The Uptick rule is a former financial regulations rule, relating to the trading of securities in the United States. The rule was eliminated by the SEC, effective July 6, 2007.
'Uptick' is the name generally given to Rule 10a-1, under the Securities Exchange Act of 1934, which states that short selling is only permitted following a trade where the traded price was higher than the previously traded price (uptick).
On the New York Stock Exchange a short sale may only be done on an uptick or a zero plus tick (which occurs when the price is the same price as the last trade, but higher than the previous different trade).
On the NASDAQ, shorting is only allowed on the bid side when the current inside bid is not lower than the previous inside bid (i.e. a downtick).
On the March 20, 2008 episode of Mad Money, Jim Cramer launched his campaign to reinstate the Uptick Rule. Citing the wild swings of the market since its elimination, Cramer pointed out that the SEC eliminated the rule during a bull market, when liquidity was not a problem. Cramer believes that, without the Uptick Rule in place, short sellers are devaluing perfectly solid stocks. As a former hedge fund manager, Cramer admitted to making millions short selling with the Uptick Rule in place. Without an impediment such as the Uptick Rule to slow down the pace of short sellers, Cramer believes it puts the market at risk for the very problems that lead to the Great Depression.
Tuesday, April 29, 2008
1926: U.S. cuts French debt
During the early stretch of the twentieth century, the United States was a "debtor nation," saddled with $3 billion in loans from foreign creditors. But World War I helped transform the U.S. into a creditor nation: by 1919, a number of European nations had racked up roughly $10 billion in debts to the American government. Suddenly freed from its reliance on foreign loans, the U.S. government set about solidifying its new position as a global economic force. However, under the rule of President Warren G. Harding, and his successor, Calvin Coolidge, the U.S. adopted fiscal policies, including high tariffs and other barriers to foreign trade, which made it nearly impossible for Europe to repay its loans. Nevertheless, the White House steadfastly refused to wipe any portion of Europe's debts off the books, despite European leaders' attempts to persuade the U.S to reconsider its unwieldy fiscal policy. Finally, in the mid-1920s, Coolidge relented and made arrangements to reduce, though not entirely scuttle, Europe's debts. Indeed, on this day in 1926, the U.S. and France sealed a deal that eventually wiped away sixty percent of the French debt. France, who owed the U.S. in the neighborhood of $4 billion, also agreed to a sixty-two-year term, at 1.6 percent interest, for the repayment of its debt.
-Source: www.history.com
-Source: www.history.com
HOW to add Chinese exposure to your investment portfolio
I've briefly outlined five easy ways to invest in China below. My advice would be to give careful consideration to each strategy as a part of your overall emerging market investment objectives.
1.) Exchange-traded funds: We've been telling you a lot about exchange-traded funds (ETFs). That's because these investments can give you a diversified stake in a particular sector, index or country in one shot.
There are several ETFs that can give you direct exposure to China and its mega-growth neighbors, but the iShares FTSE/Xinhua China 25 Index (FXI) is the most popular Chinese ETF.
2.) Mutual Funds: ETFs are great, but don't forget about traditional, actively-managed mutual funds, either. Some of my favorites are U.S. Global's China Region Opportunity (USCOX), Fidelity's China Region (FHKCX), and T. Rowe Price's New Asia (PRASX).
3.) Chinese companies trading on U.S. exchanges: As I pointed out earlier, more than 100 Chinese companies are listed on U.S. exchanges. What's more, they are some of the largest and most profitable companies in all of China.
4.) Chinese companies trading on foreign exchanges: A lot of really attractive Chinese companies are listed on the Hong Kong Stock Exchange, and others can be found on the exchanges in Singapore and London.
If you've never bought a stock on a foreign stock exchange, you'll be surprised at how easy it is. All you need is a broker with an international trading desk and the ticker symbol of the stock!
5.) U.S. companies doing big business in China: U.S. companies have been doing business in overseas markets for a long time. But these days, some American firms are getting the bulk of their revenues from outside the U.S.
For example, both Yum Brands — which runs Pizza Hut, Taco Bell, and KFC — and casino company Las Vegas Sands both garner more than half of their sales from outside the U.S. In other words, even carefully selected U.S. companies can give you a very significant stake in China!
Which of these investment strategies is right for you? The answer depends on a lot of things: How aggressive you are, whether you're more of a do-it-yourselfer, and how focused you want to get.
