Fair pay and conditions
1. Guaranteed basic rates of pay and guaranteed casual loadings
A federal Minimum Wage or guaranteed basic rate of pay under an applicdable Australian Pay and Classification Scale. For casual employees covered by a workplace agreement, a casual loading of 20% is guaranteed.
2. Hours of work
Maximum ordinary hours of work limited to 38 hours per week (which can be averaged over a period of up to twelve months) and reasonable additional hours.
3. Annual leave
For full-time employees, four weeks paid annual leave per year （five weeks for some continuous shift employees) except for casual workers. up to two weeks of this can be cashed out at the employee’s written election where their workplace agreement allows it.
4. Personal leave
For full-time employees, ten days paid personal/carer’s leave per year and two days paid compassionate leave for each relevant occasion, except for casual workers. where this paid personal leave has been used up, two days unpaid carer’s leave for each carer’s leave occasion. this unpaid leave is available to casuals.
5. Unpaid parental leave
For all employees other than certain casual employees, up to 52 weeks unpaid parental leave.
Why buy Myer share?
http://www.theage.com.au/business/your-piece-of-myer-first-try-it-on-for-size-20091003-gh75.html
WE ALL know about Myer. Many of us enjoy shopping regularly there; even more of us pop in occasionally. According to the Myer share sale prospectus, on average we go into a Myer store about once a month and we spend $150 each every year there – which doesn’t seem that much, given what it cost me for some sheets on my last visit.
Plenty in the financial community also admire the business revitalisation of this great 109-year-old retail institution. This has been done in three years behind closed doors and in the able hands of private equity investors headed by the Texas Pacific Group. It’s stuff destined for business textbooks.
After decades of dire performance as part of the old Coles Myer listed concern, Myer is getting back to where it rightfully belongs. It has been dusted down and given a modern engine, and is competing for our business aggressively.
The TPG-appointed management team, headed by chief executive Bernie Brookes, has achieved what many before them failed to do.
A compacting of Myer’s merchandising systems from 44 (!) to one in three years and a halving of the number of distribution centres, while still reducing out-of-stock items from 9.1 per cent to 7.1 per cent, says much about how Brookes and his team have transformed Myer so quickly.
The overseas transit lead-time has been halved and international transportation costs reduced, which is great now that Australia’s biggest department store chain is flogging more overseas-sourced goods.
Staff are more customer-focused, new point-of-sales systems are being introduced, Myer’s marketing and store offer is better targeted. The success story goes on.
Yet none of these is necessarily a compelling reason to buy Myer shares as part of the $2 billion-plus share offer that opens on Tuesday. Why? Because share investment is something different to liking a business and admiring a business success story.
It’s a lot more to do with the price you are paying for your piece of this business and the balance of risk and return you are taking on at that price.
And with Myer, you appear to be paying a reasonably hefty price for an awful lot of business risk. This is particularly so given that Myer is a well-established business and arguably close to trading at a peak at the moment.
Let’s explain. The retail environment has been incredibly resilient through the global financial crisis, in the main because interest rates dropped to the lowest in a generation and the Rudd Government applied unprecedented financial stimulus to the economy through cash hand-outs and business spending incentives.
This money has now been spent and there is not an economist in the country that expects interest rates to stay where they are – they are going up.
What impact will this have on discretionary retail sales (the stuff you can live without and that you buy in department stores)?
Who knows for sure, but it’s certainly not positive.
The Myer prospectus also shows that the big profit gains at Myer over the past three years were admirably achieved by making the business more efficient – that is, reducing ”cost of sales”. But the big licks here are done now.
What Myer hasn’t done is grow individual store sales – at all. That’s what it needs to do – as well as expanding the number of stores from 65 to 80, as forecast.
The share offer is not particularly cheap either.
At the top end of the indicative offer range, Myer is being priced on a par with rival David Jones – a business that is already growing individual store sales, which still owns its flagship store properties and which has been beating Myer for a decade now.
Then, finally, ask yourself this. If this is such an attractive investment at the price offered, why is expert investor TPG prepared to sell all of its 84 per cent (at a profit of about four times its $500 million initial outlay in three years), and the Myer family prepared to sell all of its 8 per cent?
And why is the business’s former executive chairman Bill Wavish, with a personal parcel of shares worth about $50 million or so, no longer prepared to commit to the long term at the business he helped turn around (and he may be preparing to sell up to a third of his holding)?
