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One can classify sector Exchange Traded Funds (ETFs) into different categories based on its construction and its management. Below are different types of sector ETFs.

1. Market Weight Sector ETFs – are sector ETFs which are constructed based on market capitalization for the sector/industry/index it is tracking. These sector ETFs tend to biased towards large-cap stocks (and poorly tack small cap stocks) as in most sectors most of the market is capitalized by a handful of big companies. Advantages include high liquidity, less downside risk and good overall market exposure.
2. Equal Weight Sector ETFs – are sector ETFs which are constructed by assigning equal weight to all stocks in a sector/industry. They tend to outperform market weight ETFs when the small caps are outperforming large cap stocks. Advantages include better reward and better instruments for short-term trading. But as most equal weight ETFs have periodic rebalancing of portfolio, they have high expense ratio.
3. Fundamentally Weighted Sector ETFs – are sector ETFs constructed based on fundamentals of stocks in the sector. Undervalued stocks which strong fundamentals tend to get more weight. Advantages include better risk to return. As the companies’ fundamentals change frequently, these ETFs needs regular portfolio rebalancing and thus can be expensive.
4. Leveraged Sector ETFs – are sector ETFs which tend to outperform market movements by using leverage (using options and futures). The effect is similar to trading on margin; both profits and losses are magnified. They are good for short-term trading but tend to have very high expense ratios and have high downside risk.

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The Week Ahead: A third straight week of market gains was propelled by some positive economic numbers as the three major indices have already gained as much as 25% from the early March lows. The Case Shiller Home Price Index and consumer confidence numbers will be important numbers to watch on Monday. The ISM Manufacturing report along with construction spending and pending home sales are due by Tuesday. Watch the jobless numbers and factory orders on Thursday but especially the employment report on Friday. In another development, the G-20 Financial Summit in London starting Friday will pre-stage next week's market open.

Stocks to Watch: Shares of Plantronics (PLT) rose sharply and are solidly above the 50 day moving average after announcing plans to outsource its blue tooth headsets to a China supplier to boost profitability. KHD Humboldt Wedag International (KHD), a maker of equipment for cement and coal processing, fell sharply after a dramatic turn from profitability of 1.39 to a loss of .23 and a 50% reduction of its staff. Shares of Arbitron (ARB) have been strong of late as they received an upgrade by J.P. Morgan, but shares of Tesoro (TSO), a refining company, were weak after a downgrade by a major brokerage.

Special Note: A pause in the current but dramatic rise in stocks would not be a surprise near term as the second quarter of 2009 begins this week. Earnings expectations for Q1 have come way down from previous estimates suggesting the market may have discounted many of the bad reports to come in April. If so a continuation of the recent rally may be in the cards next month. In the meantime the debate will be whether short covering is driving the current rally or real buying based on fundamentals.

Commentary provided by Barry Ward, Registerd Principal, NobleTrading.com, Inc.

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Short hedge, also known as selling hedge, is a hedging practice mainly practiced by institutional traders, hedge funds and commodity producers to hedge against future price volatilities. In short hedge, the trader shorts a financial instrument (mostly futures and options). Selling hedge is mainly practiced for agricultural commodities but can also be practiced for other financial instruments like stocks and fixed income securities.

In short hedge, usually the trader takes short position for the futures contract which has be same underlying that the trader proposed to deliver. Fore example if the trader is proposed to deliver stocks, which he has taken long position, at a future date and is in risk of fall in price, can short a future contract which has a price at/around/above current spot price. Thus if the price of stocks fall, the price of futures contract also falls and thus the trader can close his short position with a profit with fully or partially fills his loss of his closed long position in stocks.

Short hedge is considered as a more complex strategy than long hedge. With short hedge, there is always a chance of basis risk, risk of both not getting enough profit and the loss of costs involved in futures trading. This scenario occurs when the long (holding) instrument price stays equal or around the spot trading price of shorting the futures contract.

