What Do You Buy?
Stockscores.com Perspectives for the week ending February 13, 2009
| Get the StockSchool Pro 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:
How do you approach the market? Are you a person who tries to find a deal or do like to chase momentum. Do you do both?
Many traders think about stock picking in the same way they think about buying a TV. They want to get a good deal. The problem with this approach is that stocks are not TVs, they are not something you can use daily. Stocks are simply a claim on the earnings power of a company's assets. And the fact that they are cheap can mean that the company's future earnings potential is also much less.
I watch the Financial news channels quite a bit, both the US and Canadian versions. They all have commentators who present their investment ideas. I was watching today and guest after guest, commentator after commentator, touted stocks and commodities that were doing the wrong thing.
They were going down.
"Oil is cheap here, it makes no sense that it priced this low"
"Bank stocks represent real value, now is the time to buy them"
"The housing stocks have very little inventory left, they have to start going higher now"
Blah blah blah.
It may make a lot of sense that Oil is going to go back to $80 a barrel within a year. I am sure many banks will show great profits again one day and there is no doubt in my mind that homebuilders will eventually be busy again. Such is the nature of cycles; prices will always go up and down in the future.
And I find that most of these smart people are eventually right. The problem is only one of timing and sadly, timing is everything in the stock market.
Do you want to buy Oil at $37 if it is going to go to $20 before it starts to go up? The answer is an obvious no, but it begs another question. When is it the right time to buy?
And the answer to that question is surprisingly simple,
"When it starts to go up."
Yes, this is my incredibly insightful advice to all investors on how to master the market. Buy things that are going up. Do not buy things that are going down. Those things are best sold.
This means that you will never buy a stock at its low and never sell it at the high. That is ok, because you will make up the difference in the probability that your trades will be profitable. And if you buy something that then starts to go down, get out and take the small loss before the small loss turns in to a big one.
The stock market can not be predicted, no one knows with certainty what will happen tomorrow, in a month or in a year. However, we can put the odds in our favor if we buy things that the market is willing to pay more for and sell those that the market is eager to get rid of. Beyond that, it becomes a matter of developing some strategies to pick the best times to buy and sell and practice good risk management. At the core, keep it simple.
To help you find things that are going up, try using the Sentiment Stockscore. If it is 60 or higher there is a good chance that the buyers are in control.
It is also important to not chase stocks higher; we don't want to pay too much for a stock. Try plotting a 20 day moving average on the chart and avoid buying stocks when they have really run away and higher from that moving average. Doing so is chasing the stock higher like the other emotional buyers in the market. Emotion usually corrects itself and you can own the stock soon after for a lower price.
Finally, remember that the longer term picture is more important when judging whether a stock is going up or down. What happened over the last few days is not really important if the longer term trend is down. Look at a one year chart to determine the trend and be patient for stocks that are breaking their long term downward trend and starting a new upward trend. Buy them when the market begins to show signs that they like the company and the promise espoused by the market commentators is gaining traction.
Back To Top
This week, I thought I would look to the ETF market for some opportunities. ETFs are nice because they are inherently diversified so you don't have the stock specific risk that can cause surprise big gaps. A better way to manage risk for smaller investors.
With that in mind, I did a very simple scan, looking through the ETFs for those that have a Sentiment Stockscore of 60 or higher. To do this, I had to first create a few Watchlists of the ETFs, something that I had done quite some time ago. I then scanned my ETF Watchlist for Sentiment Stockscore > 60 and inspected the charts of those that came up.
When I check the charts, I wanted to see some sign that the buyers were in control but that the bus had not already left the station. The Gold ETFs are very strong but I think there are a bit more risky to enter here since the up trend is well underway. So, I was looking for ETFs that appeared ready to start upward trends.
A couple of these ETFs have optimistic chart patterns building, they are featured below:
Back To Top
1. XLV
XLV is a HealthCare ETF which has been outperforming the overall market over the past few months. The rising bottoms on the chart indicate optimism is building and we may see a lift in this group if the overall market does not go dramatically lower. It needs to be able to hold above support at $25.
Back To Top
2. EWZ
EWZ is the Brazil Index Fund and it has also been building optimism lately which is why the Sentiment Stockscore has risen above 60 in the last couple of weeks. I would like to see the fund break through resistance at $40, something that it has tried and failed on a few times over the past couple of months. Put support at $34.
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
|