Their respective answers may be perfectly valid. But none of them is acting out of kindness of heart.
Investing in Myer: The pros and cons
PROS?Myer is good again.
?One of the main people responsible for its turnaround, chief executive Bernie Brookes, is retaining 90 per cent of his shares (a handy $50 million or so).
?Two-thirds of Myer’s sales now come from the 3 million people holding MYER one loyalty cards, so Myer’s customer knowledge is almost unmatched.
?The $400 million spent on the business over the past three years has in the main been on its engine room – so it can use this customer knowledge effectively and also cost-effectively expand store numbers.
?The dividend yield of a fully franked 4.3 per cent to 5.3 per cent is attractive.
CONS?The private equity investors, headed by TPG, could sell all of their 84 per cent shareholding.
?The Myer family is prepared to sell all of its 8 per cent too.
?The other man responsible for turning around the business, former Myer executive chairman Bill Wavish, resigned in August (he also has a stake that matches Brookes’ $50 million but with no post-float sale restrictions).
?The Rudd Government’s financial stimulus has been spent and interest rates are likely to start rising.
?At the top of the indicative offer range of $3.90 to $4.90 a share, Myer will be valued on a par with rival David Jones – a business that is a proven performer.
RICHARD WEBB
October 4, 2009
The Benefits of Low Inflation
http://www.bank-banque-canada.ca/en/backgrounders/bg-i2.html
The Benefits of Low Inflation
It pursues this objective by keeping inflation low, stable, and predictable, thus providing a climate that is more favourable to sound, sustained economic growth and job creation.
High inflation has many costs
- When inflation is high, people increasingly fear that this will erode their future purchasing power and their standard of living.
- Uncertainty about where prices of goods and services will be in the future makes it more difficult for people to make sound economic decisions. That uncertainty is magnified when prices are rising, since in these circumstances inflation is seldom stable and predictable.
- High inflation encourages speculative investments at the expense of more productive investments. It can also create the illusion of temporary financial well-being while masking fundamental economic problems.
- When inflation is high, businesses and households spend more time and money trying to protect themselves from the effects of rising costs and prices. Business people, workers, and investors respond to rising inflation by pushing up prices, wages, and interest rates to protect themselves. This can lead to a “vicious circle” of rising inflation.
- Inflation can mean particular hardship for those individuals whose incomes don’t keep pace with rising prices, especially people on fixed incomes such as pensioners.
Low inflation has many benefits
- When inflation is low, consumers and businesses are better able to make long-range plans because they know that the purchasing power of their money will hold and will not be steadily eroded year after year.
- Low inflation also means lower nominal and real (inflation-adjusted) interest rates. Lower real interest rates reduce the cost of borrowing. This encourages households to buy durable goods, such as houses and autos. It also encourages businesses to invest in order to improve productivity so that they can stay competitive and prosper without steadily having to raise prices.
- Sustained low inflation is self-reinforcing. If businesses and individuals are confident that inflation is under long-term control, they do not react as quickly to short-term price pressures by seeking to raise prices and wages. This helps to keep inflation low.
For more details, see “The Benefits of Price Stability,” May 1995, Monetary Policy Report (Appendix), at
Myer share
http://contribute.abc.net.au/_Would-you-Should-you-buy-Myer/blog/717768/32422.html
Like me, your Myer One card entitles you to pre register for a prospectus for the forthcoming float of Myer. Should you take the next step and buy the shares?
The answer to that question depends on three things. First, does the business have bright prospects? Second, what is the business worth? Second, at what price is it being offered?
Clearly, Bernie Brookes is the talk of the town, and his work in turning Myer around is fast becoming legend. But is the talk about Bernie’s ability to improve returns on sales from 2 cents in the dollar to 7 cents, or is the talk because a private equity firm bought a business with $400 million of equity and $1 billion of debt then, in the first year, paid themselves back their equity – essentially getting the business for free and then a few years later still, floated the business for what many analysts believe will be $2.5 billion?
Myer may be a better business than it was and it may be that earnings next year will be higher again, but this is not a JB Hi-Fi, able to roll out another 100 highly profitable stores with short payback periods. This is a department store.
It is, I confess, now a highly profitable business and highly profitable businesses are the sorts of businesses to own. But what should you pay for it?
To value a company, we need to know a few things. How much is reasonable to expect the company to earn on its equity going forward? What will be the equity going forward? And what will be the policy for the distribution and retention of earnings? In other words, what portion of its earnings will the company pay in dividends?
