Which characteristic is NOT typical for a gap-down, key upside reversal day?

Prices of commodity based stocks like steel companies, or oil companies, or copper mining companies are highly subject to fluctuation in the value of the U.S. dollar and _____________________________________________?

At Stock Market Companion, we use the “SPY” (S&P 500 ETF) instead of the S&P 500 market data to graphically represent the S&P 500 market. Our reason for this is –

What is the significance of a key reversal day in the market?

Here are two good reasons for purchasing shares in Ford Motor Co. (Ticker: F) ?

Here is a Stock Market Companion daily chart of the S&P 500, represented by the “SPY” (S&P 500 ETF). We include this chart in every Stock Market Companion 15Minute Market Update. We are going ask you several good questions to help you understand how to use this chart to your advantage.

Important, to make this chart easy to read and to view it while you are taking the quiz, please “right click” the chart with your mouse on it and select “Open Link in New Tab”. This will put this chart on a separate browser tab next to the quiz tab. You can then zoom-in and zoom-out using your browser zoom function and the mouse. Go ahead and try it, it should work.

1st Question – On the chart, we have marked May 2nd with the word “Peak” and drawn a line down to the lower bar chart area of the chart, where there are green and red vertical lines. These vertical lines represent volume. The height of that volume mark tells you how many shares were traded on that day of this SPY ETF and therefore gives you a tool to compare the volume on that day with the volume of other days. On May 2nd, was that red vertical line representing volume very tall compared to previous volume lines for April?

Please Refer to the chart from Question #1 that you have opened on a separate browser tab. Zoom-in or out to see it clearly.

May 2nd is marked by the word “Peak”, because it is the highest price point represented on this chart. If our chart showed more days over a longer period of time, you would see that this May 2nd peak was the highest price achieved by the S&P 500 SPY ETF in over 2 1/2 years! When the market hits a new high, a healthy market will do so on STRONG volume, AND close positive for the day. A positive close for any given day on this chart is marked by a green color.

Question #2 – Did the SPY close positive on May 2nd, and was the volume STRONG?

Please Refer to the chart from Question #1 that you have opened on a separate browser tab. Zoom-in or out to see it clearly.

Through the month of May, the SPY (which represents a broad section of the U.S. stock market) held tightly, and gradually declined in value. It “wrestled” with the value represented by a horizontal line that we have drawn on the chart that represents the value of $135/share, circled on the right side of the chart. It tried repeatedly to get above $135 in price, but failed each time throughout the month.

On June 1st, the SPY closed down for the day, failing again the day before to cross over the $135 line.

Question #3 – Was the volume high or low on June 1st?

Please Refer to the chart from Question #1 that you have opened on a separate browser tab. Zoom-in or out to see it clearly.

By the 20th of June 2011, the SPY had dropped down to what had become a support area for the price, defined by a recent bottom found there on May 14th. We have marked this level with a horizontal black line, and lines up with a price on the right hand side of the chart slightly above $125/share. The area on the chart between this lower line and the upper horizontal line marking the $135/share price, represent a area of range for the SPY. When the SPY bounced down to that $125 area in May, buyers stepped in and pushed the price higher. On June 1st, at approx. $135/share, sellers stepped in and pushed prices lower. When the SPY found “support” on June 20th, we purchased shares of Apple, Inc. because we had been following the share price of Apple closely and it too hit an important support line.

Looking at this chart, what did the SPY price do from June 20th to July 27th?

Please Refer to the chart from Question #1 that you have opened on a separate browser tab. Zoom-in or out to see it clearly.

On July 27th, the SPY fell hard off the $135 line. The $135 line has become what we call “price resistance” because buyers have not been interested in paying more than $135/share for the SPY and each time the price of SPY shares get to this line, sellers emerge and sell their shares. On July 27th, the SPY price fell hard down from this $135 area. We sold our Apple, Inc. shares on this day.

So we purchased shares of Apple, Inc. on June 20th at $316/share and sold them a little over a month later on July 27th for $393.75/share. We did this “in – step” with the market. The market was going UP within a narrow price range during the time that we held are shares.

