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Common Stock Market Terms and Phrases
The information for this particular class was brought to us by our friend "Starwalker".
Additional definitions can be found at :
A measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return. For example, an alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4 %. -0.6 means a fund's monthly return was 0.6 % less than would have been predicted from the change in the market alone
ALPHA-BETA TREND CHANNEL
The Alpha-Beta Trend Channel study uses the standard deviation of price variation to establish two trend lines, one above and one below the moving average of a price field. This creates a channel (band) where the great majority of price field values.will occur.
AMERICAN STOCK EXCHANGE
The second largest stock exchage in New York, located in the financial district of New York City.
Employee of a brokerage or fund management house who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.
Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, its balance sheet and income statement. SEC rules require that it be distributed to all shareholders. A
more detailed version is called a 10-K.
ARMS EASE OF MOVEMENT
Developed by Richard W. Arms, Jr., this analysis routine expands on Mr. Arms' Equivolume charting tool by quantifying the shape aspects of the plotted boxes. The purpose of this quantifying is to determine the ease, or lack thereof, with which a particular issue is able to move in one direction or another. The ease with which an issue moves is a product of a ratio between the height (trading range) and width (volume) of the plotted box. In general, a higher ratio results from a wider box and indicates difficulty of movement. A lower ratio results from a narrower box and indicates easier movement. This ratio is then related to a comparison between today's and yesterday's trading-range midpoint values to determine the ease of movement value (EMV). A moving average is then applied to the EMV value - the moving average period can be varied in order to make the EMV flexible as a trading tool.
Also known as TRading INdex (TRIN):= #advancing issues/#declining issues
Total up volume/total down volume
An advance/decline market indicator. Less than 1.0 indicates bullish demand, while above 1.0 is bearish. The index often is smoothed with a simple moving average.
Using previous data to predict future data.
An arithmetic mean of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIA's stocks, and divides the results by a predetermined number, the divisor.
AVERAGE TRUE RANGE
True range is the greatest of the following differences:
Today's high to today's low
Today's high to yesterday's close
Today's low to yesterday's close
The range is normally the "high - low". However, any time the value of yesterday's close is not within the range of today's bar, rule b) or rule c) applies. As with most other indicators, the periodic value is summed and smoothed to create the final indicator.
Brokerage house clerical operations that support, but do not include, the trading of stocks and other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory compliance.
A condensed financial statement showing the nature and amount of a company¡¦s assets, liabilities and capital on a given date. In dollar amounts the balance sheet shows what the company owned, what it owed, and the ownership interest in the company of its stockholders.
The price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.
An investor who believes a stock or the overall market will decline. A bear market isa prolonged period of falling stock prices, usually by 20% or more.
A condition of the stock market when prices of stocks are generally declining.
A situation in which large traders sell positions with the intention of driving prices down.
Measure of a stock's risk in relation to the market. 0.7 means a stock price is likely to move up or down 70 % of the market change; 1.3 means the stock is likely to move up or down 30 % more than the market.
BETA EQUATION (STOCKS)
The beta of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P; 500 Index
y = rate of return for the stock
BID AND ASKED
Often referred to as a quotation or quote. The bid is the highest price anyone wants to pay for a security at a given time, the asked is the lowest price anyone will take at the same time.
A large holding or transaction of stock--popularly considered to be 10,000 shares or more.
A steep and rapid increase in price followed by a steep and rapid drop in price. This is an indicator seen in charts and used in technical analysis of stock price and market trends.
Bollinger Bands plot trading bands above and below a simple moving average. The standard deviation of closing prices for a period equal to the moving average employed is used to determine the band width. This causes the bands to tighten in quiet markets and loosen in volatile markets. The bands can be used to determine overbought and oversold levels, locate reversal areas, project targets for market moves, and determine appropriate stop levels. The bands are used in conjunction with indicators such as RSI, MACD histogram, CCI and Rate of Change. Divergences between Bollinger bands and other indicators show potential action points. As a general guidline, look for buying opportunities when prices are in the lower band, and selling opportunities when the price activity is in the upper band.
An accounting term. Book value of a stock is determined from a company¡¦s records, by adding all assets then deducting all debts and other liabilities, plus the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share. Book value of the assets of a company or a security may have little relationship to market value.
A rise in a security's price above a resistance level (commonly its previous high price) or drop below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing move in the same direction. Can be used by technical analysts as a buy or sell indication.
An investor who thinks the market will rise.
A market which is on a consistent upward trend.
Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buyout is done with borrowed money.
