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Asset play refers to stocks of companies which have more combined asset than its market capitalization. In short, it is the undervalued stocks in relation to the total asset owned by the company. Trading asset play stocks is a very attractive value investing strategy as traders can profit when the market realizes the true value of the stocks and then the stocks are correctly valued.

The market can have many asset play stocks because of many reasons.

1. The market very often trades on news and technicals rather than fundamentals.
2. The performance of an industry or a sector can affect the total valuation of stocks related to the industry/sector.
3. Often the media ignores some smaller, less popular companies making small profits but have sound fundamentals.

Finding an asset play opportunity can be difficult, investors should be aware of the true asset value of the company and total number of shares outstanding. The asset valuation standards and the asset value itself change from time to time.

Asset play is a risky investment strategy that requires good timing, money management and research. Investing in just any undervalued stocks can be risky, as for profiting the market needs to realize the true value of the stock; and the market can interpret the true value differently from the investor's point of view.

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Shooting star is a bearish trend-reversal candlestick pattern indicating reversal of an existing uptrend. It is a comparatively rare and single candlestick pattern which is formed at the top of an uptrend. When the formation occurs at the bottom of a downtrend it is called inverted hammer pattern. Shooting star formation is very similar to gravestone doji formation; the difference is that the candlestick has a small real-body.


The requirements of a shooting star candlestick pattern include,

• The pattern should form at the top of a significant uptrend.
• The candlestick should have a long upper shadow and no/very small lower shadow.
• The small real-body of the candlestick should be at the lower end; at or near the low of the day.
• Often the candlestick is formed a gap above the real-body of the previous candlestick; exception - Forex charts.

Shooting star candlestick pattern occurs when the existing bullish trend weakens and the selling pressure increases. The fact that bears have managed to close the day at or near the low of the day even when the price forms a new high, indicates that the bears are getting hold of the market.

Shooting star candlestick formation is considered a bearish weak reversal pattern. It is a very good indicator of resistance levels on a chart. The reliability of the pattern increases with the strength of the existing uptrend, and with increase of upper shadow and shortening of real-body and lower shadow. With shooting star pattern confirmation of trend-reversal is needed, which can be a gap down opening, a bearish candlestick or lower close on the next trading day.

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Sharpe ratio, also known as Sharp Index, Sharp ratio & Reward-to-Variability ratio, is a popular indicator for measuring return-to-risk. This is a simple ratio developed by 1990 Economics Nobel laureate William F Sharpe which measures the risk adjusted return from a portfolio/asset using just three components: portfolio return, risk-free return like 10-year US Treasury bond return and the standard deviation of portfolio returns.

Sharpe ratio is calculated by subtracting the risk free return from the portfolio return and then dividing the result by the standard deviation.


Where Rp is the portfolio return, Rf is the risk-free return and StdDev is the standard deviation of portfolio return.

Sharpe ratio is a very good indicator of portfolio performance and is widely utilized to compare portfolio performances. The values of the ratio can be positive or negative, where positive values indicate better performance compared to risk-free investments and negative values indicate worse performance than the same. In general, values above 1 are considered good portfolio performance, 2 or above are very good and values above 3 are excellent.

Sharpe ratio reveals whether the excess return from a portfolio is because of smart decision making and investing or just because of taking more risks. For example, if two portfolios generated 12% and 15% returns but the first one took much less risk than the second, then the 12% return can be considered as the better performing portfolio. Some variations of the indicator such as Sortino ratio are also available.

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Water exchange traded funds (Water ETFs) are an interesting sub-group of ETFs. They track indexes composed of stocks of companies involved in water related business; like water purification, water bottling, irrigation, pump and filter manufacturing, water distribution, beverages, and so on. Water ETFs are very good instruments to diversify a portfolio, to make long-term investments and to passively invest in a growing industry.

Now there are a number of ETFs which track various 'water indexes', major ones include PowerShares Water Resource ETF and iShares Dow Jones US Utilities Index ETF. Some main indexes that water ETFs track are Palisades Water Index, Dow Jones US Water Index, ISE B&S Water Index, S&P 1500 Water Utilities Index, Bloomberg World Water Index and MSCI Work Water Index. These indexes differ considerably from one another in capitalization, composition and performance.