But the most important thing is that you take a hard look at adding some Chinese investments to your portfolio. That's where I continue to see the biggest profit potential.
1.) Exchange-traded funds: We've been telling you a lot about exchange-traded funds (ETFs). That's because these investments can give you a diversified stake in a particular sector, index or country in one shot.
There are several ETFs that can give you direct exposure to China and its mega-growth neighbors, but the iShares FTSE/Xinhua China 25 Index (FXI) is the most popular Chinese ETF.
2.) Mutual Funds: ETFs are great, but don't forget about traditional, actively-managed mutual funds, either. Some of my favorites are U.S. Global's China Region Opportunity (USCOX), Fidelity's China Region (FHKCX), and T. Rowe Price's New Asia (PRASX).
3.) Chinese companies trading on U.S. exchanges: As I pointed out earlier, more than 100 Chinese companies are listed on U.S. exchanges. What's more, they are some of the largest and most profitable companies in all of China.
4.) Chinese companies trading on foreign exchanges: A lot of really attractive Chinese companies are listed on the Hong Kong Stock Exchange, and others can be found on the exchanges in Singapore and London.
If you've never bought a stock on a foreign stock exchange, you'll be surprised at how easy it is. All you need is a broker with an international trading desk and the ticker symbol of the stock!
5.) U.S. companies doing big business in China: U.S. companies have been doing business in overseas markets for a long time. But these days, some American firms are getting the bulk of their revenues from outside the U.S.
For example, both Yum Brands — which runs Pizza Hut, Taco Bell, and KFC — and casino company Las Vegas Sands both garner more than half of their sales from outside the U.S. In other words, even carefully selected U.S. companies can give you a very significant stake in China!
Which of these investment strategies is right for you? The answer depends on a lot of things: How aggressive you are, whether you're more of a do-it-yourselfer, and how focused you want to get.
But the most important thing is that you take a hard look at adding some Chinese investments to your portfolio. That's where I continue to see the biggest profit potential.
Monday, April 28, 2008
Jim Rogers: Crazy In Love With China
Renowned investor Jim Rogers has revealed that he has begun buying Chinese shares again as the market has bottomed.
Mr Rogers, who founded the Quantum Fund with George Soros in the 1970s, said he would be focusing his interests on agriculture, tourism, airlines and education at a seminar in Beijing.
He recently sold his mansion in New York to move to Singapore, citing the investment potential in the Asian markets as the key factor.
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He said: "All my new money goes to commodities and China. All the panic looks like a bottom.
" I have bought in the last four to five weeks. I've been buying shares in China for the first time in a long time."
China's benchmark CSI 300 Index has plunged by almost 40pc this year, amid speculation that government steps to quell inflation would hurt corporate profits.
The slump triggered government moves to support the market, with the latest taking effect on April 24, when the tax on stock trading was reduced.
Chinese stocks jumped 9.3pc that day, the most since October 2001.
Mr Rogers, who founded the Quantum Fund with George Soros in the 1970s, said he would be focusing his interests on agriculture, tourism, airlines and education at a seminar in Beijing.
He recently sold his mansion in New York to move to Singapore, citing the investment potential in the Asian markets as the key factor.
advertisement
He said: "All my new money goes to commodities and China. All the panic looks like a bottom.
" I have bought in the last four to five weeks. I've been buying shares in China for the first time in a long time."
China's benchmark CSI 300 Index has plunged by almost 40pc this year, amid speculation that government steps to quell inflation would hurt corporate profits.
The slump triggered government moves to support the market, with the latest taking effect on April 24, when the tax on stock trading was reduced.
Chinese stocks jumped 9.3pc that day, the most since October 2001.
Sunday, April 27, 2008
Trading - Types of Gaps
Continuation Gaps
Continuation gaps occur during powerful trends. In a bull trend, the stock is moving upwards strongly and then gaps up. In a bear trend, the stock gaps down while already in a powerful down trend. These trends are confirmed when you see volume spike by 50 percent or more on the gap up.
Breakaway Gaps
These occur when a stock is in a base and then gaps up or down as it begins a new powerful trend. The longer the base, the longer the new trends tend to last. These trends can last anywhere from weeks to years. Usually the volume on the day of the gap is much higher than usual and often times, it persists for several days. These gaps represent a mass change in the sentiment on the stock.
