10 Things to Do in a Slow Summer Market
Stockscores.com Perspectives for the week ending July 25, 2008
| Get the StockSchool Pro for Free |
DisnatDirect named the number one Canadian brokerage for Traders by Surviscor! Open and Fund a brokerage account with DisnatDirect and receive the StockSchool Pro home study course free, including special Pro level access through the DisnatDirect client website. Offer only available to Canadian residents. For information, click here
|
|
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.
Back To Top
One of my favorite things to do is watch the strongest stocks for their signs of weakness and short them on a technical breakdown. It is very gratifying when you pick the top on a high flier and go short while so many investors are still buying in to the dream of higher prices. A few years ago, I did this on Toll Brothers (TOL), a large US home builder just as the residential housing market was topping out. That was when the stock was around $50, today it is around $20.
I use the Reversal of Fortune Market Scan to find these stocks and then check the charts to see if the stock has been in a long term upward trend line and broken that upward trend line with a strong downward move. Earlier this week, I found one of the great success stories of the past few years met the criteria of this strategy and I featured it to the readers of my daily newsletter. I thought I would highlight in the weekend edition as well.
Back To Top
1. T.POT
Potash Corp trades on the TSX as T.POT and the NYSE as POT. It broke down from a falling top and with a break of the long term upward trend line on Wednesday. I think there is a very good chance that the stock has seen its highs and is now likely to move lower in the months to come. A short on it, or a purchase of a Put option with some time to expiry, is a strategy worth considering. If the stock comes back to close above $230, I would consider the trade a bust and get out.
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
|
