What Ever Will Be Will Make You Money
Stockscores.com Perspectives for the week ending July 11, 2008
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In this week's issue:
As investors, how should we look at the stock market? Should our focus be on what has been, what is or what will be? How does what most people do compare with what the people who make the most money are doing?
As a stock trader, one of the great benefits that I get from teaching people how to trade stocks is I get to see how others think about the stock market. I have received countless questions about the stocks that people own or are considering and that has given me a remarkable skill.
I can predict what stocks people will ask me about at any presentation that I give.
When I do one of my talks about trading and the Stockscores Approach to trading, I usually invite questions about stocks. A person can ask me about any stock trading in North America and I will give them my analysis of that stock, telling them what I feel are the probabilities that it will go up or down.
If I were to give one of those talks tomorrow, I can guarantee that someone would ask me about Potash Corp. It has been one of the great winners on the NYSE and TSX over the past couple of years and almost all investors have some knowledge of it. There is a buzz about fertilizer stocks.
Most investors are talking about what has been. Two years ago, the POT was trading at about $30 a share. Today it is around $225. This is the stock that dreams are made of. But if you did not buy it two years ago and hold since, then it is all just woulda coulda shoulda.
Last week, I wrote about Potash in this newsletter because I felt that it was likely to bounce off of its upward trend line and make some gains in the next couple of weeks. What was happening right then was a chart pattern set up that I call a Pull Back Play, one that I have found to be worth trading. So far, the stock is a few dollars higher than last Friday and still looks good to move higher from here.
As a trader, I was looking at what was happening right now.
But close to 10 years ago, I did some work for an upstart potash company listed on the TSX and, as a result, learned a lot about fertilizer and the need for it. I understood the growth potential for fertilizer, how the expanding global population needed fertilizer to feed its people and how Asia would be the next great purchaser of fertilizer. At the time, I was thinking about what would be.
Now, what approach makes more money? Of course you now know the answer; it is the focus on what will be. But, how many investors are really thinking about the future? Most are focused on what has been, which is why I always answer questions about the stocks that have been hot. Good money makers are thinking about what is but the big money makers are always looking ahead and trading what will be.
What are you doing?
It is also important to keep in mind that the stock market is a leading indicator of what will be. Typically, the stock market is ahead of the economy by about six months. So, the recession that the US is feeling now began to be realized at least six months ago by the stock market. This also means that the stock market will bottom at least six months before the economy starts to turn around.
If you want to be a great investor, you can not live in the past, you can not cherish the now, instead you must think about the future and use the movements in the stock market to tell you what that future holds. If you are waiting for the world around you to tell you what is going on, you are probably going to be a little late.
And this means you have to do things that most people think is a bit crazy. Since most people are living in the past and some are living in the now, those who are living in the future are usually considered the most ridiculous. It is only with time that they are proven right.
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I did a very simple scan this week, I looked for stocks that are at greater than 100% of their 150 day highs and trading at least 500 times a day. This scan only revealed 51 stocks which tells you a lot about the state of the stock market right now.
I then examined the charts looking for stocks that are have low downside to support and more upside to resistance. Here are a few that I like:
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1. T.GEA
Breaking through a very long term line of resistance this week, T.GEA has support at $8.50 and not much for resistance to slow it down. And, it is in a good sector of the market.
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2. FCFS
FCFS breaks through resistance this week, the chart would be better if there was volume supporting the break, but I like the fact that downside to support is $15 and upside to resistance is $25. With the stock closing at $17.81 on Friday, that is a good risk reward trade off.
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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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