Macroeconomics

Indicators: (Leading, Coincident, Lagging) – www.conference-board.org/economics -

published on a monthly basis

• Advance-Decline Ratio – as market rises (if a relatively high advance-decline

ration too) – stronger positive signal than if ADR was low
• Rate of change
• Monetary Policy
o Short term rates
o Yield curve (term structure)
• Fiscal Policy
o Rate of growth of deficit
• Bonds
o Typical maturities: 3-months, 10 years, 30 years
• High Dividend yields indicate a buy signal for the market – poor strategy for the
1990s
• Relative Volatility of stock and bond returns – ERP has declined over time due to
increasing volatility in bond returns
• Look at ROE relationships of index and sectors – Net profit Margin*Total Asset
Turnover Ratio*Financial Leverage – (NI/Sales)*(Sales/Assets)*(Assets/Equity)
• Historical Cap ex levels vs Depreciation – relative to growth, market cap,
leverage and ROE
• Capacity Utilization level – Sales to Assets? PPE? – relatively high could
indicate peak of business cycle followed by large decrease in operating profit
margins
•

Trading:
• Always look outside the tape flow before execution. Time of day, market
sentiment, characteristics of a particular stock and chart support/resistance affect
the importance of tape transaction signals. Keep in mind that all skilled tape
reading relies on one key mechanism to locate profitable signals: market makers
and specialists use their knowledge of the order book to move their markets in
whatever direction yields the greatest volume. They will routinely manipulate
trader emotions against the order flow to shake them out of their positions.