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Bearish belt hold is a trend-reversal candlestick pattern indicating the beginning of a new downtrend after a significant uptrend. It is a single candlestick pattern formed of a long black (colored or bearish) candlestick, which is an opening marubozo (have no upper shadow). Bearish belt hold candlestick occurs frequently and is considered less reliable and thus confirmation of trend change is necessary.



The requirements of bearish belt hold candlestick are,

• The candlestick should form after a significant uptrend.
• The price should open above a significant gap (exception: forex charts) and the opening price should be the highest price of the day.
• The day should be noticeable with high bearish activity and the price should close at or near the lowest price of the day.

Bearish belt hold candlestick appears when bulls fail to keep the upward trend (often above a significant resistance). Many traders begin to sell-off their positions and this mark the beginning of a new downtrend.

Reliability of bearish belt hold candlestick is low; reliability increases with increase in real-body of the bearish candlestick, increase in trading volume and with weakening of the previous uptrend. The confirmation of trend-reversal can be a bearish candlestick, a lower gap opening or a lower close on the next trading day. Traders are also used to use other tools and indicators confirm price trends and to enter and exit trades.

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American Depository Receipt is a depository receipt representing one or more shares of a foreign company that is traded publicly in U.S. markets. There are many two types of ADR, as unsponsored and sponsored ADR.

1. Unsponsored ADR – This is ADR which involve no direct involvement of the foreign company (whose shares are involved). Custodian banks buy shares of the company, hold then, and issues ADRs through a brokerage firm. The ADR holder may not receive all the benefits associated with the shares. Unsponsored ADRs are traded usually over-the-counter.
2. Sponsored ADR – This is ADR which involve direct involvement of foreign company. The company chooses a single depository bank and registers DRs with SEC. The ADR holder receives all share holder benefits. Sponsored ADRs are usually traded through major exchanges like NYSE and AMEX.

ADR holds many advantages for investors.

• ADRs help investors to invest in big foreign companies and are good instruments for portfolio diversification.
• They help the investors to profit from many emerging market companies (high risk high return instruments).
• All transactions including buying the shares, dividend payments and capital gains are done in U.S. Dollars.
• The competitive rates of Euro and U.S. Dollar over other market currencies also benefit the investor.
• ADRs offer more transparency and stability than trading the stock directly in a foreign market.

But ADRs also holds some additional risks; economic and political changes of foreign countries, currency-exchange rate changes and high volatility of foreign share prices, etc. can cause troubles.

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Herrick Payoff Index (HPI) indicator is an indicator for futures and options traders which can be used to confirm trends and to predict trend changes. The indicator was developed by John Herrick, and was limited early to only some traders; in early 1980s it became more popular among traders. HPI is a complex indicator and this necessitates the use of a computer. The formula is


Where K is today’s HPI and Ky is yesterdays HPI
M is today’s mean price ((high + low)/2) and My is yesterdays mean price.
C is the value of one cent move or a constant for all contracts.
V is today’s trading volume.
I is the difference between today’s and yesterdays open interest (absolute value). And
G is the greater of today’s and yesterday’s open interest.

At least three weeks of data is needed for successful trend interpreting. HPI can only be applied to daily data; not to weekly or intraday data. When HPI is above the centerline, the trend is considered bullish and when HPI is below the centerline, the trend is considered bearish. In simple, rising open interest in a uptrend is a bullish signals and in a downtrend is a bearish signal and vice versa. Trends are confirmed when price and HPI is in same direction.

The divergences between HPI and price are important signals. Bullish divergence is identified when price is at a new bottom but HPI has a higher bottom than previous bottom. Similarly bearish divergence is identified when price is at a new high but HPI has a lower top.

Herrick Payoff Index is considered as a good indicator because it also considers open interest in addition to price and volume. The downsides are it is complex and can only be used with instruments having open interest (futures and options).

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Exchange Traded Funds (ETFs) have many advantages over other financial instruments. But they also have some disadvantages. The effect of these disadvantages on a trader’s portfolio can differ with trading goal, risk capital involved, portfolio diversification, trading style, market knowledge, ETF type, tracking index/sector, etc. Below are some major disadvantages of trading ETFs.

