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Calgary Stock Trading Club
Wed. Dec 10 7:00 - 9:00 pm
University of Calgary
Murray Fraser Hall Room 160
Anyone welcome to attend

Vancouver Stock Trading Club
Thurs. Dec 11 6:30 - 8:30 pm
Best Western Abercorn Inn
9260 Bridgeport Road, Richmond
Anyone welcome to attend

Even if you have come in the past, please register for the meeting so that I can have an estimation of how many people will attend.

What are the Stockscores.com Stock Trading Clubs?

Many of you may have thought about coming to one of our stock trading clubs in the cities that I do them, but have never done so because you were not sure what they were all about.

Essentially, these clubs are meant to facilitate learning and the sharing of trading ideas. We discuss trading tools and strategies, and work to identify opportunities in the market.

The first meeting you come to is free, after that I ask attendees to pay $10 a meeting to cover the costs.

Currently, these meetings are only in Western Canada, but I am working on a technological solution to allow us to broadcast these meetings over the Internet so that anyone can participate.

Stockscores.com Perspectives
For the week ending December 5, 2003

In this week's issue:

Weekly Commentary
Strategy of the Week
Stocks That Meet The Featured Strategy

One day, Mr. Theory went to pick up his friend, Mr. Trader. Mr. Theory, a very smart man, liked spending time with Mr. Trader. While Mr. Trader was not as smart as Mr. Theory, he was very successful and Mr. Theory admired Mr. Trader's ability to make money. Perhaps that made him pretty smart too.

As Mr. Theory and Mr. Trader were walking down a busy street, Mr. Trader exclaimed, "Hey, that looks like a $20 bill on the ground up ahead." He ran forward to pick it up. Mr. Theory laughed to himself, for any intelligent person knew that with all these people walking on this road, it could not be real money. If it were real, it would have been picked up already. It was just like the efficiency of the market, and there was no way he was going to look silly picking up some garbage that looked like money.

"Look at that, $20 bucks just lying there," shouted Mr. Trader. He was quite happy with having discovered the money on the sidewalk. Mr. Theory shook his head in disbelief. "I can't believe your luck Trader." It was real.

As they walked along, they noticed a sign for a garage sale, only another block away. "Let's go check that out," said Mr. Trader, "we might find something of value!" Mr. Theory begrudgingly agreed, knowing that it would be a waste of his time.

At the garage sale, Mr. Theory picked up a vase and turned it over in his hands. It seemed quite old and interesting, but he did not really have an interest in owning someone else's junk. Soon after putting it back on the table that he found it, Mr. Trader picked up the same vase and promptly paid the owner the $2 price that the vase was tagged with. Mr. Theory and Mr. Trader left the garage sale with Mr. Trader carrying the vase under his arm.

"Why the heck did you buy that piece of junk Trader?" asked Mr. Theory. Mr. Trader smiled sheepishly, "I must confess, I have an interest in antique pottery, and this vase is worth about $1000. I can't believe I found something like that!"

Mr. Theory looked at his friend in disbelief. "Hey, I saw it first, let me have it for the $2 you paid!" he yelled.

"Listen Theory, you should know. Just like the stock market, sometimes life is not fair. I have better information, and it paid off today," replied Mr. Trader. Mr. Theory shook his head in disbelief again.

As they walked down the street, Mr. Theory noticed that there was a crowd forming outside an electronics store. "Let's go take a look at what is going on over there Trader," said Mr. Theory.

"Ohh, it will probably be a waste of time," answered Mr. Trader. But Mr. Theory persisted. "Look at the size of the crowd, there must be a good deal on there." And so, they joined the crowd. When they got to the front of the line, Mr. Theory saw his reward. The store was selling computers for half price! Without hesitation, Mr. Theory handed the clerk his credit card and bought the last one they had.

"Hah, it is my turn to get lucky today. I can't believe the deal I got," said Mr. Theory. He did not even wait for a reply from his friend, but continued down the street with his new computer under his arm. Mr. Trader shook his head and laughed.

Mr. Theory eventually got tired of carrying his computer so they decided to stop in at a magazine stand to take a break, and take a look at some magazines.

"Hey Theory, isn't this the same model of computer that you just bought?" asked Mr. Trader as he pointed to a review in his magazine. "Yes, it looks just like it," replied Mr. Theory. "What does it say?"

"Umm, it says that the computer has a flaw that prevents it from doing anything more than playing games. It won't run any business software. I guess that is why they were on sale."

"Oh no, what the heck am I going to do with it now? If that stupid crowd of people had not caught my attention, I would never have bought the boat anchor," wailed Mr. Theory.

They walked on in silence.

Finally, Mr. Theory looked at his friend, and asked, "How com you are so lucky. Today, you found a $20 dollar bill, you bought a $1000 vase for $2 and then watch me buy a piece of junk computer. And to add to all that, you make millions of dollars in the stock market. When will your luck run out?"

Mr. Trader looked at his friend and said, "Look Theory, I am no luckier than anyone else. Our day has been an almost perfect example of why I do well in the stock market. We both saw the $20 bill, but I ran to pick it up because you were too caught up in your ‘efficient market theory' to bother. Then later, I bought a vase that you saw first because I had better information, which is something that happens everyday in the stock market. Finally, you got caught up in the emotion of a crowd and made a hasty purchase decision while I ignored the opportunity. The stock market, like life, makes mistakes because of human emotion. I make money in the market every day using the same principles that have been our experience today."

"Ahh, you're just lucky," answered Mr. Theory.

Each week, I discuss a strategy and then highlight some stocks that may be worth considering based on that strategy. The focus is always on the entry, so this week I thought I would discuss a little bit about how to exit stocks that you own.

I don't set price targets for stocks, but instead, sell when a stock moves through a support level. By selling when a stock goes down through support, I can limit downside. By not selling when a stock reaches a price target, I avoid limiting upside.

What does it mean to sell a stock when it moves through support? Support is a floor price that is visually obvious on a stock chart. Look at the chart below of Nortel (T.NT). Notice how it has been trading between $4 and $4.75 for the last few months? We can draw a horizontal line at $4 and see that the stock has bounced off of that price level on a number of occasions. The more often a stock bounces off of a support price, the stronger the floor is.

Next, look at the second chart of Merck. Can you see how it stalled at the $50 mark through August and in to early October? There was a strong floor at $50 on MRK until it was broken around October 10th. That breakdown was a sell signal.

You can add basic pattern analysis to the concept of support to improve your sell points as well. To keep it simple, remember that falling tops on a stock chart are a sign of pessimism. Looking at the third chart below or ERTS, notice that the peak made around mid November is lower than than the peak made a month earlier. That is a falling top pattern, which was complemented by the break through support at $47.50 in the third week of November. Combined, this gave a strong sell signal for ERTS.

Knowing when to sell is not easy, but looking for falling tops and breaks through support will help you identify the best time to get out. The StockSchool courses offered on Stockscores.com go in to greater detail about picking sell points, but keep these basic ideas in mind on stocks you own.

1. T.NT
Nortel has support at $4. A move below $4 would be a sell signal.

2. MRK
MRK made a strong move through $50 in early October, and that led to the decline down to $40.

3. ERTS
The falling top in November was a sign of pessimism that was made more negative by the break down through support a few days later.

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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