Question #5 – Please calculate the return on investment in these Apple, Inc. shares (not including commission costs) from June 20th to July 27th.

($393.75-$316)/$316)*100 = ___________ ?

Since the summer of 2009, as investors we have been learning about the increasing significance of sovereign-debt in certain European countries. A significant portion of European individual countries belong to a group that is called the European Monetary Union. They have a common currency, like in the U.S. we have the U.S. Dollar. What is their currency called?

The objective of the European Monetary Union (EMU) is to eventually include all individual European nations who currently belong to the political entity called the European Union. When joining the EMU, individual nation states give up their own currency and adopt the Euro as their currency. By giving up their own currency, an individual nation state also gives up the ability to ______________ their national monetary policy. Please choose from the bottom answers the word that best fits in the blank in the previous sentence.

If you are an individual, European nation state and you decide that you wish to participate not only in the political entity the European Union, but also in the economic group called the European Monetary Union, you give up your own currency to use the Euro. As a nation, you can no longer establish your own interest rate on your own currency, because you no longer have your own currency! This is all fine, as long as things are good. But when economic hardship hits your country and you need to stimulate economic activity, you no longer have the tools to do so. In the past, when economic hardship came, you could lower the interest rate that you charge your banks to borrow money. By lowering these borrowing costs, you effectively lower the ___________ of borrowing for individuals which stimulates _________________________. Please choose the word pair below that best fill in the blanks to make the previous sentence correct.

In 2001, the country of Greece joined the European Monetary Union. From 2001 through 2008, Greece began to run increasingly higher budget deficits. They funded this additional spending with bonds that they sold at attractive interest rates to other European banks and financial institutions. As the “great recession” came in 2008 and 2009, tax revenues fell in Greece yet spending continued unabated. Financial institutions began requiring higher and higher interest rates before they would buy Greece’s bonds. In other words the cost of borrowing for Greece _________________. What should Greece have been doing during the good economic years before 2008? Please pick the word that fits the blank best, combined with the best answer to the direct question, from the answers below.

In the past when Greece had its own currency and could manage its own monetary policy, when such a dismal economic situation arose that Greece finds itself today, the country was able to lower interest rates in order to cut the cost of borrowing. This did several things –

1. It stimulated local investment, which helped to create jobs which would help families and businesses and eventually increase tax revenues for the government.
2. More jobs meant more earnings created locally, which boosted local spending and improved the economy.
3. Lower interest rates meant that the Greece currency “Drachma” would be devalued on the international market and therefore foreigners could purchase more products from Greece at lower costs to foreigners. This also stimulated demand for products made in Greece and would increase the POSITIVE impact of points #1 and #2.

But Greece doesn’t have its own currency and can no longer manage its own monetary policy. All that they could do was try to cut government spending dramatically, which does NOT achieve any of points #1-#3. It does the opposite. Less government spending at this point in the economic cycle takes away precious jobs and lowers incomes and tax revenues and increases the negative effects of a bad economic climate. The country has entered a economic downward spiral without the traditional tools available to halt the spiral and restart the economy. The financial institutions that had lent Greece money by buying Greek bonds were logically worried that Greece would ____________________ on its bonds. At this point in time, there are very few tools in the European Monetary Union for countries that are already highly indebted for them to stimulate their local economies. If a country is not highly indebted, they can borrow money and invest in local infrastructure projects and businesses to try to stimulate economic activity.

On October 27, 2011, European political leaders pressured the financial institutions that have purchased Greece’s bonds to cut what is owed to them by Greece by -50%. Now Greece owes less money to its lenders, but it still doesn’t have the broad means to rekindle its local economy.

This solution helps take away the immediate fear of financial collapse of the European Monetary Union. Money that was put in the safest locations (like US Treasuries) has begun to flow into the world markets again and immediately lifted the value of global stocks.

Please pick the word below that best fits in the blank above.

