19 Nov
Blog

Moving Averages 101

What is a Simple Moving Average?

Investopedia.com defines a simple moving average (SMA) as: “A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.” Moving averages can be defined in virtually any time frame but the two most common are the 50 and 200 day moving average (DMA) lines (a.k.a 10-week and 40-week moving averages).

Most Common Moving Averages

As defined, the 50 and 200 DMA lines simply look at the past 50 or 200 days and a line is drawn to illustrate the average close during that period. In a healthy uptrend, one would like to see the both moving averages slope higher and for the 50 DMA line to reside above the longer term 200 DMA. Conversely, when the 50 DMA turns lower, or actually slices below its longer term 200 DMA counterpart, this is usually a sign of weakness- or a change in trend. Some technical trading systems flash buy/sell signals when either moving average “crosses over.”

Other Moving Averages:

Several studies show that leading stocks (or markets) tend to pullback and find support at their respective 10 and 21-day moving averages before resuming their prior trend. These are shorter term moving averages and tend to be more volatile in nature. However, they are still an important way to gauge the underlying health of a stock (or market) and are used by some investors as a healthy area to accumulate a position.  Another important intermediate term moving average is the 150-day moving average (30-week). The 150 DMA is an important gauge that defines the intermediate term health of a stock (or market). There are several other moving averages that are used but they are outside the scope of this article. If you are interested in learning more about these moving averages or other topics- pls send us an inquiry on our contact page.

Price vs. Moving Averages

The simple premise is that if the price of security (or market) is trading above a moving average then the action is healthy and if the price is trading below an important moving average then the action is not as healthy. It is also  important to note that it is healthy to see a stock (or market) move back to a moving average on light volume during an uptrend (converse is also true) and then bounce off that moving average on higher volume (ideal scenario). This natural occurrence is actually considered healthy as most leading stocks (and markets) tend to do this during a protected uptrend. That said, moving averages offer prudent  investors a healthy chance to accumulate a position as the underlying investment pulls back to a logical area of support. However, a technical sell signal will be triggered once an important moving average is broken (especially if volume is heavy) and that is an important warning sign most investors should look for.

Simple Rule of  Thumb:

As a simple rule, one should only look to go long (buy) when the underlying price is above an important moving average and go short when the price is below an important moving averages. This is the basic rule, but of course, like any rule, it is important to know when it is o.k. to break that rule!
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17 Nov
Blog

Can Asia Save The World's Economy?

Can Asia Save The World’s Economy?

There is no question that Asian economies are currently growing at a very rapid pace. Countries like China, India, Russia, Japan, South Korea and Singapore are experiencing robust economic growth which will eventually translate into more important global power. However, that is years, if not decades, away and it is nothing for the West to fear. According to the the latest figures from the United Nations, there are more than 4 billion people (approximately 60% of the entire global population), living in 46 different countries in Asia. In recent decades, Asia has accumulated over $4 trillion of foreign exchange reserves which is more than half of the world’s total and has become the largest holder of US debt.  These factors have helped Asia become a formidable force in the geopolitical arena.

Economic Power

According to the IMF, the largest economies in Asia in terms of nominal gross domestic product (GDP) are: Japan, China, India, Russia and South Korea. The vast majority of wealth (measured by GDP per capita) resides mostly in Japan and South Korea, as well as the oil rich countries of the Middle East such as Saudi Arabia, Qatar, and the United Arab Emirates.

Explosive Growth

Most Asian economies are experiencing explosive economic growth.  As a result, they are enjoying massive amounts of wealth which is a natural function of the robust growth. As the entire continent continues to develop, and becomes more affluent in the process, their wants and needs change. Currently, Asian consumers are beginning to demand better goods & services which is going to continue as long as they continue to develop and this only helps the global recovery. It is also important to remain cognizant of the fact that China and India are among the the fastest growing economies in the world and both have more than 1 billion citizens. Simple math tells us that if only 30% of their population become more affluent over the next few years that translates into explosive demand because that eclipses the entire population of the United States!

How Big Is The Global Economy?

