Month: June 2016

• Both the Dow and Nasdaq continued their rally today of more than 1.5% in the wake of Brexit, with many seeing the drop in stock prices as a buying opportunity according to the Wall Street Journal (ex. RedHat, which had dropped 11% but rebounded 4% due to its isolated nature from Europe, according to WSJ). Other factors contributing to this possibly short-lived rally include the covering of shorts by institutional investors, which increases demand for shares on the open market thereby increasing stock prices.
• Government bonds, including the 10 Year T-Note, have seen a 96% increase in prices according to the WSJ, which of course corresponds to a decrease in yields which have been flat since the massive drop following Brexit. US 10 Year T-Note yields have been further pushed down (6%) by the fact that many other alternative sovereign bonds yield negative interest rates (Germany, as of today, with -0.12%).
• U.S. manufacturing has stabilized, with the ISM increasing 7.5 points to 56.8, and U.S. Midwest factory activity rose for the first time in 10 months. Additionally, the Chicago Business Barometer is now at 49.4, almost breaking into expansion territory. This news was another contributing factor to the ongoing rally in stock prices this week.

• The Dow and Nasdaq rebounded today as a result of investors realizing they had overreacted to their precipitous fall the past few days. One contributing factor could be that investors know that the US economy remains strong, with first quarter GDP being revised higher than expected to 1.1% this morning.
• The Bank of England injected 3.1 billion pounds of money into the British financial system, easing liquidity fears and calming markets. European markets and the British pound reacted overwhelmingly positively, somewhat erasing the damage over the past two trading days. This optimism carried over into US markets, also contributing to the markets’ recovery from a correction based on external uncertainty.
• 10 T-Note yields remained flat after their massive drop, as institutions who purchased these bonds in the past few days remain reluctant to return to pursuing a “risk-on” strategy.

• The uncertainty over Brexit’s impacts carried through the weekend and is the most important factor causing a market correction because the market had already priced in a “stay” vote.
• The massive decrease in the value of the pound sterling (3%, large for a currency) to $1.31, a level not seen since 1985, and the ensuing fall in financial stocks in the US (as well as in the EU) pulled markets lower, mainly because banks were already positioned for a hike in interest rates which will now not materialize.
• The global uncertainty affected small capitalization stocks more negatively (the NASDAQ fell more than the Dow), although that effect was offset by the fact that international tensions do little to sway domestic share prices other than a general correlation. The Utilities SPDR ETF (XLU) reflects this as it was in fact up 0.87% today.

Aabhash Gautam is substituting for Srinjay Saayan Verma, as you may have noticed from the public schedule. Srinjay Verma was unable to communicate with the club because he was unable to copy-paste into a Google doc and was busy working at his internship at Quip with Bret Taylor and math at UC Davis. We apologize if you were waiting to see one of Srinjay Verma’s first few blogs, and he should be back next week. Meanwhile, enjoy this blurb from Aabhash!
– Editor

Almost all investors are aware of the terms “bull” and “bear” when describing markets and investor confidence. However many are unaware of the origin of these terms.

When a market is bullish, it is on the rise. Bull markets are characterized by rising prices, an expectation for continued success in the market, and investor optimism.

A bear market, on the other hand, is defined by widespread investor pessimism. It can be defined as the complete opposite of a bull market. Bear markets are characterized by falling prices, continued selling, and a belief that the downward trend will continue.

In technical terms, there are also specific conditions that define each market. A bull market usually occurs when broad market indexes, such as the S&P 500 and the DJIA (Dow Jones Industrial Average), have increased by 15-20% over a period of two or more months. Likewise, entry into a bear market usually occurs when major indexes have decreased by 15-20% over a period of two or more months.

Nonetheless, why is it that we use the terms “bull” and “bear” to describe markets? Well, there are a vast number of theories. The most widely accepted origin of the terms relies on the methods each animal uses when they attack. A bull usually attacks with its horns striking upward at its enemies. On the other hand, bears usually claw downward when attacking their enemies. The direction each animal attacks is similar to the market conditions each term describes. Bull markets experience upward trends, just like how a bull attacks upward. Bear markets experience downward trends, just like how a bear attacks downward. Wall Street is as animalistic as some say, for better or worse.