1. Trading costs – one of the major advantages of ETFs is that they are traded just like stocks, but stock trading involves brokerage fees so does ETF trading. This can significantly reduce the profit of an active ETF trader.
2. Underlying volatility – ETFs passively track other financial instruments, which can be liquid or volatile. Usually market indexes are less volatile than specific sectors or industries. Similarly international ETFs which track indexes of countries/regions with strong fundamentals are less volatile.
3. ETF liquidity – Although the liquidity of ETFs match liquidity of tracking index, their own trading volume is also a factor worth noticing. With coming of new types of ETFs to the market, now there are quite a few not-so-liquid ETFs having large differences between ask and bid prices.
4. Capital gains distribution – most ETF firms invest capital gains to the market, which is often the right thing to do. ETFs which distribute capital gains to ETF holders are making the shareholders qualify for capital gains tax.
5. Dollar Cost Averaging – DCA is a simple but effective way of building a big portfolio. But the costs involved in ETF trading makes DCA less-effective (unless trading through a discount broker).

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Depository Receipts or DRs are negotiable securities traded on US and European stock exchanges but represents a foreign company’s publicly traded shares. In short, a depository receipt represents one of more share of a foreign company traded outside the country. DRs are traded just like stocks and DR holders have same privileges as a local shareholder (voting rights and dividends). The most common examples of DRs are American Depository Receipt (ADR) and Global Depository Receipt (GDR).

The process of issuing a DR (e.g.: ADR) is,

• A depository bank (U.S. institution) buys a number of shares of a foreign currency through its foreign branch or through a local custodian bank.
• The above step is initiated usually through an U.S. broker usually with the help of a local brokerage firm.
• Once the custodian bank verifies the delivery of shares, the depository bank issues ADRs to the U.S. brokerage firm based on a pre-determined ADR ratio.
• Now the ADRs can be publicly traded though U.S. exchanges like NYSE, Nasdaq and AMEX.
• All transactions are done in U.S. dollars (also in Euro – European exchanges).

There is price parity in local and foreign traded price underlying shares of the DR. Any price diversion (in dollar value) can be used by the broker as an arbitrage opportunity. Fore example, if the dollar value of local share is less than DR share value, then the broker will buy more shares from local market to issue ADR; and if the local share price is higher than DR share value, then the broker will sell ADRs back to local market (known as Cross-border trading).

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Bearish Mat Hold is a bearish trend continuation candlestick pattern indicating continuation of prevailing downtrend even after a temporary halt in the trend (bullish days). It is one of the highly reliable candlestick formations which is rare and is often difficult to identify because of its strong resemblance to Falling Three Methods pattern. Both are five candlestick patterns; the major difference is in middle day candlesticks which are lower (in mat hold) than the counterparts of falling three methods.


The requirements of bearish mat hold candlestick formation includes,

• The formation should occur in a noticeable downtrend (if not it is considered less-reliable).
• The first day should be a day of high bearish activity with a long bearish (black or colored) candlestick.
• In second day there should be a small-bodied bullish (white or colorless) candlestick which gaps away from the first day candlestick.
• The third and fourth days should be bullish days, and these small bodied candlesticks should stay within the lower range of first day candlestick.
• In fifth day there should be a long bearish candlestick which closes at a new low.

Bearish mat hold formation develops as bulls fail continuously to take prices above the first days range. This greatly enhances the confidence of the bears and prices are then taken to new lows. Although considered as a highly reliable pattern confirmation of trend-continuation is still suggested which can be a low trading gap or bearish candlestick on new day.

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Many have tried to categorize individual and institutional investors to different categories based on their investment goals, risks, position sizing and more. One of the most successful classification system is the Bailard, Biehl and Kaiser or BB&K model which categorize individual investors to 5 categories.

