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What is Lifestyle Inflation?
Lifestyle inflation is a term used in personal financial planning for the tendency of people to increase their spending and standard of living right along with any raises and monetary resources, even if it’s is at the detriment of any plans for debt reduction or long-term savings. Monetary inflation describes the phenomenon when more money has no more utility value than a lesser amount used to because the cost of goods is going up. Lifestyle inflation is when people select higher-priced goods and lifestyle spending habits when they have the money available to do so. Continue reading...
What are Consumer Staples Stocks?
Consumer Staples are generally defined as companies that sell goods with inelastic demand, meaning that economic conditions generally don’t impact a consumer’s need for the product. They are also referred to as ‘non-cyclical,’ meaning that demand should not significantly waver even if the economy enters a recession. Because the earnings of consumer staples stocks is generally less volatile, they have historically outperformed other stocks during prolonged market downturns. Continue reading...
What are Consumer Discretionary Stocks?
Consumer Discretionary companies are those that sell ‘non-essential’ items, such as clothing retailers, media and entertainment, luxury goods, auto makers, and so on. Consumer discretionary companies tend to sell goods with elastic demand, meaning that demand goes up as economic conditions are good and falls when conditions are slowing or recessionary. Consumer discretionary companies are also categorically referred to as ‘cyclicals.’ Consumer discretionary stocks can also include companies in the service industry, like hotels and restaurants. Continue reading...
What are market indicators?
Market indicators are quantitative tools for the analysis of market information, which may hint or confirm that a trend or reversal is about to happen (leading indicator) or has begun (lagging indicator). Indicators are technical analysis algorithms which give investors signals that may be used as the guidelines for trading. Indicators might be called oscillators or have various other proper names, since some of them are quite well-known, but there are general conventions or instructions for how to use an indicator, how it can be tweaked to suit the scope of your analysis, and what is considered a trade signal. Continue reading...
What are Technical Indicators?
Technical Indicators are charting tools that appear as lines on charts, or as other kinds of graphical information, which serve as guidelines for buying and selling opportunities. They are based on mathematical formulas, and may be called oscillators, trading bands, and signal lines, among other things. Technical analysts use information about price, volume, standard deviation, and other metrics to construct systems for trading using mathematical formulas which can be translated into useful charting tools. The systems can bring discipline to a trader’s strategy by providing clearly defined circumstances in which a trader has reason to buy, sell, hold, and so on. Continue reading...
What is a leading indicator?
Leading indicators are economic or price data which have some degree of correlation with a movement in the market or a stock price. Leading indicators tend to happen before the market or price movement occurs. Traders and economists use leading indicators frequently to prepare for what’s next; they are based on theory as well as empirical historical evidence but like all indicators, they do not have a 100% accuracy rate – past performance does not guarantee future results. Continue reading...
What are the main technical indicators?
Technical indicators include moving average lines, trading bands, oscillators, and formations (found here), often presented in combinations. Popular indicators carry proper names. There are thousands of technical indicators, but the most popular ones are the MACD, Bollinger Bands, Stochastic Oscillators, the Directional Movement Indicator and various patterns of price behavior, such as “Head and Shoulder” formations. Continue reading...
How to use Momentum Indicators in trading
A momentum indicator allows for a quick comparison of a security’s current price relative to its past prices using a flexible time period, allowing traders to decide the parameters. The formula to calculate momentum is M = V – Vx (where V is the current price and Vx is the closing price from x number of days ago). A current price in excess of past price is a positive momentum indicator; a lower current price represents negative momentum. Continue reading...
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) is a measure of the average change, over time, in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI is an important economic indicator, as it’s changes influence the Federal Reserve’s monetary policy decisions and it gives an indication if an economy is experiencing adequate inflation. The most common reading on the CPI is % change from a previous period, with most developed economies generally striving for 2% annualized inflation. Continue reading...
How is the Consumer Price Index (CPI) Calculated?
The Consumer Price Index (CPI) is calculated using prices of sample goods from predetermined urban areas. According to the Bureau of Labor Statistics (BLS), the CPI is a product of a series of interrelated samples. First, using data from the 1990 Census of Population, BLS selected the urban areas from which data on prices were collected and chose the housing units within each area that were eligible for use in the shelter component of the CPI. The Census of Population also provided data on the number of consumers represented by each area selected as a CPI price collection area. Continue reading...
What is the Federal Energy Regulatory Commission?
The FERC oversees the interstate commerce surrounding oil, energy, and natural gas. This regulation and oversight might deal with pipelines and storage facilities, permits for future exploration sites, environmental and safety concerns with projects, as well as the sale and transfer of these commodities. FERC deals with the companies engaged in the extraction, transfer, storage, and sale of energy and energy-related resources. Continue reading...
What is the Federal Trade Commission (FTC)?