World water consumption and irrigation needs are growing daily and the demand for pure water is always on the rise. Thus investing in water ETFs can offer good returns. But the trader should be careful with his ETF picking and portfolio management. ETFs tracking a very small market/sector, can be riskier investments, and it is not wise to allocate a major part of the portfolio to these funds.

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Island of reversal is a very popular chart/candlestick pattern indicating the reversal of an existing trend. It is considered a very strong reversal indicator when formed after a strong trend. Island of candlestick is a candlestick or group of candlesticks (or sessions) which gap away from the existing trend. There are island bottom reversals (bullish) and island top reversals (bearish).


Island of reversal is one of the easy to identify patterns. Bullish islands of reversals form at the end of downtrends where prices gap down to form new lows but will soon gap up (after one or more sessions) to fill the gap, starting a new uptrend. Similarly bearish islands of reversals form at the end of uptrends where prices gap up to form new highs but soon gap down to fill the gap, starting a new downtrend.

Island of reversal patterns are usually associated with dramatic changes in trading volume. Usually the gaps are noticeable with high trading volume and the peak/trough is noticeable by low trading volume. Island of reversals are patterns which favor both short-term and long-term traders. Patterns which include one or two gap-away trading sessions favor short-term traders whereas those including many sessions favor long-term traders. The reliability of both bottom patterns increases with significance of prior trend.

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The Week Ahead: A shortened holiday week with decreasing volume will be the trading environment the next four days with a similar pattern likely in the final week of this year and decade. Reports to watch are Tuesday's final GDP number for the third quarter and the existing home sales figure. Wednesday look for new home sales data along with the personal income and spending numbers. The week ends Thursday with weekly jobless claims and the Durable Goods report for November.

Stocks to Watch: Patient investors may want to take a look at bank stock State Street Corp. (STT) according to the Keefe Bruyette brokerage who upgraded the stock which recently corrected. On the contrary, C.R. Bard (BCR) was downgraded by Standard and Poors on the belief that medical device makers face tough head winds in the coming year. Trucking company Con-Way (CNW) was upgraded to a buy by BB&T but the stock has already moved 34% in the last three weeks. Finally, an EU panel has recommended Amgen's (AMGN) osteoporosis drug for approval, and so far the stock lifted only marginally.

Special Note: The technical picture for stock indexes in general show a probable push to higher highs into January, but it strongly appears to be an exhaustive move in a 10 month long rally. From a world perspective, the following pattern is evolving from east to west. Shanghai in China (8/4/09 peak), Nikkei in Japan (8/31/09 peak), KOSPI in South Korea (9/23/09 peak) ASX in Australia (10/21/09) peak, Hang Seng in Hong Kong (11/18/09 top), FTSE in London (11/16/09 top). Markets here in the U.S. and Brazil appear to be topping with seasonal strength in small caps etc. providing some underlying strength.

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

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Auction market preferred stocks or AMPS, also known as Auction Rate Preferred Stocks or ARPS and money market preferred stocks, are preferred stocks with a changing dividend rate. The dividend rate is changed every seven weeks (49 days) according to the result of Dutch auctions. To learn more about preferred stocks, visit common stock and preferred stock and different types of preferred stocks.

Contrary to most preferred stocks, which are considered fixed-rate investments, auction market preferred stocks are considered floating-rate investments. The total number of shares available for Dutch option is determined by the number of shares that the existing shareholders want to sell. The auction settles on a clearing rate, the lowest bid price at which all stocks can be sold. This clearing rate is used to determine the dividend rate.

AMPS can be a good investment for many investors; these tend to offer better returns than traditional preferred stocks. The auctions also reveal the true value of the stocks with respect to the current market yield/performance and risk levels. But the recent financial crisis made many auctions fail because of the lack of interest. By the end of 2008 many financial companies had repurchased their ARPS.