1. Individualist investor – these are do-it-yourself kind of investors who make their own trading strategies and their own trading decisions. They do so after proper analysis and research.
2. Adventurer investor – these are strong will (can also be greedy) investors who takes more risk to have more profit. They are noticeable with their high position sizing, trading in volatility and institutional investor like approach.
3. Celebrity investor – these are investors who always look for the ‘hot’. They try to keep in touch with the latest strategies, news and fad. Usually they do not have any clear cut position sizing or asset allocation strategies.
4. Guardian investor – these are investors who try to guard their wealth rather than accumulate more wealth. They always look for less risky investment options and they invest only after thorough analysis.
5. Straight Arrow investors – these are investors who has all or some characteristics of above investors.

The major factors which make one investor fit to a category are his definition to risk and time horizons, his understanding of market and market factors and his fear and greed. One cannot permanently put an investor in one category as his trading style, market understanding, profit goals, all change with change in time.

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Exchange Traded Funds (ETFs) are flexible instruments to fulfill various portfolio goals. Different traders employ different strategies to profit from ETFs. Below are some most followed ETF trading strategies.

1. Buy and Hold Strategy: This is so far the most followed ETF trading strategy; for profiting from broad indexes or sectors, and also for limiting overall portfolio risk. Diversity of ETF funds is the core of this strategy. Traders can choose fixed incomes or steady portfolio growth and can profit from growth of almost all financial products – stocks, bonds, funds, commodities, indexes, emerging markets, currencies, etc.
2. Active long-term trading strategy: This strategy is much like buy-and-hold strategy but it includes frequent or periodic portfolio rearrangements. For example if the trader thinks a sector/industry/market/currency is going to outperform others he can buy more shares of ETF which tracks it and can sell shares of less-performing ETFs.
3. Active short-term trading strategy: This strategy works just like short-term trading of equities. The fact that ETFs are traded just like stocks makes it possible for day traders and swing traders to buy and sell them whenever they want. Traders can also short-sell ETFs. The only factor to be considered is the trading charges but is avoided by higher position sizing and trading with discount brokers; fore example a trading charge of $10 can be affordable for an above $10,000 trade.
4. ETFs wraps: wraps are good for investors who prefer a fee-based investment account. ETF wraps are considered more beneficial than mutual fund wraps and are now getting increasingly popular. To know more about visit What is ETF Wrap? and Advantages of ETF Wraps.

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The Week Ahead: The overdue bounce in the stock markets is the best since November of last year with all 30 DOW stocks up for the week and ending a four week losing streak. Markets will try to gain further traction on Monday's industrial production report followed by Tuesday's Producer Price Index and housing starts. Wednesday will end a two day Federal Reserve meeting on interest rate policy and the release of the Consumer Price Index. Jobless claims and leading indicators are out on Thursday and Ben Bernanke will give a speech on Friday.

Stocks to Watch: Sunoco Inc. (SUN) plans to cut 750 jobs this year which is 20% of its work force, but shares continue to weaken on the slower growth outlook. PPG Industries (PPG) also plans to cut 2500 jobs and will take a Q1 restructuring charge of .88 cents a share. Italian sunglasses maker, Luxottica Group (LUX) warned that January sales were weak and that the current environment is very uncertain and will not be giving '09 guidance. The stock maybe reversing a recent bounce. Finally, shares of Humana (HUM) have been rising based on takeover speculation.

Special Note: The large 10% move up in the major indexes can be construed as a technical bounce where a lot of cheap stocks rallied all at once, but cheap stocks don't make a bull market. The rally was led by financials, industrials, discretionary, materials, and technology. The FOMC meeting could be important in that the markets will wait to see what they may or may not be doing to relieve credit conditons going forward.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Adaptive moving average (AMA) considered as one of the newer moving average tool for finding trend changes. AMA was developed to overcome the disadvantages of other moving averages (simple, exponential and weighted moving averages); especially their time lag in predicting the trends and the generation of false trading signals. Although there is not much evidence that adaptive moving average offer better results than others, it is a very good indicator when used in conjunction with other tools.


Adaptive moving average is a moving average changing its sensitivity with price fluctuations. Like exponential and weighted moving average it gives more weight to new price changes. AMA becomes more sensitive when price is moving in a direction – stays farther to current price; and becomes less sensitive when price is in volatility – stays close to current price. Just like other moving averages, buy signals are generated when prices goes above AMA and sell signals are generated when prices moves below AMA.

