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Stockscores.com Training Courses
Stockscores.com founder Tyler Bollhorn will teach the Stockscores Pro Trading course in Toronto, Vancouver and Calgary Canada next year. This weekend course is an opportunity to learn the trading methods and strategies that Tyler uses. The tentative dates are:
Toronto - February 7 and 8
Vancouver - February 28 and 29
Calgary - March 6 and 7
Space will be limited for these courses. If you have an interest and have questions, or if you would like to reserve your attendance for one of these courses, please send an email to tyler@stockscores.com or call 1-866-441-1999.
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Stockscores.com Perspectives
For the week ending December 14, 2003
In this week's issue:
Why do stocks go up? If you are trading or investing in the stock market, this is a question that you should be able to answer. If you have picked up a university finance textbook, or read one of many books at your local bookstore, chance are you will have an idea why stock prices change, but it may not help you make money in the market.
In the theoretical sense, stock prices go up because the company has improved their ability to make money in the future. Fundamental value is based on this ability, and as business develops, stock price should change.
However, this view is comparable to saying that nice guys finish first. Or, what can go wrong won't.
There are two simple realities that most financial theories ignore, perhaps because they are abstract concepts that don't fit with the linear thinking of theorists. First, the stock market is not fair, and second, investors are not always rational. If you do not accept this, you should not trade in the stock market.
As a result, stock prices do not necessarily go up because the earnings potential of the company has improved. Stock prices tend to go up for two reasons, which are often related.
First, those with the best access to information will tend to buy the stock, or avoid selling stock they own, because they think that a positive change in fundamentals is imminent. Now, I know many of you may be thinking that this is exactly what I said the financial theorists predict, that stocks will go up because of a positive change in fundamentals. The difference, however, is that financial theorists predict that stock prices will go up when company's announce to the public their improved fundamentals. The reality of the unfair stock market is that stocks go up before the news, often pricing in the news before the general public know about it. The effect of this is that buying a stock because you read good things about it in the newspaper will not necessarily ensure you a profitable investment.
The second reason that stocks go up is because of a change in investor psychology. How investors judge information is largely dependant on their mood. If investors have been enjoying profitable investments in the recent past, they are more likely in a good mood, and therefore will be more apt to buy stocks. That is why uptrends tend to perpetuate higher, and downtrends lower. It takes a significant catalyst to break investor psychology.
On Monday, it is likely that stocks will go up signficantly. The company's that investors buy Monday, and pay more for than on Friday, are probably not going to be announcing any great news about their business prospects. Most companies will continue to operate their business exactly as they did on Friday, but their stock price will go up simply because of the capture of Saddam Hussein. Why? Because his capture has a positive effect on the psychology of investors, and makes us all feel safer from terrorism. Are we safer? Probably not.
It is the shift in psychology that will create the price surge, and it may touch off a market rally worth billions of dollars. And it was caused by the capture of a scruffy old man lying in a hole with rats.
Don't ever try to make sense of the market, and what it should do based on publicly available information. Trust only the message of the market itself. If you learn how to read market activity, you can begin to predict where the market will go.Back To Top
Never go against the mood of the market. If investors are pessimistic about a stock, buying it will likely lead to losses. As investors become optimistic about a company, they will tend to push prices higher, so finding stocks that are showing signs of optimism can provide very good, longer term trading opportunities.
The Sentiment Stockscore line is a very good indicator of investor sentiment. This strategy seeks to take advantage of the Sentiment Stockscore moving from Neutral to Optimistic. With the right chart pattern, it can reveal stocks that can move in to an uptrend.
This scan will produce charts whose Sentiment Stockscore was less than 60 yesterday, and is now at 60 or better. We need to visually inspect the charts to eliminate stocks that do not have the following:
- An upward sloping Sentiment line that is coming from below 60
- A price pattern that indicates stability and optimism
We are trying to find stocks that have an optimistic chart pattern that has not yet fully priced in the optimism. I ran this Market Scan and found 68 candidates. From that list, three stocks stood out with decent chart patterns.
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1. MANC
MANC has done pretty well already this year, and today it is making another breakout from a rectangle consolidation pattern that has formed over the past four months. Volume supporting the breakout ismuch higher than normal, and the weekly chart indicates that this stocks may be making a long term turnaround.
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2. OCQ
OCQ has not yet made a breakout, but is in a very good looking ascending triangle pattern, which is an indication of optimism. After enduring a downtrend for some time, it seems OCQ investors may start to see a recovery. I would like to see a break through $5.40 with good volume support as a better cue of an up trend, but I think such a move is quite likely in the weeks to come.
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3. USAP
USAP had a very strong and abnormal day on Friday, as it broke from a sideways consolidation pattern with strong volume support. The Sentiment Stockscore line had dipped below 60 and is now crossing back up as the Signal Stockscore breaks above 80. Stocks that make big breakouts often stall for a few days, but this stock is showing signs that the market is excited about something.
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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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