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Gaps in price charts are considered good trading opportunities and indicators. Most gaps are triggered by news, rumors or market sentiments and moves prices in a certain direction. Gaps are often filled and are associated with different candlestick/chart patterns. For a better understanding, read different gap patterns.

• The first and foremost thing in trading the gap is determining the type of gap pattern formed. Is that a continuation or a reversal pattern? It is always good to trade with the market rather than going against it.
• Check whether the gap can fill in the near future. Common gaps and exhaustion gaps are often filled more quickly than breakaway gaps and runaway gaps.
• The volume associated with the gap pattern is also important. A breakaway gap without high volume can be filled in the near future than those with high volume.
• The reliability of the triggering factor of the gap is also important. Gaps created on rumors are more likely to be filled than those on fact/stats. Similarly gaps created because of over optimistic/pessimistic trader behaviors can be short lived.
• Many common gaps can be filled within the trading day (called fading); this offers very good opportunities to day traders.
• Gaps formed often act as supports/resistances for future movements. Thus crossing of price below/above these levels respectively can trigger strong reversals as there is no other immediate support/resistance available.
• Gaps are much more reliable, when their direction is also confirmed by other indicators.
• When fading against the trend, it is good to determine the high and low points and to use proper risk minimizing strategies.

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Median price, typical price and weighted close are indicators for reducing noise in a trading chart, and are widely used as filters of other moving average systems. These indicators, when used alone, do not provide any significant results other than smoothing the graph, but they are key ingredients of many other powerful and popular trend indicators.

Median Price (MP):
Medium price, as the name suggests, is simply the mid-point of a trading period. A line connecting MPs of continuous trading periods can be used to generate buy and sell signals.

Typical Price (TP):
Typical price is a widely used indicator which can give a more realistic result of the average price of a period as it includes information about the whole trading day. Typical price is used in commodity channel indicator or CCI and money flow index or MFI indicators. It can also be used in conjunction with other moving averages to generate signals.

Weighted Close (WC)
Weighted close is similar to typical price except that it gives more weight to a period’s closing price. Weighted close charts have an extra smoothing and simplicity of interpretation.

Most traders use all the above three with a running moving average like 21-day exponential moving average to generate signals. When the price crosses the MA from below, buy signals are generated and when the price crosses from above, sell signals are generated. This is a reliable strategy but a lagging one.

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Exchange traded grantor trust funds can be defined as investments in a changeless basket of investment agents. The investment vehicles are such that they may consist of common stocks or commodities and would enable access to a particular indutry or sector. Exchange grantor trusts trade on an exchange. The trade resembles that of stocks.

There are some key differences between the trading of grantor trust ETFs and that of other ETFs.

• Grantor trust ETFs usually do not track any indexes or market.
• The ETF portfolio is fixed; there is no periodic portfolio rebalancing; the original assets stay fixed.
• Grantor trust ETFs often hold physical commodities like gold and other precious metals, currencies, etc.
• Some grantor trust ETFs can also hold securities; as the portfolio is fixed over time the portfolio can become more concentrated as companies grow, acquire and merge.
• Like unit investment trusts, grantor ETFs directly distribute dividends to shareholders. There is no reinvesting.
• They are also not usually SEC registered investment companies.
• As there is almost no portfolio management costs, grantor ETFs have very low expense ratios.

Grantor trust exchange traded funds are created to overcome the limitation of holding physical commodities in an ETF portfolio. Investors can use them to get access to specific market sectors or commodities. Grantor trust ETFs can be good instruments for long-term investments but are not suited for very short-term trading.

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The Week Ahead: A jump in retail sales and stronger than expected consumer sentiment helped stocks recover from lows set earlier in the week. The November Producer Price Index will be released on Tuesday and the Federal Open Market Committee will begin a two day meeting on interest rate policy. The Consumer Price Index and housing starts data begins a busy Tuesday with the FOMC decision arriving in the afternoon. Thursday brings jobless claims and the leading indicators for November.

