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Rounded bottom, also known as bowl, saucer or rounding turn pattern, is a bullish trend reversal chart pattern indicating the end of an existing downtrend and the start of a new uptrend. It is an elongated U-shaped formation with reasonably smooth and rounded bottom without any major spikes. Rounded bottom pattern shows the consolidation of the trend and a gradual shift from bearish trend to bullish trend; thus this is better suited for long-term traders.


Volume changes are also important with rounded bottom chart pattern. The volume should correspond to the price pattern; that is, volume should decrease when price decreases, and increase when price increases. The duration of the pattern can be from just a few weeks to many months. The longer the pattern takes to form, the more reliable it is.

With rounded bottom formation, traders can go long when the breakout is confirmed. The breakout can be either the price where the price crosses above its moving average or where its crosses above the starting price of the pattern; the first one is more used and more reliable. The reliability and the bullishness of the pattern are greatly challenged when the formation does not have a smooth rounded shape or when the price crosses below its moving average.

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Williams' accumulation distribution indicator, or Williams' A/D or WAD indicator, is a popular indicator for finding trend changes. The indicator was developed by Larry Williams. Williams' A/D tracks the buying and selling pressure of a security and signals buying and selling opportunities.

Williams' accumulation/distribution defines the market trends and movements in two simple terms; accumulation - days where more volume is associated with upward price movements, and distribution - days where more volume is associated with downward price movements. WAD is determined by adding today's A/D value to yesterday's A/D value.


Where TRL is the true range low; it is either yesterday's close or today's low price, whichever value is lower. TRH is the true range high; it is either yesterday's close or today's low price, whichever value is higher. TRL is used to calculate A/D value when today's close is lower than yesterday’s, and TRH is used when today's value is higher than yesterday’s.

Like most others, WAD values of each day can be added to create a continuous indicator. Signals can be generated when the price trend diverges from indicator. Buy signals are generated on bullish divergences when price reaches a new low but WAD does not confirm it and sell signals are generated on bearish divergences when price reaches a new high but WAD does not confirm it. Like most other indicators, Williams' accumulation distribution offer better results when used together with other indicators.

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Closet index funds are funds which describe themselves as actively managed, but actually track an index closely. They have high expense ratios like an actively managed mutual fund but a portfolio similar to an index fund; the returns also resemble index fund returns. In short, closet index funds charge an investor high for the returns gained from investing in a low-cost index fund or ETF.

Over the long term, the high expense rates of closet index funds can eat up the portfolio returns; and this can affect the bottom line when the market is stagnant, moving sidewise or is bearish. Well, many closet index funds start as actively managed funds, the increase in fund assets over time makes it difficult for the fund managers to actively manage the portfolio. So, in order to achieve at least the benchmark index’s performance, the fund manager tries to copy the index in the portfolio; this creates a closet index fund.

For a regular investor it is not a good deal to invest in a closet index fund when cheaper options like index funds and ETFs are available. Investors need to consider the following aspects when investing:

• R-squared ratio - tells how much a fund is similar to an index, values close to 100 can indicate that the fund is a closet index fund.
• Fund beta - beta values close to 1.0 means that the fund is performing like the index.
• Average annual returns - comparing returns of fund and index/index fund can reveal the similarity between them.
• Portfolio holdings review - is the direct mechanism for revealing how much a funds portfolio is similar to an index.

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Rounded top, also known as inverted bowl or saucer top pattern, is a bearish trend reversal chart pattern indicating the end of an existing uptrend and start of a new downtrend. It is a dome shaped formation with a fairly smooth and rounded top without any noticeable spikes. Rounded top chart pattern is a gradual market shift from bullish sentiment to bearish sentiment; thus favoring usually long-term traders.



In rounded top formation, usually the volume shows just the opposite pattern to the price; that is, when the price is rising volume tends to decrease, and when price is declining volume tends to increase. The duration of the pattern can range from some weeks to many months. Generally, the pattern is more reliable when it takes more than two months to form.

Traders can sell when the pattern is confirmed. Different traders use different methods to confirm the trend reversal. Generally, the start of a downtrend is confirmed when the price breaks below its moving average or when it breaks below the starting price of the pattern. But the reliability of the bearish signals is greatly challenged when the price breaks above its moving average instead of breaking below.

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Dividend reinvestment plans or DRIPs are very popular among investors, especially the small investors. Investing in these can be considered as a mutually beneficial strategy for both companies and investors. But they also have some pitfalls.

Advantages of DRIPs

1. They have low minimum requirements and have easy to follow rules.
2. Like dollar cost averaging, the strategy helps investors to grow their portfolio overtime by dripping money.
3. DRIPs allow investors to reinvest their profit to make more profit; usually free of cost.
4. Most companies offer discounts over market price for purchasing their stocks via DRIPs.
5. They are very good long term investing plans which do not require much time or effort after enrolling a program.
6. The company also benefits via many means, DRIPs provide a stable base of shareholders, stabilized share price as the percentage of DRIP shares increases, and reinvesting of dividend within the company.

Disadvantages of DRIPs

1. Lack of diversification as investors are investing in only one company.
2. Need good initial screening as investors need to invest in a company having very good long-term growth possibility and offering good dividend payments.
3. They are not good plans for investors looking for profiting from fluctuations in share prices.
4. They are not suitable for traders trading for their livelihood.

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Style ETFs are of different types. They can be categorized by the investment type and market capitalization. There are mainly 6 types of style ETFs.