Method of drawing stock (or commodity) charts which originated in Japan. Requires the presence of Open, High, Low and Close price data to be drawn. There are two basic types of candels, the white body and the black body. As with regular bar charts, a vertical line is used to indicate the periods (normally daily) high to low. When prices close higher than they opened a white rectangle is drawn on top of the high-low line. This rectangle originates at the opening price level and extends up towards the closing price. A down day is drawn in black. The combination of several candles results in patterns (with names like "two crows" or "bullish englufing patern") which give insight into future price activity. For other Japanese charting approaches also see Renko and Kagi charts.
Amount used during a particular period to acquire or improve long term assets such as property, plant, or equipment.
When a stock is sold for a profit, it's the difference between the net sales price of securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.
CASH AND EQUIVALENTS
The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and Bankers' Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within ninety days.
In investments, it represents earnings before depreciation amortization and non-cash charges. Sometimes called cash earnoings. Cash Flow from operations (called Funds From Operations (FFO) by real estate and other investment trusts, is important because it indicates the ability to pay dividends.
The actual piece of paper that is evidence of ownership of stock in a corporation. Watermarked paper is finely engraved with delicate etchings to discourage forgery.
CHANGES IN FINANCIAL POSITION
Sources of funds internally provided from operations which alter a company's cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.
Excessive trading of a client's account in order to increase the broker's commissions.
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock, or in a given series of options.
A transaction in which the seller's intention is to reduce or eliminate his long position in a stock, or a given series of options.
Te fee paid to a broker to execute a trade, based on number of shares, bonds, options and/or their dollar value. In 1975, deregulation led to the creation of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a full staff of analysts who follow specific industries. Discount brokers simply execute a client's order--and usually do not offer an opinion on a stock.
COMMON STOCK/OTHER EQUITY
Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders' equity.
A measure of investors' faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.
The degree of assurance that a specified failure rate is
The written statement that follows any "trade" in the securities markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc.
CORNER A MARKET
To purchase enough of the available supply of a commodity or stock in order to manipulate its price.
Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year.
Amount owed for salaries, interest, accounts ayable and other debts due within 1 year.
Indicator of short-term debt paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.
Cutler's RSI is a slight variation of Welles Wilder's original Relative Strength Index. The RSI is a momentum oscillator used to identify overbought and oversold conditions by keying on specific levels, generally 30 and 70, on a chart scaled from 0 to 100. The study can also be used to detect the following:
„h Movement which might not be as readily apparent on the bar chart
„h Failure swings above 70 or below 30 which indicate reversals
„h Support and resistance
„h Divergences between RSI and price
Cutler's RSI is calculated as follows:
„h RSI = 100 - (100 / ( 1 + RS ) )
„h RS = UPAV:x / DNAV:x, and . . .
„h UPAV:x = (E, period's Closes UP) / period
„h DNAV:x = (z: period's Closes DOWN) / period
„h A Close UP (or DOWN) = CLOSE - CLOSE previous
„h If the difference is positive, it is a Close UP. If the difference is negative, the sign is changed and it is a Close DOWN.
An order to buy or sell stock that automatically expires if it can't be executed on the day it is entered.
Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long term debt by common stockholders' equity.
The date on which a firm's directors meet and announce the date and amount of the next dividend.
A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid.
A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long term assets over the useful life of the assets.
To remove the general drift, tendency or bent of a set of statistical data as related to time.
DIRECTIONAL MOVEMENT INDEX
Directional Movement uses a rather complicated set of calculations designed to rate the directional movement of commodities or stocks on a scale from 0 to 100. For those traders who employ trend-following methods, commodities or stocks rating in the upper end of the scale would be attractive. Those using non-trending methods, commodities or stocks rating at the lower end of the scale should be considered for trading. At its most basic, the Directional Movement would affect trading in the following manner: Long positions would be taken when the "+DI" line crosses over the "-DI" line. Short positions would be taken when the "-DI" line crosses over the "+DI" line. Further components of this index are the ADX and ADXR lines.
DIVIDEND REINVESTMENT PLANS (DRP)
Plans offered by many corporations for the reivestment of dividends, sometimes at a discount from market price, on the dividend payment date. Many DRP's also allow the investment of additional cash from the shareholder. The DRP is usually administered by the company without charges to the holder.
When two or more averages or indices fail to show confirming trends.
Distribution of a portion of a company's earnings, cash flow or capital to shareholders, in cash or additional stock.
DIVIDEND YIELD (STOCKS)
Indicated Yield represents annual dividends divided by current stock price.
DIVIDENDS PER SHARE
Dividends paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.
DIVIDEND REINVESTMENT PLAN
Automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a deiscount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost averaging.
