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American Depository Receipts

America depository receipts (ADR fs) represent ownership of shares of a non-United States company that trades in United States financial markets. Many foreign stocks trade on US stock exchanges as level II or III ADR fs. Through the purchase of American Depository Receipts US investors can buy shares of promising foreign companies without needing to change to foreign currencies, collect dividends in foreign currencies, and deal with a stock broker in a foreign language. Owners of American Depository Receipts receive dividends in US dollars, buy and sell just like buying stock and selling stock of American companies. In addition traders can follow these foreign stocks with technical analysis tools such as Candlestick analysis just like they do with US stocks.

American Depository Receipts are issued by one of four US depository banks, the Bank of New York Mellon, Citibank, Deutsche Bank or JPMorgan. ADR fs represent a share, multiple shares, or a part of a share of the foreign stock in question. The owner of an American Depository Receipt can, in fact, request and receive the foreign stock that the ADR represents but that really defeats the purpose and ease of trading an ADR. The American Depository Receipt tracks the price of the foreign stock in its home market, adjusting for currency rate variation. As an ADR represents a foreign stock both fundamental analysis of the foreign company and technical analysis of market pricing in the USA are valuable in trading these replacements for foreign stocks. It is level II American depository receipts that are typically traded on US stock exchanges. Unsponsored shares and level I ADR fs are traded over the counter. This is a convenient way for many foreign companies to have their stocks traded in the USA. However, foreign stocks below the level II cutoff have minimal reporting requirements and the trader or investor dealing in these has many of the same problems as with penny stocks investing on the OTC market. Level II ADR fs must meet SEC filing requirements and are delisted from stock exchanges if they fail to do so. Level III ADRfs are typically from companies that are raising capital in the USA by selling stock. They are subject to much more strict reporting requirements, similar to American companies. Thus those interested in trading ADR fs or interested in long term investing in foreign companies will be able to trade level II and III American Depository Receipts on a US stock exchange.

Trading stocks through the use of American Depository Receipts allows US citizens access to promising means of picking offshore investments. Level II and III ADR fs provide sufficient information for investors and traders to do adequate fundamental and technical analysis of these stocks. It will be possible to not only determine a foreign stock fs margin of safety and intrinsic stock value but to be able to follow profitably with Candlestick patterns as well. Application of Candlestick trading tactics is possible with ADR fs as well as other US based stocks trading on US exchanges.


Market Direction: Wednesday's trading had the opportunity to break the upper trend channel. However, the hard selling on Wednesday brought the trading back into the middle of the descending trend channel. Today's trading took the Dow down to test the lower end of the trend channel after testing the upper trendline yesterday. These market conditions make it relatively difficult to trade anything more than a day or so at a time.

 

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Good Investing,

 

The Candlestick Forum Team


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