Generally on the first Friday of each month, the United States Bureau of Labor provides a report of their best estimate of the rate of employment and unemployment in America for the previous month. This report is called the U.S. Department of Labor Non-Farm Payroll Report. The Bureau of Labor surveys approx. 140,000 businesses and government agencies, representing approx. 440,000 worksites in order to make their report.

This Non-Farm Payroll Report can have a significant impact on the stock market and is watched closely by individual investors. If this report shows that unemployment is unexpectedly rising, how do you think that the stock market will respond?

If unemployment is rising, what can the U.S. Federal Government do to improve employment? Please select two from the three answers that best answer this question. The two answers together make a correct total response.

What are the U.S. Federal Reserve’s two stated primary objectives.

The term “monetary policy” refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of ________________ and credit to help promote national economic goals. Please select the word that best fits the above sentence from the list below.

The Federal Reserve Act of _______________ gave the Federal Reserve responsibility for setting monetary policy. Were the Founding Fathers of the U.S. unanimously in favor of a central banking system? Please select the year that accurately fits the blank to finish the above sentence which is combined with the correct yes or no answer to the question, from the list below.

Here is a Stock Market Companion daily chart of the S&P 500, represented by the “SPY” (S&P 500 ETF). We include this chart in every Stock Market Companion 15Minute Market Update. We are going ask you several good questions to help you understand how to use this chart to your advantage.
Important, to make this chart easy to read and to view it while you are taking the quiz, please “right click” the chart with your mouse on it and select “Open Link in New Tab”. This will put this chart on a separate browser tab next to the quiz tab. You can then zoom-in and zoom-out using your browser zoom function and the mouse. Go ahead and try it, it should work.

The text box and arrow labeled “Today’s Close” on the chart points to the price action of the SPY on November 9, 2011. Did the SPY close DOWN for the day on much stronger volume than the previous day?

Please refer to the chart from Question #1 that you have opened in a separate browser tab. Zoom-in or out to see it clearly.

The price action on November 9th was so strongly negative and the news about European sovereign debt so unclear, that we closed all of our opened investments on that day and raised 100% cash in our stock portfolio account. The price action on November 9th represented another “distribution day” for the market. A distribution day is defined as a day when the price of the instrument (stock, index, or commodity future) closes lower than the close of the previous day on significantly stronger (higher) volume.

Between October 4, 2011 and November 9, 2011, how many distribution days can you count based on the above definition? (Please do not include the price action of October 4 or November 9).

Please refer to the chart from Question #1 that you have opened in a separate browser tab. Zoom-in or out to see it clearly.

On November 8, 2011 (one day before the November 9th date marked with the arrow “Today’s Close”), the market closed higher representing a “lower high” compared to 10/27 or 10/28. OK. A lower high. On November 9th, the market “jack-knifes” or “reverses down” hard on very high volume and negative news about European sovereign debt and indications from General Motors quarterly earnings summary that the outlook ahead is deteriorating. We sold our shares of all our holdings and raised cash. Under normal circumstances we would expect the market to continue DOWN over the next days, back into the lateral trading zone that is identified from August 2011 through October 2011, which is also marked with significant turbulence of high and low price movement. In which case, the “Lower High” of November 8th would represent a ______________ point for the market, changing the direction of the Short Term trend from UP to DOWN.

Please select the word from the choices below that best fill in the blank.

We follow the S&P 500 carefully and determine new up and down short, intermediate, and long term trends for the index because individual stocks will move anywhere for 2x – 4x the amount of the change in the movement of the index, in the SAME direction and period of time as the index. So if the index loses -10% of its value (which to beginning investors may not sound like very much), an individual stock could lose -40% or sometimes even more of its value in the same period of time! In summary, individual stocks will move anywhere from __________ to _________ the amount of change of its corresponding index.

Please pick the pair of numbers that best fit the blanks to finish the sentence above.

When working with your financial resources, it is essential to limit your risks. In the stock market, you are rewarded for being at the right place and the right time with your money – which requires perseverance and hard work to understand how things work and maintain simple routines to keep yourself abreast of the market and companies that are growing. You will be penalized – often very severely – if you disregard business and economic cycles AND if you have not chosen the right company to invest in.

