Timing the Entry - Features on OEGY and NWRE
Stockscores.com Perspectives for the week ending July 20, 2007
In this week's issue:
Trading successfully is not just about picking the right stock, it is also about playing the right stock at the right time. Risk management is an important component of the analytical process and affects this timing issue. There are four key timing points for entry that can provide profitable trades, here they are:
1. Reversal of the previous trend
The first kind of entry comes when the trend appears to be changing. This is an uncertain time where the probability of success is not as high but the reward potential is greatest because you take a position at the earliest stage of the new trend. The chart shows a break of the trend line and is typically marked by abnormal price and volume activity as either the buyers or the sellers become exhausted and lose control of the market.
2. Start of the new trend
An up trend typically starts after the down trend has been broken and with a break to the upside from a rising bottom pattern. Stocks can trend sideways for a very long time so it is best to wait for the abnormal price and volume activity that signals investor recognition that there are significant changes in the fundamental value of the company. When looking for the start of an up trend, look for abnormal price and volume activity breaking from a period of sideways trading. It is important that the upward trend has not already started, otherwise it is better to wait for a pull back along the trend.
Downtrends are pretty much the opposite; they begin with a break down from a falling top consolidation after the upward trend line has been broken. Look for abnormal price action to the downside from a sideways trading pattern that has a lower high than the previous high that the stock attained. Abnormal volume is not necessary.
3. Confirmation of the start of the new trend
Up trends tend to start slowly so there is often a pull back after the initial breakout. This occurs because skeptical investors sell in to the unexpected strength. After the lengthy down trend, many investors are just eager to get out at higher prices than what they have seen. It takes time to build momentum so it is important to be patient with a stock early in its upward trend.
The confirmation signal occurs when the stock pulls back and bounces off of support or the newly begun upward trend line. This is another signal that the buyers are taking control of the market.
Downward trends act the same in the opposite direction. Because the stock has been strong for so long, you will find buyers come in to the market to snap up what they believe are bargains when the stock breaks down in price. This causes a short term rise in prices that is met by selling pressure when the stock rises to resistance. When the stock bounces lower from resistance, a confirming chart signal has been made.
4. Pullbacks along the trend
Investor emotion begins to take a role in the pricing of the stock once the trend is underway. Emotion causes buyers to pay too much in the upward trend and the sellers to accept to low of a price in the downward trend. These actions take the stock away from the trend line and often sucker emotional traders in to entering positions. However, the best opportunity to enter once a stock is well in to a trend is when it pulls back to the trend line as investors rationalize the recent price move. These pull backs provide some bargains as the stock will typically bounce off of the trend line and resume the longer term trend. This strategy for entry is purely one of the right timing where risk is mitigated by a stop loss below the trend line in case the trend does in fact reverse.
Most stocks will not go through these specifically defined phases in their regular cycle. However, these cycles will appear in stocks that are trending and can be used for your entries. The Stockscores Approach teaches different strategies, both for buying and short selling, that seek out entry signals for the phases.
Reversal of Fortunes and Breaking Downtrends Strategies for the reversal of the previous trend
Bottom Fishing, Stockscores Simple, Abnormal Up and Abnormal Down Strategies for the start of the new trend
Stockscores Simple and Pull Back Play Strategies for the confirmation of the new trend
Pull Back Play and Pull Up Play Strategies for the pullbacks along the trend strategy
Back To Top
The Nasdaq market is the hot market right now in North America so I ran a few different market scans on Stockscores, focusing on the Nasdaq, to reveal a couple of stocks that I think are worth considering right now.Back To Top
1. OEGY
OEGY is a good example of a bottom fishing chart pattern set up, having recently broken its downward trend the stock is now breaking upward from a rising bottom consolidation pattern. The stock will probably stall at $1 but I think it can get up toward $1.50 before finding some real resistance. Needs to hold above support at $0.43.
Back To Top
2. NWRE
The two year chart shows NWRE breaking out of a cup and handle pattern through resistance at $15. Looks good to fill the gap up to $20 before it finds significant resistance. Support at $14.
Back To Top
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.
Back To Top
|
If you wish to unsubscribe from the Stockscores Perspectives Weekend Edition or change the format of email you are receiving please login to your Stockscores account. Copyright 2006 Market Perspectives Inc.
|
|