Common Gaps
Most gaps are common gaps. Common gaps are short-lived and the price reverts to close the gaps relatively quickly, usually within the next few days after the gap. Volume tends to remain average during common gaps. There is really nothing extraordinary or powerful about common gaps. Usually, they are not tradable.
Exhaustion Gaps
Exhaustion gaps are so named because they occur at the end of trends. The difference between exhaustion gaps and continuation gaps is that exhaustion gaps are typically not accompanied by the higher highs that you see in continuation gaps. You can confirm an exhaustion gap when you see prices reverse in the opposite direction of the gap thus closing the gap. Once you see prices return back to their original levels before the gap, it's time to exit the position.
How to Profit
The most effective way to profit using options on gaps is to buy or sell short on breakaway gaps. These are the most effective setups because they have the most potential to trend powerfully (enough to double the value of your options). An effective risk control method is to set a stop right at the price of the stock before gape. IF the stocks gapped down 40% on a bear trade, this is obviously not going to work, but if the gap is smaller (like 3-4%) this may be an effective place to set a stop for your position. The best setups occur after a long base or trading range has been in place for a multi month, or multi-year period. If you are trading a continuation or breakaway gape, it is imperative that the stock continue to make higher highs in a bull trade and lower low's in a bear trade. Otherwise, what looked like a continuation or breakaway gap may actually be an exhaustion gap.
Another strategy to look for is trading the exhaustion gaps. They should be traded in the same manner as the other strategies described above in terms of setting stops. Many exhaustion gaps are accompanied by very strong reversals which can produce significant profits. The most common type of gap is the common gap.
Sell Strategies
What about when to exit? An outstanding sell strategy is to look at the vertical distance that the stock traveled preceding the gap. Stocks often can cover the same distance right after a gap. Use this strategy with continuation gaps and breakaways gaps. In conclusion, gaps offer unique opportunities for traders who can handle the high-risk nature of these trades. Gaps tend to be followed up with much higher levels of volatility. The key here once again is to develop a well-defined, tested, repeatable strategy. Develop yours. If it is well-tested, trade well and be disciplined!
Continuation gaps occur during powerful trends. In a bull trend, the stock is moving upwards strongly and then gaps up. In a bear trend, the stock gaps down while already in a powerful down trend. These trends are confirmed when you see volume spike by 50 percent or more on the gap up.
Breakaway Gaps
These occur when a stock is in a base and then gaps up or down as it begins a new powerful trend. The longer the base, the longer the new trends tend to last. These trends can last anywhere from weeks to years. Usually the volume on the day of the gap is much higher than usual and often times, it persists for several days. These gaps represent a mass change in the sentiment on the stock.
Common Gaps
Most gaps are common gaps. Common gaps are short-lived and the price reverts to close the gaps relatively quickly, usually within the next few days after the gap. Volume tends to remain average during common gaps. There is really nothing extraordinary or powerful about common gaps. Usually, they are not tradable.
Exhaustion Gaps
Exhaustion gaps are so named because they occur at the end of trends. The difference between exhaustion gaps and continuation gaps is that exhaustion gaps are typically not accompanied by the higher highs that you see in continuation gaps. You can confirm an exhaustion gap when you see prices reverse in the opposite direction of the gap thus closing the gap. Once you see prices return back to their original levels before the gap, it's time to exit the position.
How to Profit
The most effective way to profit using options on gaps is to buy or sell short on breakaway gaps. These are the most effective setups because they have the most potential to trend powerfully (enough to double the value of your options). An effective risk control method is to set a stop right at the price of the stock before gape. IF the stocks gapped down 40% on a bear trade, this is obviously not going to work, but if the gap is smaller (like 3-4%) this may be an effective place to set a stop for your position. The best setups occur after a long base or trading range has been in place for a multi month, or multi-year period. If you are trading a continuation or breakaway gape, it is imperative that the stock continue to make higher highs in a bull trade and lower low's in a bear trade. Otherwise, what looked like a continuation or breakaway gap may actually be an exhaustion gap.
Another strategy to look for is trading the exhaustion gaps. They should be traded in the same manner as the other strategies described above in terms of setting stops. Many exhaustion gaps are accompanied by very strong reversals which can produce significant profits. The most common type of gap is the common gap.