The stock market is an excellent place to multiply your money – when the time and your stock selection is correct. Setting stops allows you to be wrong in your timing and in your stock selection, and protect yourself so that you can try again after learning from your mistakes.

In summary, when working with your financial resources, it is essential to limit your ___________. Successful stock investing requires that your timing and stock selection is _____________.

Please select the correct pair of words from the answer choices below that fit in the above blanks to best complete the two sentences.

We want to focus in on stop orders for this exercise quiz. Let’s assume that you have determined from your road map – the S&P 500 ETF (SPY) – that the conditions are suitable for stock investing at this time. You have identified a publicly traded company “ABC, Inc.” that has the right ingredients for real growth. You have also determined from the chart of “ABC’s” stock, what a suitable entry price is for purchasing the shares, which minimizes your risks.

In this particular case, you purchased shares of ABC stock at $16.10/share AFTER the stock price moved higher over the last year from $10 to $16/share and after it built a nice lateral consolidation over the last six months. Over the last six months the background market has been turbulent and uncertain about the national economic condition. The background market has now firmed up as initial national economic indicators are showing stable growth lies ahead for the next year or so. You purchased the shares because you have understood that economic conditions are improving nationally, and this last week the share price of ABC stock shot UP 40 cents/share, moving from $15.70 to $16.10 on twice its average daily volume. In other words, the ABC share price Broke OUT above it’s $16/share multi-month lateral consolidation TOP and appears ready to move higher.

Over the last three months, the recent lows in the lateral consolidation for the shares you have purchased was $15.05/share. You purchased the shares on a break-out above $16/share resistance and your purchase price for the shares was $16.10. You want to give the shares “room to breathe”, but if the break-out does not lead to a further advance in the share price, you want to protect yourself if your idea about the overall economic picture or about the company that you have chosen is wrong.

So you place your stop below the $15.05 lateral consolidation bottom that represents SUPPORT and below the $15.00/share round number and put your stop order in at $14.95/share.

In summary, you have placed your stop order below the stocks recent lateral consolidation ______________, and below the $15/share ____________ number. Please pick the answer pairs from the choices below that best fill in the blanks in the sentence.

When proceeding to place your stop, you went to your online brokerage account where you had just purchased the shares and clicked on the shares that you own to put in an order to sell the shares at your designated stop. You are presented with at least two choices of stop. The two most common choices are Stop Limit Order and Stop Market Order.
You choose the Stop Market Order, because you want your stop to immediately trigger and sell the shares on the next market level price for the shares if your shares break below $14.95/share.
If you chose the Stop Limit Order at $14.95, you are telling your broker that you want your stop to trigger immediately at $14.95, BUT that you also want to sell your shares for a price of AT LEAST $14.95 for the shares that you own. The problem with this is, if your stop is triggered and the stock is heading rapidly below $14.95/share, the stock may never return to $14.95 or better to fill your order.

In summary, at Stock Market Companion we always use the Stop ____________ Order type for our stops. Please choose the correct word to fill in the blank from the previous sentence from your choices below.

When placing your stop MARKET order, you were asked whether you want your order to be good for the day or “Good ’til Canceled” = GTC. Good ’til Canceled orders are really only good for 30 days, and then you need to re-place them with a new GTC order. At Stock Market Companion we place GTC orders.

In summary, GTC orders are good for __________ days. Please pick from the given choices the number that best fits the blank to finish the sentence.

By choosing ABC, Inc. shares, you have chosen a company that is really growing. The stock begins to ramp higher to $23/share, at which point you advance your stop from $14.95 to $19.95. On paper your investment has increased almost +43% in a few months. All of a sudden there is trouble in Europe with European debt and one of the European Monetary Union (EMU) member states announces that it is leaving the EMU. The global financial markets are stunned. You wake up on the morning of that announcement and see that your stop at $19.95 was triggered, but your order was filled at $19.50/share. You remember that SMC taught you that stop orders have their limitations. Your stop-market order told the broker to sell your shares at the next market price, after your stop was triggered. The shares were falling quickly when your stop was triggered, so the next market price was $19.50/share, and that’s the price you got. Although you wish that you had sold your shares at $23, you are still satisfied because your overall approx. return on your investment is +21%. As a comparison, CD’s at the bank are paying 1% for the year, and real estate prices are not moving higher. The ABC share price is now at approx. $18/share and you now have your cash, having sold at $19.50. You are glad that you did not put in a Stop – Limit order, because it doesn’t look like ABC, Inc. shares are moving higher any time soon and you would still be holding the shares.

