Know The Trend For It is Your Friend
Stockscores.com Perspectives for the week ending September 19, 2009
|
| Upcoming Events |
Toronto Gold Show
Tyler Bollhorn will be speaking at the Toronto Resource Investment Conference on Saturday Sept 21 at 12:30 pm. Go here for more information.
|
| Get the StockSchool Pro Free |
DisnatDirect named the number one Canadian brokerage for service by JD Power! 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:
A simple trading rule is to only buy in a bull market and only short in a bear market. The overall market direction is the most important factor in determining how a stock will move. Yes, a stock can go against the overall market trend just as a person can paddle a canoe against a river’s current. However, it is certainly easier to go with the market trend.
For that reason, every trader should, at least weekly, do an overall index analysis to determine who is in control of the market. The answer to this question will determine the strategy to be applied in the search for trading opportunities in individual stocks.
I like to look at the major North American indexes through the ETFs that represent them.
Dow Jones Industrial Average - DIA
Nasdaq 100 - QQQQ
S&P 500 - SPY
TSX 60 - T.XIU
It is also helpful to consider the subindexes to see what areas are leading or lagging the overall market:
For the US
Consumer Discretionary - XLY
Consumer Staples - XLP
Energy - XLE
Financial - XLF
Health Care - XLV
Industrials - XLI
Materials - XLB
Technology - XLK
Utilities - XLU
For Canada
Energy - T.XEG
Gold - T.XGD
Financial - T.XFN
Materials - T.XMA
Real Estate - T.XRE
Income Trusts - T.XTR
Technology - T.XIT
Use the Stockscores Watchlist Creator to build a group of these sectors so that you can go through their charts quickly with the Gallery Viewer.
You should attempt to answer a simple question, “Who is in control, buyers or sellers?â€
This is determined by whether there are rising bottoms on the chart or falling tops. A chart of the Financials (XLF or T.XFN) quickly shows that the buyers are in control. Until that changes, only buy orders should be placed on this group of stocks.
If you go through all of the groups listed above you will find that they are all in buyer control right now. We are in a bull market.
That will change eventually but a common mistake is for traders to be too aggressive in picking a trend reversal. It is important to be patient and wait for a break of the long term trend line. Look at a two year chart to help you see that better.
Realize that you may still be wrong when gauging the overall market trend. The markets broke their upward trend lines back in early July, indicating that it was time to go short. However, that negative single was ultimately reversed a week later when the upward trend resumed.
For this reason, traders need to have a risk management plan for all of their trades. You will be wrong some of the time; be ready to admit it and get out of a losing trade when the market tells you so.
You will find it easier to make money as the trend line gets steeper. It has been pretty easy trading over the past six months and an inspection of a five year chart of the S&P 500 shows that the upward trend over that time has been steeper than normal.
There is a tendency for traders to try and argue with the market, to look to short stocks when they are climbing higher because it seems to make little sense that they can continue to go up. Remember, however, that the market has traded without an apparent base in logic many times. Never ever argue with the market, it will crush you.
Back To Top
The market pulled back to finish this past week but it has not broken down technically. Therefore, the buyers are still in control and we need to continue to look for buying opportunities. Until there is a break of the upward trend line, be a market optimist.
In this environment I like to look for stocks that are making breakouts from good chart patterns with abnormal volume. I have been using this strategy for most of the weekend newsletter features and it has delivered some good winners.
I took a look through the stocks that I have featured in this newsletter since the start of July, you can do the same by going in to Stockscores, Products, Newsletters, Read Past Weekend Newsletters. If you do that, you will see that I have featured 22 stocks. 17 were buy trades and 5 were shorts. Of the 17 that were purchases, 16 are higher than when I featured them (the one that is not yet higher was only featured last week and I expect will still do well). All 5 short sell picks were stopped out, demonstrating that analyzing where the market will go is the most important part of the research process.
Here are a couple of new picks for this week:Back To Top
1. T.HBM
T.HBM is breaking from an ascending triangle pattern with good volume trading over the past couple of days. Support at $8.45.
Back To Top
2. T.MPV
Major breakout on T.MPV on Friday, I prefer to pick this one up on more of a pull back but the long term picture looks good for it to go higher from here. Support at $1.70.
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
|
