Trading day of the trader in the stock market
The natural desire of any investor who has come to the stock market to earn money is the desire to know what his securities are waiting for in the near future: the growth or fall of quotations. If it was not possible to predict the behavior of stock prices at least for the short term, this market could become of little interest to investors. However, it is not.
Let’s try to figure out what news, data and messages you need to pay attention first of all, in order to anticipate the mood of participants in the stock market, and therefore, be able to make money on it.
For the initial analysis of the market it is necessary to know what the external information background is at the time of opening the current trading session.
So, suppose you have half an hour of free time in the morning before opening and at the beginning of the trading session. The following is an approximate variant of viewing the most important financial and exchange indicators. We consider this example specifically for those investors who are going to take an active part during the trading day and monitor the behavior of the market, as a rule, daily. Such behavior is not mandatory for other categories of investors, who are less active due to various reasons and tasks set for themselves. They can track with the help of analysts longer-term prospects for their investments.
- It is necessary to carefully analyze the information on how the auction ended on the American stock market. These data can be obtained from the Bloomberg information portal: http://www.bloomberg.com/markets / stocks / wei.html.
- Next, you should pay attention to how the two leading Latin American stock exchanges finished trading: BOVESPA – the Brazilian stock market indicator, BOLSA – the Mexican stock index. These markets today belong to a group of emerging economies, to which Russia is also ranked.
The state of the world’s largest American economy is characterized by three main exchange indicators:
- The S & P index covers 80% of the value of securities on the New York Stock Exchange
- DOW JONES Index average rate of shares of the group of the largest US companies
- The NASDAQ index is the basic index of shares quoted in the NASDAQ trading system, which is responsible for the shares of the high-tech sector of the US economy
- The indicators of exchange activity on European trading floors are characterized by the following main indices: DAX (Germany), FTSE-100 (Great Britain), CAC-40 (France). In the morning, you can see the final values of all the above listed indicators on the basis of trading results for the previous trading day.
- Finally, on the same Internet source you can see what the values of Asian stock indices are in the course of today’s current trading session.
Growth on the world’s leading stock exchanges by investors is regarded as a sign that the Russian stock market has every chance of growth.
Since the largest companies of Russian business belong to the raw material sector of the economy, investors should first of all be interested in the situation in the commodity markets. Morning reviews of the situation on the oil market can be read on the news line of Interfax. The situation with prices on the non-ferrous metals market can be seen directly on the largest European trading site – the London Metal Exchange: http://www.lme.co.uk or on the Bloomberg information portal: www.bloomberg.com/markets / commodities / cfutures.html. The most important indicator of the mood of Western investors in relation to Russian shares are the results of trading in the Russian ADR sector on the largest western trading floors in London and New York. Their dynamics will naturally affect the quotes of the opening of our market in the upcoming trading session. If the closing prices of Russian ADRs were higher than the closing price of the relevant shares on the RTS (prices in USD), then the opening of current trading is likely to happen with a gap up.
Time: 10: 30-11: 00
During the first half hour of trading the unsophisticated investor is best to refrain from committing transactions on the market, since during this time the quotes are quite volatile and are able to dramatically change the direction of their movement.
If half a hour after the opening of trading on the MICEX and the RTS quotes of Russian securities continue to set the morning trend, there is a high probability that this situation will remain at least 12 hours.
One should not think that the trend that takes place on the market in the first hour of trading will continue throughout the current working day. However, as a rule, if a short-term trend has not changed its direction in the market in the first hour, it can be continued until the end of the current trading session.
Time: 11.00 – 12.00
At 11.00 the majority of the West European stock markets opens. Watching the dynamics of trading on these stock exchanges, it is possible to make an approximate calculation of what sentiment will prevail in the Russian stock market. The positive attitude of non-residents always brings excitement in purchases and in our market. Sometimes there is a situation in which European markets open to growth, which literally in half an hour comes to naught, and the indices go into negative. This dramatically changes the alignment of forces in our market, increasing the strength of sellers.
To avoid hasty transactions, it is necessary to analyze the reasons for the emerging growth of European markets and to follow their dynamics of movement. If the West European indices confidently increase their values, this indicates that there will be reason for optimism in our stock market.
At 12.00, trading begins in the ADR section of Russian companies on the London Stock Exchange. The root cause of the movement of quotations of Russian stocks should always be sought in the market from non-residents.
