Analyze Investments

Speculative influence is reflected in the ratio of activity
between Nasdaq and American Stock Exchange (AMEX)
stocks to New York Stock Exchange (NYSE) volume. The
theory is that when activity and prices of Nasdaq and AMEX
stocks begin to move more rapidly than the blue chip issues,
speculation is multiplying. That’s the time for conservative,
rational investors to move to the sidelines.
The Odd-Lot Index reveals how smaller investors
view the market. The smaller investor is presumably less
informed and so tends to follow established and predictable
patterns. Concentrating on trades of fewer than 100 shares,
the index alerts its followers when fry investors deviate
from regular actions.
Moving averages (see box) compare current stock or
mutual fund prices to averages tracked over a period of
time. As a new price is added to the list, the oldest price
falls off. All prices are “averaged” by dividing the sum
total by the number of
days or weeks monitored.
Investors invest in the market
as long as the moving
average is above the S&P
500 average, the Wilshire
5000 average or whatever
index is monitored.
A most-active stock list
is published in many daily
newspapers, giving highs,
lows, last prices and changes
in the volume leaders on the
NYSE and Nasdaq exchanges.
Many investors watch
these lists closely and either
buy the issues after they’ve
appeared on the list for three
consecutive days or short
them.
The Moving Average
A solitary number is meaningless unless it’s
compared to something else. Analysis depends on
comparison. For example, unless you know the
average of stock prices for the past six months,
you won't know whether trends are increasing or
decreasing. And that's usually what you need to
know.
The best way to focus on trends over time is with
the moving average. Moving averages allow you to
examine the direction of a stock or mutual fund by
comparing its price to movements over time. A moving
average is updated periodically by dropping the first
number and adding the most recent number.
For example, a 52-week moving average is determined
by adding the stock or mutual fund's closing
price for the current week to the closing prices of the
previous 51 weeks and then dividing by 52. Over time,
this moving average indicates the trend of prices.
In most cases, analysts compare individual
investment moving averages with a regular market
average like the S&P 500. For example, as long as
the S&P 500 is above its moving average, the outlook
is bullish. Conversely, when the S&P 500 falls
below its moving average for three or four weeks,
the outlook is bearish.
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