According to the IMF, in 2008, the entire global nominal GDP stood at approximately $61 Trillion. The U.S., the world’s largest economy, was approximately $14.4 trillion in ’08. Japan, the second largest economy, stood at $4.9 trillion and China, the third largest, was $4.3 trillion. These numbers show that even if China and Japan continue to grow at 8-12% a year (which is is not the case for Japan) it will take decades before China reaches the size of the U.S. Is it healthy for nations to grow and prosper? Of course, because the developed world was built on growth and prosperity for all.
Click here for a complete list of countries GDP: http://bit.ly/rhu12).

How To Capitalize on Asia’s Growth?

I am frequently asked by the media and various people at conferences and meetings: How can someone capitalize on Asia’s growth? My answer is simple: Invest there. This doesn’t mean that you have to leave your “day job,” pack up and move your family to Hong Kong. Start by looking at what publicly traded companies sport strong fundamental and technical strength and reside in the region. Look at which ETF’s work for you and your investment approach. Educate yourself. Then, if suitable for your investment objectives, you can slowly incorporate a healthy strategy into your investment process (If you are interested in more information on this subject- send us an inquiry on our contact page).

Conclusion

Right now the world is in nascent stages of a massive economic recovery and the worst is behind us (barring some unforeseen event). There is no question that Asia is playing a pivotal role in that process. As of this writing, U.S. President Barack Obama is in Asia visiting with several heads of state to maintain a healthy relationship with the East. Will economic growth disappear from the West? Not anytime soon, but it is safe to say that over the next few decades Asia will continue to strengthen and eventually emerge as a formidable force on the international arena. Currently, Asian governments are quietly buying up massive amounts of natural resources  and other valuable assets. It is in their interest to do so because the one formidable threat that could cripple Asian prosperity is the dearth of natural resources that is needed to maintain their robust growth. If this continues (and we see no reason why it won’t), one day the Western world will “wake up” and ask themselves how did Asia become too big to fail and how did this happen?

16 Nov
Blog

How To Capitalize on This Holiday Season

How To Capitalize On This Holiday Shopping Season?

What defines a successful holiday season for a retailer? Sales. How about for an investor? Sales and earnings.  Every year around the holiday season I am asked by scores of people how they can capitalize on black friday/the holiday season. My initial response is to advise everyone to go out and interact with their community, enjoy themselves and spend a lot of time with loved ones. When you interact with your friends and family, go to the mall, travel, etc… pay close attention to what the new in-demand hot products are for the holiday season. A few years ago it was the iPod; then the iPhone; one year it was the Kindle; another year it was Elmo…etc. When you walk around the mall ask yourself, what bags are everyone holding? Which stores are the busiest? What’s the “buzz” on the street? What are people talking about? What new product/service do you want? Once you can answer those questions you can learn how to capitalize on the holiday season by investing in the companies that provide those products and services. Here’s a small list of companies that will most likely prosper this holiday season (providing that the major averages hold up).

5 Areas That Will Benefit From Shopping Season:

1.) Apple Inc. (AAPL):   Apple has dominated the high-end retail landscape since the turn of the century. Their retail business is thriving while most other retailers are hurting. Their flagship store in Manhattan is the highest grossing store on 5th avenue! That’s impressive! Apple’s products are superior to their competition and remain in-demand. Their sales and earnings are strong which are all reflected in AAPL’s chart!
2.) Amazon.com Inc. (AMZN): Amazon continues to stand above its peers as it remains a leader in the online retailing space. The company offers great products at attractive prices. Amazon’s Kindle revolutionized the way people read books and will be a hot seller this holiday season. (Full disclosure, I love to read and I just got a Kindle for my bday last month- and love it!- and I am not being compensated for any endorsement/opinion in this post). If that wasn’t enough, AMZN does not charge sales tax or shipping (in most cases) which is an added plus for the cost conscious consumer.
3.) Priceline.com (PCLN): Priceline.com is another admirable company which has revolutionized the way people travel. The travel industry is synonymous with every holiday season. What’s better than offering rock bottom prices? Allowing travelers to name their own price. This simple but ingenious concept has helped Priceline emerge as the go-to site for millions of travelers across the world! The stock gapped up and surged to a new high after they reported their third quarter results. This healthy action illustrates how large institutional demand and suggests higher prices will follow for this young and ambitious travel company.
4.) Wal-Mart Stores Inc. (WMT): WMT is the world’s largest retailer for a reason: they know how to sell great goods at great prices! What better way to illustrate their prowess by continuing to increase their earnings over the past several quarters, while most other companies saw their earnings decline. WMT is an admirable company which continues to grow. What else could someone ask for as this holiday season approaches?
5.) Gold/Gold Stocks: Gold is on a tear and most people do not know that it has been steadily advancing for the past few quarters. Even during the bear market gold was one of the only asset classes which did not implode. Crude oil tanked nearly -80% from $147 to $33 a barrel. The Dow plunged -54.43% from its Oct 2007 high to its March 2009 low. Meanwhile, gold “only” fell -34% from its March 17, 2008 high of $1,032 to its bear market low of $682 in Oct 2008. Since then, gold is the only asset class that has recovered its entire decline and has surged to new all time highs! This healthy action (outperforming on the way down and up) illustrates how strong this market actually is. That said, how can someone capitalize from this action? Easy, buy Gold/Gold stocks at the right time. Here’s a small list of strong gold etf’s and stocks. GLD, IAG, ABX, HL, NEM, CDE and JAG. PS: gold also makes a great gift!

