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The Week Ahead: Consumer spending picked up but will they continue buying after cash for clunkers and home buying credits end? Watch auto sales on Tuesday along with construction spending and the ISM Manufacturing Index. On Wednesday factory orders are released. The ISM Non-Manufacturing Survey comes out on Thursday to gauge the service sector. The much anticipated August employment report arrives Friday ahead of the long Labor Day Weekend.

Stocks to Watch: Shares of Williams Sonoma (WSM) reached an eleven month high after a Goldman Sachs upgrade due to cost cutting that will lead to much improved margins. Kansas City Southern (KSU) hit ten month highs after a Morgan Keegan note that the company is poised for a better second half. Netezza Corp. (NZ), a data storage firm, beat Q2 earnings estimates despite being only half of last years level. Finally, Trubion Pharmaceuticals (TRBN) signed a pact with Facet Biotech (FACT) to develop a leukemia drug.

Special Note: Has the market reached another major peak? One very important time tested technical indicator that traders use is flashing such a signal now. NYSE TRIN is the advance/decline ratio divided by the up/down volume. Smoothed over a 21-day moving average it shows a level of .880 just lower than what was reached in October 2007 at .881 when the Dow Industrials reached an all time closing high.

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

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Panic selling, as the name suggests, is the wide scale selling of instruments such as stocks. This leads to a sharp decline in the prices of the stocks and usually marks the start of a downtrend. Panic selling is often triggered by bad market news or predictions; all of which need not be true.

All kinds of traders - individual and institutional short and long-term traders, investors, fund managers - are often involved in panic selling. The selling activity is so high that everyone wants to get out of their holdings as early as possible without any regard/demand to the prices at which they sell. Most traders involved in panic selling may have to suffer serious losses.

Often it is the pure human emotion of fear and nervousness which controls the panic selling activity rather than the fundamental or technical market analysis. Many times, the media too can add fuel to the fire. Markets follow different prevention methods to counter the panic selling activity (and possible market crash).

• Halt of trading activity: trades are halted for the session/day to stop the existing crash and to allow time for traders/investors to evaluate the market.
• Offering (detailed) info or news: to counter the lack of info, market suspicions and wrong interpretations.
• Restricting some key players: right regulation of market makers, institutional traders and broker dealers can also ease the effect of panic selling.

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Bearish three line strike is a candlestick trend continuation pattern, indicating the continuation of an existing downtrend; even after a day of high bullish activity. This is a less reliable and rare candlestick formation comprising four candlesticks; the first three are bearish candlesticks and the fourth one is a long bullish candlestick.

The requirements of a bearish three line strike candlestick pattern include,

• The pattern should be formed in an established downtrend.
• The first three candlesticks are bearish (black or colored) candlesticks with consecutive lower closes. These three candlesticks resemble 'Three black crows pattern'.
• The fourth day is a long bullish day, which opens below previous close and closes above the real-body of the first day candlestick.

The market is characterized by strong bearish trend. The fourth day is the profit taking day for shorts. The high bullish activity on the fourth day indicates that the price may reverse. But the existing downtrend is likely to continue as most shorts have covered their positions and are in search of new short entry opportunities.

Bearish three line strike pattern is a weakly reliable pattern; the pattern is reliable only when formed in an established downtrend. Reliability increases with increase in strength of the downtrend and with increase in real-bodies of candlesticks. Confirmation of trend continuation is definitely required, which can be a lower close, a gap down opening or a bearish candlestick on the fifth trading day.

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The Week Ahead: Comments by Fed chairman Ben Bernanke about a recovering economy although slow to evolve was enough to help lift markets to new highs for the year. The S&P Case Shiller Home Price Index and consumer confidence numbers are released Tuesday while the durable goods and new home sales are due by Wednesday. The preliminary Q2 GDP report will be out on Thursday, but the personal income and consumer sentiment figures will have to wait until Friday.

Stocks to Watch: The existing home sales number helped home building companies like Ryland Group (RYL) continue an up trend that started last November. Shares of Brunswick Corp. (BC) continued to rise from last years low after Citigroup noted a modest improvement in leisure sales such as boats since July. Teen apparel and retailer, Aeropostale (ARO) reported same store sales up 12% and beat earnings estimates by a penny for the 2nd quarter lifting the stock to a new all time high.