Time: 12.00 – 16.00
For this period, the most predictable part of the trading session. Watching the dynamics of the chosen direction, you can make transactions taking into account the prevailing trend. If the market at this time defends at the achieved levels with a minimum trade turnover, this means that the market is in a state of uncertainty and is likely to expect the appearance of any important data.
Time: 16.30 – 17.30
Usually at 16.30 on the tapes of world and Russian news agencies there are important data on the state of the macroeconomic situation in the world’s largest economy – the United States. As a rule, at this time, the following important data appear.
Personal Spending (US) – a monthly index reflecting changes in spending of funds to meet personal needs. The consumption of long-term and short-term goods is represented by the indicator “Retail Sales”. The process of consumption of services, in turn, varies with a relatively constant rate, so the value of the indicator “personal expenses” is often predictable. The recession in the economy usually comes after consumers stop spending their money, which, in turn, leads to a decrease in demand. In this regard, the growth in the values of this indicator is a positive factor for the development of the national economy.
Personal income (Personal Income) United States – an indicator that measures the amount of money and material goods received or produced by households for a certain period of time.
The income level of the population is the most important indicator of the well-being of society, as it characterizes the state of purchasing power and is the determining factor in the social opportunities of the population for recreation, education, health.
The level of consumption of the population directly depends on the level of income, therefore, one of the priority tasks of stimulating the economy is to increase the incomes of the population, primarily the incomes of the poorest and middle sections of the population, and timely payment of salaries, pensions, scholarships and other social benefits. Growth of incomes at a normal level of expenses can cause an increase in the volume of retail sales, which is a positive factor for the development of the national economy and leads to an increase in the dollar rate, which also has a favorable impact on the market of shares in the consumer sector.
The amount of income of the population is significantly influenced by:
- The size of wages
• The dynamics of retail prices
• The degree of saturation of the consumer market goods, etc.
Unemployment rate (Unemployment Rate) USA shows the percentage of the total number of unemployed working population. The growth of unemployment is accompanied, as a rule, by problems in the country’s economy.
The statistics on unemployment have a strong impact on the market. This is due to the fact that this indicator is difficult to forecast and reflects the actual state of the economy. Often the declared data is diverging from the forecasted data, which causes an immediate correction. Investors to the data on unemployment and their clarifications are regarded as an immediate guide to action.
Applications for unemployment benefits (Initial Jobless Claims) – an indicator that shows a weekly change in the number of applications for unemployment benefits. Such an indicator can influence the market.
The number of jobs excluding the agricultural sector in the US shows the number of new jobs created in the sectors of the economy over the past month, except for the agricultural sector.
The increase in the indicator leads to an increase in employment and has an impact on the growth of the dollar. This indicator strongly influences the financial markets.
The export price index (without the US) – Export Prices – reflects the change in export prices for the month and is an indicator of inflation.
In conditions of the expectation of an increase in the basic interest rates, the growth of the indicator value leads to an appreciation of the national currency.
The import price index (excluding petroleum products) – Import Prices (ex Oil USA) – one of the indicators reflecting the change in import prices for the month, is an indicator of inflation. Since the price of imported goods and services is taken into account when calculating the consumer price index (CPI), this indicator characterizes the contribution of import prices to the overall picture of changes in retail prices for the “basket” of goods and services. Data on import prices are often used to study the pressure that foreign exchange rates have on the market. Import prices tend to decline when the national currency is strong. Economists usually pay attention to import prices without taking into account energy prices, since this component is highly volatile.
The trade balance reflects the difference between the export and import of goods and services in the form of a balance of balances, characterizing the country’s performance in international trade. The balance of trade balance can be positive (when the sum of the prices of the exported goods exceeds the sum of the prices of the imported goods). Otherwise, the trade balance is negative. The US traditionally focuses on imports, and the structure of the trade balance is such that most of the imports come from oil. The output of the data has a great influence on the market movement.
The positive balance of trade balance allows to finance payments on external debt, to increase gold and foreign exchange reserves and investments in foreign assets.
Industrial production . The index of industrial production is an indicator of the dynamics of the volume of production at the enterprises of the manufacturing and extractive industries and in the utilities sector. The indicator does not include data on the construction sector. The index of industrial production is one of the main indicators reflecting the state of the national economy, has a direct impact on the indicators of economic growth and, therefore, is closely related to financial policy. The significance of this indicator is considered in dynamics in comparison with the previous periods. The indicator directly affects all economic indicators. Its output has a tangible effect on the movement of the stock market.
