Investing in Stocks for Beginners

Online Stock Trading for Beginners

Is it time to get in the stock markets?

Could it be that the stock markets are finally turning enough to make them a less risky investing environment. The Old School Chartist seems to think so in his latest video and there is also evidence from the UK that the markets may be ready to move higher.

In the video below OSC points out that the S and P moved up last week in a strong move above resistance — the next target is 1380, but bear in mind that there could be a backtest of the support at around 1332 and the latest move up needs to stay above the 1330 — 1332 area for 2 days to be confirmed, the backtest could possibly take place today (Monday), — OSC also mentions two particular US stocks US Steel and Caterpillar as being stocks to watch.

The OSC’s charting videos are really worth a watch, whether you are a beginner to investing or not.

As for the UK, a contributor to investment site the Motley Fool points out that the FTSE is just 2% away from 6,000 and that if it gets above 6,000 he will be a buyer not a seller.

The FTSE has a lot of history with the 6,000 level — it went above 6,000 back in 1997 before falling back. During the dotcom boom in 1999/2000 it got back above 6,000 rising to 6951 before crashing back to 3287 (I remember it well, I was a beginner to investing then and very painful it was, particularly as tech stocks crashed even more — 90%, 99% and 100% being quite common i.e. if you were holding the baby when the music stopped then by March 2003 you were wiped out or worse).

The FTSE recovered after the crash, particularly banks, as people rotated out of flaky dotcom tech stocks into the stable blue chips, high-quality, reliable dividend paying unsinkable proper stocks — i.e. banks. Bank shares in the UK tripled between 2003 and 2007 and lots of people felt very clever and smug that they had got out of the dotcoms into something with staying power, but in 2007 the unthinkable happened and the unsinkable sank. Banks slumped around 90% just like the dotcom rubbish had.

The FTSE collapsed again, from 6,732 on 15 June 2007 back down to 3,461 on 9 March 2009 (a bit like snakes and ladders really), fortunately for me I had been out of the market for a long time as I had been watching the banking charts and they were awful! I could hardly believe what I was looking at but it turned out that the charts were right. And the bankers were wrong.

Take a close look at this chart of the Royal Bank of Scotland (RBS) — it was one of the biggest banks in the world.

If you are beginner to investing then take particular note of the red line. The red line is the 200 day moving average — when a stock price moves below the 200 day moving average it is a bad sign and you should sell or stay out. RBS went through the 200 day m.a. first, then went through the 400 day and the 800 day. It seemed very odd to me at the time and I refused to buy any banking stocks despite people telling me they were ‘as safe as houses’ (which, ironically, turned out to be true !). It fell from 700p down to a low which I think was 12p. It is now still only 28p. (They have just recently had a 1 for 10 stock consolidation, which means they multiply the price of the stock by 10 and divide the number of shares you have by 10 — which means that everything is exactly the same as before except the share price is ten times higher. This is a purely psychological measure, as RBS was fed up of having its share price at 20p — they much prefer to see it at 200p as it doesn’t look so much like a penny stock, but of course nothing has changed.

However, now in 2012 the market is trading on a P/E of just over 10 — one third of what it was in 2000.

Quantitative easing is helping drive the markets higher but, says the Motley Fool, there is something more fundamental driving them i.e. profits and rising dividends. Incredible as it may seem, with unemployment at record highs, profits and dividends are doing fine.

In the UK, AstraZeneca (AZN) and BT (BT-A) have announced decent profits due to deleveraging, cost-cutting and lower input prices.

Results will be announced this week from BP, GlaxoSmithKline (GSK) and Reckitt Benckiser (RB).

So, again according to the MF, the rational response when we get above 6,000 mark, will be to look for bargains, and buy them.

In fact, I might start taking a closer look at the markets again as we approach the 6,000 level, but I will still be wary of what is happening in Greece and the Eurozone in general.

For further info. on investing in stocks for beginners see — stock charts for beginners