Special Note: Volume continues to dry up as the market works higher. This trend has been in place since the March low. As the summer season winds down, it will be interesting to see the post Labor Day reaction to current trading levels for stocks as vacationers return and more normal volume patterns arrive in September. The direction associated with that volume could be critical for the balance of 2009.

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

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Price rate of change or ROC indicator is an important technical analysis tool for measuring an instrument's price changes. ROC is widely used by short-term and swing traders to find oversold and overbought levels, to analyze trend strengths and to find trend changes. The price rate of change indicator resembles volume rate of change or VROC indicator, but is blind to volume changes.


Price rate of change is expressed in both points and percentage. It is calculated as the difference between current price and the price ‘n’ periods ago.


When calculated in percentage, the above ROC value is divided by the number of periods and then multiplied by 100.


ROC rises with rise in current price and falls with fall in price. Many traders use a center line (a 0 line or 50 point line) for easy evaluation and to get better results. The normal time-period for ROC indicator is 12 days (short-term traders) or 25 days (swing traders), but traders can use custom periods for getting the desired results.

With price rate of change indicator, overbought conditions are identified when ROC stays higher to 0 line and oversold conditions are identified when ROC stays below to 0 line. When using point values, ROC values above 75 and below 25 denote extreme overbought and oversold conditions. Divergence of price and ROC are also very good indicators. Bearish divergence is identified when ROC falls and price increases; and bullish divergence is identified when ROC rises but price falls.

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IPO exchange traded funds are ETFs which allow traders to profit from the up-and-coming stocks. Investing in them holds many advantages and disadvantages.

Advantages of investing in IPO ETFs

1. These enable investors to gain exposure to IPOs when they are first introduced in the market. Investors can own diverse stocks from various industries and sectors.
2. They track some of the companies with the highest growth-potential and allow investors to profit from successful IPOs.
3. They follow specific rules for including and excluding the stocks in their portfolio and thus are often less risky than investing directly in those stocks.
4. They are periodically adjusted and thus are very good investments when markets are steady and rising.

Disadvantages of investing in IPO ETFs

1. They are risky investment instruments as IPO stocks can be highly volatile, over-valued and from small companies.
2. They are new instruments, and there is not much performance history available.
3. IPO stocks (after an IPO) may be more prone to failing in a down market.
4. The 1000 day selling rule (selling shares of companies on completion of 1000 days of public trading) can backfire, if major performing stocks are removed from the portfolio; like when Google is removed from IPOX-100 index.
5. The quarterly portfolio adjustments may cause opportunity loss (when a major performing company of the quarter is not included in portfolio) or loss (by retaining a major under-performing company of the quarter).

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Initial public offerings or IPOs are considered risky trading opportunities; often investors are advised to stay away from them until the price stabilizes and the growth potential of the company is revealed.

• Statistics shows that most IPOs fail. After a year or so the prices can be far less than the debut price.
• Most IPO stocks are of small companies. Although some of them have high growth potential, most of them just want to raise some money from the public and they fail to achieve their goals.
• There are many non-market forces which can control the price changes—high selling activity from large shareholders just after the lockup period or very active short-covering by traders because of short-interest in IPOs.
• The market forces never stay the same. The economy is always changing and new market forces can increase or decrease the prices of shares.
• Underperforming companies are common. Poor management, economic changes and/or local or international changes can affect a company’s performance; many IPO companies poorly utilize the money they lease from the public.
• The illiquidity on early days can make the market timing more difficult. Moreover, it can be hard to borrow stocks from big shareholders for shorting them.

Perhaps the best strategies to profit from IPO shares is the 'buy early and sell early' strategy for short-term traders, and 'establishing target prices for enter and exit' for long-term traders. Investing only in known growing companies with strong fundamentals is also a good strategy.

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Lock-up period is the time frame when shareholders are not allowed to sell or redeem the shares of a company. This period applies to large shareholders such as hedge funds, company owners and executives, and does not apply to individual investors who bought shares via public offering. The usual lockup period can be from 90 days to 180 days; however, it can be up to one or two years for some firms.