The company earned $109 million on beginning equity of about $300 million. That is a return on equity of 36.3%. If we assume the company and its management earn another 30% next year, pay half out as a dividend, and if we assume that we require a twelve percent return, the business is worth about $2.4 billion.
But there’s a catch, the company will not earn 30% on its equity, particularly if its equity keeps growing as half the profits are retained. In reality, if the company kept retaining profits, the equity would rise and the return on equity would fall. As the business matures, it will have to pay an increasing proportion of its earnings as a dividend.
Now that probably means that the business’ value will not grow significantly after about three to five years.
Investors who are considering buying shares in the float need to consider what the true value of the business is and what it will do in the future. And also keep an eye on how much goodwill is added to the balance sheet and how much tangible equity is taken out prior to the float.
Takeovers: information for shareholders
http://www.fido.asic.gov.au/fido/fido.nsf/byheadline/Takeovers+info+for+shareholders?openDocument
Here is some basic information about how takeovers happen, what rights you have as a shareholder or unitholder and how to make the best use of your rights. We recommend that you consult a licensed adviser or stockbroker if you are uncertain about any aspects of a takeover bid for a company or managed investment scheme in which you are a member. References to ‘company’ include managed investment schemes, references to ’shareholder’ include unitholders in a scheme and references to ’shares’ include units. This information only covers takeovers of companies and listed managed investment schemes – ie managed investment schemes listed on the Australian Securities Exchange (ASX). The rules for taking over a listed managed investment scheme are the same as for a company. What is a takeover? Your rights The commencement of a takeover How to understand the bid While the bid is open how long have you got to decide? What happens when the bid closes? More help What is a takeover? In essence, a takeover changes control of the voting power exercisable at a company’s general meetings. Shareholders own the company and exercise their power by voting at a general meeting. Another company can take over a company of which you are a shareholder by buying enough shares to control the votes at your company’s general meetings and therefore control who gets elected as directors. The company’s directors set basic policies and appoint the managers. In a managed investment scheme the unit holders may vote to replace the manager. Your rights What are your rights in a takeover? In a takeover, the law protects shareholders’ rights. In a nutshell: * You have the right to know who is offering to take over your company. This aims to stop people building up control secretly. * You have the right to enough information to make an informed decision on whether to sell your shares. This aims to stop people who know more than you about your company or the bidding company from getting an unfair advantage. * You have the right to a certain amount of time to make up your mind. This aims to stop you being rushed into a hasty decision. * You have the right, so far as practicable, to share equally with all other shareholders in the available benefits. This aims to stop secret benefits for some shareholders but not others. Using and enforcing your rights Keep up to date with your company’s affairs. Read the reports your company sends you, and read the business sections of the newspapers. The law assumes that you know about public announcements made to the ASX affecting your company. You can use the ASX website (www.asx.com.au) to see if announcements have been made. This can be useful for smaller, less well known companies. You will receive documents from the bidder and your company during a takeover. These documents are known as the ‘bidder’s statement’ and ‘target’s statement’ respectively. They are required by law to give you enough information to decide whether or not to accept the takeover offer. They are not generally required to repeat information that you have already been told directly or through public announcements to the market. You can ask us to step in if your basic rights are trampled on. We will not get involved simply because you think the price offered for your shares is too low. You can also ask the Takeovers Panel to protect your rights in a takeover. Getting advice If you are not sure what to do in a particular situation, get advice from a licensed investment adviser or stockbroker. We can tell you if an adviser or stockbroker is licensed. In takeovers, stockbrokers are probably the best source of advice as they have a lot of practical experience in the market. The ASX can give you a list of stockbrokers that may suit you. The commencement of a takeover The bid is announced to the market The first thing that happens is that the bidder will announce through the ASX that it wants to acquire the shares of your company. The most common method is by an off-market bid, where the bidder sends each shareholder a bidder’s statement and a written offer to buy their shares within 2 months of the bid being announced to the market. The other method is an on-market bid, where you will receive a copy of the bidder’s statement within 14 days of the bid being announced to the market. Under an on-market bid, the bidder makes a general offer through a stockbroker to buy all shares offered for sale up to a certain price for a certain period of time. When the bid is announced, the shares of your company will generally rise to around the level of the offer price. Sometimes they will trade for more if the market expects a better offer to emerge, and occasionally they will trade for less if the market thinks the bid is unlikely to