The Producer Price Index of the United States reflects the dynamics of price changes, for which national producers sell their products at the wholesale level of sales. The rise in prices for manufactured goods usually outpaces consumer price growth (CPI), so this index is seen as a leading indicator of inflation. Moreover, the growth of the indicator leads to cost inflation, which, according to analysts, is the worst kind of inflation, as it has a deeper impact on the economy compared to demand inflation.
GDP (GDP) is the main indicator reflecting the state of the national economy. GDP is the amount of consumption (Personal Consumption), which is about 2/3 of the index of investment, government spending and exports less imports. The main form of measurement is the percentage change for the year per quarter. The growth of GDP is considered in relation to the same period of coverage of the previous year – the total annual growth rate (growth rate). The GDP growth is accompanied by the economic recovery, and its outstripping growth in comparison with the GDP growth of other countries speaks about the advantage of investing in the economy of this country. GDP growth leads to an increase in the national currency rate and has a significant impact on the stock market movement.
GDP = personal consumption + government expenditure + exports – imports
GDP preliminary (GDP prel) The United States is the main indicator reflecting the state of the national economy. The value of the indicator is quite volatile from quarter to quarter, caused by large fluctuations in the volumes of net exports and stocks. Economists consider the value of the volume of sales of the final product, excluding stocks of unsold products, their growth can greatly increase the value of GDP.
GDP-deflator is an analog of the consumer price index (CPI). It shows the change in the price level of all goods that make up the GDP. The indicator has a significant impact on the market. In conditions of the expectation of an increase in the basic interest rates, the increase in value leads to an increase in the exchange rate of the national currency, as well as to an increase in interest rates.
The consumer price index (CPI) is the main indicator of inflation, measuring the change in the prices of goods and services included in a fixed consumer basket, including goods and services of constant demand (food, clothing, fuel, transport, medical care, etc.). When calculating the index, prices for imported goods and services are taken into account. The growth of CPI may lead to an increase in the basic interest rates in the country. This, in turn, leads to an increase in the dollar rate, as the attractiveness of investing funds in a currency with a higher interest rate increases.
Retail sales (Retail Sales) characterize the change in sales in the retail trade, the level of consumer spending and consumer demand. They make it possible to characterize the prospects of GDP growth, since the volume of consumption is 2/3 of the total volume of the indicator. The growth of sales is a positive factor and favorably influences the movement of the stock market. Decrease in the indicator indicates slow GDP growth and leads to a decline in the market.
Employment in the non-agricultural sector (Nonfarm payrolls) is the number of new jobs created in non-agricultural sectors in the previous month.
The indicator goes simultaneously with the data on unemployment. Characterizes the number of jobs created by the US economy for the month, and therefore has a great impact on market movement.
Timing: 17.30 – 18.45
At 17.30, trading opens in the US stock market on the New York Stock Exchange (NYSE) and on the high-tech stock market (NASDAQ).
The dynamics of trading on these American exchanges is the determining one for both the European and the Russian stock market. In the period from 17.45 to 18.30, the publication of the following important indicators on the US economy is possible.
The index of business optimism (ISM Index) – an indicator of the research institute of supply and demand.
The report is the results of a monthly survey of purchasing managers in the industry (services) to study the impact of the economy on the formation of price space and provides quality information on business trends. In fact, this is an indicator of optimism for the higher and middle management branches of the economy.
This index is used to assess changes in the area of new production orders, the volume of industrial production, employment, as well as commodity stocks and the speed of suppliers. The report is published, as a rule, on the first working day of the month following the reporting month.
Oil and gas reserves (Oil & Gas Inventories) – weekly statistical report of the American Petroleum Institute (American Petroleum Institute) about the size of demand and supply in the oil sector of the country. This indicator is most strongly affected by the oil market. The reduction of stocks leads to an increase in prices and vice versa, which has an impact on the stock market, and especially on the quotations of securities of the oil sector.