– Aabhash Gautam

Hello everyone,

The following is a list of ten or so websites which I believe are great for charting and analysis. Look through the list to find some websites to explore over the summer, especially if you are planning to place some trades. I have divided the list into two “tiers” which best suit different types of traders:

Tier 1 – This tier best suits the personal trader who just started and is looking to place his first trade. With a friendly UI and mostly basic functions, these websites are designed for amateurs who still make statements such as “I own 5 stocks of Apple.” Although almost everyone uses the charts at this tier, the functions found within them are usually primitive and only useful for basic market analysis. The most advanced platforms in this tier are free. Tier 1 includes:

• Yahoo Finance (Basic functions, clean UI. One of the most commonly used sites.)
• Google Finance (Basic functions, clean UI. One of the most commonly used sites.)
• Bigcharts.marketwatch.com (Ugly. Just the bare minimum of what is needed on a chart.)
• Nasdaq.com (More advanced than the rest, with pleasing graphics.)
• StockCharts.com (More advanced than the rest, but the interface is not as pleasing as Nasdaq.)

Tier 2 – This tier better suits more experienced and advanced personal traders. Users of the higher tier charting sites are looking for more complex trends in stocks and are looking to place complicated trades based on heavy technical analysis and seasoned personal strategies. Most experienced personal traders will fall into this category. Along with traders, bankers and brokers will also more frequently use the charting tools at this level rather than the ones I listed in tier 1.  The UI of some of these sites is overwhelming for most beginners and many functions are for advanced strategies and trades. Keep in mind that some of the platforms listed below are not free. Tier 2 includes:

• FINVIZ (Probably one of the top free “tier 2” options available.)
• TradingView (Overwhelming UI for most beginners, but very useful to experienced traders.)
• TD Ameritrade “ThinkorSwim” (A little complicated, but a diamond in the rough with great potential for use.)
• MetaStock Trader (Extremely popular, with great features. Paid account required.)
• NinjaTrader (Includes a “trade simulator,” amongst its extensive features. Paid account required.)

Remember, there are dozens of stock charting tools all across the internet. Hopefully this list gives you a great starting point in finding your bread and butter in the world of personal finance.

Happy Trading!

– Aabhash Gautam

Once you have a trading account set up, buying or selling shares, options, and futures seems pretty straightforward. Press a button, and the instrument appears in your account, provided that your order was “filled.” Inevitably, you have some orders that immediately fill, some that don’t, and some that take a while. What is filling an order? How does that happen? Who’s involved and who profits? Most importantly, how can YOU profit? As an investor or trader, understanding the process of how an order gets filled, albeit complex, is essential to maximizing profit.

Prior to the invention of the telephone, investors who wished to acquire shares of a company had to either visit the company directly and obtain shares, or to trade them, be located near Wall Street. Usually, these people were either under the employment of a very wealthy individual who wished to put his or her money to work, or they were trading as a profession. They would enter the New York Stock Exchange and physically signal to other traders what they were willing to buy or sell at. Traders could immediately buy at the seller’s “ask” or sell at the buyer’s lower “bid” price. The outdated methods which they used to keep track of orders are still present in the current financial lexicon: “order book” for example. When telephones were invented, investors could phone their brokers to execute these trades for them. Brokers make the difference between the bid and the ask, or the “spread”: The broker buys from the seller at the bid price, and sells to the buyer at the ask price. This is why brokers make more money in markets where the tick size is not decimalized.

Nowadays, with computers and the internet, traders can place orders using their trading platform, such as Etrade Pro or Thinkorswim, with a commission so miniscule that anyone can afford to invest in stocks (around $5 for stock orders). These orders are routed to the brokerage firm, which can choose to fulfill the order immediately using the brokerage’s own reserve of shares, if they happen to hold stock in that company, for fast execution. If the broker chooses not to do that, the order is sent to the exchange. If it is a market order, it is executed immediately at the bid or ask price at the exchange with the best price. If it is a limit order, it is entered into an order book on multiple exchanges and is executed once the price falls below for a buy order or rises above for a sell order. There are other types of orders that are essentially variations of the previous two, like stop-loss orders. When the market makers find that they can fulfill your order while making a profit for themselves, you obtain the shares.

The process of filling an order is itself a market in a way, fulfilling the desires of all the parties involved. Next time you place an order, realize that you are making many other parties a few cents.

– Michael Trehan