succeed. What can you do when a bid is announced? You can wait until you receive more information about the bid (discussed further below) or you can sell your shares on the market immediately. If you do sell, you will have no further involvement with your company and you will not be entitled to any better offer that may come along. You will get paid within 3 days of the sale, but you will pay brokerage. How to understand the bid Information about the bid When the bid is an off-market bid, the bidder issues a written statement (the bidder’s statement) which is lodged with ASIC and served on your company and the ASX. The bidder’s statement explains all the details of their bid. It must contain certain information specified by law and details of the terms of the offer being made to you. The bidder’s statement will contain the information you need to make up your mind about the offer. You will be sent a copy of the bidder’s statement and offer between 14 and 28 days after a copy was sent to your company and, in any event, no later than 2 months after the initial announcement of the bid to the market. When the bid is an on-market bid, the bidder also issues a bidder’s statement. This is lodged with ASIC and served on your company and the ASX. You will get a copy of the bidder’s statement sent to you within 14 days of the initial announcement of the bid to the market. What is the bidder offering you? In an off-market bid, the bidder may offer you cash and/or shares. If you are offered cash, the bidder must tell you where the money will come from. If you are offered shares, the bidder must tell you about the company whose shares are being offered with sufficient detail for you decide if you want to accept those shares. This information will be very similar to that contained in a prospectus and must be updated if there is a material change. In a market bid, the bidder must offer you cash only. Are there any conditions? Some off-market bids and all market bids are unconditional and the bidder will buy your shares with no strings attached. (There are some special situations where they can pull out, for example if your company goes into liquidation, but these arise only rarely.) Other off-market offers are conditional. For example, the bidder may say the offer will go ahead only if a certain percentage of shareholders accept within a certain time. Another common condition is that the offer will proceed only if the share market stays above a certain level. Sometimes, the bidder will remove the conditions. The bidder must give a notice to the ASX and your company not less than 7 days before the close of the bid advising whether any conditions have been removed or met. Occasionally, you will know if the conditions are met only when the takeover offer finally closes. Newspapers usually report on the progress of major bids and will tell you if the conditions have been removed or are likely to be met. If the conditions are not met or removed by the time the offer closes, the takeover stops, none of any acceptances of offers takes effect and you are back at square one. What will happen to your company? The bidder’s statement will also tell you what the bidder intends to do with your company. The bidder may intend to keep the company going much as it is, or it may plan to put it together with their existing operations, which may, for example, lead to staff reductions or fewer product lines. See how the bidder’s plans will affect you as a shareholder. The bidder may intend to seek to have your company’s shares delisted from the stockmarket, which means you would find it difficult to sell your shares because there will no active market for them. Or else the bidder may plan to force you to sell your shares to them if the bidder gets enough other shareholders to accept the offer. This is called a compulsory acquisition. While the bid is open how long have you got to decide? You will be given at least one month from the date on which the off-market bidder’s statement is sent to you or the market bid commences (which is 14 days after the bid is announced to the market) to make a decision. The closing date will be shown in your bidder’s statement, and you can ask any stockbroker to give you the closing date for a bid or check in newspapers. The closing date for bids may be extended by the bidder. It will automatically be extended in off-market and on-market bids when the bidder’s voting power in your company increases to over 50% in the last 7 days. The closing date will then be extended until 14 days after the date that the bidder’s voting power in your company increases to over 50%. If the bidder in an off-market bid increases the price in the last 7 days, then the closing date will be automatically extended until 14 days after the date that the bidder increased the price offered. What do your company’s directors recommend? Your company’s directors (the manager in the case of a managed investment scheme) must give a formal answer to the offer, called a “target’s statement”. When the bid is announced to the market, it is common for your company’s Board to make a short statement. They will usually ask you to hold on to your shares until you have read their formal reply. This is generally sensible advice because the Board may be looking for ways to get a better price for the company, either from the original bidder or from other companies. If they are successful, you would probably want to take advantage of a higher price. The target’s statement will contain all the information that shareholders (and their professional advisers) will require to decide whether to accept or reject the offer. It will also contain a statement from your company’s directors as to whether to accept or reject the offer. The target’s statement must be lodged with ASIC and served on the ASX and the bidder. In the case of an off-market bid, you will be sent a copy of the target’s statement within 15 days