The most common lock-up period is the IPO lock-up period, where a company restricts its big shareholders from selling their stock just after the IPO. This offers extra-protection for outside investors to trade these new illiquid stocks and helps market forces to decide the price of shares on an ask and bid basis. This also prevents shareholders with 'inside knowledge' from getting rid of their shares before the public comes to know the bad news. Lock-up period also helps hedge-fund investors as hedge-fund managers can keep lower amount of cash on hand and the underlying investment would remain protected.

Lock-up periods can also be a period of price manipulation or high price volatility. The true value of many company stocks is revealed only when traders with inside knowledge begin to trade stocks. The period just after the lockup period can be of high price volatility. Many companies set long lockup period to show their strength, faith in the company and growth potential.

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Bullish three line strike is a bullish trend continuation candlestick pattern indicating the continuation of an existing uptrend after a long bearish day. This is a rare and less reliable candlestick formation. Bullish three line strike is a four candlestick formation comprising three continuous long bullish (white/colorless) candlesticks and a longer bearish (black/colored) candlestick.


The requirements of a bullish three line strike pattern include:

• The market should be characterized by a significant uptrend.
• The first three days are bullish days, each one closing above the previous day’s close.
• The fourth day is a long bearish day, which opens above the three bullish candlesticks and closes below the three bullish candlesticks.

The market is characterized by strong uptrend. The fourth day is a profit taking day, which opens in the direction of the existing bullish trend but the strong bearish activity gives an indication that prices may reverse. The existing bullish trend is likely to continue as the ‘one day reversal’ is so strong that the prices are now below the first day’s low and there is usually nothing more to cover.

Bullish three line strike pattern is a less reliable pattern, and is reliable only when formed in an established uptrend. The reliability increases with increase in strength of uptrend and with increase in real-body of candlesticks. Confirmation of trend continuation is definitely required, which can be a bullish candlestick, a gap up or a higher close on the fifth trading day.

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Net Income or NI, also known as bottom line, aftertax profit and profit attributable to shareholders, is defined as the total income (profit) after all expenses and taxes deducted. It is one of the figures of great importance in a company’s financial statement. This figure, usually found at the bottom line of a statement is the basis of calculating the key fundamentals of a stock such as price-earnings ratio (PER), earnings per share (EPS) and return on equity. Net income is also widely used to compare a company’s performance with its historical performance, industry performance and with other companies.

There are also some related terms.

1. Gross Income: Is the total earnings of a company minus the cost of goods. This does not consider any taxes, incidental incomes or operating expenses.
2. Net Operating Income or NOI: This is the total income of the company after all operating expenses are deducted. This does not consider any taxes or interests. Many investors take this as an analysis figure, as it is believed to be less susceptible for manipulations.
3. Net Income after Taxes or NIAT: It is the total income of a company after deducting all expenses; and is often the same as net income. This is shown in both per share figure and in dollar figure. Recent scandals related to this figure in financial statements has made this not 100 percentage trustable.

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IPO Exchange Traded Funds or IPO ETFs are ETFs which track stocks recently held in an Initial Public Offering (IPO). They were introduced in 2006 and are gaining popularity. IPO ETFs help investors to profit from the most expected quick growth of stocks in the initial years of public trading and from some of the companies with the highest growing potential.

The index tracked, and portfolio management of IPO ETFs vary considerably. For example the First Trust IPOX-100 tracks the IPOX-100 index, which includes 100 largest IPOs by capitalization. The index follows specific rules for including IPO stocks.

• The index includes only US corporations.
• A number of securities/sectors are excluded such as REITs (Real Estate Investment Trusts), CEFs (Closed Ended Funds) and ADRs (American Depository Receipts).
• To be included, the companies should have a market capitalization of at least $50 million and an IPO of at least 15% outstanding shares.
• For avoiding the high volatility/speculation of prices, the stocks are included only after seven days of public trading.
• Stocks with more than 50% gain on the first public trading day are also excluded.
• Stocks are removed from the index on their 1000th day of trading.

