Ziad Melhem

The key determinant of whether the market is bull or bear is the long-term trend, not just the market’s knee-jerk reaction to a specific event. Little movements only represent a short-term trend or a market correction. Of course, the length of the time period that you are viewing will confirm whether you see a bull or bear market.

For example, the last two weeks might have shown the market to be bullish whereas the last two years may have displayed a bearish tendency. Thus, most agree that a determined reversal in the market should be ascertained by the degree of the change: if multiple indexes have changed by a minimum of 15-20%, investors are often quite sure the market has taken a different direction. If the new trend does continue, it’s as a result of investors perceiving changes in both market and economic conditions and are thus making choices accordingly.

Not all long movements in the market can be characterized as bull or bear. At times a market may undergo a period of stagnation as it tries to seek out direction. In this case, a series of up and downward movements would actually cancel-out gains and losses leading to a flat market trend.

What to Do?
In a bull market, the best thing for an investor to do is make the most of rising prices by buying early in the trend and then selling them when they have reached their peak. (Of course, determining precisely when the bottom and the peak will occur is not possible.) On the whole, when investors have a tendency to think that the market will rise (thus being bullish), they’re more likely to make profits in a bull market. As prices are on the rise, any losses ought to be minor and temporary. During the bull market, an investor can actively and confidently invest in more equity with a higher probability of making a return.

In a bear market, however, the possibility of losses is larger because prices are continually losing value and the end isn’t usually in sight. Even if you do choose to invest with the hope of an upturn, you’re seemingly to take a loss before any turnaround happens. Thus, most of the profitability is going to be present in short selling or safer investments like fixed-income securities. An investor can also flip to defensive stocks, whose performances are only minimally affected by changing trends in the market and are therefore stable in both economic gloom and boom. These are industries like utilities that are typically owned by the government and are requirements that individuals buy irrespective of the economic condition.

Conclusion
There is no definite way to forecast market trends, therefore investors ought to invest their money based on the quality of the investments. Simultaneously, however, you must have an understanding of long-term market trends from a historical point of view. Because both bear and bull markets will have a large influence over your investments, do take the time to choose what the market is doing when you are making an investment decision. Keep in mind though, in the long term, the market has posted a positive return.

Posted on: Tuesday, 24 of January, 2012.

Used to explain how stock markets are doing in general – that is, whether they are appreciating or depreciating in value – these two terms are constantly buzzing round the investing world. Simultaneously, because the market is set by investors’ attitudes, these terms also denote how investors feel regarding the market and the ensuing trend.

Simply put, a bull market refers to a market that is on the rise. It is typified by a sustained increase in market share prices. In such times, investors have faith that the uptrend will continue in the long term. Usually, the country’s economy is strong and employment levels are high.

On the opposite hand, a bear market is one that is in decline. Share prices are continuously dropping, leading to a downward trend that investors think will continue in the long run, which, in turn, perpetuates the spiral. Throughout a bear market, the economy will usually hamper and unemployment will rise as corporations usually laying off employees.

Where Did the Terms Come From?
The origins of the terms “bull” and “bear” are not clear, however here are two of the most common explanations:

1. The bear and bull markets are named after the way in which each animal attacks its victims. It is characteristic of the bull to drive its horns up into the air, whereas a bear, on the opposite hand, like the market that bears its name, will swipe its paws downward upon its unfortunate prey. Furthermore, bears and bulls were literally once fierce opponents when it was popular to put bulls and bears into the arena for a fight match. Matches using bulls and bears (whether together or gains other animals) took place in the Elizabethan era in London and were also a popular spectator sport in ancient Rome.
2. Historically, the middlemen who were concerned in the sale of bearskins would sell skins that they had not yet received and, as such, these middlemen were the first short sellers. Once promising their customers to deliver the paid-for bearskins, these middlemen would hope that the near-future purchase price of the skins from the trappers would decrease from the current market price. If the decrease occurred, the middlemen would make a personal profit from the spread between the price for which they had sold the skins and the price at which they later bought the skins from the trappers. These middlemen became referred to as bears, short for “bearskin jobbers”, and the term stuck for describing someone who expects or hopes for a decrease in the market.

Posted on Tuesday, 17th of January, 2012.

To explain these market dynamics, the market is conjectured to be primarily composed of two groups: informed players and the much larger group of uninformed players. The informed player is thought about to be the professional, who understands the valuation of assets according to fundamentals, however the uninformed players have little or no understanding of asset valuation, and, thus, isn’t an element in their buying and selling decisions.

There are also liquidity players, who are market participants that buy or sell, not due to market forecasts, however as a result of organizational objectives or because they need the money, as when a pension fund has to make payments to retirees or a mutual fund needs to sell to pay for redemptions, However, liquidity players aren’t thought to have a major impact on prices most of the time, because their actions, motivated by individual needs, don’t seem to be concerted.

