10 Things to Do in a Slow Summer Market
Stockscores.com Perspectives for the week ending May 21, 2006
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In this week's issue:
May to October is historically the worst half of the year for stocks. So far, that is proving to be a correct seasonal indicator again this year. Smart investors work hard when the market is strong and change their approach when the market is not in their favor. This week I compile a little list of 10 things you can do to take advantage of the summer market slow down.
10 Things to Do in a Slow Summer Market
1. Learn more about the stock market and trading, you can never know enough. However, when you are learning, remember to keep it simple. Since the summer is not a great time for investing in stocks it is a good time to learn. In the weeks to come, Stockscores will be offering a wide range of educational videos that you will be able to watch from your computer via the Internet.
2.Test new strategies. With some time off from trying to make money in the market you can take trading ideas you may have and test them. Create a spreadsheet and enter in the criteria for your proposed strategy. Go through a wide variety of stocks and see your strategy would have done over the history of those stocks. Use your findings to tweak the strategy so you can apply it when the stock market improves.
3. Sell the stocks that are going through support or giving other sell signals. If you love the company story you can always buy them back cheaper later. Practice discipline by listening to the message of the market.
4. Short some of the high flying stocks that will suffer when the stock speculators go away. Look for stocks breaking their long term upward trend line and sell those stocks chart in anticipation of a change of trend. Use protective stop losses at the resistance on the chart in case your read of the chart is wrong.
5. Read some books about investing psychology. I recommend Trading in the Zone and Reminiscences of a Stock Operator. Learning how to overcome your mental breakdowns is more important than any other skill you can develop.
6. Ignore the promotional garbage that companies send out to try and coax you in to buying their stocks. Trust only one thing, the market itself. If the chart says the stock is in the seller's control, stay away from it.
7. Take advantage of low prices due to seasonality. For example, Energy stocks often bottom out in August because of the cycle of that industry. If the market confirms that this is going to happen again this year, snap up the bargains.
8. Trade Alpha stocks. These are the stocks whose story is so hot that they don't correlate to the overall market index and will instead move on the strength of their story. Look for abnormal price and volume action to identify these stocks.
9. Laugh at your friends who suffer through the summer with their investments because they did not read this list.
10. Play with your kids, dog, wife, husband, friend or any one else worthy. The market slows down in the summer because most traders are out enjoying the weather. Join them.
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Fear creates opportunity because it causes people to behave irrationally and accept a price that is lower than the true value for a stock. When there is fear, there is a breakdown in the efficiency of the market and that can mean easy profit.
With the strong selling pressure in the market over the last two weeks many investors started to sell their stocks on fear. This sets up a swing trade I call a Dead Cat Bounce (my apologies to feline fanciers). When a stock sells of substantially, hits a new low in the morning but comes back to close above its open (a green candle on the Stockscores charts) you have the set up for this strategy.
I used the Stockscores Market Scan tool to scan for this strategy using the following filters:
Gain/Loss of less than -15% over the last 10 days
Long term moving average = Bullish
Candle =- Bullish
Number of Trades > 100
I ran this Market Scan on the Canadian markets and got a lot of candidates, I could easily feature 20 stocks this week using this strategy but here are some that I think are good for a bounce back this week. If the market gaps up on the open Tuesday then the opportunity may not be worth taking as Friday afternoon was really the time to get in, but we may see them open close to where they closed Friday giving a good entry point.
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1. T.EZM
T.EZM had five red days in a row before the green day on Friday, the stock should be able to bounce back toward $2.80 and maybe better if the panic is overdone. Support at $2.05.
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2. T.NGX
T.NGX suffered a six day slide out of its steep up trend, some bargain hunters should come in to the stock and may get a bounce back to $5 started this week. Support at $3.40 needs to hold up.
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3. T.NNO
On a one year chart, T.NNO has simply pulled back to its upward trend line after really getting ahead of itself. I don't think the stock moves to new highs but a bounce back from here is a good bet for the swing trader provided it does not run away on the open. Support at $4.95.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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