IPO ETFs are periodically adjusted to include and exclude stocks; most ETFs do it quarterly. Because of this, they tend to have higher expense ratio than traditional ETFs. IPO exchange traded funds are considered risky investment instruments as IPO stocks can show greater volatility than others and the portfolio includes many small corporation stocks.

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Direct Participation programs or DDPs are attractive investing instruments. Moreover, many of these programs have attractive marketing methods, which can drive people to them. Here are some advantages and disadvantages of investing in DPPs.

Advantages of Investing in DPPs

• DPPs offer good tax benefits
• They are good instruments for long-term passive investment and thus are ideal for investors with low investing knowledge
• DPPs let investors invest their money in projects with high potentials, like oil exploration, wind/sun energy harvesting, movie production, and real-estate investment trusts (REITs)
• They can offer steady/high returns
• They are most suitable for persons with good income and savings and wish to reduce their tax burden.

Disadvantages of Investing in DPPs

• They are risky investments, investors can lose as much as all the amount they invested
• They are illiquid instruments, transfer of units are usually restricted by contract. Although some are traded over the counter (OTCBB), they have low trading volume and high price fluctuation, resulting in wide ask and bid spreads
• They are not suitable for investors who invest for their living
• At present these carry much less tax benefits than in the past
• Some DDPs may need additional investments in future to meet the higher needs

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Unique three river bottom is a rare bullish candlestick bottom reversal pattern indicating the end of existing downtrend and the start of a new uptrend. This is a three candlestick formation which is formed at the end of a downtrend, first indicating market uncertainty and then bullish market reversal.


The requirements of a bullish unique three river bottom pattern include:

• There should be a significant downtrend existing
• The first day is a long bearish day characterized by a long black or colored candlestick, preferably closing at a new low
• The second day is also a bearish day characterized by a hammer like candlestick which opens higher to the previous close. The lower shadow of the candlestick forms at new low but the day closes near the opening price
• The third day is a bullish day characterized by a small bullish (white or colorless) candlestick which is placed below the real body of the second day candlestick

The bullish unique three river bottom pattern forms when bears lose control over the trend. The long bearish candlestick on the first day indicates that there is a strong bearish trend still existing. But the next day opens higher and at the end of the day the bulls manage to close the day close to the opening price, even after the bears create a new low. The bulls gain confidence on the third day and the trend is about to reverse.

Bullish unique three river bottom is a moderately reliable pattern. Reliability increases with increase in the lower shadow of the second day candlestick. Confirmation of trend reversal is suggested which can be a bullish candlestick, a higher close or a large gap up on the next trading day.

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Volume Rate of Change (VROC), also known as ROCV, is an important indicator of gauging an instrument's volume changes. VROC is most useful when analyzing a security's ability to cross supports/resistances, trend changes and trend strengths and when analyzing formations like peaks and foundations. Volume rate of change indicator resembles price rate of change indicator, but it is blind to price movements.


Volume Rate of change is calculated by dividing the amount of volume changed in the last 'n' periods, by the volume 'n' periods ago.


Positive values of VROC indicate that the present volume is higher than the volume 'n' days ago; and negative values vice versa. Positive values are indications that the current bullish/bearish trend is still strong, and negative values are indications of the weakening of existing trends.

VROC is plotted below the price chart. When trading with volume rate of change indicator, it is important to consider the number of periods. Shorter periods of 10 or 12 can show greater fluctuations in price trends and are more suitable for short-term traders like day traders. Longer periods of 30 or 50 will show a smoother trend and are suitable for long-term traders and investors.

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ETF can easily fulfill the average investor’s goal of portfolio diversification and returns that meet/beat a benchmark. With investing only in a handful of exchange traded funds, the portfolio becomes extremely diversified, liquid and profitable. Here are five types of ETFs which can be the ideal candidates for long-term investing and to include in an ETF only portfolio.

