To determine intrinsic value you can use one of three intrinsic value models:
Build – your – own model: Using Excel, the worksheet model is fairly easy to construct; formulas will be shown along with sample results for both indefinite continuing value and the acquisition assumption.
Prepackaged Web – based analyzer: At this writing, the data and analysis package offered by iStockResearch is the best available for free.
Intrinsic value formula as developed by Ben Graham: This simple formula is easy to apply and gives surprisingly robust results.

The one highlighted in this section is built from scratch as an Excel spreadsheet. At the time of this writing, there is little in the way of PC or Web – based models available for use by consumer investors. As noted, the exception is iStockResearch, which offers a model to non – professional investors; I offer an example later in the chapter.

Of course, any time you use a tool, its good to know in advance what outcome to expect. With intrinsic value models, you get a single – figure result: the estimated per – share value of the company. One single number: Company ABC, for example, may have a projected worth of $34.97. If youre satisfied with this number and the assumptions supporting it, you can compare this intrinsic value with current market price and make a buying decision. More likely, youll want to model a range of intrinsic values based on different assumptions. Then to complete the value appraisal, youll want to consider strategic financials and intangibles before hitting the buy button.

Trading volume is a direct, real – time sentiment indicator. As a general rule, high trading volume is a sign that the current trend is likely to continue. Still, good volume analysis takes other market indicators into account. When analyzing volume, be sure that you Figure 4-1, which shows the S&P 500 e – mini futures contract for September 2005, portrays an interesting relationship between volume, sentiment, and other indicators. In April, the market made a textbook bottom.
Notice how the volume bars at the bottom of the chart rose as the market was reaching a selling climax, as signified by the three large candlesticks, or trading bars. This combination of signals —large price moves and large volumes when the market is falling —is often the prelude to a classic market bottom, because traders were panicking and selling at any price just to get out of their positions.

Put the current volume trends in the proper context with relationship to the market in which youre trading, rather than thinking about hard – and – fast rules. Its important to note that trends tend to either start or end with a volume spike climax.

Remember the differences in the way that volume is reported and interpreted in the futures market compared with the stock market.
Check other indicators to confirm what volume is telling you.
Ask yourself whether the market is vulnerable to a trend change.

Combining open interest and Volume

You can combine open interest and volume to predict a trend change. Generally, volume and open interest need to be heading in the same direction as the market. When the market starts rising, for example, you want to see volume and open interest expanding. A rising market with shrinking volume and falling open interest usually is one that is heading for a correction. This is an important concept. Rising markets should have rising volume and open interest accompanying the rise of prices. That is a sign of strength. Table 4-1 summarizes the relationship between volume and open interest.

Looking at put/call ratios as sentiment indicators