As self-imposed Euro Zone austerity leads to recession the political face of Europe may be about to change. While authorities try to deal with the so called PIIGS debt crisis voters seem likely to express their dissatisfaction with things as they are. The Euro Zone debt crisis is three years old. The problems of the Euro Zone have affected economies across the globe. China, for example, is seeing a decrease in manufacturing as Euro Zone austerity leads to recession and fewer purchases of Chinese products. After the painfully slow Greek bailout, and European Central Bank cash infusion, things, briefly, looked hopeful. However, the Euro Zone bailout package consequences are coming home to roost as the Central Bank bailout money has been used and Euro Zone austerity leads to recession. Stock traders may well see a fair amount of volatility in Euro Zone stocks and stocks in markets throughout the world as political volatility drives market volatility in the Euro Zone.

The Recipe for European Debt

In the run up to European Central Bank loans to Greece this spring the various solvent members of the Euro Zone demanded that Greece cut back on government benefits, including pensions and health care. Although Greece eventually complied the prices were riots in the streets and an anemic economy that may spell disaster by the next time that Greek bonds come due. Along the way credit rating agencies downgraded debt in more than a dozen nations in Europe. The response was to institute austerity measures across the board. This is likely a good idea in the long run as it helps reduce the tendency of politicians to buy votes with programs paid for with someone else’s money. In the near term, however, this policy reduces money supply across the Euro Zone and thus this Euro Zone austerity leads to recession which is what is predicted for 2012.

Voter Discontent in the Euro Zone

The bigwigs in Paris, Brussels, Bonn, and Berlin have thrashed out a monetary solution to the current Euro Zone debt dilemma. The issue of who is paying for what has not been lost on voters across the more solvent members of the Euro Zone, especially Germany. Citizens of those nations with healthier economies are coming to resent the fact that they are backing the debt of the so called debtor nations of the EU, with their taxes. Leaders in Germany and France understand that the European Union is a Common Market as large as the USA. This market, or free trade zone, makes internal trade easier and more lucrative. Thus leaders have cautioned against letting debtor nations such as Greece, Portugal, Ireland, Spain, and, especially, Italy go their own way. The price of this decision may be that the European leaders who led the EU in its efforts may be out of a job courtesy of voters. Traders should consider this in deciding on trading US stocks versus Euro Zone stocks .

Trading Stocks as Euro Zone Austerity Leads to Recession

The fundamentals are that the Euro Zone is heading into a recession due to strict austerity measures and accumulated debt. However, the situation may well be very fluid in the coming year if major players in negotiations are removed from the scene via voter discontent. Technical analysis may be more important than fundamentals in assessing market sentiment and stock price direction in Europe and elsewhere. And as Euro Zone austerity leads to recession reduced manufacturing in China may be compounded by a collapse of the real estate market and the slow US recovery may be imperiled by events surrounding the fall electoral campaign.

More Resources

Popularity: 10% [?]

Every trader has their own style and with so many different charting options and indicators to choose from, it is little wonder that no two individuals are alike. However, there are some resources that are popular with the vast majority of traders and the Arms Index is one such example. Despite sounding like an inventory for weapons, the Arms Index is actually a way of measuring the market and helping to determine likely future movement by ascertaining where the strength lies.

The Arms Index, which is also known as TRIN in some circles (short for Trading Index) has been around since 1967 following its creation by Richard Arms. The indicator is based on volumes and analyses of market strength by comparing the relative numbers of both advancing and declining issues. The index can be used to both measure supply and demand for the intraday market as well as being used to analyze medium and long-term trades. The Index is permanently displayed on the central wall in the New York Stock Exchange while the market is trading.

The Arms Index is calculated using a deceptively simple formula involving the division of advancing and declining issues by advancing and declining volumes. The result can be smoothed further by the addition of a moving average. The length of the moving average will be determined by the type of trade; those in a short term market should use no more than a five day average while those looking to trade in the medium term should apply a 20 or 21 day calculation. Any trader staying in the market for the long haul should use a minimum of a 55-day moving average.