There are different weight factors available for calculating adaptive moving average. The most used one is the Efficiency Ratio (ER) by Perry Kaufman. ER of Kaufman Adaptive Moving Average measures the strength of the trend by giving more weight to recent day; the values range from -1.0 to +1.0. The formula for calculating ER is calculated as total price change for a period (usually 10 days) divided by sum to absolute price change for each bar.

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Bullish mat hold is a bullish trend-continuation candlestick pattern, which indicates continuation of an uptrend ever after some bearish days. This is a rare but highly reliable 5 candlestick pattern which has strong resemblance to bullish rising three methods pattern; and is thus often not easy to identify. The major difference is in the position of middle candlesticks; they are higher than their counterparts in rising three methods.


The requirement of bullish mat hold candlestick formation include

• The formation should form after a noticeable uptrend.
• The first day should be a long day with high bullish activity.
• The second day candlestick should be a small real bodied candlestick which gaps away from first day candlestick and should be bearish in nature.
• The third and fourth day candlestick should also be small bodied ones and should be stay within the upper range of first day candlestick
• The fifth day should be noticeable with a long white (bullish/colorless) candlestick closing on a new high.

Bullish mat hold pattern develops as the bears continue to fail to make any significant success – creating low less than first day’s range. This enhances the confidence of bulls and prices are taken to new highs. Although the bullish mat hold formation is considered as a highly reliable formation, confirmation is still suggested which can be a bullish candlestick of upside gap on new day.

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Many experts believe that the most appropriate portfolio allocation is the corner-stone for a trader’s success. One of the major advantages of Exchange Traded Funds (ETFs) is their flexibility which make them good instruments to profit from any market condition or to limiting risks or to save trading time. Right way of ETF portfolio allocation can help investors to achieve various goals. Here are some tips.

1. The ETF portfolio allocation should facilitate the traders trading goals. Fore example higher ETF allocation can help traders in retirement planning and in long-term profiting.
2. Fixed income ETFs are good instruments to fulfill income needs and equity ETFs also tend to provide higher dividends. Where as smart ETFs and leverage ETFs tend to provide more return (for higher risk).
3. ETF portfolio allocation should also match the risk tolerance. If the trader has higher risk tolerance he/she can allocate major portion of portfolio to equities and equity ETFs, where as if he/she has less risk tolerance it is better to invest more in ETFs tracking large cap stocks, broad markets, bonds and other liquid instruments/markets/sectors.
4. Tax benefits are a major ETF advantage and thus are better investment option for peoples with tax issues.
5. Investing in ETFs for longer time frames can help investors to take more risks.
6. Persons who wish to maximize the portfolio growth can opt to buy shares of certain high growth sector/market specific ETFs and/or ETFs which track small cap and value stocks.
7. Make necessary rearrangements of portfolio allocation with changing time and market conditions.

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Like any other wealth-building practices, hedging involves both benefits and drawbacks. These benefits and pitfalls differ with trading style, investment preferences, market changes, other risk-minimizing practices and trading goals. In short, the benefits that one gets from hedging his risks can be not there for other trader.

Advantages of Hedging

1. Hedging using futures and options are very good short-term risk-minimizing strategy for long-term traders and investors.
2. Hedging tools can also be used for locking the profit.
3. Hedging enables traders to survive hard market periods.
4. Successful hedging gives the trader protection against commodity price changes, inflation, currency exchange rate changes, interest rate changes, etc.
5. Hedging can also save time as the long-term trader is not required to monitor/adjust his portfolio with daily market volatility.
6. Hedging using options provide the trader an opportunity to practice complex options trading strategies to maximize his return.

Disadvantages of Hedging

1. Hedging involves cost that can eat up the profit.
2. Risk and reward are often proportional to one other; thus reducing risk means reducing profits.
3. For most short-term traders, e.g.: for a day trader, hedging is a difficult strategy to follow.
4. If the market is performing well or moving sidewise, then hedging offer little benefits.
5. Trading of options or futures often demand higher account requirements like more capital or balance.
6. Hedging is a precise trading strategy and successful hedging requires good trading skills and experience.