Happy Holidays!

Most importantly, spend quality time with loved ones, put your differences aside and spend any down time doing your homework and analyze your activities for the year. Set new goals for next year and develop an action plan to achieve those goals!

14 Oct
Blog

Follow The Yellow Brick Road!

My very first blog post. I have to tell you I’ve been looking forward to this for awhile now. I think the best way to begin my blogging career is to start with a brief introduction of who I am, what I do, and why I have decided to join the blogging and social media worlds. I’ve made a conscious decision to fully embrace the social media ethos and I look forward to blogging frequently as well as sharing all sorts of great content with you, my readers.
My name is Adam Sarhan and I am the founder and CEO of Sarhan Capital, a boutique investment firm created in 2004. I’ve spent the last few years developing a suite of market-based services for both individual and institutional investors. All our work is based on our objective market research: The Sarhan Analysis, TrendScreener and AS Analysis- our custom research product. I am very proud of all our work and look forward to sharing much of it with you. If you want more information on any of our services, please visit our Store.
I’ve spent the better part of the last decade honing my financial acumen, developing a method of trading the markets that has consistently outperformed the major benchmark averages, both for myself and my clients. At the urging of my clients and colleagues, I set out to codify my trading strategies, the result of which was a weekly global macro note, The Sarhan Analysis.
As a person who knows how it feels to start from nothing, it is my sincere desire to see The Sarhan Analysis widely distributed and employed to help other people succeed. I have faith in the product and work hard everyday to ensure that we always provide objective market analysis.

My Trading Philosophy

Since early on in my career, I have always had a clear understanding and strong respect for market psychology and risk. It is my belief that it is a failure to properly comprehend both concepts that hinders most people’s ability to succeed. That said, my goal is to teach people how to accurately apportion both factors into their portfolios. But I also know that people are inherently stubborn when it comes to trading, and that discipline is often the first thing that goes out the window when people have money on the line. Emotions trump reason and that is why in early 2009, I developed Sarhan Live – a proprietary online psychological and risk assessment tool, and made it available to the public. It is my hope that with this tool, coupled with my unique market analysis, one can succeed where others fail by developing a well thought out trading system and specific investment goals.

So What Are My Goals?

It would hypocritical of me to urge you to illustrate your goals without doing the same. So in the interest of transparency, a golden rule of social media success, I will elucidate my goals with this blog.
My goals are to tell you about me, to tell you my story, my successes, my failures and teach you what I know about capital markets. My goals are to share with you my knowledge and experiences in the market, and to do so in a colloquial and easy to follow fashion. I want my posts here to be instructive and educational to the beginning trader as well as sophisticated enough to appeal to experienced investors. The truth is that good market analysis and a clear articulation of that analysis is always in demand.
I have created several services that may or may not be conducive for you at this point in time, but even if you don’t become a customer, you’ll still find a wealth of education available on this blog and a good place to come visit for the latest in both technical and fundamental market analysis. In my opinion, one needs to look at both technical and fundamental indicators in order to be a successful trader, leaving one out is like trying to play tennis with one hand tied behind your back! So I hope you’ll come visit often, add me to your RSS, connect with me on twitter and facebook, tell your friends and family about this site and if you have any questions or comments, please leave them for me. I hope to create a warm and healthy dialogue with you going forward.

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