In summary, stop-market orders are not _______________. They will get you out of the stock, but at the next ________________ price. Please pick the best answer pair from the bottom list of choices which best finish the sentence.

For this quiz, please read this short overview of the significant benefits of learning about markets, finance, and investing. >Click here for the article link. (Important – For this link to work correctly, please hover your mouse pointer over the link, right click on the mentioned link and select “Open Link in New Tab”. Then go to the tab and read the article.)

Question 1 – In the first 10 benefits listed, under which benefit is making money or becoming financially wealthy specifically mentioned?

When you read Benefit #6 and #7, what four things below are specifically mentioned that you can learn from digging deeper into the lives of successful people in the context of learning about markets, finance, and investing?

We mention two key emotions that must be mastered, or face possible disaster. Which emotions are they?

What does Benefit #10 suggest about the reality of being right or wrong?

In Benefit #11, are we saying that the study and application of work in the area of finance, markets, and investing may NOT result in financial benefit for you? If so, then why do it?

Below is a link to a simple table titled, “Boeing_Quarterly_Earnings_2011.pdf”. Please right click on the link and select “Open Link in a New Window”. This will open this table on a new window of your web browser, that you can continually refer to during this exciting quiz.

Boeing_Quarterly_Earnings_2011

When you look at this table of Boeing’s quarterly earnings, the earnings are provided from the most recent quarter at the top and then each table line afterwards provides earnings results from previous quarters, going back 8 quarters or two years. The Earnings/Share numbers provided in the 3rd and 4th columns are measured in U.S.$/share. The Actual Revenue number in the 5th column is in U.S.$ millions. So, when you are looking at the number 17,727 for the Actual Revenue for the 3 quarter of 2011, what is the full value of this revenue?

Please add-up the quarterly earnings/share for the most recent 4 quarters from this table and arrive at a sum. This sum is the annual earnings/share represented by the most recent 4 quarters from this table. You should arrive at a number of $5.05/share.

Today, the share price of Boeing, C. (Ticker: BA) is approx. $70/share. What is the current price/earnings ratio for Boeing based on the last 4 quarters of earnings for the company?

Look now at the last column in the table titled, “Year over Year Revenue Growth”. When you look down that column of numbers and come to the entry from 2009/12, you see tremendous revenue growth (+41.60%) in that quarter over the quarter from the previous year. The same quarter for that previous year would have been 2008/12, which is not listed in this table. The quarter ending 2008/12 was right in the middle of a deep recession.

From this overall table, what can we say drove this 41.6% increase in revenue growth in 2009/12 vs. that year ago quarter?

Let’s stay focused on the column titled Year over Year Revenue Growth. The last two quarters have brought +4.5% and +6.2% year over year revenue growth. From the table, what is unique about these last two quarters?

Over the last 8 weeks, Boeing has reported two record orders for new aircraft. The lead time on this aircraft is far into the future. We see from the table that Boeing has already put in two quarters of sequential positive revenue growth. Should we expect this trend to continue and quite possibly improve?

At Stock Market Companion we teach you how to successfully combine both the technical nature of the share price development with the fundamentals of what is happening at the specific company of interest – in order to create an accurate and useful picture as to whether there is an investment opportunity unfolding and how to participate in it with lower risk.

 

Please click here to see our Stock Market Companion Daily Chart of Dex-One Corporation (Ticker: DEXO $2.26).

 

We have identified key events on the chart to share with you how to view this chart from the eyes of a successful and careful investor. (Important – For this link to work correctly, please hover your mouse pointer over the link, right click on the mentioned link and select “Open Link in New Tab”. Then go to the tab to see the chart.)