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The Week Ahead: As this week begins, unemployment is at a 25 year high of 8.1% while the DOW and S&P 500 are at 12 year lows. With this fresh on investors minds, evidence of a turnaround may be needed turn the tide of falling stock prices. Ben Bernanke will speak on Tuesday when wholesale inventories are released. Keep an eye on the jobless claims numbers on Thursday along with advanced retail sales and business inventories. Friday's trade balance and Import Price Index are important too.

Stocks to Watch: On the heels of a sweetened buyout bid for Genentech (DNA) by pharmaceutical firm Roche of Switzerland on Friday, comes the surprise takeover of Schering Plough (SGP) by Merck & Co. early Monday morning. As a new tax season unfolds shares of H&R Block (HRB) jumped on good Q3 results and an 11% increase in revenues. Steinway Musical Instruments (LVB) showed good profitablity in Q4 beating estimates handily and reversing a sharply declining stock. Fuel Systems Solutions (FSYS) missed Q4 estimates badly as the alternative fuel products company dropped 32%.

Special Note: Since Inauguration Day in January, stock markets are down on average around 20%. Much of this decline occurred after the release of the budget from the Obama Administration. With the government announcing approximately 1.8 trillion dollars in spending programs just in the last 3 weeks and the claim that the budget deficit will be cut in half in four years, investors may be reminded of similar false pronouncements by the Bush Administration in 2005 after record budget deficits then, but better economic times than now.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Successful using of Gann tools for finding and exploiting trading opportunities require good timing, talent and knowledge. But ones you are an expert they can offer you above average profits and can offer significant market knowledge as Gann indicators cover past, present and future market on a single screen. The basic requirements of successful Gann set are,

1. Determination of time-units. Gann studies (preferably) require squaring of time and price; this set up can give the 45 degree angle for 1x1 angle. If the chart is not properly scaled traders can’t draw lines based on angles; instead they can use ratios (e.g.: 2x1 angles indicate 2 unit of price movement for one unit of time).
2. Time periods. Although Gann indicators can be used to any time periods, they offer better results when used in intermediate time periods (weekly or 10-day charts).
3. Determination of highs or lows to draw lines. Traders can use recent highest high or lowest low to draw the lines. It would be better to use Fibonacci tools and pivot points to determine these line originating points.
4. Slops of lines. Gann lines should always be plotted to right side; downwards if from a high (resistance) and upwards if from a low (support). The most used slops are 8x1, 2x1, 1x1, 1x2 and 1x8. Market rotates according to ‘Rule of All Angles’, which is when one angle is broken then the price, moves to next angle.
5. Clustering with other indicators. Traders should use appropriate time indicators to get better results with Gann indicators. Fore example Fibonacci time zones and retracement levels are excellent tools to use in conjunction with Gann indicators to predict market movements for long time periods.

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Falling Wedge, also known as declining wedge, is the wedge formation which has a strong bullish bias. They can be trend continuation pattern, if preceded by an uptrend or can be trend reversal pattern, if preceded by a downtrend. Falling wedge formation occurs when prices increasingly tend to consolidate to a lower price levels. The formation helps long-term traders as it usually takes months to develop.


In falling wedge formation, both upper (resistance) and lower (support) have downward slops; upper line is steeper than lower one. Prices tend to make lower highs and lows. Declining wedge formation occurs when bears continuously fail to break the lower support level. Volume of trade tends to decrease as the pattern forms. At one time breakout occurs; mostly upwards. Breaks up is noticeable with a significant increase in volume.

Falling wedge formation is one of the difficult formations to identify and trade. The formation also has high failure rate. To qualify as a valid falling wedge formation there should be at lest two, ideally three, reaction highs and lows that touch the upper and lower lines. The pattern is less reliable when there is no much increase in volume at breakout.