The Federal Trade Commission (FTC) was originally created to encourage market competition and to protect consumers by breaking up monopolies and monitoring mergers and acquisition activity. It has now branched out into more areas in the pursuit of consumer protection and fair markets. The FTC is now comprised of three bureaus: Consumer Protection, Competition, and Economics. They protect consumers from fraudulent business activity and monopolistic business practices. Continue reading...
What are Federal Reserve Regulations?
The Fed has been commissioned with upholding the directive of the Federal Reserve Act. The Fed is technically an independent institution from the US Government, even though it works hand-in-hand with the Treasury Department on monetary policy issues. It functions partially as a self-regulatory organization for the banking industry, and the Regulations, which are named with letters of the alphabet, are meant to protect consumers, member banks, and the economy as a whole. The leadership of the Fed is comprised of both government appointees and private sector banking leaders. Continue reading...
What is the Federal Savings and Loan Insurance Corporation (FSLIC)?
Created about the same time as the FDIC, the FSLIC, which insured up to $100,000 in deposits at savings and loan institutions, also known as “thrifts.” In the 1980s, the “savings and loan crisis” caused the FSLIC to become insolvent. In 1989 it was disbanded by the FIRREA Act and replaced by the Resolution Trust Company (RTC) which was merged with the FDIC a few years later. During the 1980s, a huge number of savings and loan companies (“thrifts”) went bankrupt. Continue reading...
What is Appraisal Fraud?
Appraisal Fraud is the intentional misrepresentation of the value of a home using an appraiser’s statement. Appraisals are necessary for large loans and real estate transactions, and appraisal fraud is common. Fraud can be committed in this manner by the appraiser or by a person falsifying an appraiser’s statement. A common example would be overstating the value of a home so that a borrower can get a larger home equity loan. Continue reading...
What is the difference between active and passive money management?
The debate on whether active or passive management is better for investors has polarized many advisors and theorists for years. There are two schools of thought when it comes to long-term investing. One basically states that you should determine a proper allocation of asset classes for yourself, buy index funds to reflect each particular asset class, and possibly rebalance the portfolio periodically. This basically means “set it and forget it,” and the investor must be willing to ignore fluctuations in the markets and maintain a faith in an Efficient Market. Continue reading...
What is the Russell 2000 Index?
The Russell 2000 index is comprised of the 2,000 smallest companies in the U.S. If you’re looking for a small cap domestic benchmark, this is a good one. Companies included in this index are reevaluated annually to make sure they can still be considered small cap companies. Since the Russell 1000 index represents 90% of the market, the Russell 2000 index represents about 10% of the market (if you are wondering whether or not there is a Russell 3000 index, the answer is yes — it is a combination of the Russell 1000 and Russell 2000 indices). Continue reading...
What is Directional Movement Index (DMI)?
The Directional Movement Index (DMI) combines the average directional index (ADX), plus directional indicator (+DI), and minus directional indicator (-DI) into one graph that depicts the strength of positive or negative market forces. By plotting the directional indicators together with the ADX line, traders can get a sense of overall movement and determine a trend’s strength and direction. The DMI is a useful illustration of a key point: the ADX is most useful when combined with other indicators to determine whether it makes sense to trade with a trend. The ADX normally depicts three lines in order to give traders an accurate depiction of both the strength and direction of trends: the Plus Directional Indicator (+DI) and Minus Directional Indicator (-DI), as well as the ADX lines. The DIs indicate trend direction, while the ADX depicts trend strength. Continue reading...
What is market breadth?
Market Breadth is a descriptor that is used in several market indicators such as the daily breadth, the A/D Line, the McClellan Oscillator, and Arms Index. Breadth is the relative difference in the amount of advancing stocks and declining stocks. Daily breadth is simply computed by subtracting one from the other, or creating a ratio in which one is divided by the other. Daily breadth is closely related, even interchangeable, with the Advance/Decline ratio. It can also refer to the difference between New Highs and New Lows, or Net New Highs. Continue reading...
How to use the Arms Index (TRIN) in trading
Richard Arms invented the analysis tool that bears his name in 1967. The Arms Index, a technical analysis indicator, is also called the TRIN (short for “Trading Index”) because it seeks to indicate overbought or oversold conditions by serving as an index of trading activity relative to price. The Arms index is calculated using readily available data from major indexes such as the S&P 500 or NASDAQ. The ratio of the number of advancing stocks (stocks whose prices are increasing) to the number of declining stocks (stocks whose prices are decreasing) is computed to give us the A/D Ratio, a market breadth indicator that is one way of viewing the daily breadth of a security. The Advance/Decline Ratio uses the same numbers as the Advance/Decline Line but presents them as a ratio instead. The AD Ratio is sometimes more useful than an AD Line, including in instances where comparing AD for different indexes which have different metrics; the ratio is the standardization with which comparisons can be made. Continue reading...