Which tech company will leave California next?
(Investing Data Part II)
December 18, 2020 by The Q.ai Team
This newsletter focuses on how to analyze investing charts
This Week’s Biggest Headlines
- Nasdaq closed yesterday at a record high. We know what you’re thinking: does “record high” even matter anymore? Seems like it gets broken prettyyyyyy often. And you’re right; it has. Tech stocks in particular can be credited for the Nasdaq’s impressive performance, as six of the top 15 industry groups were in the software sector. Read more.
- Aphria (APHA) and Tilray (TLRY) are merging. Don’t know these names? *Insert witty joke about pot.* Aphria and Tilray’s merger will create the largest global cannabis company with Aphria owning 62% of all shares. The combined company’s equity totals $3.9 billion Read more.
- The FTC wants to know what tech companies are doing with our personal data. We can’t put our finger on it, but something tells us it’s not going to bring us all comfort. Are some things better left unknown? We will find out in 40-ish days
whenif these nine companies – Amazon, ByteDance (TikTok owner), Discord, Facebook, WhatsApp, Reddit, Snap, Twitter and YouTube – hand over information about their data practices. Read more.
- Robinhood has agreed to pay the SEC $65 million. The SEC alleges that Robinhood misled customers about how it makes money and failed to inform customers about the true cost of trading with a firm. Robinhood profited $180 million just in Q2. Read more.
- Coinbase announced its plans to file for an IPO. This news comes on the same day that Bitcoin hit its record high of just under $23,500. Once considered a fad, Bitcoin is now being considered “Gold 2.0” and although many people invest in cryptocurrency today, it’s unclear whether anyone knows exactly why. Read more.
- Alibaba and Tencent face possible delisting in the US stock market. Chinese regulators have caused a huge headache for these companies, namely regarding monopolistic business practices (what’s new?). Specifically, both companies made acquisitions before asking for permission. Alibaba was fined the equivalent of $76,472 for not seeking government approval before purchasing a majority stake in InTime Retail. For a company that is estimated to accrue $107.9 billion in revenue this year, that fine is legit pocket change. Tencent, hit with the same fine for not disclosing its purchase of China Literature, doesn’t seem too bothered either as it is expected to make $72.7 billion in revenue this year. Can these companies get removed from US stock exchanges? It’s possible, but unlikely for at least a few years. Read more.
- Oracle is also moving its HQ from California to Texas. For a company that is famously the last to adopt the latest trends in SaaS, it’s completely on brand for them to follow other leading tech companies in its departure from Silicon Valley. As for Larry, you can find him chilling in Lanai, his private island in Hawaii. MBN. Read more.
Let’s not forget “the usual”
- The Pfizer vaccine is being distributed to people, including Vice President Mike Pence! Although the vaccine has been found to over 90% effective, and has received FDA approval, millions of Americans have stated that they will not be taking the vaccine. It is encouraged to read up on what the FDA recommends, and the process behind granting emergency authorization of vaccines. Read more.
- Despite the vaccine being rolled out, the labor market (and our economy) is still taking a beating. New unemployment claims are at historic highs and have in fact been on the rise. 935,000 claims were filed in the last week and over 20 million Americans are currently receiving unemployment benefits. Read more.
- Globally, COVID has killed over 1.6 million people. In the US alone, the number has surpassed 310,000. In other words, 1 American is dying from COVID-19 every 40 seconds. The vaccine is only going to mitigate the damage, and it is imperative we all stay safe over the holidays. Read more.
Daily new cases in the US (source: New York Times)
How to decipher stock market data (Part II: Charts)
Investing data can be hard to read. While intimidating at first, it’s integral to becoming a well-rounded investor. For the visual investor, the most important charts to read include 1-day, YTD, 3-year performance, volume, support and resistance.
Once you have an understanding of these basics, the next step is to learn how to read a stock chart. For the experienced investor, a quick glance can give insight into the company’s recent activity and financial performance beyond the chart itself, as many sites also post data on the side to build a more comprehensive picture.
Note: This section is broken down into 2 parts. Last week, we went over the most important investing terms you need to know in order to understand data that’s being presented this week. We recommend reading last week’s newsletter in case you missed it, or want to brush up on the new vocab you learned.
Example 1: 1-day Charts
When you look at the chart below, you’ll notice that the x-axis reflects the time of day, while the y-axis marks the price points at which the stock traded. You’ll also see a squiggly blue line that shows how the stock’s price rose and fell throughout the day. That blue line is the trend line.
Image Credit: Screenshot, Apple stock on 6 August 2020 from Marketwatch
In the case of Apple’s stock, you can see that the price increased about $15 on the day in question (6 August 2020). This comes out to about a 3.5% change.