Stocks to Watch: With oil prices near a two month low, airline stocks were up especially Delta Airlines (DAL) after the easing of air restrictions between the U.S. and Japan. Harsco Corp. (HSC) sees a better than expected 2010 earnings picture than was previously estimated as the stock bounced off its 200 day moving average. A new issue Concord Medical Services (CCM) which operates radiology centers in China fell to $9.50 a share after a 12 million ADS offering @ $11.

Special Note: With the market up strongly from the March low, it is not surprising to see consumers and investors more upbeat about the economy as evidenced by some lagging indicators. Much speculation has been made about the potential for billions of dollars of sideline money to come into the market, but no clear correlation has ever really linked the two in the past. In fact the argument can be made that investors are fully invested with the equity mutual fund cash holdings at 3.7% (InvestorsIntelligence.com) just above its record low of 3.4% in July 2007.

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

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Announcement effect or signal effect, as the name suggests, is the impact an announcement makes on the market. In general, it is the reaction of traders and investors to any change in policy by a government or financial agency/firm, which will come into effect at some future date. Announcement effect can be positive or negative, and it can vary depending on the importance of the announcement or how the market interprets the announcement.

Announcement effect is prominent in intraday trading, where the market is moved by news and reports. Traders always try to profit from the reports and policy changes released by agencies on topics like growth reports, future economic expectations, inflation, interest rate changes, financial policy changes, figures released, stock splits, undertakings and merging, etc. As often the announcement dates are fixed early, traders can plan to profit from virtually almost all outcomes of an announcement effect.

With announcement effect market timing is critical. As often the effect stays only for a short period, traders should react quickly to exploit it. This also requires good trading knowledge and market understanding. A positive announcement needn't create a positive response in the market; the market often has expectations and the effect can vary depending on how much the expectations are satisfied. Announcement effect is a big market moving factor and is evident in very high volatility and trading volume around certain announcement dates.

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Gaps are common chart patterns that can be good indicators of future trends and trend changes. They are also the necessary component of many chart patterns. By definition gaps are areas on the chart where there is no price activity; the price movement breaks before the gap and continues after the gap. Gaps are mainly of 4 types, namely, common gaps, breakaway gaps, runaway gaps and exhaustion gaps.

1. Common Gaps: They are formed because of usual market activity. The main triggering factors are news and low trading volume. Common gaps are usually filled quickly. Also known as trading gaps and area gaps.
2. Breakaway Gaps: They are formed at the start of a bullish or bearish trend. Breakaway gaps are formed usually after a consolidation and are associated with high increase in trading volume. The gap can then act as support/resistance for future movements. Breakaway gaps are not usually filled in the near future.
3. Runaway Gaps: They are formed within a trend and indicate further strengthening of the trend. Like breakaway gaps, they act as support/resistance for future movements. With runaway gaps, the volume should be on average level; extreme levels can make the gap exhaustion gaps. They are also not usually filled in quick time.
4. Exhaustion Gaps: They are formed when the trend is about to end and reverse. They are associated with high trading volume. The price first moves in the direction of the trend but then soon reverses to fill the gap and start a new trend. Usually exhaustion gaps are the last large move in a trend. The signal strength is optimum when the stock/security makes a substantial move.

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Upside/Downside ratio or UpDown is a very useful indicator for finding long-term trends, and overbought and oversold levels. This is a simple indicator which is created by dividing the volume of total advancing stocks of NYSE by volume of total declining stocks of NYSE. For displaying long-term trends, the upside/downside ratio is represented as a moving average.


The value of daily UpDown is above 1 when the total volume of advancing stocks is higher than declining stocks (uptrend) and the value is below 1 when total volume of advancing stocks is lower than declining stocks. Extreme high values of upside/downside ratio indicate that the market is becoming overbought and extreme low values indicate that the market is becoming oversold.

Many traders use the ratio to calculate the potential return of a stock on potential loss. They determine a target price based on fundamental analysis and test that against UpDown indicator. Generally the UpDown range is divided into 3 ranges, the lower 25% good-to-buy range because the price has more chance to increase than decrease, upper 25% good-to-short range because the price has more chance to decrease than increase and a middle 50% range.