Sell Strategies
What about when to exit? An outstanding sell strategy is to look at the vertical distance that the stock traveled preceding the gap. Stocks often can cover the same distance right after a gap. Use this strategy with continuation gaps and breakaways gaps. In conclusion, gaps offer unique opportunities for traders who can handle the high-risk nature of these trades. Gaps tend to be followed up with much higher levels of volatility. The key here once again is to develop a well-defined, tested, repeatable strategy. Develop yours. If it is well-tested, trade well and be disciplined!
Mutual Funds: The Greatest Financial Irony in History
Can 90 Million People and $10 Trillion Be Wrong?
The word irony can have several meanings, but for our purposes let's assume it means "an outcome that is virtually the opposite of what you expected."
With that definition in mind, I propose to identify the greatest financial irony in history. It includes some 90 million people, about $10 trillion, and a circumstance that's in effect this very day. I'm talking about the mutual fund industry: the great financial irony is that "the vast majority of mutual funds are far more interested in taking money from investors than in making money for them" (New York Times, 20 April 2008). What compounds the irony is that for all the financial scandal mongering of recent years (from Enron to Worldcom to the subprime mess), this most damaging and costly injustice perpetrated against the greatest number of investors remains all but unreported.
The facts in support of my proposal are available with a modicum of digging. Candid, reliable assessments of the mutual fund industry are rare, but one excellent recent contribution comes from Louis Lowestein, in The Investor's Dilemma: How Mutual Funds are Betraying Your Trust. He explains the big-picture reasons why the mutual fund industry amounts to a deck stacked against investors, including how "management companies are independently owned, separate from the funds themselves," and that "managers profit by maximizing the funds under management because their fees are based on assets, not performance." He also notes other curious facts -- such as how the years from 1980 to 2004 saw the rate of increase in fees in stock mutual funds exceed the rate of increase in fund assets.
Other particulars in Lowenstein's book highlight how the assets of large funds will too often grow even as the performance of the fund itself either stagnates or declines. This pattern echoes the small but strong body of existing critical research, including work done by Vanguard Group founder John Bogle. He analyzed the 200 equity mutual funds with the largest money flows from 1996 through 2005, and found that those funds had average annual returns of 8.9% -- while the average investor in those funds earned only 2.4%.
There's also the Dalbar Study, which looked at investors returns for the period from 1986-2005. It found that while the S&P 500 earned 11.9% annually during those two decades, the average equity investor earned a 3.9% annual return (the annual inflation rate for the period was 3.14%).
The sum of this research is that a staggering number of investors give staggering sums of money to an industry which is built to "take" for itself, not "make" for its clients. The irony may speak for itself (if not loudly enough), yet it's also true that you don't have to be one of the sheep. You can look after yourself, and your own financial interests.
The word irony can have several meanings, but for our purposes let's assume it means "an outcome that is virtually the opposite of what you expected."
With that definition in mind, I propose to identify the greatest financial irony in history. It includes some 90 million people, about $10 trillion, and a circumstance that's in effect this very day. I'm talking about the mutual fund industry: the great financial irony is that "the vast majority of mutual funds are far more interested in taking money from investors than in making money for them" (New York Times, 20 April 2008). What compounds the irony is that for all the financial scandal mongering of recent years (from Enron to Worldcom to the subprime mess), this most damaging and costly injustice perpetrated against the greatest number of investors remains all but unreported.
The facts in support of my proposal are available with a modicum of digging. Candid, reliable assessments of the mutual fund industry are rare, but one excellent recent contribution comes from Louis Lowestein, in The Investor's Dilemma: How Mutual Funds are Betraying Your Trust. He explains the big-picture reasons why the mutual fund industry amounts to a deck stacked against investors, including how "management companies are independently owned, separate from the funds themselves," and that "managers profit by maximizing the funds under management because their fees are based on assets, not performance." He also notes other curious facts -- such as how the years from 1980 to 2004 saw the rate of increase in fees in stock mutual funds exceed the rate of increase in fund assets.
Other particulars in Lowenstein's book highlight how the assets of large funds will too often grow even as the performance of the fund itself either stagnates or declines. This pattern echoes the small but strong body of existing critical research, including work done by Vanguard Group founder John Bogle. He analyzed the 200 equity mutual funds with the largest money flows from 1996 through 2005, and found that those funds had average annual returns of 8.9% -- while the average investor in those funds earned only 2.4%.