Michigan consumer confidence index (Mich Sentiment) is calculated based on the results of a monthly consumer survey conducted by the staff of the University of Michigan in order to determine the level of consumer confidence in the current economic situation and the prospects for its further development. Thus, the desire of consumers to spend their money. This indicator is better than the others correlated with future economic activity. The index of expectations (Leading Indicator Index) is a component of the leading economic indicators. The report is published by the University of Michigan twice a month.
Preliminary – in the second week (usually on Friday), around the 15th of the reporting month, the final one – in two weeks.
The index of the Chicago Association of Purchasing Managers (Chicago PMI) is a monthly indicator calculated on the basis of a survey of purchasing managers in the industry from Chicago and the surrounding regions.
The index characterizes the state of production orders, prices for manufactured products and stock in warehouses. Figures below 45-50 indicate a slowdown in the pace of economic development. The value of the indicator is published by the Managers Association in Chicago on the last working day of each month.
Spheres and indicators of business activity:
• production and income
• consumption trade
The index of activity in the manufacturing sector (ISM) characterizes business activity in the manufacturing sector. The indicator includes data on the number of orders, employment, the volume of stocks in the industrial sector of the country.
The index gives a detailed picture of the situation in the manufacturing sector and is of great economic importance. The output of the indicator has a great influence on the movement of the stock market.
Leading Indicators Index – a weighted average indicator, periodically calculated by a set of leading indicators in order to predict the state of the economy.
The main motivating force in the economy is the expectation of future profits. In anticipation of profit growth, companies are expanding production of goods and services, investing in new plants and equipment. This activity is reduced when income is expected to decline. The index of leading indicators is designed in such a way that it covers all the main spheres and indicators of business activity. The indicator grows by an average of 0.2% during the expansion of the economy, in the state of recovery – by 0.1%, in the recession falls at an average rate of 0.3%. The index is published at the end of the month.
The consumer confidence index (Consumer Confidence Index) is the consumer confidence index in the US. It is based on the data of a monthly survey of 5,000 families conducted to determine the consumers’ response to the current situation and the degree of consumer expectations or doubts about the future.
The indicator may not reflect the real state of the economy, but it has traditionally been used to forecast trends in employment and the general state of the economy. It is considered a leading indicator for the business cycle. In the US, traditionally, most individuals receive income from stock exchange transactions with securities. The growth of the consumer confidence index is a positive factor for the development of the national economy. The indicator has a limited impact on the market, since it does not reflect the real state of the economy, but is a kind of leading indicator. The indicator value is published by the New York non-profit research organization under the Ministry of Commerce after the 20th day of each month.
The increase in quotations on the overseas exchanges leads to an increase in demand and on the Russian stock exchanges. At this time, as mentioned above, trades are opened in the ADR sector of Russian companies on the New York Stock Exchange. The increase in quotations on the overseas exchanges leads to an increase in demand and on the Russian stock exchanges. If, at the close of trading, quotations of leading Russian stocks completed the trading session at the maximum daily levels, this means that on the morning of the next day, growth will continue due to demand postponed from the previous day. In order for such a scenario to work, it is necessary that the next morning we see a positive closing of trading in the US markets.
The indicator of consumer confidence is determined by the indicators of personal income and wages, the level of prices, as well as the situation on the stock market.
Interrelation of stock prices on the MICEX and on RTS
Traditionally, the participants of the stock market believe that the pricing of quotations of shares of Russian companies is performed by the Russian Trading System (RTS). For most investors, the RTS index is a more important indicator of the mood of the Russian stock market.
It is believed that large orders from non-residents to conduct transactions with Russian shares pass through the RTS, while trading on the Moscow Interbank Currency Exchange (MICEX) is the place for transactions by small investors and speculators. However, in recent years, the turnover of trading in shares on the MICEX has significantly exceeded the volume of transactions with shares of leading companies in the RTS. It is noticed that in the segment of shares of companies in the oil industry and electric power industry, it is the MICEX that generates price impulses that, to a certain extent, can influence the parameters of transactions concluded in the RTS. The dynamics of the movement of stock quotes on the RTS as a whole is lagging behind the changes in quotes on the MICEX. Since the number of securities in trading lots on the MICEX is small, and in the RTS is large (one lot from 10-15 thousand dollars) the results of price changes are achieved on the temporary lag of the RTS relative to the MICEX in 6-8 minutes. In this case, the strength of the influence of changes in quotations on the MICEX on the dynamics of quotations on the RTS is relatively small.