Since the uninformed masses are a much larger group, they even have more money, and, thus, are an additional important determinant of market prices. However, it’d be wrong to assume that only uninformed players buy when prices are high and sell when they are low. For example, in 1995, after the stock market had already risen significantly since 1990, it absolutely was destined to continue rising over the next 5 years. If informed players did not buy throughout this period, then they might have missed many profitable opportunities. Indeed, if they had sold short, thinking that assets were overpriced compared to fundamentals, they would have suffered substantial losses. Hence, because market sentiment looks to be more important in the pricing of securities than fundamentals, a trader who accurately forecasts market sentiment are going to be more successful than one who only considers fundamentals. In this way, even informed players are swayed by the crowds.

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Posted on Tuesday, 10th of January, 2012.

While the commodity market is routinely more risky than steadier stocks, it likewise is more profitable sometimes. Careful study of how to make money by investing in them is the best way. Commodities are the necessary things in life and are what we cannot live without like food, heat, feed for our animals and what not. They’re the raw materials manufacturers need to make things that we insist on purchasing. They are real assets as opposed to financial assets. How then do we buy them?

In the world of buying and selling commodities are bought and sold as future contracts. They’re not like stocks in which you own a small part of the company; in contrast to bonds in that you haven’t loaned money and expect to be paid back with a guaranteed amount at some future maturity date, commodities work differently. In a way, when buying commodities, you’re gambling on the future. You contract to buy a certain amount by a certain date at a certain price.

No matter how large or small the corn crop, the sudden gush of oil, or the bad tomato harvest, you’ve got this contract that tells you this is what you buy at such and such time and at this price. If the commodity you have a contract to buy is worth far more than the price you’re bound to pay, then you in your risk-taking venture will have gained a great deal. You pay the price you’re expected to pay and sell your purchase to those demanding this commodity for a higher price.

It could, of course work the opposite way and the one doing the selling of the futures will be the one to gain and you are going to be the one to lose. If they have overproduced and their lot is worth far less than what you contracted calls for, they are going to be glad to have you pay them what you opted to pay. Actually you must. If they have sold lots of future contracts then their gain stands to be quite substantial.

The loss is going to be yours. In a nutshell this straightforward clarification is what futures buying is all about. It has as its product expected and hoped for commodities. After all you’ll be in the wheeling and dealing part of this risk taking venture and won’t be the actual farmer gathering in his harvest. Each of you will, however, be doing an excellent deal of sweating before the deal is over.

In different words commodity traders typically are huge gainers and sometimes big losers. That’s why it’s better, to permit only five or ten percent of your portfolio to commodities and the rest to be made up of stocks and bonds. This is for both physical commodities – food and cattle and hay and wheat, corn -and resource commodities – hard metals and different resources required in production.

How are they sold? Typically they may be sold as a multiple group of diversified commodities as a one product. In this way there’s less risk than buying lots of one commodity. You may try buying commodities at AM Financials. Don’t waste time thinking, simply click here.

Posted on Tuesday, 3rd of January, 2012.

Momentum Indicators show the strength and weakness of a trend, by indicating when a currency is over bought or over sold. Most widely used Momentum Indicators are Relative Strength Index (RSI), Stochastic, Aroon and Commodity Channel Index (CCI).
Relative Strength Index (RSI)
RSI was developed in 1978 by J. Welles Wilder. RSI is a line plotted between values of 0 to 100. When RSI reading is moving upward and crosses the 70 line, it indicates that the currency is overbought and similarly, when it moves below the 30 line, it implies that it’s over sold. An investor may buy when the reading is below 30 and sell when the RSI is above 70. However, RSI should not be used alone it offers wrong signals during high volatility.
Stochastic
Another widely used indicator to measure momentum is Stochastic. It was developed by George C. Lane. This indicator has two lines and when ever these lines cross one another it indicates that the trend is changing. Stochastic lines are plotted between 0 and 100 values. Traders can determine the momentum either by slow, fast or full stochastic.
Aroon
Aroon was developed by Tushar Chande. Aroon indicates whether the market is bullish or bearish. Aroon consists of two lines Aroon up (the blue line) and Aroon down (the red line). These lines provide readings between zero and 100. In a strong bullish trend the blue line will be above 70 and the down line will be below the 30 line. Similarly, during a strong down trend, the Aroon red line will be above the 70 line and Aroon blue line will be below the 30 line.
Commodity Channel Index (CCI)
CCI is another widely used indicator in forex trading and was developed by Donald Lambert. CCI has different varieties and all are common among traders. CCI is a single line indicator and has three horizontal lines 100, 0 and -100. If the CCI line crosses the 100 line, it gives an indication that the currency is overbought and when it starts moving downwards and crosses the 100 line it is the point to sell the currency. Similarly, when the CCI line crosses the -100 line it’s a sign that the currency is oversold, and when on its way upward the CCI crosses the -100 line, it is an indication to buy the currency. But many forex traders use the zero line to buy and sell currencies, which isn’t recommended and would possibly increase the risk of an investor.

You may check Momentum Indicators on the charts for free at AM Financial’s demo MT4 platform by registering here.

Posted on Tuesday, 27 December,2011.