DOLLAR COST AVERAGING
A system of buying securities at regular intervals with a fixed dollar amount. Under this system investors buy by the dollars¡¦ worth rather than by the number of shares. If each investment is of the same number of dollars, payments buy more shares when the price is low and fewer when it rises. Thus temprary downswings in price benefit investors if they continue periodic purchases in both good times and bad and the price at which the shares are sold is more than their average cost.
A classic negative change in ratings for a stock, and or other rated security.
Net income for the company during the period.
EARNINGS PER SHARE (EPS)
Also referred to as Primary Earnings Per Share. Net income for the past 12 months divided by the number of common shares outstanding, as reported by a company. The company often uses a weighted average of shares outstanding over reporting term.
The ratio of Earnings Per Share after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the Price/Earnings ratio. It's the Total Twelve Months Earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage.
A key statistic in the overall economy that experts use as a yardstick to predict the performance of the stock market.
The value of the common stockholders' equity in a company as listed on the balance sheet.
The marketplace in which shares, options and futures on stocks, bonds, commodities and indices are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and the National Association of Securities Dealers (NASDAQ)
The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. This date set by the NYSE (and generally followed on other US exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is marked with an x in newspaper listings on that date.
The process of completing an order to buy or sell securities. Once a trade is executed, it is reported by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the U.S. between 1 (mutual funds) and 5 (stocks) days after an order is executed. Settlement times for exchange listed stocks are in the process of being reduced to three days in the U.S.
FAIR MARKET PRICE
A reasonable price for securities based on supply and demand.
Analysis of industries and companies based on such factors as sales, assets, earnings, products or services, markets and management. As applied to the economy, fundamental research includes consideration of gross national product, interest rates, unemployment, inventories, savings, etc.
The Gann Square is a mathematical system for finding support and resistance based upon a commodity or stock's extreme low or high price for a given period. Attainment of a particular price level in a square tells you the next probable price peak or valley of future movement. The probable price levels tend to be more reliable if they are extrapolated from Gann Square values along one of the major axes of the Gann Square. The Gann Square is generated from a central value, normally a all-time or cyclical high or low. If a low is used, the numbers are incremented by a constant amount to generate the Gann Square. If a high is used, the numbers are decremented during the square generation.
When a cpmpany sells shares of iself to the public to raise capital.
GOOD 'TIL CANCELED
Sometimes simply called "GTC", it means an order to buy or sell stock that is good until you cancel it. Brokerages usually set a limit of 30-60 days, at which the GTC expires if not restated.
Compound annual growth rate for the number of full fiscal years shown. If there is a negative or zero value for the first or last year, the growth is NM (not meaningful).
HEAD & SHOULDERS
In technical analysis, a chart formation in which a stock price reaches a peak and declines, rises above its former peak and again declines and rises again but not to the second peak and then again declines. The first and third peaks are shoulders, while the second peak is the formation's head. Technical analysts generally consider a head and shoulders formation to be a very bearish indication.
A strategy designed to reduce investment risk using "call" options, "put" options, "short" selling, or futures contracts. A hedge can help lock in existing profits. Its purpose is to reduce the potential volatility of a portfolio, by reducing the risk of loss.
The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.
A corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.
A statistical yardstick expressed in terms of percentages of a base year or years. For instance, the NYSE Composite Index of all NYSE common stocks is based on year-end 1965 as 50. An index is not an average.
Total amount of dividends that would be paid on a share of stock over the next 12 months if each dividend were the same amount as the most recent dividend. Usually represent by the letter e in stock tables
The yield, based on the most recent quarterly rate times four. To determine the yield, divide the annual dividend by the price of the stock. The resulting number is represented as a percentage.
The category describing a company's primary business activity. This usually is determined by the largest portion of revenue.
INITIAL PUBLIC OFFERING (IPO)
A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers.
Relevant information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.
For companies: Raw materials, items available for sale or in the process of being made ready for sale. They can be individually valued by several different means, including cost or current market value, and collectively by FIFO, LIFO or other techniques. The lower value of alternatives is usually used to preclude overstating earnings and assets. For security firms: securities bought and held by a broker or dealer for resale.
The ratio of annual sales to inventory. Low turnover is an unhealthy sign, indicating excess stocks and/or poor sales.
Like Candlestick and Renko charts, Kagi charts come from Japan and were made popular in the USA by Steve Nison. Kagi charts display a series of connecting vertical lines where the thickness and direction of the lines are dependent on the price action. If closing prices continue to move in the direction of the prior vertical Kagi line, then that line is extended. However, if the closing price reverses by a pre-determined "reversal" amount, a new Kagi line is drawn in the next column in the opposite direction. An interesting aspect of the Kagi chart is that when closing prices penetrate the prior column's high or low, the thickness of the Kagi line changes.