However, it is important to remember that the Index is based upon volume, not price. This means that a stock seeing significant numbers of shares being shifted will register more strongly than the same monetary value being traded in a high priced commodity. Of course, being able to calculate the result is only half the story; any trader must also understand what it means and how to apply it to help improve the chances of making a profit.

The general consensus of opinion is that a reading below 1 points to a bull market whereas a value above 1 means sentiment is bearish. A steady score of 1 would normally be interpreted as a neutral position. However, any reading approaching 2.5 is widely regarded as an indicator that a retracement is about to occur. Some traders also place more importance on the movement of the Arms Index indicator rather than an isolated value. A trend in one direction or another is often viewed as more significant than one solitary figure.

The Arms Index is a widely used indicator and has been around for many decades, being trusted by thousands of traders. However, while it has its clear benefits, it is never a good idea to rely on just one indicator, regardless of how well established it might be. Whether you are trading forex or stocks and shares, the best traders are those who understand how to interpret technical indicators and use a range of charts to help them pinpoint likely movement.

More Resources

Popularity: 10% [?]

The consumer electronics outlet, Best Buy, gapped down recently on news of store closings. With this news in mind we would like to speculate on trading Best Buy as it closes stores. Successful stock trading requires both fundamental and technical analysis . The fundamentals are that the recession and other factors have caught up with Best Buy - BBY, costs are up, and profits are down. Market sentiment is something else. Will the market assume the worst and send the stock down or will a single piece of good news emerge for those trading Best Buy as it closes stores? Will this scenario be like trading a disaster , such as when Circuit City folded? Or, will the company remake itself, smaller and leaner, as they say, and come back? Will the current talk of a buyout, which made the stock gap up, serve to support stock price? BBY was trading in the low 30’s a year ago and now is in the low 20’s.

Best Buy

Best Buy has been selling consumer electronics for a quarter of a century. It is the result of a name change of a music store, Sound of Music. Best Buy now sells nearly a fifth of the consumer electronics sold in the USA and has branches in Canada, Mexico, Puerto Rico, and China. It has gross revenues of around $16 Billion a year but has recently seen its profit slip from the $700 million range to the $600 range. This is where we are with trading Best Buy as it closes stores. However, a couple of other fundamentals are of interest. Best Buy has very little debt. Also, the company’s founder, Richard Schultz, owns a fifth of the company. Thus, Best Buy is not selling off properties to pay off debt. It is downsizing in order to make itself more profitable. And, although there is talk of takeovers it could be difficult to get the founder of the company to give away his baby. Those interested in trading Best Buy as it closes stores may wish to follow reports of insider trading at Best Buy for hints as to what those in the know are doing with their own stock.

Trading Best Buy As It Closes Stores

The possibility of a buyout attempt may be of the most interest to traders. News reports state that companies such as Greenlight Capital Inc have been purchasing Best Buy stock as the price has fallen. Is this simply a matter of trading Best Buy stock as it closes stores? If the strategy works and Best Buy raises its profits the stock could come back, providing handsome profits who buy at the current price. On the other hand, some may believe that the company will not come back as fast as one might wish. If that is the case, there may be repeated peaks and valleys in trading Best Buy as it closes stores and struggles to raise its profits. As with many actively traded stocks , Best Buy could become quite volatile providing the potential for profits for traders who pay attention in trading Best Buy as it closes stores. If things continue to get worse a buyout could happen and drive the price higher.

More Resources

Popularity: 10% [?]

The report of slowing American job growth drove US stock prices in afterhours trading. The markets opened on Monday with losses across the board. Stocks dropped due to poorer than anticipated fundamentals. However, in technical analysis, traders commonly anticipate that the market will overshoot when there is a correction. Thus there are often profits to be made as the correction “corrects” so to speak. That was exactly the case as the NASDAQ and S&P 500 both gapped down on the opening follow the report of slowing American job growth. However, both regained part of the loss in the hour or two following the opening bell. With this snapshot of the markets in mind, just what does currently slowing American job growth mean for the stock trader?

