BEHAVIORAL ANALYSIS

The goal of behavioral analysts is to predict market participant’s emotions (moods) and the intensity with which they will move (control) market price movements from current market price action.  They ignore traditional fundamental analysis that exposes valuation inefficiencies and mispricing in favor of the more empirical proof of intention through action displayed directly in market price movement. Technical analysis is used only to help predict potential market velocity as opposed to price reversals.

Market reversals are an inevitable result of excessively bullish or bearish sentiment (greed or fear) and it’s that “emotion” that causes the majority of traders to enter positions on the same side of a market at roughly the same point in time—which in turn leads to a price reversal.

Analyst use clues created by today’s emotional responses to greed and fear thresholds, which is measurable, and through these measurements, tops and bottoms are tracked as waves of optimism (greed) and pessimism (fear) that drive price; it can be predicted in repeatable reactions hours, days, weeks, months, years, and even decades before actual trading takes place.

VALUING PRICE/EARNINGS (P/E) RATIO

While Market Cap (share price multiplied by the number of outstanding shares) represents the company's Price Tag, Enterprise Value (Acquisition Worth) is calculated by adding total debt (including long- and short-term debt reported in the balance sheet) and subtracting cash and investments (also reported in the balance sheet) to Market Cap. 

Two companies with equal market caps of $250M and no debt; one has negligible cash and cash equivalents on hand, and the other has $100M in cash. If you bought the first company for $250M, you will have a company worth, presumably, $250M. But if you bought the second company for $250M, it would have cost you just $150M, since you instantly get $100M in cash.


Consider the price of two competitor’s stocks: Air Morton and Cramer Airlines. At $45 per share, Morton had a market cap of $13.5 billion and P/E (market cap/earnings) ratio of 10. But its balance sheet was burdened with nearly $30 billion in net debt. So Morton's EV was $43.5 billion, or about 14 its $3.4 billion in EBIT.

By contrast, Air Cramer enjoyed a share price of $23 per share and a market cap of $6.1 billion and P/E ratio of 20, twice that of Air Morton. But because Cramer owed a lot less - its net debt stood at $3.5 billion, its EV was $9.6 billion and its EV/EBIT ratio was only 10, compared to Morton's EV/EBIT of 14.

By market cap (P/E) alone, Air Morton looked like it was half the price of Cramer Airlines. But on the basis of EV, which takes into account important things like debt and cash levels, Cramer Airlines was priced much less per share. As the market gradually discovered, Cramer represented a better buy, offering more value for its price.

Consider using a Price/Earnings (P/E) value check …

ENTERPRISE VALUE/MARKET CAP x P/E (Market Cap/earnings)

 

CANNABIS

Cannabis is a popular recreational /medicinal drug around the world, only behind alcohol, caffeine and tobacco. In the United States alone, it is believed that over 160 million Americans have tried Cannabis, with 25 million Americans having used it within the past year. 

Medical cannabis (or medical marijuana) refers to the use of cannabis and its constituent cannabinoids, such as tetrahydrocannabinol (THC), as medical therapy to treat disease or alleviate symptoms. 

The name Cannabis indica was listed in various Pharmacopoeias, and was widely used to designate Cannabis suitable for the manufacture of medicinal preparations. 

More than 20 states  (Alaska, Arizona, California, Colorado, Connecticut, DC, Delaware, Hawaii, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Washington) have approved marijuana use for medicinal purposes and Colorado and Washington are opening up the plant for recreational use.

Marijuana companies rose more than 50 percent in 2013 and opened 2014 with a bang, rising almost 150 percent in just three weeks. 

A few that filed with the SEC at the time of this writing include CANN (currently halted pending SEC investigation), CANV, CBIS,  FULL and GWPH and GWPRF trades on NASDAQ, MCIG, NVLX, PHOT, VAPE.

HIGH FREQUENCY TRADING (HFT) ALGO BOTS

A special class of algorithmic trading is "high-frequency trading" (HFT), in which computers make elaborate decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe.

As of 2009, high frequency trading firms account for 73% of all US equity trading volume; about 20% of options volume expected to be computer generated by 2010.

As of October 2013, Eric Hunsader, founder of Nanex estimates that 90-95% of all orders placed come from high frequency machines.