After a stock split, the number of shares distributed for each share held and the date of the distribution.
An order to buy a stock at or below a specified price or to sell a stock at or above a specified price. For instance, you could tell a broker "Buy me 100 shares of xyz Corp at $8 or less" or to "sell 100 shares of xyz at $10 or better."
The stock of a company that is traded on a securities exchange. The various stock exchanges have different standards for listing. Some of the guides used by the New York Stock Exchage for an original listing are national interest in the company and a minimum of 1.1 million shares publicly held among no less than 2,000 round-lot stockholders. The publicly held common shares should have a minimum aggregate market value of $40 million. The company should have net income in the latest year of over $2.5 million before federal income tax and $2 million in each of the preceding two years.
Occurs when an individual owns securities. An owner of 1000 shares of stock is said to be "Long the Stock."
LONG TERM ASSETS
Value of property, equipment and other capital assets minus the depreciation. This is an entry in the bookkeeping records of a company, usually on a "cost" basis and thus does not necessarily reflect the market value of the assets.
LONG TERM DEBT
Value of obligations of over 1 year that require that interest be paid.
LONG TERM DEBT/CAPITALIZATION
Indicator of financial leverage. Shows long term debt as a proportion of the capital available. Determined by dividing long term debt by the sum of long term debt, preferred stock and common stockholders' equity.
LONG TERM LIABILITIES
Amount owed for leases, bond repayment and other items due after 1 year.
The lowest (intraday) price of a stock over a certain period of time.
MACD (MOVING AVERAGE CONVERGENCE/DIVERGENCE)
The MACD is used to determine overbought or oversold conditions in the market. Written for stocks and stock indices, MACD can be used for commodities as well. The MACD line is the difference between the long and short exponential moving averages of the chosen item. The signal line is an exponential moving average of the MACD line. Signals are generated by the relationship of the two lines. As with RSI and Stochastics, divergences between the MACD and prices may indicate an upcoming trend reversal.
MANAGEMENT/CLOSELY HELD SHARES
Percentage of shares held by persons closely related to a company, as defined by the Securities and Exchange Commission. Part of these percentages often is included in Institutional Holdings--making the combined total of these percentages over 100. There is overlap as institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.
An illegal operation. Buying or selling a security for the purpose of creating false or misleading appearance of active trading or for the purpose of raising or depressing the price to induce purchase or sale by others.
MARGIN ACCOUNT (STOCKS)
A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.
The total dollar value of all outstanding shares. Computed as shares times current market price. It is a measure of corporate size.
The period between the 2 latest highs or lows of the S&P; 500, showing net performance of a fund through both an up and a down market. A market cycle is complete when the S&P; is 15 % below the highest point or 15 % above the lowest point (ending a down market). The dates of the last market cycle are: 12/04/87 to 10/11/90 (low to low).
An order to buy or sell a stock at the going price.
The last reported price at which the stock or bond sold, or the current quote.
Momentum provides an analysis of changes in prices (as opposed to changes in price levels). Changes in the rate of ascent or descent are plotted. The Momentum line is graphed positive or negative to a straight line representing time. The position of the time- line is determined by price at the beginning of the Momentum period. Traders use this analysis to determine overbought and oversold conditions. When a maximum positive point is reached, the market is said to be overbought and a downward reaction is imminent. When a maximum negative point is reached, the market is said to be oversold and an upward reaction is indicated.
The moving average is probably the best known, and most versatile, indicator in the analysts tool chest. It can be used with the price of your choice (highs, closes or whatever) and can also be applied to other indicators, helping to smooth out volatility. As the name implies, the Moving Average is the average of a given amount of data. For example, a 14 day average of closing prices is calculated by adding the last 14 closes and dividing by 14. The result is noted on a chart. The next day the same calculations are performed with the new result being connected (using a solid or dotted line) to yesterday¡¦s. And so forth. Variations of the basic Moving Average are the Weighted and Exponential moving averages.
Used in charts and technical analysis, the average of security or commodity prices constructed in a period as short as a few days or as long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted.
The National association of Securities Dealers, an association of brokers and dealers in the over-the-counter securities business.
An automated information network that provides brokers and dealers with price quotations on securities traded over-the-counter.