The United States Economic Recovery

The United States economy lost nearly nine million jobs at the start of the worst recession in three quarters of a century. Unemployment has fallen steadily for a year and there has been steady job growth with 120,000 jobs being added last month. Manufacturing jobs have been steadily on the rise but the United States economy is still short about five million jobs from what employment figures were before the 2008 market crash and recession. Analysts expected the jobs report to be similar to the month before with about 200,000 new jobs being added. However, the numbers were half those expected and the market adjusted. It turns out that adding a hundred thousand jobs a months is enough to keep up with population growth. There are the numbers and there are expectations that drive optimism or pessimism in the markets. Whether you are trading the Russell 2000, trading banks, trading Toyota, or trading penny stocks, market sentiment is important as it drives prices ahead of the announcement of fundamentals. The bright spots in adding jobs last month were manufacturing, health care, professional services, and bars and restaurants.

Profits despite Slowing American Job Growth

If the trader looks only at the overall numbers he might believe that the recovery is slowing down. He might also worry about a real estate crash in China, a recession in Europe, or trouble in the Middle East. All of these “big picture” issues are of concern. However, during the last years the US government has slimmed down a bit. The folks who lose government jobs show up on the unemployment rolls. However, they are no longer costing the US tax payer any money. Considering that the size of the US debt is a major issue, the slimming down of the government is a good thing. Also, the US is getting out of Iraq and, soon, Afghanistan. The bleeding of the US treasury due to two foreign wars is about to stop. And, the United States private sector has been adding jobs steadily for two years! The point of this is that, while things may be dicey in Europe and China, they are steadily getting better in the USA. Traders may choose to switch their money over to US treasuries for security or they may look for bargains as the market corrects. In order to profit during times of slowing American job growth or rapid expansion of jobs, traders are wise to do their homework and avoid trying to outguess the market. Technical and fundamental analysis, steadily applied allow with sound money management principles commonly lead to profits.

More Resources

Popularity: 11% [?]

What are the differences in trading US stocks versus Euro Zone stocks these days? Data from the Chicago Board Options Exchange indicate that standard options trading has dropped off a bit. Traders note that a more stable US stock market, namely a less volatile market, is the cause. US manufacturing is picking up and US employment figures have been improving month by month for nearly a year. On the other hand the debt dilemma does not seem to want to leave the Euro Zone alone. Euro Zone bailout package consequences don’t seem to be over. The several members of the EU agreed recently to increase the size of their bailout fund, again. Unemployment is close to 25% in Spain and people have taken to the streets in a general strike to protest austerity measures. The question for Europe seems to be two fold, can they avoid debt default by their members and will the debt relief medicine of austerity measures lead to a recession and more debt problems on the continent? Trading US stocks versus Euro Zone stocks may have a lot to do with on whether the trader prefers to go long or short.

Will the Bernanke Doctrine applied to the Euro Zone save the day? A recognized expert about the Great Depression is the current Federal Reserve Chairman Ben Bernanke. Mr. Bernanke’s prescription for the recession has been loosely referred to as the Bernanke Doctrine. Basically the point is that a bad recession was turned into a depression in the early 1930’s by restrictive monetary policy and a trade war started by the USA. The response to the current crisis has included money for banks to maintain credit and the purchase of Treasury bills which serves to drive interest rates lower. Much of this policy is carried out with printed money. The end result will likely be a US economic recovery and the devaluation of debt held in dollars by many foreign nations. A feature of US stock trading strategy is that this solution will make the dollar weaker versus commodities and any currency that is not subject to the same policy. How this relates to trading US stocks versus Euro Zone stocks is this. It turns out that the current president of the European Central Bank went to the same school as Bernanke for his graduate work and has adopted many of the same policies.

To the extent that the US prospers and Europe falters, how will that affect trading US stocks versus Euro Zone stocks? A weaker dollar, occasioned by US monetary policy will make US exports more attractive and exporters more profitable. The austerity measures taken on by European nations may simply drive them back to recession. However, one does not need to trade all European stocks. One only needs to find stocks in the Euro Zone that benefit from a weakening Euro, stocks of companies that sell to a broader market, or high tech companies with unique products. As currencies weaken the price of energy will become a major factor for struggling companies. Considering that Euro Zone does not produce a lot of oil this will affect trading US stocks versus Euro Zone stocks. It may be good news for trading US oil stocks , however.

More Resources

Popularity: 13% [?]