Monday, January 23, 2017

Stock Trading Hack: How to Game the Dow Jones Industrial Average

Most experienced stock market traders and investors tend to ignore the Dow Jones Industrial Average because it is not a true indicator of what the market is doing and it can be skewed by higher priced stocks.
However the media likes to refer to the Dow for several reasons. First, this index has been around for many years (actually since 1896). Second, it is close to an all time high benchmark of 20,000. Third, even though the Standard and Poor’s 500 index may be a more accurate indictor of how the stock market is performing, the Dow is still closely correlated with the S&P 500. Check out the comparison in the graph below, courtesy of Yahoo! Finance.

The Dow Jones Industrial Average contains 30 stocks, which are currently as follows:
American Express CoAXP
Apple IncAAPL
Boeing CoBA
Caterpillar IncCAT
Cisco Systems IncCSCO
Chevron CorpCVX
E I du Pont de Nemours and CoDD
Exxon Mobil CorpXOM
General Electric CoGE
Goldman Sachs Group IncGS
Home Depot IncHD
International Business Machines CorpIBM
Intel CorpINTC
Johnson & JohnsonJNJ
Coca-Cola CoKO
JPMorgan Chase & CoJPM
McDonald’s CorpMCD
3M CoMMM
Merck & Co IncMRK
Microsoft CorpMSFT
Nike IncNKE
Pfizer IncPFE
Procter & Gamble CoPG
Travelers Companies IncTRV
UnitedHealth Group IncUNH
United Technologies CorpUTX
Verizon Communications IncVZ
Visa IncV
Wal-Mart Stores IncWMT
Walt Disney CoDIS
So what is really wrong with the Dow? It is a price-weighted average, which means that the 30 stocks in the index are added up, then divided by a divisor, in order to account for stock splits and stock dividends. This means that a higher priced stock, such as Goldman Sachs (GS) which currently sells for over $230 a share can have a greater affect on the index than a lower priced stock, such as General Electric (GE), which sell for less than $30 a share.
The Dow differs from the S&P 500 in that the S&P is weighted by the market capitalization of all the companies in its index. The market cap for this index is calculated by multiplying the price per share times the float (shares available for trading).
Now you might ask, why is this all a big deal with the Dow being price weighted.? Here is one example. Because Goldman Sachs is the highest priced stock in the index, it can affect the Dow significantly. Let’s say that all the stocks in the Dow stay the same, but the price of Goldman drops from 232 to 200, or 150, or even 100. After all, it traded for less than 100 five years ago. In that case, the Dow would drop from about 19,800 to 18,891.
Of course, if Goldman goes up in price significantly, even if the other stocks in the Dow remain the same, the Dow average will increase dramatically.
Now lets say that GE drops by about the same percentage from 29 to 13, and all the other stocks, including Goldman, don’t change from today’s price. The Dow index would only drop from 19,800 to 19,685.
There are several ways that traders can use this information including using Dow related ETFs, such as the SPDR Dow Jones Industrial Average ETF, in conjunction with or as an alternative to Goldman Sachs. There is also the ProShares Ultra Dow30ETF  (DDM), which has a goal of providing twice the return of the Dow. The ProShares UltraPro Dow30 ETF (UDOW) has triple leverage.
On the bearish side, there is the ProShares Short Dow30 ETF (DOG), which has a goal of providing an inverse performance of the Dow, the ProShares UltraShort Dow30 ETF (DXD) providing two times the inverse of the Dow, and the ProShares UltraPro Short Dow30 ETF (SDOW), which is a triple inverse of the Dow ETF.
So let’s say you think that Goldman Sachs is going to drop in price. You could short the stock, but you would have unlimited risk if you are wrong. Or you could buy the SDOW ETF where your risk would be spread among the 30 stocks and your potential loss would be limited to what you invest.
The reverse of the trade could also be done. Suppose you think that Goldman Sachs is going to 400. You could buy the UDOW ETF instead, and have the diversification of the 30 stocks, and still get decent upside if you are right about Goldman because of the amount of weight it has on the index.
Or you could have a long or short position in Goldman and at the same time, have an opposite position in the Dow using an ETF, in order to hedge yourself. I will leave it up to you to determine your own best strategy.
In order to see what the Dow index can do based on various changes in stock prices, we have provided a Free Dow Jones Industrial Average Analyzer, in the form of an Excel spreadsheet, which will allow you to do what-ifs to see what would happen if, say, Apple (AAPL) goes to 150 and Wal-Mart (WMT) goes to 100.
Or maybe you want to go through the list of all 30 stocks and enter how far you think they could possibly drop, then determine what the Dow index would be. Another option would be to play around with the stock prices to see what would be required for the Dow Jones Industrial Average to reach 20,000.
To see the analyzer, click on the link below:

Wednesday, January 18, 2017

Stocks Going Ex Dividend the Fourth Week of January

Here is our latest update on the stock trading technique called ‘Buying Dividends,’ also commonly referred to as ‘Dividend Capture.’ This is the process of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend. This technique generally works only in bull markets, and can work in flat or choppy markets, but you need to avoid the technique during bear markets.
In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can’t sell the stock until after the ex date. The actual dividend may not be paid for another few weeks.
WallStreetNewsNetwork.com has compiled a downloadable and sortable list of the stocks going ex dividend in the near future. The list contains many dividend paying companies, lots with market caps over $500 million, and yields over 2%. Here are a few examples showing the stock symbol, the ex-dividend date, the quarterly dividend amount, and the annual yield.
Clorox Company (CLX) 1/23/2017 0.80 2.6%
Lowe's Companies, Inc. (LOW) 1/23/2017 0.35 1.7%
Royal Bank Of Canada (RY) 1/24/2017 0.618 3.4%
Williams-Sonoma, Inc. (WSM) 1/24/2017 0.37 2.9%
Pentair plc. (PNR) 1/25/2017 0.345 2.3%
ConAgra Brands, Inc. (CAG) 1/26/2017 0.20 2.6%

The additional ex-dividend stocks can be found here at wstnn.com. (If you have been to the website before, and the latest link doesn’t show up, you may have to empty your cache.) If you like dividend stocks, you should check out some of the other high yield stock lists at WallStreetNewsNetwork.com or WStNN.com. Most of the lists are free.
Dividend definitions:
Declaration date: the day that the company declares that there is going to be an upcoming dividend.
Ex-dividend date: the day on which if you buy the stock, you would not be entitled to that particular dividend; or the first day on which a shareholder can sell the shares and still be entitled to the dividend.
Monthly Dividend Stock List

Record date: the day when you must be on the company’s books as a shareholder to receive the dividend. The ex-dividend date is normally set for stocks at two business days before the record date.
Payment date: the day on which the dividend payment is actually made, which can be as long at two months after the ex date.

Monday, January 16, 2017

6 Ways to Make Money in a Stock Market Crash

There are lots of ways to make money from a falling stock market, some speculative, and some not so risky. It’s great that these options are available, because small investors need a way to protect themselves, and even make money on the downside. Many traders and investors believe that the stock market has reached a peak. Here are several options to choose from.
1. Shorting Stocks
OK, let’s get this one over with first because it is one of the most speculative and risky ways of making money in a bear market. In simple terms, you make money when the stock goes down and you lose money when the stock goes up. What technically happens is that you borrow the shares and immediately sell them (this all is done electronically through your brokerage firm) and since you owe those shares, you eventually have to buy them back at some price, hopefully a lower price. The difference between your sale price and eventual purchase price is your profit.
Can you make a lot of money shorting stocks in a bear market? Yes. Is it speculative? Very. Can you lose a lot? Most definitely. This is why it is so risky. When you short a stock, the lowest point it can drop to is zero. Whereas, if the stock goes up, the amount it can increase is unlimited. Let’s say you short 100 shares of a stock at $20 a share. If you put up funds equal to 100% of the value of the shorted amount, and the stock drops to zero, you’ve made a 100% return. However, suppose the stock goes from 20 to 100, you end up losing 400% of your money with lots of margin calls along the way.
Have I shorted stocks? Yes. Have I made money from shorting? Yes. Have I lost a big chunk of my profits by closing out my short positions and going long, trying to predict the bottom? In the interest of full disclosure, yes. Several years ago, I made the second worse decision I could have made when shorting, and that is predicting the bottom of the market too soon. The worst decision would have been to hold on to my short positions after the market bottomed and started to make a quick rise. Often when the market bottoms at the end of a bear market, the rise is very sharp and fast, and can totally wipe out short position profits very quickly and then some.
Just before the big crash several years ago, shortly after I shorted a high priced stock selling for about $100 a share, the position went against me by 13 points. That’s a $1,300 loss for just one hundred shares in one day! I still had the short position after the market closed, and had the pleasure of trying to sleep at night, wondering if there was going to be a takeover the next morning or some other good news that would drive the price even higher, making my losses worse. Fortunately, the stock crashed along with the rest of the stock market and I ended up making a profit, but it was very stressful waiting for it to happen.
One way to hedge yourself is buy buying a call option on the stock you sorted, to protect yourself in the event the stock rises.
So in summery, do I think you should short stocks? Absolutely not. The risk is unbelievable. If you understand options real well, hedged short selling might be OK, as long as you are an experienced trader, and know what you’re doing.
2. Short (Bearish) ETFs
There is a type of Exchange Traded Fund called the Bearish ETF or Short ETF. What these ETFs do is provide a return opposite to the return of the index, sector, or industry that it is tracking.
For example, the Short Dow30 ProShares (DOG) provides a return that is the inverse of the Dow Jones Industrial Average. If the Dow goes down 2%, the DOG goes up 2%. The Short QQQ ProShares (PSQ) ETF gives a return that is the inverse of the NASDAQ 100 Index. If you are bearish on gold, you can buy the PowerShares DB Gold Short ETN (BGZ) ETF.
The nice thing about these short ETFs is that your losses are limited. Also, if you are long individual stocks that you don’t want to sell, these can be good for protecting your portfolio on the downside.
3. Leveraged Bearish ETFs
If you like volatility, you will love the leveraged bearish ETFs. What these ETFs do is provide double, and in some cases triple the inverse return of indices. One example is the UltraShort Telecommunications ProShares (TLL), the Rydex Inverse 2x S&P Select Sector Health (RHO), the UltraShort Consumer Services ProShares (SCC) and the Rydex Inverse 2x S&P Select Sector Tech (RTW).
In addition there are over a dozen triple leveraged bearish ETFs. Talk about price moves! The volatility of these things is unbelievable, and so are the wide bid and asked spreads that I’ve seen occasionally.
The advantage of these trading vehicles is that they are a way of shorting on margin, with a limit on the downside. The disadvantage is that the losses are quick and large, especially with the triple leverage short ETFs.
4. Bear Funds
It may be hard to believe, but there are actually a large number of bearish mutual funds for the long term bearish investors.
There are many bearish mutual funds, including the Grizzly Short Fund (GRZZX), the PIMCO StocksPlus TR Short Strategy Institutional Fund (PSTIX), and the ProFunds Bear Investors Fund (BRPIX). These funds have minimum investments ranging from $1,000 to $5,000,000.
I’m not sure why anyone would invest in these unless it is for some kind of a long term hedge.
5. Puts
A put is the option to put your stock to someone at a particular price within a certain period of time. In other words, if you own a stock that is trading at 22 and you buy a put at a dollar [puts and calls are priced on a per share basis, so a put at $1 would cost $100 for 100 shares] which gives you the right to put your stock to someone at $20 per share within three months, there are a couple of things that could happen. The stock could tank to $14 a share and you could put your stock at 20, or just resell the put for 6. You would be far better off than just doing nothing. And if the stock goes up or stays about the same, you are just out your $100 for the option. Puts can be useful for experienced traders.
6. Cash
There is one other way to make money in a bear market. Sell everything, and keep your money in cash, preferably a T-bill money market fund, that only owns T-bills. (Repos are supposed to be just as safe, but these days, I would look for the ones that just own the T-bills. I will cover repos in another article.) The advantages are that you can’t lose money and you can receive an income from the investment.
Hopefully, this post will provide you with some ideas to hedge your portfolio in the event the stock market does tank, and maybe even make money from the market drop.
Disclosure: Author didn't own any of the above at the time the article was written.