The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses
NEW YORK STOCK EXCHANGE (NYSE)
The largest organized securities market in the United States, founded in 1792. The Exchange itself does not buy, sell, own, or set the price of securities traded there. The prices are determined by the public supply and demand. The Exchange is a not-for-profit corporation of 1,366 individual members, governed by a Board of Directors consisting of 12 public representatives, 12 member firm representatives, and a fulltime chairman, executive vice chairman and president.
NYSE COMPOSITE INDEX
The composite index covering price movements of all common stocks listed on the New York Stock Exechange. It is based on the close of the market December 31, 1965 as 50.00 and is weighed according to the number of shares listed for each issue. The index is computed continuously and printed on the ticker tape. Point changes in the index are converted to dollars and cents so as to provide a meaningful measure of changes in the average price of listed stocks. The composite index is supplemented by separate indexes for four industry groups: industrial, transportation, utility and finance.
Price and volume fluctuations that can confuse interpretation of market direction.
Abbreviation for Not Meaningful.
Stock transactions that involve less than 100 shares.
This term may refer to transactions over-the-counter in unlisted securities or to a transaction of listed shares that is not executed on a national securities exchange.
ON BALANCE VOLUME (OBV)
OBV is one of the most popular volume indicators and was developed by Joseph Granville. Constructing an OBV line is very simple: The total volume for each day is assigned a positive or negative value depending on whether prices closed higher or lower that day. A higher close results in the volume for that day to get a positive value, while a lower close results in negative value. A running total is kept by adding or subtracting each day's volume based on the direction of the close. The direction of the OBV line is the thing to watch, not the actual volume numbers.
C=Today's Close CP=Yesterday's Close V=Today's Volume
A transaction in which the purchaser's intention is to create or increase a long position in a given series of options.
A transaction in which the seller's intention is to create or increase a short position in a given series of options.
OTHER CURRENT ASSETS
Value of non-cash assets, including prepaid expenses and accounts receivable, due within 1 year.
OTHER LONG TERM LIABILITIES
value of leases, future employee benefits, deferred taxes and other obligations not requiring interest payments that must be paid over a period of more than 1 year.
Amount of funds generated during the period from operations by sources other than depreciation or deferred taxes. Part of Free Cash Flow calculation.
An opinion as to price levels. May refer to a security that has had a sharp rise or to the market as a whole after a period of vigorous buying which, it may be argued, has left prices ¡§too high.¡¨
The reverse of overbought. A single security or a market which, it is believed, has declined to an unreasonable level.
An indicator that attempts to define when prices have moved too far and too fast in either direction and thus are vulnerable to reaction.
A market for securities made up of dealers who may or may not be members of a securities exchange. The OTC market is conducted over the telephone and deals mainly with stocks of companies without sufficient shares, stockholders or earnings to warrant listing on an exchange. OTC firms may act either as principals or dealers (buying or selling stock from their own inventory and charging a markup) or as a broker or agent and charging a commission.
Equal to the nominal or face value of a security.
The Parabolic is a Time/Price system for the automatic setting of stops. The stop is both a function of price and of time. The system allows a few days for market reaction after a trade is initiated after which stops begin to move in more rapid incremental daily amounts in the direction the trade was initiated. For example, when a long position is taken the stop will move up regardless of price direction. However, the distance that the stop moves up is determined by the favorable distance the price has moved. If the price fails to move favorably within a certain period of time, the stop reverses the position and begins a new time period.
Date on which a declared stock dividend or a bond interest payment is scheduled to be made.
Low priced issues, often highly speculative, selling at less than $1 a share. Frequently used as a term of disparagement, although some penny stocks have developed into investment-caliber issues.
Price level established as being significant by market's failure to penetrate or as being significant when a sudden increase in volume accompanies the move through the price level.
POINT & FIGURE CHARTS
The Point and Figure (PF) charting method is a technique that has been used for many years in analyzing the variations in prices of stocks and commodities. There are several types of PF charting methods. Some employ trend lines, resistance levels, and various other additions to the chart. In this study, we shall be concerned with only daily reversal type charts.
The principal advantage of a PF chart is that it is much easier to read and interpret than other types of charts. All the small, and often confusing, price movements are eliminated, and only the most important features of the price action remain. It would be reasonable to think of this method as a filter that (hopefully) allows only meaningful information to enter the chart and ultimately the decision process. Two basic symbols are used:
X Denotes the continuance of an increase in price and is always "stacked" in the vertical direction.
O Denotes the continuance of a decrease in price and is always "stacked" in the vertical direction.
While prices are rising X's are used. When falling, O's are used. They are always plotted on rectangular grid graph paper such that columns of X's and O's alternate. A Point and Figure chart is characterized by the specification of two parameters: box size and reversal number. The box size dictates the price range associated with a particular box (cubical area within the grid), while the reversal number specifies the conditions which terminate a column of X's and begin a column of O's and vice-versa.
