When the market moves, will you be ready? : how to profit from major market events

290 Pages·2004·3.675 MB·English

by  Peter Navarro

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WHEN THE MARKET MOVES,
WILL YOU BE READY?
How to Profit from
Major Market Events
Peter Navarro
McGraw-Hill
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DOI: 10.1036/0071435948
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To the loving memory of Ruby, my honey. Foresight could have
saved her from a fate more cold and cruel than the stock market itself.
Let us always remember to look ahead—and never forget the lessons
in kindness, gentleness, and peace she taught us.
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For more information about this title, click here.
CONTENTS
Acknowledgments xi
Introduction xiii
Part One The Big Picture 1
1 So You Want to Make a Million in the Stock Market 3
Anatomy of a Crash 4
2 What’s Your Wall Street “IQ”? 7
3 The Four Stages of Macrowave Investing 15
The Four Stages of Macrowave Investing 16
Stage One: The Four Dynamic Factors 17
Stage Two: Three Key Cycles That Shape Market and
Sector Trends 19
Stage Three: Picking Strong and Weak Stocks and Sectors 23
Stage Four: Using Solid Money, Risk, and Trade Management
Tools to Buy, Sell, and Short Stocks 24
Part Two The Four Dynamic Factors 27
4 Follow the Earnings Calendar! 29
Key Point #1: Fall into the Gap? 30
Key Point #2: Buy on the Rumor, Sell on the News 31
Key Point #3: Consensus Estimates versus Whisper Numbers 32
Key Point #4: Sector Watch 33
Key Point #5: Earnings and the Broad Market Trend 33
5 Follow the Macroeconomic Calendar! 37
Key Point #1: The Market’s Major Fuel 38
Key Point #2: Use Macro Scenario Building 38
Key Point #3: Mr. Market Hates Inflation 41
Key Point #4: Mr. Market Hates Recession 42
Key Point #5: Mr. Market Hates Productivity Decreases 43
Key Point #6: Mr. Market (Mostly) Hates Trade Deficits 44
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vi CONTENTS
6 Uncle Sam and the Stock Market 49
Key Point #1: The Tools of Monetary Policy 50
Key Point #2: The Fed Moves in Cycles, Not Isolated Steps 51
Key Point #3: Monetary Policy Ripples through the Stock Market 52
Key Point #4: You Can’t Push on a String 53
Key Point #5: The Two Problems with Financing Fiscal Policy 54
Key Point #6: Fiscal Policy’s Blunt and Irreversible Tool 55
Key Point #7: The Problem(s) with Tax Cuts 55
7 Exogenous Shocks and the Strategy of the Macroplay 59
Key Point #1: The Art of the Macroplay 60
Key Point #2: Contractionary Oil Price Spikes 61
Key Point #3: War Premiums and Penalties 62
Key Point #4: The Terrorism Tax 63
Key Point #5: The Market Stain of Scandals 65
Key Point #6: The Role of Disruptive Technologies 66
Part Three The Three Key Cycles 69
8 Tracking the Market and Sector Trends 71
Key Point #1: The Market Trends Up, Down, or Moves Sideways 72
Key Point #2: Individual Sectors Move Up, Down, or
Move Sideways 74
Key Point #3: Use Exchange-Traded Funds to Track Market
and Sector Trends 75
Key Point #4: It’s Easy in Hindsight to Spot Market and
Sector Trends 77
Key Point #5: Use the 3-Point-Break Method to Spot Changes
in Trends 78
9 The Business Cycle and the Stock Market Cycle 85
Key Point #1: The Business Cycle’s Ups and Downs 86
Key Point #2: The Stock Market’s Crystal Ball 88
Key Point #3: The Stock Market and Four Dynamic Factors 89
Key Point #4: The Profitable Patterns of Sector Rotation 90
10 As the Interest Rate Cycle Turns... 95
Key Point #1: The Four Stages of the Interest Rate Cycle 96
Key Point #2: Higher Interest Rates Negatively Affect the
Market and Sector Trends 97
