15 February 2008

Investing for long term profits and trading for short term income relies on two key principals: picking the right share and picking the right time. This might sound like a simple enough proposition, but how can you arm yourself with the best possible chance of being in that right place at that right time? The key to this success can be nicely illustrated with an analogy we employ at our Wealth Strategies seminars and in the upcoming on line modules; that of the judge, jury and executioner. Before you execute your order you want to be very sure that it is indeed guilty of the crime of being profitable and, just like a real court case, it is imperative to gather as much evidence from as many sources as possible to determine this.

Fundamental Analysis

You need to make sure that there is a motive. By looking at the fundamental arguments it becomes apparent that this particular share is offering the best value, the strongest growth opportunities or maybe (as we have seen in the recent market environment) has become over valued and is likely to drop in price. A quick and easy guide would be to look at the current price earnings ratio (the P/E ratio) relative to historical and forecast P/E ratios, something that is easy to do using the Supervalue calculator in Valuegain software.

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The maths is very simple and the fantastic charting function shows all of these things happening at once. Whenever BHP’s current share price rises so too does its P/E ratio. That’s a fact. Historically, whenever the P/E exceeds the annual average, shown by the blue line (current P/E) tracking above the red line (historical P/E), BHP shares experience a fall in price. That’s a fact too. All we have to do is use analyst’s forecasts to calculate a future P/E ratio (shown as the green dotted line) and with some simple, easy to learn algebra, we can work out a fundamental based price target. At this moment in time for BHP that was $33.65. BHP now has motive to fall down in price, but is that enough to close your long positions or open shorts?

Technical Analysis

We now have motive. BHP has a reason to drop significantly in price, but is there anything else we can use to further declare the guilt of the position and execute accordingly? Circumstantial evidence puts the perpetrator at the scene of the crime. For us, our circumstantial evidence will help us decide how the price should react when compared to its position in time; we will use technical analysis and structural indicators.

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Clearly the Relative Strength Indicator has crept into overbought territory and On Balance Volume is not rising as definitively as price. Two important facts. Users of ProfitSource software and practitioners of Elliot Wave Theory would certainly recognize the price action in the final throws of a fifth wave. You now have motive and you have opportunity. Is that enough to discard one of your best performing shares or take a counter trend position in a company that has gone up so steadily for so long?

Options

Forensic evidence will show what can’t be seen at a first glance on the surface. It involves digging a little bit deeper and uncovering the underlying minutiae that can scientifically confirm a theory. By regarding an option’s implied volatility information can be gathered to show whether or not derivative traders are beginning to expect a share’s price to rise or fall in the near future. At the same time the put / call ratio acts as an indicator as to how bullish or bearish those traders are about the future price rises. A quick glance at OptionGear’s put call ratio over this time period reveals that more puts were being bought than calls. Interestingly, as the chart shows, the implied volatility of calls had been falling since mid October whereas put IV had started to rise by late October.

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Investors were beginning to prepare their portfolios with some downside protection and bullish sentiment was falling – even though price had yet to move!

Integrated Analysis – The whole is greater than the sum of its parts

What you have just experienced is a multi-dimensional approach to picking investments and trades. By combining multiple perspectives and different depths of study, a practitioner of integrated analysis is far more likely to successfully answer the question, “What shares and when?”.

Although it is unlikely that you are an expert in all of these different styles of analysis, HUBB has put together a series of specific online learning courses designed to make the application of integrated analysis a simple proposition. Rather than try to learn all the ins and outs of fundamental analysis, technical analysis and the predictive power of option volatility and volume, HUBB has developed automated scans with very specific strategies in mind.

Imagine being able to scan the entire market at the touch of a button and find shares that offer real value compared to themselves and the market as a whole? What if these shares are forming a technical oversold base and are at the end of a bearish Elliot run? And how about if the number of call options have been steadily increasing, indicating an increase in bullish sentiment? You will find it very obvious how these scans can help you pick better investments and trades!

Integrated Analysis Online learning modules

There are many excellent ways of choosing solid investments and high probability trades. Why reduce your likelihood of success by ignoring one of them, when you could be using all the perspectives at once? Even though we accept that the whole is truly greater than the sum of its parts, it is necessary to be comfortable with each individual component. That’s why complete and comprehensive training for each separate software platform has been written and will be delivered in an online format, allowing the user to get off to a flying start.

The integrated analysis learning module revolves around an exclusive Integrated Investor Newsletter that provides insight into the macro factors affecting the local and global economy. This newsletter is based upon inter-market analysis techniques to give you ideas on where the global equity and commodity markets are likely to head. With this valuable information you can now take the next step of choosing which strategy to put into place.

Five automated strategies have been constructed to help you select investments that match your opinion and financial planning requirements. Not only will you have access to these scans, the education modules will ensure that you understand exactly how they work, allowing you to pick value, growth or income opportunities or trade short term bullish or bearish signals.

Be part of the future of financial analysis with Integrated Analysis.

For more information on Integrated Analysis contact HUBB on 1300 767 699