POINT AND FIGURE CHART
A price-only chart that takes into account only whole integer changes in price, i.e., a 2-point change. Point and figure charting disregards the element of time and is solely used to record changes in price.
Holdings of securities by an individual or institution.
A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights.
Price Patterns are formations which appear on commodity and stock charts which have shown to have a certain degree of predictive value. Some of the most common patterns include: Head & Shoulders (bearish), Inverse Head & Shoulders (bullish), Double Top (bearish), Double Bottom (bullish), Triangles, Flags and Pennants (can be bullish or bearish depending on the prevailing trend).
Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price.
Compares a stock's market value to the value of total assets less total liabilities (book). Determined by dividing current price by common stockholders' equity per share (book value), adjusted for stock splits. Also called Market-to-Book.
Shows the "multiple" of earnings at which a stock sells. Determined by dividing current price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price.
P/E RATIO EQUATION
Assume XYZ Co sells for $25.50 per share and has earned $2.55 per share this year
$25.50 = 10 times $2.55
XYZ stock sells for 10 times earnings.
Determined by dividing stock's current price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.
The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market.
Indicator of profitability. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage.
Selling stock which has appreciated in value since purchase, in order to realize the profit. The term is often used to explain a downturn in the market following a period of rising prices.
Trades based on signals from computer programs, usually entered directly from the trader's computer to the market's computer system and executed automatically.
Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by Mutual Funds to describe the fund objectives, risks and other essential information.
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Shareholders can and often do give management their proxy, representing the right and responsibility to vote their shares as specified in the proxy statement.
Indicator of a company's financial strength (or weakness). Calculated by taking current assets less inventories, divided by current liabilities. Also called Acid Test.
The difference between the high and low price during a given period.
RATE OF CHANGE
Rate of Change is used to monitor momentum by making direct comparisons between current and past prices on a continual basis. The results can be used to determine the strength of price trends. Note: This study is the same as the Momentum except that Momentum uses subtraction in its calculations while Rate of Change uses division. The resulting lines of these two studies operated over the same data will look exactly the same - only the scale values will differ.
Date by which a shareholder must officially own shares in order to be entitled to a dividend. For example, a firm might declare a dividend on Nov 1, payable Dec 1 to holders of record Nov 15. Once a trade is executed an investor becomes the "owner of record" on settlement, which currently takes 5 business days for securities, and one business day for mutual funds. Stocks trade ex-dividend the fourth day before the record date, since the seller will still be the owner of record and is thus entitled to the dividend.
A stock's price movement over the past year as compared to a market index (the S&P; 500). Value below 1.0 means the stock shows relative weakness in price movement (underperformed the market); a value above 1.0 means the stock shows relative strength over the 1-year period. Equation for Relative Strength: [current stock price/year-ago stock price] [current S&P; 500/year-ago S&P; 500]
RSI - RELATIVE STRENGTH INDEX
This indicator was developed by Welles Wilder Jr. Relative Strength is often used to identify price tops and bottoms by keying on specific levels (usually "30" and "70") on the RSI chart which is scaled from from 0-100. The study is also useful to detect the following:
Movement which might not be as readily apparent on the bar chart Failure swings above 70 or below 30 which can warn of coming reversals
Support and resistance levels
Divergence between the RSI and price which is often a useful reversal indicator
The Relative Strength Index requires a certain amount of lead-up time in order to operate successfully. The formula for calculating the RSI is:
„h rs= average of x day¡¦s up closes divided by average of x day¡¦s down closes
A price movement in the opposite direction of the previous trend.
RETURN ON ASSETS (ROA)
Indicator of profitability. Determined by dividing net income for the past 12 months by total assets. Result is shown as a percentage.
RETURN ON EQUITY (ROE)
Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholders' equity (adjusted for stock splits). Result is shown as a percentage.
REVERSE STOCK SPLIT
A proportionate decrease in the number of shares, but not the value of shares of stock held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a 1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. A firm generally institutes a reverse split to boost its stock's market price and attract investors.
Issuance of "rights" to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are often transferrable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed end funds, which cannot otherwise issue additional common stock.
The Securities and Exchange Commission, the primary federal regulatory agency of the securities industry.
A market that provides for the purchase or sale of previously owned securities. Most trading is done in the secondary market. The New York Stock Exchange, as well as all other stock exchanges, the bond markets, etc., are secondary markets.
If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it. Eventually, s/he must buy the stock back on the open market. For instance, you borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.
