Wednesday, October 5, 2011

Stocks struggle in the early going

     Well it turns out that huge spike into the close yesterday where the SNP 500 rose 4.1% in about 45 minutes was caused by a story in the Financial Times that the Europeans finance ministers are finalizing a plan to recapitalize the European banks.  It is estimated that European banks will need up to 261 billion dollars to protect themselves from insolvency should Greece or other European nations default.  A failure of large banks in Europe could set off a chain reaction which destroys the financial system of the world and sends the world into an epic depression which would last for years.  It is amazing to me how close we are to armageddon.

     Meanwhile, the US markets have opened today slightly in the red.  We got some good economic data out today and on the whole the data has been better than expected and consistent with an economy which is growing albeit slowly.  Markets have not had much reaction to the data however as our fortunes are tied to Europe at this point.   Right now, it is a headline driven market which makes it untradeable for me.

Economic Data
     The ISM Services Index for September came in at 53 this morning which was above economists forecasts of 52.8.  Any reading above 50 indicates expansion.   This index measures the activity of the services part of our economy like retailing and hotels and restaurants. 

     The ADP private payroll survey also came in better than expected with private industry adding 91,000 jobs on expectations of 75,000.  On Friday, we get the government non farm payroll number which is expected to show a gain of 60,000 jobs.

Market Recap
     Well today was very constructive in the markets.  The DJIA rose another 130 points today building on the 400 point rally from yesterday.  Strong momentum is propelling the markets upwards right now.  It looked like the market was going to breakdown after Monday and early yesterday but we have reversed and risen back into the trading range from previously.

     The best performing sector today was the energy sector.  XLE rose over 3.5% as oil was up over 4 dollars.  Technology stocks also performed well as AAPL the biggest component of the technology sector rose almost 2%.  AAPL made a picture perfect tag of the 200 day moving average yesterday at 354 and has exploded to the upside rising almost 10 pct from there. 

     Gold also rose today as people were bargain hunting after a big drop yesterday.  Gold has found support near the 150 day moving average and it would seem like a good place to initiate a position.  Gold is one of the strongest markets right now technically.

     European stocks had large gains across the board with the DAX rising almost 5% and most other bourses rising 3-4%.  One notable outlier from the bullish action is the continuing decline of the Hang Seng index which dropped another 3.5% last night.  That makes an almost 10% drop in only 3 days!  I don't think the Asian economies are that bad and so the selloff is way overdone and it is definitely time to buy.  I expect the Hong Kong index to bounce back strongly soon and as a matter of fact EWH which is the Hong Kong index ETF was up 3% today. 

     I think we have put in the bottom for awhile.  Newsflow out of Europe is more positive and it looks like the policymakers there understand the gravity of the situation.  US economic data has not fallen off a cliff considering the horrible consumer confidence data.  Jobs are still being added and the manufacturing and service sectors are still growing.  Despite the best efforts of US policymakers besides Bernanke to wreck the economy, we are still chugging along in a slow growth scenario.  All this says to me is moar trading range. 

PS
Natural One asked me how much cash it would take to get started making real money in the markets. 

I guess that depends on what your definition of "real money."  There are some brokerage accounts that require a 500 dollar minimum deposit, but if you are only buying 500 dollar worth of stock you are not going to make much money and transaction costs will eat up your profits.  Generally it costs between 5-10 dollars to buy and sell stock in a single transaction.  Even if you bought 500 dollars worth of stock and made 20% on your trade, you would only make 90 dollars after buying and selling.  This market is tough as well so it would be hard to make 20% unless you are buying a risky stock.

     I would say it would take about 5000 dollars to start off with to make a decent amount of money after transaction costs.  I don't know your experience level or knowledge of trading but what you can do if you want to learn to trade is to start a play money account.  Start off with 10000 dollars of fake money and make some pretend trades and see how you do.  That is a good way to start off and learn the ins and outs of trading.  This market is very dangerous right now so its definitely best to practice before you get in it.  If you do a search on play money trading accounts on google, there are numerous places to get started.
     

    

Disclaimer: Nothing in this blog should be construed as a recommendation to buy or sell any securities! Please do your own due dilligence before buying any stocks or bonds!

29 comments:

  1. Can't pay much attention to stocks this week thanks to finals. I hope I haven't lost too much.

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  2. hardly anyone invests here, dem 3rd world country D:

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  3. Guess I'll go get some gold...oh wait, I don't have the money to.

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  4. Its the end of the world as we know it.

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  5. So.. that's a very big 'could' at the beginning there right?..

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  6. Oh Greece please.. I just.. Yeah, this is sounding quite scary.

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  7. @D4

    Yes, its a big Could. It is unlikely to happen.

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  8. Well, back to my investment in bubble gum cards.

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  9. gain 60,000 jobs?! that would be amazingly awesome.

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  10. So much volatility this days.

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  11. Just seems like a bad week in general. I'd love to get involved in stocks but I think I'm going to need to wait until things get more predictable.

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  12. European policymakers are all aware they have to work with the banks right now not against them.

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  13. Good thing I haven't investing in anything yet.

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  14. Even 10K seems way too little to have a semi decent profit. I mean, if you wanna "gamble it up" with huge risk and poor position sizing, yeah, 5k or 10k will be enough. Or if you want to buy some stuff and go long on it, it's valid too. But if you wanna actively trade, i wouldn't do it with less than 6 figures.

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  15. Cool, I'm going to try my hand with the play money trading accounts.

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  16. Why not just invest in wine? The longer you hold onto it, the more valuable it gets.

    Have I said that here before?

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  17. @Hasidic Plumber

    you are probably right. I don't have nowhere near 6 figures and I find it difficult to trade well.

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  18. @Lot's Wife

    It's no fun if it only goes up! :)

    No, I don't think you have said that before.

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  19. thanks for the info!!

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