'Multiple 9-to-1 days' is a feature to look for with upside/downside ratio indicator. Two or more days with ratio above 9 within a three month period is a good sign of the start of a strong bullish trend.

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ETF tracking error is the divergence of an exchange traded fund's return from the benchmark return. This can be positive (ETF outperformance) or negative (ETF underperformance). As there is asset management costs involved, all ETFs tend to have tracking errors which is usually lower than that of mutual funds but some ETFs can have high tracking errors equaling or exceeding mutual funds.

ETF tracking errors are expressed as standard deviation from the index it is tracking. ETFs tracking broad indexes tend to have low tracking errors compared to those tracking specific sectors/indexes/foreign markets. ETF tracking errors should always be interpreted with respect to the return. For example a tracking error of 0.5% can be considered low when the return is ETF 10% but very high when the return is only 2%. Below are some main reasons for high tracking errors.

• High management expense ratios: leverage ETFs, smart ETFs, etc tend to beat the market with active management of ETF portfolio. This active management involves costs and results in tracking errors.
• Portfolio optimization: many times it is not possible with existing fund features to buy all stock/securities of the index; eg: some thinly traded stocks. So ETFs use samples, which can result in tracking errors.
• Securities lending fees: some ETFs lend equities to hedge funds for short-selling. The lending fees collected from these hedge funds can alter the total ETF return.
• Diversification constraints: sector ETFs tracking specific sectors can find it difficult to replicate the sectors, because there will be some dominant companies which makes up to half of that sector. ETFs are usually not allowed to invest more than 25% of their asset in a single stock.
• ETFs may require cash holdings to buy and sell securities, which can result in tracking errors.
• Commodity ETFs which roll futures can have high tracking errors because of contango and backwardation.
• Capital gain distributions and hedging risks can also result in ETF tracking errors.

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The Week Ahead: Despite 11,000 job losses in November, the unemployment rate dropped to 10% due to positive revisions to October and discouraged workers giving up the search for work. The market cheered but then realized the lagging nature of this indicator and promptly sold off. Another laggard the factory orders rose an unexpected .6% in October. Watch consumer credit figures on Monday and wholesale trade numbers on Wednesday. The weekly jobless claims on Thursday will be important as well retail sales, import prices, and business inventories on Friday.

Stocks to Watch: The long term growth potential for McGraw Hill Companies (MHP) could be 10% per year according to Merrill Lynch/BofA as they issue a buy recco. Gold stocks such as Gold Fields Ltd. (GFI) and Coeur D'alene Mines (CDE) were hit hard on a $48 drop in gold from its parabolic price rise. Reynolds American (RAI) has an improved outlook for gaining market share according to Citigroup who upgraded it to a buy. Marvell Technology (MRVL) handily beat earnings estimates for Q3 while Take-Two Intera Software (TTWO) sees lower numbers than anticipated for Q4 and a loss for Q1.

Special Note: Seasonal strength into year end may hold stocks elevated but the temptation to lock gains in from the March lows will have influence too for many investors. Volatility could be more than normal this month because of the these two forces. A couple noteworthy technical indicators shows 10-day NYSE volume the lowest since the March lows despite the huge run-up in all indexes, and advisors are more bullish now than they were at the all-time high of October '07 with only 16.7% bears.
Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Discretionary trading or decision trading is one of the two popular trading methods; the other is system trading. It is the trading practice where the trader uses his intelligence and knowledge to make trading decisions with respect to the information available at the time. Discretionary traders rely on their ability to find opportunities and execute trades to make profits from the market.

Discretionary traders can also use trading systems for finding opportunities, screening stocks and charts, finding entry points, etc. But usually the key decisions such as position size, target price, stop-loss and exit points are taken manually. Thus decision trading requires good trading knowledge and hopefully some trading experience.

