1 2 The end of year tends to be a seasonally strong period for stocks. Some analysts believe the January effect has moved into the end of year with stocks doing better in the final weeks of the year as traders try to arbitrage the January effect. Arbitrage is a trading strategy where investors buy an undervalued asset they believe has a high probability of rising. For example, it could be the stock of a company that is being bought by another company. The deal might be for $100 a share but the stock trades at $99, giving the arbitrage trader a riskless profit of $1 a share. Unfortunate...

The stock market seems mysterious at first glance. Prices move up and down, seemingly based on the whims of traders. There is a sense of disorder in the price movements. Since many individuals prefer order to disorder, there have been many efforts to find order in the markets. Much of the effort has been focused on price patterns. The goal here has been spotting recurring patterns in price, including famous patterns like a head and shoulders pattern. These patterns have some value and are often based on principles of behavioral economics. But, price patterns are subjective and often pron...

When the ball drops in Times Square on midnight, January 1, 2018, the old year is over. This means your tax bill is due and there is little you can do at that point to lower the bill. You can make contributions to retirement accounts and take a few other actions after the first, but you have few choices then. Now, you have time to plan, and more importantly you have time to act. There are a number of actions you can take to help preserve gains, potentially defer taxes and possibly even reduce taxes. However, we are not tax advisers and we urge you to consult with a qualified professional to...

Investors are increasingly worried about a bear market. This is probably almost always true but there are more reasons than usual to worry right now. Valuations are stretched, with many fundamental metrics exceeding levels reached in 2007 and 2000. In addition to the fundamentals, technicals are a cause for concern. Prices have been going up for more than a year without even a 10% pullback. There hasn’t been a 20% pullback in more than 8 years. Pullbacks relieve the excesses that build up over time and are usually considered healthy. Of course, these indicators apply to the stock market,...

The stock market is overbought. That is a common theme on CNBC as analysts talk about how extended averages are. They are certainly correct that the S&P 500 and some of the other major averages are overbought. But, that is not necessarily bad news for the bulls. Overbought is a term used by technical analysts to describe a market that seems to have moved too far to the upside. It usually results from a relatively rapid gain. After a market becomes overbought, technical analysts look for a pullback in price. The theory of overbought, and the converse of that idea which is an oversold ...

You may recall that we began sharing real time buy recommendations for a successful trading strategy at the beginning of the year. Each month, we provide a list of stocks that have historically delivered gains for the next month. This article continues with that process. And, as we have each month, we also continue reporting our results. The strategy is among the simplest seasonal trades possible. Few traders follow seasonal strategies although these strategies are often profitable. They are also relatively low risk because they limit market exposure to short periods of time. To apply this ...

1 2 Peter Lynch is one of the most successful investment managers of all time. But, he retired many years ago and many new investors are unfamiliar with him. That is unfortunate since there is much to learn from studying Lynch’s record. Lynch’s record is among the most remarkable in market history. He managed the Fidelity Magellan Fund, and grew it into the largest mutual fund in the world by the time he retired. From 1977 until his retirement in 1990, Lynch delivered average annual gains of 29.2% to investors in his fund. Lynch’s gains were more than double the average annual return f...

In a recent blog post, we highlighted the potential benefits of using short term trading strategies. One advantage of trading frequently can be the fact that it allows a trader to rapidly compound gains. Through that process, wealth can accumulate quicker. Our post drew a variety of responses. Some readers asked for specific examples of short term trading strategies. There are many resources available on this topic. But, most of the best strategies will require a great deal of effort or software that may be expensive. Some of the most popular strategies among short term traders include t...

1 2 The S&P 500 has gained almost 9% since the end of last year, defying the prediction of many experts for a bear market. This is a strong market and the bulls have been well rewarded. As difficult as it is to beat a bull market, we have been doing that this year with a simple strategy. And we have been publishing our trade recommendations in advance each month. At the beginning of the year, we began sharing real time buy recommendations with you for a successful trading strategy. This month, we continue with that process. The strategy is among the simplest seasonal trades possibl...

1 2 Most of us like to believe life is fair. But, in reality, very few market transactions are fair. Economists believe almost all transactions involve asymmetric information. In most transactions, one party knows more than the other party. For example, when consumers are buying a used car it seems fair to assume the seller knows more about the car than the potential buyer. This problem is so well known many states and the federal government have taken steps to level the playing field. Their efforts to create fairness are called “lemon laws” and usually require sellers to compensate buyer...