after the bidder has completed sending its bidder’s statements to shareholders. In the case of an on-market bid, you will be sent a copy within 14 days after the initial announcement of the bid to the market. If the Board decides to fight the takeover and urges to you reject it, you can expect all sorts of legal and public skirmishing. It is quite common for one side to take the other to the Takeovers Panel, alleging unacceptable conduct, and for advertisements to appear persuading you to adopt one view or the other. Market research firms may start ringing up shareholders to find out what you intend to do, and you may suddenly find yourself the centre of attention. You may find this annoying at times, but at least you are likely to hear all the arguments for and against the offer. If your Board recommends that you accept the offer, you will probably not hear much argument. The offer may be as good as anyone can expect because no-one else is interested in making a counter-offer. Major shareholders may already have decided to accept and so the Board may see little purpose in prolonging the issue. We will generally keep an eye on uncontested takeovers to see that you are properly informed. Can the terms of the bid change? Yes, bidders can change their bid. An unconditional bidder can increase the price offered or extend the time the bid is open. A conditional bidder can remove some or all of the conditions and can sometimes extend the bid. Any changes to the bid must be publicly announced on the ASX and notification given to your company and ASIC. Where an off-market bid is varied, the bidder must send a notice of the variation to you. However, the time between a change and the closing of the bid may be so short that you may not receive the notification of the changes in time. You will not be sent a notice of any variation to a market bid but the variation must be publicly announced on the ASX and notification given to your company and ASIC. Read the business section of your newspaper closely while a bid affects your company, or keep in touch with your stockbroker. What if a rival bid is made? The same steps are followed. Examine the rival bid just as closely as the original one. Your company’s directors will give you their recommendation. The takeover has now become an auction, and as a shareholder you should benefit from competitive bidding. When should you act and what should you do? Only you can decide to accept or reject an offer, and we cannot give you personal advice. Here are some general comments which may help you. * Keep your options open for as long as you can. If you accept the offer straightaway, you cannot accept a rival offer afterwards. If you accept an off-market bid early and the bidder increases the offer price, you will automatically receive the increased offer price. If you accept a market bid early, you will only receive the offer price and will not receive anything extra if the bidder later increases the offer price. Many institutional investors wait until the last week of an offer to make a decision. * If the off-market bid offer includes shares as consideration and you would not accept unless you obtained some capital gains tax roll-over relief, you should consult your adviser to ensure that accepting the bid will trigger that relief. * When the offer enters its last week, consider or get advice on whether the bid is likely to be extended. Unless the bidder acquires over 50% of the voting power in your company in the last week or if the bidder in an off-market bid increases the price in that last week, an offer can only be extended during the last week if it is unconditional or another person announces or makes a takeover, or improves their already existing competing offer. If the offer is extended, then you can go on waiting. If not, you will need to decide whether to accept the offer or not. * You may be better off taking the best offer while it is still on the table. There are risks in being left as a shareholder in a company after the bid closes if the bidder ends with effective control but less than 90 per cent of the shares. The bidder has control and can influence the amount you receive in dividends, and you may find the share price drops once the offer closes. * If you accept an off-market offer which is conditional, you will not receive the money for your shares until the conditions are satisfied or removed. If you accept a market bid, you will receive the money within three days. * If you accept an off-market bid, you sell directly to the bidder and you do not have to pay brokerage. If you accept a market bid, you sell through the market and brokerage charges will apply. Stamp duty is no longer imposed on transfers of listed shares, but it is still imposed on transfers of unlisted shares. In the case of off-market bids for unlisted shares, the bidder will pay the stamp duty. * You can always sell your shares on the ASX through your stockbroker at any time if you think that may be a better option. * If you are not sure what you should do, your adviser or a stockbroker can advise you, taking into account your own personal needs and circumstances. What happens when the bid closes? If you accepted the offer If you accepted an off-market bid, the bidder must pay you what you were offered within twenty-one days of the close of the bid (or of acceptance if the bid was unconditional). If the bid was conditional, and the conditions were not met, your shares will be returned to you. If you accepted an on-market bid, you will be paid under the normal settlement procedures of the ASX, ie 3 days after the acceptance. If you did not accept If you did not accept the offer but the bidder managed to get at least 90 per cent of the class of shares for which they were bidding, the bidder may (and usually does) send you a notice that it wants to acquire your shares compulsorily. This means that your shares will be bought by the bidder on