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Playing Follow the Union!
Nov 22, 2003 - It has been theorized that unions attach themselves to firms that are able to produce supernormal profits, in an attempt to transfer some of those profits to themselves. Apparently, the theory fits...
Education: While many people (especially capitalists) object to unions, they do serve many useful purposes—they help distribute wealth in a reasonably efficient manner, they ensure that minimal working standards are supported. Today, you and I have another reason to celebrate their presence; a recent study published in the Canadian Journal of Administrative Sciences shows that union raiding might help us pick stock market winners. It has been theorized that unions attach themselves to firms that are able to produce supernormal profits, in an attempt to transfer some of those profits to themselves. Apparently, the theory fits—unions trying to displace other unions (union raiding) may in fact be helpful in picking winning stocks. The Brock University study found abnormal returns (returns over the market return) of 7.44% from the month of the application until 5 months after the decision to accept or reject the new union. (Results were positive for both acceptance and rejection decisions). The study covered 44 stocks from 1974 to 1992 on the Toronto Stock Exchange (the major exchange of Canadian markets). Reference: Felice Martinello; Robert Hanrahan; Joseph Kushner; Isidore Masse, “Union Raiding Activity and The Value of Canadian Firms: Do Unions Pick Stock Market Winners?” Canadian Journal of Administrative Sciences; Jun 2003, article starting pg. 135. Analysis:
Last week brought about another round of bearish developments. If support is violated early next week, I expect a significant decline. However, it is important to note that the Nasdaq IS still above support, and may bounce. As such, I would enter the week long rather than short, although I would be quick to change my bias should support be violated.
Bearish indications for the Nasdaq:
Bullish Indications for the Nasdaq:
Key Levels:
Support exists at 1870 and 1865. If 1865 were broken to the downside, we would become bearish.
Significant resistance exists at 2000, just above the recent downside inversion point, and at a psychologically important level. A bullish development would be a rise above 2010; it is, however, unlikely to occur within the next week. A more realistic pivot point for increasing long exposure would be 1930, just into the gap between Friday the 14th and last Monday. ...thanks
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Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital.
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