 

Please open the tab that has the SMC Daily Chart of Dex-One Corporation on it and keep it open. Please don’t forget to use your zoom-in and zoom-out keys of your browser to help you view the chart.

 

The DEXO Daily chart shows a clear picture of the share price development at Dex-One beginning approximately in April 2010 on the left side of the chart up to January 6, 2012. Beginning at approx. the beginning of May 2010 until October 4, 2011, the overall trend in the share price development is ___________________. Please choose the correct word to fill in the blank from the previous sentence from your choices below.

Please refer to the SMC Daily Chart of Dex-One Corporation, which should be open on a separate browser tab. If you cannot see it or have closed it, please go back to question #1 for the link and opening instructions.

 

Corporations are led by individuals. The Chief Executive Officer (CEO) is the key operational figure in a company. Some of our best investments over our 24 year history of investing have been because we have understood the objectives of the CEO or learned of a new CEO who has arrived and had the talent to improve the entire company, over time.

 

Please observe our observation box #2 on the left side of the chart with an arrow from it that leads to the September 2010 price area for the DEXO chart.

 

In September of 2010, Dex-One Corp. hired a new _________________, and the share price moved from approx. $9/share to above $12/share for an approx. ________________% return.

 

Please choose from the answers below the ones that best fill the blanks from the previous sentence.

If a company suddenly loses a relatively good CEO, and this is a surprise to the investment community, such news very often has an at least short term negative impact on the share price of the company of approx. -10%. Is this true or false?

The reason for the dramatic slide in share value from $32/share down to approx. $0.30/share was the overwhelming concern that Dex-One Corporation would not successfully be able to transition from a traditional print-ad revenue model to an internet based ad-revenue model. Reduced revenues in print-ads would not be offset by any other revenue sources and the company would not be able to carry its relatively significant debt load. The concern was that over time, the company would need to declare bankruptcy in order to shed its debt and restructure the company around a much smaller revenue model.

 

While the share price did perk up on the news that DEXO had chosen a good CEO, the overall concern that the company may go bankrupt continued to put pressure on the shares.

 

Please look at the chart link established from Question #1 above (Please go back to Question #1 to re-establish the link if necessary and then return to this question), and read the observation box labeled #5. What did the company announce that changed the underlying character in the share price development of the company?

Please refer to the SMC Daily Chart of Dex-One Corporation, which should be open on a separate browser tab. If you cannot see it or have closed it, please go back to question #1 for the link and opening instructions.

 

At Stock Market Companion we teach that successful stock investors use the S&P 500 as a road map to understand the overall condition of the market and to correlate this with investments in individual stocks.

 

The S&P 500 made a temporary bottom on October 4, 2011. On what day did DEXO experience it’s lowest share price on this chart?

Please refer to the SMC Daily Chart of Dex-One Corporation, which should be open on a separate browser tab. If you cannot see it or have closed it, please go back to question #1 for the link and opening instructions.

 

On November 3, 2011 Dex-One Corporation made a financial forecast for 2012 that surprised the investment community. The share-price jumped higher. Would that have been a good time to purchase the shares?

Please refer to the SMC Daily Chart of Dex-One Corporation, which should be open on a separate browser tab. If you cannot see it or have closed it, please go back to question #1 for the link and opening instructions.

 

The blue line on the chart that runs along the upper edge of the share price as the share price declined is a line that represents the 50 day moving average of price.

After November 29, 2011, the share price closed above this line and has so far stayed _________________ it.

Please refer to the SMC Daily Chart of Dex-One Corporation, which should be open on a separate browser tab. If you cannot see it or have closed it, please go back to question #1 for the link and opening instructions.

 

If the Dex-One company has truly turned the corner in right-sizing its business and looks like it has a future without first entering bankruptcy, the share price could recover strongly. If you purchased the shares at $1.85/share and the stock eventually returns to approx. $6/share or higher, what would your percentage returns be on your investment at a $6/share share price (not including your transaction costs)?