There's also the Dalbar Study, which looked at investors returns for the period from 1986-2005. It found that while the S&P 500 earned 11.9% annually during those two decades, the average equity investor earned a 3.9% annual return (the annual inflation rate for the period was 3.14%).
The sum of this research is that a staggering number of investors give staggering sums of money to an industry which is built to "take" for itself, not "make" for its clients. The irony may speak for itself (if not loudly enough), yet it's also true that you don't have to be one of the sheep. You can look after yourself, and your own financial interests.
Thursday, April 24, 2008
Gold - More selling than buying at the streetTRACKS gold ETF
The most recent inventory data at the streetTRACKS gold ETF (NYSE:GLD) shows that the load is about 30 tonnes lighter than it was just a couple days ago.
This could be related to comments made earlier in the week by Dennis Gartman of the Gartman Letter who was said to be "abandoning ship" in fear of the government stepping in to burst the commodities bubble since the bubble doesn't seem to want to burst on its own.
According to this report, regulators at the Commodity Futures Trading Commission didn't seem too concerned at a hearing the other day on the subject of undue speculation in futures trading for agricultural commodities.
This could be related to comments made earlier in the week by Dennis Gartman of the Gartman Letter who was said to be "abandoning ship" in fear of the government stepping in to burst the commodities bubble since the bubble doesn't seem to want to burst on its own."Governments have to get together and stop the rise in grain prices, they will do something," Gartman said in a phone interview today from Norfolk, Virginia. "What if they come in and say you can't expand your positions anymore?"...This is the first time in three years that Gartman is not positive on gold, he said. Most of his subscribers, including large hedge funds and securities companies, probably won't sell gold for now, he said.
A government regulator says speculative trading is not the primary culprit behind surging prices of corn, wheat and other crops that have rattled farmers and food producers.An official at the Commodity Futures Trading Commission said Monday commodities markets are functioning properly, despite almost daily jolts in prices for foodstuffs."Our economists have looked at all the data available ... and there doesn't appear that any inordinate speculation has caused prices to move," said commissioner Bart Chilton.
Eurex
EUREX is the second largest derivatives exchange in the world. It is a 100% electronic exchange. Its most popular "retail" futures contracts are the DAX 30 and DOW JONES EURO STOXX 50 - both of which are stock index futures and which can easily be executed and traded in a futures account.
The DAX 30 is the blue chip stock index of the Deutsche Bourse. Like our own Dow Jones, the DAX is comprised of 30 stocks and is the best known barometer for the German stock market. The Dow Jones EURO STOXX 50 is an index of 50 blue chip stocks representing all of the European Monetary Union (EMU) nations. Both contracts open at 12:50 am and close at 3:00 pm (Chicago Time); although volume and liquidity is generally greatest between 12:50 am - 11:00 am (Chicago Time). Most platforms use FDAX for the DAX quote symbol and FESX for the Eurostoxx quote symbol.
Other futures and options contracts include:
The DAX 30 is the blue chip stock index of the Deutsche Bourse. Like our own Dow Jones, the DAX is comprised of 30 stocks and is the best known barometer for the German stock market. The Dow Jones EURO STOXX 50 is an index of 50 blue chip stocks representing all of the European Monetary Union (EMU) nations. Both contracts open at 12:50 am and close at 3:00 pm (Chicago Time); although volume and liquidity is generally greatest between 12:50 am - 11:00 am (Chicago Time). Most platforms use FDAX for the DAX quote symbol and FESX for the Eurostoxx quote symbol.
Other futures and options contracts include:
- Interest Rate Derivatives (f.e. Euro-Bund Futures, Euro-Bobl Futures)
- Equity Derivatives (Equity Options and Single Stock Futures based on European underlying)
- Equity Index Derivatives (f.e. Dow Jones EURO STOXX 50® Index Futures,DAX® Futures, SMI® Futures)
- Volatility Index Derivatives
- Exchange Traded Funds® Derivatives
- Credit Derivatives (iTraxx® Europe 5-year Index Series, iTraxx® Europe HiVol 5-year
- Index Series, iTraxx® Europe Crossover 5-year Index Series)
- Inflation Derivatives
- CO2 Derivatives
Only CFTC-approved products can be accepted and cleared by U.S. brokerage firms. For a complete list of CFTC-approved contracts, go to http://www.eurexchange.com/trading/products/cftc_approved_en.html
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