• ETF Tracking Large Cap Stocks – ETFs which track large cap stocks traded on major US exchanges such as NYSE, S&P and NASDAQ are extremely liquid and can offer (almost) steady returns.
• ETF Tracking Small Cap Stocks – ETFs which track small cap stocks traded on US exchanges like Vanguard Small-Cap can often offer returns that beat those tracking large caps.
• ETF Tracking International Stocks of Developed Markets – This helps you to profit from the companies and economies of many European nations.
• ETF Tracking International Stocks of Emerging Markets – Emerging market ETFs let you profit from some of the fastest growing economies of the world; of many Asian and European nations. Statistics show that these ETFs beat all others with their higher returns; but can also be risky.
• Fixed income ETF or Bond ETF – This ETF can offer steady returns and can be considered as a hedging against stock market volatility.

The portfolio allocation for the above ETFs can vary according to investing goals. An investor opting for steady returns can allocate more money to large cap stocks and fixed income ETFs. Similarly an investor opting for quick portfolio growth can invest more in small cap stocks and emerging market ETFs. There are many other ETFs which can offer returns. Many new age ETFs, smart ETFs and leveraged ETFs, can be used to beat markets; but are extremely risky for long-term investment. When choosing an ETF from its kind, it is better to choose one with a long history, higher asset value and with higher annualized returns.

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The Week Ahead: The slowing pace of unemployment helped knock the rate down to 9.4% carrying markets higher still from the July 8 low. Markets will watch the wholesale trade numbers on Tuesday as well as the start of the FOMC meeting. The International trade numbers come out on Wednesday and the decision on interest rate policy by the FOMC will follow. Thursday brings the jobless claims figure, retail sales, and import prices. Friday the Consumer Price Index is released.

Stocks to Watch: FBL Financial Group reach an incredible 800% gain from its March low after beating Q2 estimates because they had fewer losses in their investment portfolio. Monster Worldwide (MWW) rose strongly after its own employment index had its smallest drop in 4 months. Green Mountain Roasters (GMCR) will offer 5 million common shares @67.25 per share to help repay debt. Hansen Natural (HANS) lifted over 17% after strong Q2 earnings and their Monster energy drink being a big hit.

Special Note: The S&P 500 has increased over 50% since the March low, one of the fastest on record. The Daily Sentiment Index reached a lofty 88% bulls among S&P traders. Compare this to only 2% bulls in early March. Investors can see the value of this one indicator alone albeit a contrary one in helping to guide buy or sell decisions. Certainly it is flashing 'caution ahead' for stocks as sentiment is at the same levels that occurred in October 2007.

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

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Direct Participation Program, also known as Direct Participation Plan or DPP, is a business venture which allows investors to participate directly in cash flow and tax benefits of underlying security. DPPs are considered alternative investment instruments for long-term passive investments. Most direct participation programs are for real-estate and energy related business ventures.

Direct participation programs are traded as public registered securities through brokerage firms, over-the-counter markets like OTCBB and as restricted securities. Most DPPs are offered as limited partnerships. In the past, direct participation programs were treated as excellent tax shelters. The tax benefits were substantially reduced in 1987. But still DPPs offer a few tax breaks, and this is the main reason for their popularity.

The returns from a direct participation program would be proportional to the amount of cash flow to the underlying venture/security and to the amount invested. The returns are calculated on either cash on cash basis (dividing income by invested amount) or on internal rate of return basis (also considered time value of the money). The returns are distributed either as a percentage of the net income generated by the underlying security or as fixed monthly/timely payments. DPPs are risky investment instruments as the investors can lose as much as the total amount they invested.

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Bullish stick sandwich is a candlestick reversal pattern indicating the start of a new uptrend. This is a three candlestick formation, which usually forms at the end of a downtrend, and each candlestick forms higher highs than the previous candlestick, but has the same or almost same lows.


The requirements for a bullish stick sandwich candlestick pattern include,

• The market is usually characterized by a downtrend.
• The first day is a bearish day (black or colored candlestick) which closes at a new bottom, with no or very small lower shadow (closing marubozu).
• The second day is a bullish day (white or colorless candlestick) which closes above the previous day’s opening price.
• The third day is a bearish day which opens above the second day candlestick and closes at or near the first day candlestick, and is also a closing marubozu.