the same terms as were offered to the shareholders who accepted the offer, even if you do not want to sell. If there were alternative forms of consideration (eg cash or shares) you are entitled to elect which one you want to receive. If you do not make an election, the bidder will elect which alternative you receive. After the compulsory acquisition has been completed, your company will send you a notice informing you how to claim the cash and/or shares to which you are entitled as a result of the compulsory acquisition. If you do not reply to that notice and/or your company cannot contact you, your money will eventually come to us to be held in our Unclaimed Moneys Account. You can contact us on 1300 300 630 to find out how to claim your cash and/or shares. If you did not accept the offer and the bidder did not get 90% of the shares, you are still a shareholder. You can sell your shares on the stock market if you wish. However, the bidder may now be in control of the company and can influence dividend policy, possibly by reducing the dividends paid out, or it may seek to have the company delisted. Look at the bidder’s statement to see what the bidder said it would do with your company in such circumstances. Later, you may find that the majority shareholder will come along and offer to buy you out, perhaps at what you may consider to be an attractive price. On the other hand, they may decide to do nothing and your shares may drop back below the original offer price, or even lower because there is no prospect of a rival bid. A shareholder who acquires 90% of a class of securities in your company other than under a takeover may also acquire your shares compulsorily. If they propose to do this they must send you documents including an expert’s report commenting upon the fairness of the offer. If the holders of 10% or more of the minority object to the compulsory acquisition, the matter may go to court to determine the fair price. Is the takeover a scheme of arrangement? It’s quite common for takeover offers to be made through ’schemes of arrangement’, and different legal rules apply. As a shareholder, you will receive a notice of meeting and documents about the proposed scheme.
Abnormal items
http://www.anz.com/edna/dictionary.asp?action=content&content=abnormal_items
An accounting term describing events that arise in the normal course of a company’s business but which have been unusually large during the reporting period.
Extraordinary Items
http://beginnersinvest.about.com/cs/investinglessons/l/blextraitems.htm
In financial reports and filings, companies often have entries titled “extraordinary items”. Extraordinary items are things that affected a company’s profit or business but are not expected to reoccur. They can consist of things such as the sale of a subsidiary, or payments in connection with a lawsuit.
It is very important when investors look at a company, they pay particular attention to the extraordinary items. For instance, there is currently a company trading at a P/E ratio of 3 to 4 (insanely cheap at first glance). However, upon closer examination, an investor will discover that the profit came from the sale of one of the company’s large subsidiaries. Without the sale, the business would have lost close to one billion dollars. Because the profit from the subsidiary sale was a one-time event, the company faces massive loses next year unless something is done.
———
http://www.investopedia.com/terms/e/extraordinaryitem.asp
Gains or losses included in a company’s financial statements, which are infrequent and unusual in nature. These are usually explained further in the “notes to the financial statements.”
These are the result of unforeseen and atypical events. They are usually accounted for separately so they don’t skew the company’s regular earnings.
An example would be a snowstorm in Hawaii creating extraordinary losses to banana crops. These losses might be written down as a one-time charge due to an extraordinary item.
————-
// <
The picture above shows how candlesticks are constructed. The highs and lows of the time period are called the “wicks” and the open and close form the “body”. The candle itself is the “range”. When stocks close at the bottom of the range we conclude that the sellers are in control. When stocks close at the top of the range we conclude that buyers are in control.
Note: In the stock market, for every buyer there has to be a seller and for every seller there has to be a buyer.
If a stock closes at the top of the range, this means that buyers were more aggressive and were willing to get in at any price. The sellers were only willing to sell at higher prices. This causes the stock to move up.
If a stock closes at the bottom of the range, this means that sellers were more aggressive and were willing to get out at any price. The buyers were only willing to buy at lower prices. This causes the stock to move down.
Where a stock closes in relation to the range tells us who is winning the war between buyers and sellers. This is the most important thing to know when reading candlestick charts.
We can classify candles in two categories: wide range candles (WRC) and narrow range candles (NRC). Wide range candles state that there is high volatility (interest in the stock) and narrow range candles state that there is low volatility (little interest in the stock).
Note that stocks tend to move in the direction of wide range candles.
The arrows on the chart below show how stocks move in relation to the range and closing prices:
Wide Range Candles
If we know that stocks tend to move in the direction of wide range candles, we can look to the left of any chart to gauge the interest of either the buyers or sellers and trade in the direction of the trend and the candles.
The importance of this cannot be overstated! You want to know if there is interest in the stock and if it is being accumulated or distributed by institutional traders.