Falling wedge formation is more reliable as trend-continuation patterns. Traders enter buy orders when the price breaks up. Often there can be correction movement after breakout to test the reliability of new support level. Traders should use other tools to confirm trend-changes and to figure out entry and exit points.

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Ulcer index or UI is a popular indicator which shows the riskiness of an investment. The indicator was developed by Peter G. Martin and Byron B. McCann and was published in 1989 in the book “The Investors Guide to Fidelity Funds”. Ulcer index is mainly used by traders to measure short-term risk associated with an instrument; stock, index, funds or commodities.

Ulcer index differs from standard deviation and from other risk indicators in considering only the downside volatility. The idea is that, from a trader point of view only the downside risk is to be considered; as upside volatility usually favors the stock holder. Ulcer value for an investment is calculated by the formula

Where R is the percentage drop of closing prices calculated as
R = 100 x (Price –highest price)/ highest price.

High values of ulcer index shows high risk associated with an instrument and if the instrument drops in price, it can take a long time to recover. Thus these kinds of instruments are not suitable for traders looking for short-term profits or who are trading on risk-capital. Most traders use 14-day ulcer index for technical analysis. Traders can also set a safe ulcer level (eg: at 5) for screening stocks, and can use the index for comparing two or more related stocks (same industry or section) and to trade the most suited ones. Remember ulcer level does not consider any upward movements and it drops with it.

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The Week Ahead: The GDP slipped 6.2% last quarter. Taxpayers now own 36% of Citigroup with the government's $25 billion conversion of preferred stock to common. General Electric cut its dividend and consumer sentiment dropped again in February. An assortment of economic reports to contend with include personal income and construction spending on Monday, auto sales on Tuesday, factory orders on Thursday, and another worrisome unemployment report on Friday. Also, watch Ben Bernanke's testimony to Congress on Wednesday.

Stocks to Watch: Standard & Poors cut counter party credit and financial strength ratings on life insurance companies including Lincoln Financial (LNC) Conseco (CNO), and Protective Life Corp. (PL). Shares of Republic Services (RSG) fell to a multi-month low after a Q4 loss was attributed to the cost of acquiring Allied Waste Corp. A 50% cut in the dividend of Packaging Corp. of America (PKG) was blamed for the stocks drop to 9 year lows. Shares of Petrohawk Energy (HK) were hit on news of a planned 22 million share offering.

Special Note: The Dow Industrials are poised to reach the 6000's for the first time since 1997 on news the government will inject $30 billion in a revised bailout into the "too big to fail" American International Group which is now a penny stock and a former member of the DOW just last year. It seems the markets are building a head of steam to the downside in what could be a washout low later this month or April. If this occurs, the major indexes are poised for there biggest bounce since the peak in '07.

Commentary provided by Barry ward, Registered Principal, NobleTrading.com, Inc.

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Hedging is one of the most commonly used financial words which denote any practice to reduce or remove future loss associated with an investment or instrument. Hedging is like insurance; actually insurance is also a hedge. Today one can hedge against almost all type of future losses including disasters, market volatility, robbery, inflation, interest rate changes, and more. Hedging do not stop these events from happening but enables a person to reduce the effect (loss) of the events.

From a trader or investor point of view, hedging is trading or investing in instruments with negative correlations; i.e. if one goes up then the other goes down. Usually, stock traders hedge their portfolio risks by using derivatives – futures and options.

Futures are the most widely used hedging method; mostly practiced by institutional traders, companies and other big players of the market. Futures can be used for both short and long-term hedging. Futures allow the holder to buy or sell the underlying product at a set price at a future time. Thus if the stock that one is holding is likely to go down, he can trade a futures contract to sell the stock for a fixed price (around current market price) to hedge his loss.

Options are flexible (also can be complex) instruments which are very good hedging instruments for retail traders. Options allow the trader the option to buy or sell the underlying product at a set price at future time; remember there is no obligation.

Hedging includes costs and precise market timings; and it as it reduces your risks, it also reduces the return. Most retail traders in their trading life do not practice hedging. They let their investments to grow/fall with the market. But it is worthy to learn various hedging practices, its effects, and its advantages and disadvantages.

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