Key Point #3: Some Bond Market Basics 100
Key Point #4: The Term Structure of Interest Rates 101
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CONTENTS vii
11 Unlocking the Mysteries of the Yield Curve 105
Key Point #1: Constructing the Yield Curve 106
Key Point #2: Shapes of the Yield Curve 107
Key Point #3: Some Historic Evidence of the Yield Curve’s
Predictive Powers 110
Part Four Picking Strong and Weak Stocks and Sectors 115
12 It’s Finger-Lickin’, Stock-Pickin’ Good 117
Key Point #1: Buy Low on the Dips, Sell High on the Peaks 118
Key Point #2: Buy High, Sell Higher 119
Key Point #3: High Volume Movers 121
Key Point #4: The Ratings Game 122
Key Point #5: Buy What You Know 123
Key Point #6: The Way of the Red Herring 124
Key Point #7: Ignore Hot Stock Tips 125
13 It’s Absolutely Fundamental 129
Key Point #1: An Efficient and Random Market? Not! 131
Key Point #2: Exploit Price Deviations from “Fair Value” 132
Key Point #3: Many Fundamental Analysts Are “Value Investors” 133
Key Point #4: The Fundamental Analyst’s Tools 134
Key Point #5: Use the Internet to Simplify Your Fundamental
Screening 135
Key Point #6: The Fundamental Analyst’s Traps 137
Key Point #7: Use Both a Fundamental and Technical
Analysis Screen! 139
14 Technically Speaking 143
Key Point #1: Learn the Lingo and Underlying Psychology 144
Key Point #2: Price Chart Patterns Identify Trends! 147
Key Point #3: Some Common Chart Patterns Can Be Helpful 150
Key Point #4: Volume Speaks Volumes 154
Key Point #5: Moving Averages Clarify the Trend! 155
Key Point #6: The Signals of Momentum Indicators 157
Key Point #7: Au Contrarian! The Logic of Market Sentiment 159
Key Point #8: Use a Technical Screen! 160
Key Point #9: Some Tools Work Better Than Others,
Depending on the Market Trend 163
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viii CONTENTS
Part Five Buying, Selling, and Shorting Stocks 169
15 Managing Your Risk 171
Key Point #1: Risk Represents Both Danger and Opportunity 172
Key Point #2: The Three Dimensions of Risk 173
Key Point #3: The Myriad Sources of Risk 174
Key Point #4: The Reward-to-Risk Ratio 175
Key Point #5: Some Useful Yardsticks to Measure Risk 176
Key Point #6: What Does “Well Diversified” Mean? 177
Key Point #7: Some (More) Risk Management Rules 177
16 Managing Your Money 181
Step #1: Calculate Your Investing Batting Average or Win% 183
Step #2: Determine Your Risk Capital 184
Step #3: Determining Your Reward-to-Risk Ratio 186
Step #4: Determining Your Position Limit and Position Size 189
Step #5: Increasing Position Sizes by Adding Units of Risk 190
17 Managing Your Trades 195
Key Point #1: Market versus Limit Orders 196
Key Point #2: Set Intelligent Stop Losses—Don’t Be Shaken Out! 199
Key Point #3: Use Trailing Stops to Lock in Profits 200
Key Point #4: Use Buy Stops to Play Breakouts 201
Key Point #5: Never Average Down a Loss 201
Key Point #6: Don’t Churn Your Own Portfolio! 202
Key Point #7: Some Inside Tips 203
Key Point #8: David Aloyan’s Top Ten Investor Psychology Tips 203
18 Executing Your Trades 207
Key Point #1: The Three Methods to Execute Your Trades 208
Key Point #2: Level I versus Level II Trading 209
Key Point #3: The Slippage Problem with Level I Brokers 211
Key Point #4: Direct Access Trading Eliminates Slippage 213
Key Point #5: The Virtues of Programmed Ordering 215
Part Six Macrowave Investing in Motion 219
19 Preparing for the Investing Week 221
TheSavvy Macrowave InvestorNewsletter 222
20 The Stimulation of Portfolio Simulation 229
Key Point #1: Simulate Your Portfolio With STOCK-TRAK 230
Key Point #2: The Tuition Bill Always Comes Due 230