Narrow Range Candles
Narrow range candles imply low volatility. This is a period of time when there is very little interest in the stock. Looking at the chart above you can see that these narrow range candles often lead to reversals (up or down) because:
Low volatility leads to high volatility and high volatility leads to low volatility. So, knowing this, doesn’t it make sense to enter a stock in periods of low volatility and exit a stock in periods of high volatility? Yes.
Hammers, Doji’s and Shooting Stars?
The number one rule when reading candlestick charts is this: You want to buy stocks when nobody wants it and sell stocks when everybody wants it! This is the only way to consistently make money swing trading!
I know what you’re thinking. You thought this page was going to be about hammers, doji’s, and shooting stars. Sorry to disappoint you, but knowing all of the different types of candlestick patterns is really not at all necessary once you understand why a candle represents the struggle between buyers and sellers.
Consider this:
In this picture we see a classic candlestick pattern called a hammer. What happened to cause this? The stock opened, then at some point the sellers took control of the stock and pushed it lower. Many traders were shorting this stock thinking it was headed lower.
But by the end of the day, the buyers took control, forced those short sellers to cover their positions, and the stock had enough strength to close the stock at the top of the range.
When we are reading candlestick charts, why would we need to know the name of the pattern? What we do need to know is why the candle looks the way that it does rather than spending our time memorizing candlestick patterns!
Stock Chart Volume
http://www.swing-trade-stocks.com/stock-chart-volume.html
How to interpret volume on a chart
Stock chart volume is probably the most misunderstood of all technical indicators used by swing traders.
There is only a couple of times when it is actually even useful and if you get right down to it, you really could trade any stock without even looking at it. But, I’m getting ahead of myself. First, let’s define what it is:
Stock chart volume is the number of shares traded during a given time period.
Usually plotted as a histogram under a chart, volume represents the interest level in a stock. If a stock is trading on low volume, then there is not much interest in the stock. But, on the other hand, if a stock is trading on high volume, then there is a lot of interest in the stock.
Volume simply tells us the emotional excitement (or lack thereof) in a stock.
Liquidity
Stock chart volume also shows us the amount of liquidity in a stock. Liquidity just simply refers to how easily it is to get in and out of a stock.
If a stock is trading on low volume, then there aren’t many traders involved in the stock and it would be more difficult to find a trader to buy from or sell to. In this case, we would say that it is illiquid.
If a stock is trading on high volume, then there are many traders involved in the stock and it would be easier to find a trader to buy from or sell to. In this case, we would say that it is liquid.
Let’s look at a couple of common volume patterns on a stock chart:
A surge in volume can often signify the end of a trend.
Here, on the left side of the chart, this stock begins to fall. Volume increases dramatically (first green arrow) as more and more traders get nervous about the rapid decline of this stock. Eventually everyone piles in and the selling pressure ends. A reversal takes place.
Then, in the middle of the chart, volume begins to taper off (red circle) as traders begin to lose interest in this stock. There are no more buyers to push the stock higher. A reversal takes place.
Then, on the right side of the chart, volume begins to increase again (second green arrow) and another reversal takes place.
This chart is a good example of how the trend of a stock can reverse on high volume or low volume.
Mistakenly, some traders think that stocks that stocks that are “up on high volume” means that there were more buyers than sellers, or stocks that are “down on high volume” means that there are more sellers than buyers. Wrong! Regardless if it is a high volume day or a low volume day there is still a buyer for every seller.
You can’t buy something unless someone is selling it to you and you can’t sell something unless someone is buying it from you!
Volume and Price
So if all volume represents is interest in a stock, when is it useful? The only time volume is useful is when you combine it with price. For example:
Expansion of range and high volume – If a stock is drifting along sideways in a narrow range and all of sudden it breaks to the upside with an increase in range and volume, then we can conclude that there is increased interest in the stock and it will probably continue higher.
Narrow range and high volume – If a stock has very high volume for today but the range is narrow then this is called churning. In this case, significant accumulation or distribution is taking place.
Ever heard the saying, “volume precedes price”?
Many times you will see volume pick up right before a significant move in a stock. You can see that interest is building. On a stock chart, look for volume to be higher than the previous day. This is a sign that there may be a significant move to come.
Take a look at this example…
This stock rallied for three days in a row on relatively low volume. Then, on the fourth day, volume increased dramatically. This increase in volume began the move to the downside.
Interpreting volume on a stock chart can be confusing! Just remember that the price action is the most important factor on a chart.
All else is secondary.