• The first and foremost thing to note is that discretionary trading puts pressure on the mind. But the trader can use trading system(s) to ease up the process.
• As decisions are made manually, large-scale trading and trading a variety of markets/instruments/securities in short-term intervals might be difficult.
• The strategy is better for swing trading, intermediate and long-term trading; but not for short-term trading such as intraday trading.
• The strategy is good for persons who want to conduct trades with a high degree of control, persons who can spend time for stock screening/trading.
• Discretionary trading offers more flexibility and adaptability.
• Human feelings like fear and greed can cause problems in executing successful trades.
• Decision based trading demands a high degree of discipline, proper timing and attention.

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NobleTrading is proud to announce its newly created financial information center.There is no registration required, and Noble clients and non clients alike can access all of the information for free.

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Head and shoulders bottom pattern, also known by the names inverted/inverse head and shoulders and Kilory bottom, is a very popular chart pattern indicating bullish market reversal. It is a long term pattern considered one of the most reliable patterns and looks just opposite to the head and shoulders top pattern.


Head and shoulders bottom pattern has stricter rules than head and shoulders top pattern. The requirements include,

• Typically this pattern takes longer time to complete than head and shoulders top pattern.
• The pattern must have three parts, two shoulders (ideally with the same depth and width) on two sides and a middle head containing the lowest price for the period.
• The left shoulder is a price decline noticeable by high trading volume and then a price rise.
• The head is also a price decline noticeable by high trading volume that goes deeper than the left shoulder and then a price rise.
• The right shoulder is a price decline noticeable by a lighter trading volume and then a price rise noticeable by very high trading volume.
• A horizontal/diagonal neck line is also drawn connecting the lows of shoulders, which serves as resistance.

Inverted head and shoulders pattern is not confirmed until the price closes below the neckline. This breakthrough should come with the highest trading volume (sharp burst of volume). Traders can take long positions once the pattern is confirmed and the neckline then serves as the immediate support level for the security. The pattern is considered more bullish when it has an upward neckline rather than a downward neckline.

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Price action indicator is a very useful indicator when you are trading with a single day's price movement. It uses the price values of today's open, close, high and low to provide a very good understanding of today's price activity and trend. Price action indicator returns only one value which is compared against the day's intraday momentum, late buying pressure and late selling pressure. The formula is


Where C is the closing price, O is the opening price, H is the high of the day and L is low of the day. (C-O) is the intraday momentum, (C-H) is the late buying pressure or LBP and (C-L) is the late selling pressure or LSP.

Price action indicator is a straight and simple to interpret indicator. The PAIN value itself can be used to construct limit-up and limit-down scenarios. It can also be represented as a running average of price movements. When today's PAIN value is near to the low, the price is under selling pressure and when it is near to the high, the price is under buying pressure. High PAIN values with favorable market condition can be used to enter long positions; and low values can be used to enter short positions. Ideally, the PAIN patterns should be consistent with candlestick patterns.

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Liquidation of exchange traded funds is now almost common. The influx of a high number of ETFs tracking narrow sectors or with high expense ratios has severely affected the survivability of many of them. Here are some tips for getting through ETF liquidation.

• The first thing is 'Panicking'. ETF liquidation does not mean any significant capital loss. You can still get all (most) of your invested money by selling the shares before stop-trading date or by holding them to receive payment.
• The really adverse effects of ETF liquidation are the possible creation of a tax event and the possible need of redefining the long-term investment goals.
• Traders can minimize the chance of liquidation by investing in the right ETFs.
• Traders can avoid ETFs tracking narrow segments, having very low daily trading volume, having low asset value (say below 10 M), having very high expense ratios, etc.
• When investing in an ETF know its risks and rewards. The things to look for include fees, expense ratio, type of index tracking, investment strategies, past performance, etc.
• Investors with long-term goals should avoid ETFs capitalizing on short-term booms and trends.
• Like with any other investment, diversifying your portfolio can always help you.

ETFs are still very good investment instruments, especially for those with low investing knowledge and time but want to profit from market performances. Liquidation of more numbers of ETFs can’t be taken as a drop of the entire industry; it is just a rearrangement and survival of the fittest.

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