1. Value Style ETFs: Are style ETFs which passively track value stocks; stocks having a market price lower than their true value. They track a value index like Morningstar Large Value Index.
2. Growth style ETFs: Are style ETFs which passively track growth stocks; stocks having high growth potential. They track a growth index like Russell Midcap Growth Index.
3. Neutral Style ETFs: Are style ETFs which passively track stocks which are neither growth nor value.
4. Small Cap Style ETFs: passively track small-cap stocks. Eg: S&P/Barra SmallCap 600 index.
5. Mid Cap Style ETFs: passively track mid-cap stocks. Eg: S&P MidCap 400 Index.
6. Large Cap Style ETFs: passively track large-cap stocks. Eg: WisdomTree Earnings.

The number of styles available for a market also differs. For example Dow Jones has all six styles of composite indexes, but Russell has only two styles. The index reconstitution period also differs with indexes; it can be annual or semi-annual. Moreover, the factors/rules used to classify stocks to include it in a style can also vary.

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Dividend reinvestment plan or DRIP, sometimes called DRP, is a very popular investment strategy which helps investors to gradually grow their share in a company. DRIP is an investment program run by a company for its shareholders. As the name suggests, it includes reinvesting the dividend owned to purchase more company stocks.

Dividend reinvestment plans usually work like dollar cost averaging, but have some unique features and benefits. The main beneficiaries of DRIPs are small investors who wish to benefit from the long-term performance of companies by buying-and-holding those shares. There are now many companies offering DRIPs and one can enroll oneself in a plan by buying as low as one share of the company. Many companies allow their DRIP investors to purchase stocks at discounted rate and most of these plans have very low minimum requirements.

Most dividend reinvestment plans come with two unique features.

• No commission or brokerage fee: as the investor is directly dealing with the company, no brokerage fee is involved. Moreover, most companies reinvest the dividend without any fees or commissions.
• Percentage share ownership: dividends are reinvested in a way that the investors can own partial stocks in addition to whole numbers. For example a $1 dividend for a $10 stock can be reinvested to own 1/10 of a share. The company keeps detailed records of share ownerships.

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Matching high is a bearish trend reversal candlestick pattern indicating the reversal of an existing uptrend. The pattern generally forms at the top of an existing downtrend; but is less popular than bullish matching low pattern. This is a two candlestick pattern composed of two bullish (white or colorless) candlesticks.


The requirements of bearish matching high candlestick pattern include,

• The pattern should form in an established uptrend.
• The first day is a long bullish day closing at a new high.
• The second day is also a bullish day which closes at or very close to the first day's close.

Bearish matching high candlestick pattern forms when the price tends to reverse after touching a short-term resistance level. The fact that the second day is a bullish day, which closed at previous day's close, indicates that the resistance is successfully tested; now the trend can reverse as traders tend to close their open positions.

Bearish matching high is a moderately reliable candlestick pattern, which requires confirmation of trend reversal before one can take any short positions.

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Style ETFs, as the name suggests, are exchange traded funds which passively follow an investing style like growth investing style or value investing style. Rather than investing directly in growth or value stocks, they track specific style indexes like S&P, Russell or Barra style composites. Eg: Russell 2000 growth, Russell 2000 value, S&P/Barra Small Caps, etc. By following a specific style, style ETFs try to achieve some specific portfolio goals like less risk or more return rather than tracking a more broad/narrow index.

Style ETFs are very good instruments to include in an investing portfolio.

• They help investors to passively explore an investing style; thus can be used to achieve some specific investing goals.
• They are very good instruments for portfolio diversification.
• They allow investors to test different investing strategies; and their past performance can be evaluated and compared to easily find out a most suitable investing style.
• They are very good hedging tools; especially when you are dealing with a less-diversified portfolio composed of one style investments.
• They are good instruments for long-term investments and take less time to screen than screening stocks they passively track.

Now there are many style ETFs available for investors, especially for US investors. They vary greatly in investing style and the index they follow. One thing to remember is, the style indexes are reconstituted periodically; once or twice a year. Thus one index can have very different stocks than the other, so does a style ETF tracking it. Thus finding the right style ETF can greatly enhance portfolio performance.

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The Week Ahead: Despite the strong Q4 GDP number, the economy is lagging badly in many areas not the least of which is the poorer showing in new home sales from January to February do to high unemployment and higher lending standards. Future GDP comparisons will be tough. The ISM Manufacturing Index, Personal Income, and Construction Spending reports will start the week off on Monday. Auto Sales arrive Tuesday. The Non-Mfg. Index on Wednesday will provide a peak at the service sector. Factory orders on Thursday and the Employment Report on Friday should be the most noteworthy of the week.

Stocks to Watch: Bancorpsouth (BXS), a regional bank, fell 13.74% after it delayed its annual report do to the review of asset quality measurements and setting aside $35 million for bad loans. Deckers (DECK) footwear beat estimates handily as sales and profits margins rose propelling the stock to 52 week highs. Nuvasive (NUVA), a medical device maker, shot up 35% on word that Aetna insurance will cover its final surgery procedure, but Rockwell Medical (RMTI) collapsed 27% after disappointing results for its experimental anemia drug.

Special Note: The Mutual Fund Cash to Asset Ratio of 3.6% at year end 2009 has reached the second lowest level since the data for this series began tracking it in the 1960's. As some may be aware, readings this low notoriously accompany major tops in stocks nearby. The last reading near this level was in July 2007 when the ratio reached its lowest 3.4% three months before the big top. It's an important contrary statistic to keep in mind as it is showing extreme bullish sentiment among fund managers with little wiggle room to meet redemptions.

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