US economy

Us is the leading economic power in the world.

Value Investor

Value investor is somebody who finds a stock with good product, good fundamentals and invest into it.

Unfortunatly, he has to wait untill others also notice the company.

This is why you mix fundamentals with technicals. This is an important data to tell.

Fundamentals on Hungary and Europe

Hungary being my origin and EUR the currency I trade. Here are website with statistcs on these:

Eurostat for Europe: http://epp.eurostat.ec.europa.eu

Hungarian: www.ksh.hu, www.gki.hu, www.nmb.hu

Forex Market

In most of my studies, I focus on Forex spot market. Especially EUR, USD and JPY.

However it has relation to:

• Bonds and their futures
• Currency futures
• Currency options (for now, I consider it seperatly from futures)
• Index and Interest futures: Euribor (On Euronext.liffe, the most liquid contract of the world), short-Sterlink, Eurodollars (On CME, the most acvitely traded contract in the world)
• S&P and Dow indeces
• DAX index
• Gold, Silver

Why Fundametal for Technicals?

Technical analyses is like flying an airplane with the instruments. It is very reliable.

However, it is good to know if the fundamentals are unchanged: is the airport still there?

Seasons

Various seasons have different impact on prices. See various charts on www.seasonalcharts.com

Oil is cheaper in the summer. Heating prices in the winter.

Dividend payments improve mood of people.

Before holidays, people are in better mood.

Here is the Graph of IBM. So now, understand why managers are so gloomy at the moment at IBM where I worked as a consultant.

But appart from the joke. Below is the real price chart of IBM for the last 1 year. In beginning of January trading just above 96.

Bond market changes opposite to shares. As months progress forwards intrest return is nearly lineary increases. And the price swings. Well, check the website.

Obviously, Bonds are best bought in May. Since bonds are opposite of shares. Poeple invest in bonds when they don't invest in shares. End of May is bad for the share market and you can see that in the Dow Jones seasonal avarage. This is where the saying comes "Sell in May and go away".

In fact, people who follow this strategy improve their result considerably according to statistics.

Fundamental Reason

There are fundamental reason for patterns. Such as the end of year really. Starting from 12 th of Dec till 7th of Jan.



By the way, in Hungary the rally might end on mid of February on the day when the bear comes out from the cave to check if the winter has ended. I think the Hungarian market quite sensitive to bears. I wonder if this is a coincidence or people really think about this old story that every children in Hungary knows.






Now, let's see my favorite currencies.







JPY avarage from 1971-2004. EUR from 1971-2006.









WARNING: These seasonal charts must be incorrect!. Beginning of January should match up with end of December, there are way too big gaps in between. Another problem is that the website did not publish divergence data from avarage - without that information a mere avarage is quite useless as it can be just a random result nothing to do with patterns.









However, it is true that end of the year or certain quarter have impact on the companies as they must pay for the products they bought and they need to balance their books.
























































Let see:

So according to this EUR should raise in the end of the year. Obviously, it did not work last year, as shown on the chart's left and worked during this year as shown in the right side.









Elections Cyecles in the US

During election years the stock market is weak (shouldn't it be strong???). And it is usually the srongs during pre-election.

TODO: check this data.


Bond markets are weak before an election (so this checks out, opposite of stocs).


Do Seasonal Patterns Change?
Yes. E.g. new technologies developed in agriculture.

Cornerstone Growth Strategy

Here is a Stock Exchange fundamental strategy with 18% gain between '51-'92 (better than 13% S&P):

1. Price to sale ration > 1.5
2. Earnings increased since last year.
3. Select only those stocks which price increase is the largest in the last one year period. Hold those equally weighted for one year period.

Forex Market Makers

There are only a a dozen or so market maker in the Forex world although the number of brokers grow.

This result in high volatility (low stability) of the world of currencies.

There are only so much market makers because the large guys - with systems - crashed the small guys. Big guys can initiate positions giving major loss on small players.

TODO: Eveluate news

Economy

If US economy gets weaker against Japan, the JPY should strengthen.

Inerest rates:

Higher the interest, the stronger the currency.

On the other hand, high interes-rate -> investors withdraw money from stock market -> negative effect on currency.

Balance of Trade

If a country imports more than it exports, it means currency is going out, which should weaken the currency.

GDP

The benchmark of economy. GDP on the increase, ecnomy on the increase, strong the currency.

PMI

Production Manager Index indicator of industry. Above 50 is expension, below 50 is contraction.

Industrial Production

Factory prodcution level, taking also inventory into consideration.

Central Banks

They can alert, support or devalue of their currency. Central banks intentions must not be ignored.

Politics

In turmoil, capital goes out of the country, currency goes down. Especially important if trading currencies like HUF (being non-major currency).

Fundamental Basics 101

Many people disregard fundamental analyses as it is "difficult to learn" so they start using technical analyses.

The question really is: what is your trading edge over others? Everybody can use technical analyses these days. All you need is a click of a button and you have a technical study drawn for you. You don't even need to understand how to calculate it these days, it is so easy to use.

So are you sure that technical analyises is enough for a trading edge?

The basics

Fundamentals simply mean that underlying foundation on which other things built (for example the price of the share).

If a company keeps growing, the price will grow above every limit no matter what a graph shows. If a company keeps making greater and greater losses and shrinking, no level in price is low enough to "support" it.

Long-term

Fundamental analysts tend to invest on the long-term because on the short term greed and fear changes the price. That is supply and demand changes the price. But it is fundamentals (the basics) are need to support a price.