Options: All option contracts of the same class that also have the same unit of trade, expiration date, and exercise price.Stocks: shares which have common characteristics, such as rights to ownership and voting, dividends, par value, etc. In the case of many foreign shares, one series may be owned only by citizens of the country in which the stock is registered.
The date on which payment is made to settle a trade. For stocks traded on US exchanges, settlement is currently 5 business days after the trade, but this will be reduced to 3 days in 1995. For mutual funds, settlement usually occurs in the U.S. the day following the trade. In some regional markets, foreign shares may require months to settle.
Certificates or book entries representing ownership in a corporation or similar entity
Program by which a corporation buys back its own shares in the open market. It is usually done when shares are undervalued. Since it reduces the number of shares outstanding and thus increases earnings per share, it tends to elevate the market value of the remaining shares held by stockholders.
SHORT POSITION (STOCKS)
Occurs when a person sells stocks s/he does not yet own. Shares must be borrowed, before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought to close out the transaction. Technique is used when an investor believes the stock price is going down.
Selling a security that the seller does not own but is committed to repurchasing eventually. It is used to capitalize on an expected decline in the security's price.
The difference between estimated transaction costs and actual transaction costs. The difference is usually composed of revisions to price difference or spread and commission costs.
Abbreviation for Standard Industrial Classification. Each 4-digit code represents a unique business activity.
The separation of a subsidiary or division of a corporation from its parent by issuing shares in a new corporate intity. Shareowners in the parent receive shares in the new company in proportion to their original holding and the total value remains approximately the same.
The division of the outstanding shares of a corporation into either a larger or smaller number of shares, without any immediate impact in individual shareholder equity. For example, a 3-for-1 forward split by a company with 1 million shares oustanding results in 3 million shares outstanding. Each holder of 100 shares before the split would have 300 shares worth less, although the proportionate equity in the company would stay the same. A reverse split would reduce the number of shares oustanding and each share would be worth more.
The Stochastic Indicator is based on the observation that as prices increase, closing prices tend to accumulate ever closer to the highs for the period. Conversely, as prices decrease, closing prices tend to accumulate ever closer to the lows for the period. Trading decisions are made with respect to divergence between % of "D" (one of the two lines generated by the study) and the item's price. For example, when a commodity or stock makes a high, reacts, and subsequently moves to a higher high while corresponding peaks on the % of "D" line make a high and then a lower high, a bearish divergence is indicated.
When a commodity or stock has established a new low, reacts, and moves to a lower low while the corresponding low points on the % of "D" line make a low and then a higher low, a bullish divergence is indicated. Traders act upon this divergence when the other line generated by the study (K) crosses on the right-hand side of the peak of the % of "D" line in the case of a top, or on the right-hand side of the low point of the % of "D" line in the case of a bottom. Two variations of the Stochastic Indicator are in use: Regular and Slow. When the Regular plot of the Stochastic too choppy, the "Slow" version can often clarify the results by reducing the sensitivity of the calculations. The formula is:
Note: 5 Days is the most commonly used value for %K
The %D line is a 3 day smoothed version of the %K line
%D=100(H3/L3) where H3 is the 3 day sum of (C-L5) and L3 is the 3 day sum of (H5-L5)
Payment of a corporate dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders. Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock dividends are not taxed until sold.
STOCKHOLDER OF RECORD
A stockholder whose name is registered on the books of the issuing corporation.
STOLLER STARC BANDS
STARC bands create a channel surrounding a simple moving average. The width of the created channel varies with a period of the average range; thus the name ('ST' for Stoller, plus 'ARC' for Average Range Channel). STARC Bands, in a fashion similar to Bollinger Bands, will tighten in steady markets and loosen in volatile markets. However, rather than being based on closes, the STARC Bands are based on the average true range, thus giving a more in depth picture of the market volatility. While the penetration of a Bollinger Band may indicate a continuation of a price move, the STARC Bands define upper and lower limits for normal price action.
STOP LIMIT ORDER
A stop order that becomes a limit order after the specified stop price has been reached.
STOP (-LOSS) ORDER
An order to sell a stock when the price falls to a specified level.
Securities held in the name of a broker instead of a customer¡¦s name are said to be carried in ¡§street name.¡¨ This occurs when the securities have been bought on margin or when the customer wishes the security held by the broker.
The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.
Annual report required by the SEC each year. Provides a comprehensive overview of a company's state of business. Must be filed within 90 days after fiscal year end. A 10Q report is filed quarterly.
A market indicator based on the number of stocks whose last trade was an uptick or a downtick. Used as an indicator of market sentiment or psychology to try to predict the market's trend.
