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Call Option

The right to purchase something (commodity, stocks, etc.) at a certain time for a certain price. The buyer pays a premium for this option while the seller collects this premium. The more volatile the price and the longer the duration of the call, the more that the premium increases.

Support

Any price that tends to hold a low for a stock.

Resistance

Any price that prevents a stock from going higher.

Consolidation

Periods where prices tend to tradee in a linear fashion.

Relative Strengths

A stock performance relative to the market or similar peer group. We like to look for stocks that go down less in market declines as they usually increase much faster in bull markets.

Price to Book

The stock's price relative to its book value

Book Value

The perceived actual value of a company divided by the number of  shares. (i.e. Company A has 1000 shares and a value of 2000. Book value = $2 a share)

A standard S.P 500 company in a normal market averages 2 – 2.5 book.

A company’s book value can be very hard to determine accurately. But generally when price to book is high, markets tend to peak. Book values tend to be low at market bottoms. Currently – November ’08 – many companies are selling below their book value, which is an indicator we believe to be close to a bottom.

Price Earnings Ratio – or PE

The net earnings per share divided by its price.
i.e. $1 per share earnings $10 per share price – P.E. of 10. A standard S.P 500 P.E. in a normal market is around 15. during the dot com bubble it reached almost 30 and is currently around 10 – as of November ’08.

Companies without earnings can have huge earnings potential so valuations have to be looked at differently.

Yield or Dividend Yield

The amount of money a company pays out to its shareholders on a percentage basis per share.

Before the ’08 massacre dividend yields on S.P. 500 companies were between 1 – 2 percent. Historically low.  Now they could be double because of the price declines. Now yields are averaging 3 – 4 percent which is much higher than current interest at the banks. Can the companies continue to pay the yields is another question.

Keeping a constant dividend and increasing it normally proves profitability of a company.