Thursday, January 12, 2017

Stocks Going Ex Dividend the Third Week of January

Here is our latest update on the stock trading technique called ‘Buying Dividends,’ also commonly referred to as ‘Dividend Capture.’ This is the process of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend. This technique generally works only in bull markets, and can work in flat or choppy markets, but you need to avoid the technique during bear markets.
In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can’t sell the stock until after the ex date. The actual dividend may not be paid for another few weeks.
WallStreetNewsNetwork.com has compiled a downloadable and sortable list of the stocks going ex dividend in the near future. The list contains many dividend paying companies, lots with market caps over $500 million, and yields over 2%. Here are a few examples showing the stock symbol, the ex-dividend date, the quarterly dividend amount, and the annual yield.


Caterpillar, Inc. (CAT) 1/18/2017 0.77 3.3%
General Dynamics (GD) 1/18/2017 0.76 1.7%
PerkinElmer, Inc. (PKI) 1/18/2017 0.07 0.5%
Seaspan Corporation (SSW) 1/18/2017 0.375 13.8%
WD-40 Company (WDFC) 1/18/2017 0.49 1.6%
Zoetis Inc. (ZTS) 1/18/2017 0.105 0.7%
CVS Health (CVS) 1/20/2017 0.5 2.1%
The additional ex-dividend stocks can be found here at wstnn.com. (If you have been to the website before, and the latest link doesn’t show up, you may have to empty your cache.) If you like dividend stocks, you should check out some of the other high yield stock lists at WallStreetNewsNetwork.com or WStNN.com. Most of the lists are free.
Dividend definitions:
Declaration date: the day that the company declares that there is going to be an upcoming dividend.
Ex-dividend date: the day on which if you buy the stock, you would not be entitled to that particular dividend; or the first day on which a shareholder can sell the shares and still be entitled to the dividend.
Monthly Dividend Stock List

Record date: the day when you must be on the company’s books as a shareholder to receive the dividend. The ex-dividend date is normally set for stocks at two business days before the record date.
Payment date: the day on which the dividend payment is actually made, which can be as long at two months after the ex date.