Some analysts believe that price analysis alone only offers half the information needed for successful trading. The other part is time, more exactly time cycles, which give actual insight into understanding the movements of markets. Common cycles are the seasonal cycles apparent in many commodity markets, but cylces can be detected on intra-day charts as well.
Total sales and other revenue for the period shown. Known as "turnover" in the UK.
A verbal (or electronic) transaction involving one party buying a security from another party. Once a trade is consummated, it is considered "done" or final. Settlement occurs 1-5 business days later.
The date on which a trade occurs. Trades generally settle (are paid for) 1-5 business days after a trade date. With stocks, settlement is generally 5 business days after the trade.
The difference between the high and low prices traded during a period of time; with commodities, the high/low price limit established by the exchange for a specific commodity for any one day's trading.
This index (also kown as the "Arms" index, or "TRIN") measures the relative strength of volume associated with advancing stocks against the strength of volume associated with declining stocks. When used as a short term indicator, readings below 1.0 are considered bullish while readings above 1.0 are considered bearish. An extreme bearish reading would be 1.5 or higher; an extreme bullish reading would be .5 and lower. Readings of 2.0 or .3 would be considered "climactic". For the intermediate term, a bearish sign is an index over 1.0, bullish under 1.0. For the long term, the Trading Index can be viewed as an overbought / oversold indicator.
Mutual Funds: A measure of trading activity during the previous year, expressed as a percentage of the average total assets of the fund. A turnover ratio of 25 % means that the value of trades represented one-fourth of the assets of the fund. Finance: The number of times a given asset, such as inventory, is replaced during the accounting period, usually a year. Corporate: The ratio of annual sales to net worth, representing the extent to which a company can growth without outside capital. Markets: The volume of shares traded as a percent of total shares listed during a specified period, usually a day or a year. Great Britain: Total revenue
Options: the security subject to being purchased or sold upon exercise of an option contract. For example, IBM stock is the underlying security to IBM options. Depositary receipts: The class, series and number of the foreign shares represented by the depaositary receipt.
A security not listed on a stock exchange.
The number of shares or contracts traded in a security or an entire market during a given period. Volume is usually considered on a daily basis and a daily average is computed for longer periods.
This volume indicator addresses some of On Balance Volume's shortcomings and was developed by Marc Chaikin. Where OBV assigns all of a day's volume a positive or negative value, Volume Accumulation counts only a percentage of the volume as positive or negative, depending on where the close is in relation to the average price of the day. The only time the entire day's volume is assigned a positive value is when the close is the same as the day's high. The opposite applies for a close at the day's low.
This analysis is based on the idea that stocks bottom from "panic" selling, after which a rebound is imminent. One way of measuring this phenomenon is to observe a widening range between high and low prices each day. In general a progressively wider range, observed over a relatively short period of time, can indicate that a bottom is near. Price tops are generally reached at a more leisurely pace and can be characterized by a narrowing of the price range.
This measure of the trading range takes place over a specified period in order to determine whether or not an issue is being "dumped" and is approaching a bottom. A pre-requisite to a valid bottom is an increase in the volatility line above the reference line. In a similar manner, an indication of an imminent top would be a decrease in the volatility line below the reference line. As long as volatility is rising, in all probability a stock will not approach a top. It should be noted that this study should be used in conjunction with trend following analyses and momentum oscillators for confirmation and accuracy.
A measure of risk based on standard deviation in fund performance over 3 years. Scale is 1-9; higher rating indicates higher risk.
Std Deviation Rating Std Deviation Rating
up to 7.99 1 20.00-22.99 6
8.00-10.99 2 23.00-25.99 7
11.00-13.99 3 26.00-28.99 8
14.00-16.99 4 29.00 and up 9
Stock that has fallen out of favor with investors; tends to have a low P/E.
WANTED FOR CASH
A statement displayed on market tickers which indicates that a bidder will pay cash for same day settlement of a block of a specified security.
A security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than current market. This "warrant" is then traded as a security, the price of which reflects the value of the underlying stock. Warrants are usually issued as a "sweetener" bundled with another class of security to enhance the marketability of the latter,
An asset which has a limited life and thus, decreases in value (depreciates) over time. Also applied to consumed assets, such as gas, and termed "depletion."
A list of securities selected for special surveillance by a brokerage, exchange or regulatory organization; firms on the list are often takeover targets, companies planning to issue new securities or stocks showing unusual activity.
A double bottom where the price or indicator chart has the appearance of a W.
The percentage rate of return paid on a stock in the form of dividends, or the rate of interest paid on a bond or note.
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