Bullish stick sandwich formation occurs when the existing downtrend reverses after touching a support level. A long bullish day at the end of the downtrend suggests that the downtrend is getting weaker. The shorts start to cover their positions on the third day and this causes a fall in price and a close near the first day’s close. This indicates that a market is finding a support level and the trend may reverse.

Bullish stick sandwich is a moderately reliable pattern. The pattern is also valid when the first and third candlesticks are not closing marubozu. With bullish stick sandwich candlesticks, traders should always look for confirmation of trend reversal which is signified by a white candlestick, a higher close, or a large gap up on the next trading day. The bearish stick sandwich pattern is very rare.

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On Balance Volume or OBV indicator is a well-known technical analysis indicator, which analyses the changing trends of a stock with respect to its changing volume. OBV was introduced by Joe Granville and is one of the first volume-based indicators to measure positive and negative volume flow. It is a simple indicator which is calculated by adding or subtracting current volume to/from previous OBV.


Current volume is added when the current price is higher than the previous and is subtracted when the current price is lower than the previous.

On Balance Volume is based on the principle that volume precedes trend. The indicator is represented as a running average. Increasing OBV suggests that there is a strong upward trend with increasing trading volume on up days and decreasing OBV suggests that there is a strong downtrend with increasing volume on down days. Divergences are more important; when the OBV line is dropping and the price is still moving upwards, then weakening of trend (and possible reversal) is identified. With on balance volume indicator, the numerical value or high/low positions are not important; only the trend/direction is important.

On Balance Volume indicator is a simple indicator and thus suits all traders--both beginners and experienced. Many traders use a 20 period moving average of OBV to find reversals. Divergence signals are generated when the OBV line crosses the MA line.

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The Week Ahead: Gross Domestic Product fell four quarters in a row for the first time since the 1930's even though Q2 came in less than expected. Current expectations are for GDP to expand slightly by year end but with more job losses. Look for construction spending numbers due out on Monday. Personal income and pending home sales data is due out on Tuesday. Factory orders and jobless claims figures come out Wednesday and Thursday respectively. The all important employment report is released Friday.

Stocks to Watch: Drew Industries (DW) reported positive earnings for Q2 despite expectations for a loss. The RV component maker is gaining market share. Beckman Coulter (BEC) surged as it boosted full year earnings per share guidance due to a lower tax rate and cost cutting. Synaptics (SYNA) shares plummeted despite Q4 numbers beating estimates. It was the Q1 revenue outlook that stunned investors. Anadys Pharmaceuticals (ANDS), in a more speculative play jumped sharply as its hepatitis C drug got an FDA nod to proceed with mid-stage trials.

Special Note: As the second significant leg up since the March low unfolds for the major indexes, investors should be on the alert for divergences against the current trend. The main one being the KBW Regional Bank Index as evidenced by the streetTracks (KRE). Despite 8 straight days higher, the index is still substantially below its May high. Bank stocks are key in that they have been ahead of the major declines in the market since the 2007 top.

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

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Exchange Traded Funds (ETFs) are probably the most flexible and diversified financial instruments available for trading and investing. Here are some less explored ETF trading strategies, most of which are short to medium term strategies. Most of these strategies demand good trading/market knowledge and money management.

• Shorting Sector ETFs: ETFs can be shorted even on a downtick, and traders can short ETFs that are tracking specific sectors which are on a downtrend. This strategy can be maximized by shorting specific industry or ETFs tracking international markets/sectors.
• Maximizing Tax Benefits: ETFs are tax savvy instruments and are ideal candidates for avoiding the wash sale rule. ETFs move with the index/sector/stocks they are tracking but they are not identical to those; this helps in avoiding the rule.
• ETF Only Portfolio: For less investment, the portfolio can be more diversified. In case your objective is just to have a set of mixed assets, ETFs are the economic way to go. You need not take the effort of selecting specific stocks. With such a strategy, you might miss the profits on specific stocks. But the advantage is that you will incur no stock-specific losses either.
• Profiting from bond ETFs: Short-duration bond ETFs can be ideal candidates for investing the 'cash' in your portfolio. You can gain more than money-market funds and withdraw the cash at any time. You can also practice bond laddering by trading bond ETFs of different durations. But there is a limiting factor, brokerage fees.

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