While looking at the chart will show you this data, you can also see the final percent change on the left-hand side of the chart, along with the opening and closing prices. Beneath the chart, you can also view the volume change over the day and the average of the last 65 days, as well as price ranges over the day and the last 52 weeks.
Example 2: YTD Charts
The first example chart only covers a few hours. However, a one-day chart doesn’t give much information unless the stock has a major shift throughout the day – and even then, massive swings aren’t likely to last for long.
That’s when changing the time period on a chart comes in handy as it allows you to get a more comprehensive view of the stocks in question.
This next example shows what it looks like when we change the chart to view Apple’s stock YTD (year to date). You can see how Apple’s stock was plugging along at the beginning of the year – and then plummeted almost $200 when the pandemic market crashed. Since then, Apple has far and wide outperformed itself and the market, increasing over $100 more than its starting price point for the year in a few short months.
Image Credit: Screenshot, Apple stock on 6 August 2020 from Marketwatch
Switching between dates allows you to see how the stock actually moves. One-day indicators can be deceptive – and cause good traders to make bad decisions, such as everyone who sold their Apple stock between March and April.
Example 3: 3-year Charts
The longer time frame you choose, the better your view of the company. For instance, Apple’s 3-year data shows that the stock has a history of jumping up and slumping back down once more.
While you’d have to dig deeper to find out the exact cause of the fluctuations, what the data can tell you is that Apple’s stock will likely perform – eventually. While there’s no such thing as a guarantee in the market, viewing longer patterns like this can ease investor concerns.
Example 4: Key Data
Many of the metrics we covered last week (and a few we didn’t) are often laid out nice and neat for your viewing pleasure. This data shows information found in the charts, such as such as the opening price, price ranges, and the average volume.
This chart also offers new information, such as an impressive market cap and shares outstanding, the EPS and P/E ratio, and the yield and current dividend. While learning what numbers are average or excellent for Apple – and the industry – will take time and exposure, having the numbers broken down by the stock’s chart proves invaluable for many investors.
Image Credit: Screenshot, Apple stock on 9 August 2020 from Marketwatch
Example 5: Lines of Support and Resistance
Knowing about how to identify and understand support and resistance can help you determine when to buy and when to sell.
Image credit: moneyunder30.com
Looking at this chart, the A is a line of support. B is a line of resistance. In other words, when a stock bottoms out, it is an indication of support. And when the stock’s trend line peaks, that is resistance. If it were the year 2007, and we were looking at line A and line B, it would tell us that the share price of Apple being $20 is not bad since it’s between $15 (line A) and $30 (line B). We could see if it drops to $17, but at that point it’s entirely up to the investor to decide.
Example 6: Historic Trading Volume
When a bunch of people sell stocks at once, that means there’s a large trading volume that day. In a chart, you will find the volume at the bottom.
Image credit: moneyunder30.com
Fluctuations in trading volume can be sparked by the news, such as the stock market crash this year that led investors to dump shares in companies sensitive to COVID-19.
Usually, you’ll see low prices paired with trading volume (example A), but that’s not always the case. Looking at example B, there was an uptick in trading volume and price per share. If you’re not sure why that happened, it doesn’t hurt to check out what happened in the news.
Keep in Mind, Though…
When you analyze a stock chart, even with the extra data, you’re still not getting the whole picture. Price fluctuations do not make a story – and in the world of finance, the story is often what’s important.
To that end, it’s important to remember a few key points about stock charts:
- Stock charts show price point fluctuations and other mathematical analysis. Researching why stocks move as they do is up to you.
- It’s normal for a stock to swing – sometimes even dramatically – in the short-term. Stocks are volatile because they follow human decisions and emotions. Therefore, examining positions in-depth before trading is key for long-term investors.
- What looks like massive movements on the chart may only be fluctuations of a few cents, depending on how much the security is worth. Always look to the y-axis to see how far a stock really dropped.
- If you’re a day trader, looking at one-day fluctuations may make a lot of sense
- If you’re a long-term investor, making decisions on one day movements will only misguide your trading strategy and cost more in the long run. Always adjust your charts to analyze a relevant time period, rather than an insignificant time frame for your needs.
The Bottom Line
You will to run into each of these terms sooner rather than later. And while it isn’t a bulletproof way to determine your purchase decision, but it can still provide insights on trends, help spot warning signs and give you an idea of what to expect in the near and distant future.
“Put These Charts on Your Wall … 2020 Edition” by Compound Investors. Charts can tell you a lot – even things you didn’t know were possible. These charts show how there really isn’t a status quo when a recession caused by a pandemic is involved. This collection of charts includes explanations and call-outs that’ll further your expertise on stock chart reading.