I have learned to identify them earlier on in my long years of stock trading. You hear their patent call "This is it, now's the time to buy (or sell)." When the stock price appears to have sunk very low, you will hear this familiar exclamation from bottom pickers: "It can't go any lower!"
So who is a follower? The follower is someone who, rather than trying to catch the entire move, from top to bottom and vice versa, is more concerned about getting confirmation that the price of a stock is indeed trending in one direction. Then, and only then, will the follower jump on board to buy or sell the stock.
The follower is somewhat more conservative. He watches price movement trends. So, he is called trend follower and is better known for the philosophical saying that "By being late, you will be actually ahead in the market."
There are many computerized programs commercially available for trend followers and bottom/top pickers. Trend following indicators include moving averages, MACD (moving average convergence-divergence), MACD-histogram, the directional system, on balance volume, accumulation/distribution, and many others.
For bottom/top pickers, there are many exciting computerized packages for oscillators. Oscillators are cycle-measuring tools that identify turning points, such as when the stock is overbought or oversold. They include momentum or rate of change, stochastic, the relative strength index, Williams %R and other exotic price cycle analysis tools.
A classic reference book on technical analysis is the one written by Robert D. Edwards and John Magee, Technical Analysis of Stock Trends. Another good read is one by Victor Soperando and T. Sullivan Brown, Principles of Market Analysis and Forecasting and the one by William F. Eng, The Day Trader's Manual.
There are more books on the subject written in simpler presentations. Scan the Internet, if these are not locally available.
November ended as another volatile and disappointing month. But November's last trading week was a special treat as Wall Street proceeded to go on a four-day rally that buoyed the Philippine Stock Exchange index (PSEi), even as it closed a day earlier on Thursday in observance of Andres Bonifacio day.
Thanks to this shortened trading week and its resulting long weekend. The market was spared from unnecessarily reacting to the tension brought about by the call of Senator Antonio Trillanes and company for the ouster of the President on Thursday.
Hopefully, we may face better prospects this week. In the US, Treasury Secretary Henry Paulson is expected to announce today the rescue plan for struggling homeowners that investors are pinning their hopes on to help prevent the subprime problem from pushing the US economy to recession.
On the local front, we have new public offerings. The board of the Philippine Stock Exchange has approved the public offering of oil and gas bulk carrier Petrolift, Inc. and mining firm Oriental Peninsula Resources Corp.
Petrolift, with BDO Investments as lead underwriter, intends to offer an average of P3.5 billion worth of primary and secondary shares while Oriental Peninsula, with Asian Alliance Investment Corp. as sole underwriter, has decided on an P894-million initial public offering.
From latest sources, Petrolift has decided to reset its public offer while Oriental Peninsula is set to kick off its domestic road show today. The offering will start on Dec. 5 and end on Dec. 11. Listing is tentatively set for Dec. 18.
(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach The Market Reader at densomera@yahoo.com).
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