When the Market Moves,Will You Be Ready?
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7700++ DDVVDD’’ss FFOORR SSAALLEE && EEXXCCHHAANNGGEE www.traders-software.com www.forex-warez.com www.trading-software-collection.com www.tradestation-download-free.com Contacts [email protected] [email protected] Skype: andreybbrv 00_200274_FM/Navarro 7/31/03 12:52 PM Page i WHEN THE MARKET MOVES, WILL YOU BE READY? How to Profit from Major Market Events Peter Navarro McGraw-Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto ebook_copyright 6x9.qxd 10/20/03 11:20 AM Page 1 Copyright © 2004 by The McGraw-HIll Companies, Inc. All rights reserved. Manufactured in the United States of America. 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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 Copyright 2004 by The McGraw-Hill Companies, Inc. Click Here for Terms of Use. 00_200274_FM/Navarro 7/31/03 12:52 PM Page vi 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 00_200274_FM/Navarro 7/31/03 12:52 PM Page vii 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 00_200274_FM/Navarro 7/31/03 12:52 PM Page viii 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