Investors, Think Like a Trader!
Stockscores.com Perspectives for the week ending November 27, 2011
|
| Upcoming Events |
Market Minutes Video
Watch the FREE weekly Market Minutes video for Tyler's analysis of the overall market. A new video is uploaded each Monday night. Click here to view now.
|
| The Twitter |
|
|
In this week's issue:
Most stock market investors that I talk to are frustrated with the market. They have grown tired of looking at the dramatic up and downward moves in the value of their portfolio. Many tell me that they don't even look at their statements any more. They know that they need to invest in the market to save for retirement but most wonder if investing in stocks is even worth it.
There are so many stocks that have not made any gains in weeks, months or even years. Walmart (WMT) is trading today at the same price it was trading at over 10 years ago. On Friday, CIBC (T.CM) closed at $68.43, the same price it traded at in 2005. It has been a frustrating decade for the buy and hold investor.
However, since 2005, CIBC has also traded above $105 and below $40. For the trader possessing some ability to time the market, there was a lot of opportunity to extract very good returns from stocks showing price volatility.
Consider the chart below of Goldcorp (NYSE: GG, TSX:T.G). Six months ago, the stock was at $53 (Canadian listing). On Friday, it closed just above $50. A $3 a share loss is what sitting on that stock for six month earned you. Probably a few grey hairs as well.
However, consider what the stock has done along the way. Five times it has fallen to $45 a share and bounced higher. Each of these bounces saw the stock move up between $4 and $10. If you bought the stock at $45.50 each time it hit and sold it once it hit $49 you would have made $17.50 a share over the past six months.
That is a 38% gain in half a year.
Most investors argue that timing the market is difficult and, without some basic chart reading skills, they are right. If you listen to headlines, you will usually avoid stocks when they should be bought and buy stocks when it is nearing the time when they should be sold. This is because investors tend to make investment decisions based on news headlines and the media tends to react to prices moves rather than predict them. The result is that the mood is usually negative after a stock has been falling in price and positive after a stock has been rising.
However, if you keep a few simple concepts in mind, you can time the market successfully. Remember:
Falling tops are a sign of pessimism
Rising bottoms are a sign of optimism
Breaks of trend lines are a sign of a change of mood
Stocks tend to bounce off of floor and ceiling prices
Consider the last time T.G bottomed at around $45 and made a better than 20% gain in only a few weeks. Was this hard to predict? Well, if you look at the chart and keep in mind the concepts listed above, it really wasn't.
In the middle of October, T.G had bounced four times near $45. I never like to buy at a floor just because it has been a place for price support in the past. However, if I see the market confirming something that should happen, like a bounce off of support that has held up for six months, then I will act.
It helps to be able to look at a shorter term time frame. This is why we have now added intraday charts to Stockscores.com. You can view stocks on any intraday time interval (1 minute, 14 minute, 37 minute, whatever you like) going back as far as 60 days. Here is a 30 day, 120 minute chart for T.G:
There was a good entry signal at the green arrow and a good sell signal at the red arrow. At the green arrow, the stock had broken a downward trend line after forming a rising bottom. This intraday chart interval confirmed what we expect to see happen based on the daily chart, giving the trader the opportunity to buy the stock at $46 a share.
The stock then went in to an upward trend marked by a series of rising bottoms. Those rising bottoms switched to falling tops just before the red arrow and then the upward trend line was broken. Time to sell at $53.50, earning a gain of $7.50 a share or 16% in about three weeks.
I know you would rather make 16% in three weeks than lose 6% in six months. Does it take a lot of work?
Certainly, it takes more work than giving your money to a manager and vowing to never look at the statements. However, if you can devote 15 minutes a day to your portfolio, you can do this.
Create a list of 10 stocks to watch. They should be a group of stocks that are not too correlated to one another and fairly actively traded so you can move in and out of them easily. Set up this watch list on Stockscores.com or Tradescores.com and make sure you look at the charts once each day. Watch for situations where the chart reading concepts described earlier provide a signal to make a trade. Most days you will not have anything to do. Once in a while, a trade will be obvious.
This is a volatile market that lacks a clear long term trend. For the buy and hold investor, that has made it a difficult and frustrating market. For the trader, the price volatility has meant opportunity. You just have to change your approach.
Back To Top
Stocks have been trending lower through November with strong selling pressure last week. That means the next trading opportunity will be on the bounce back as buyers step in to do some bargain hunting. We have not seen a signal for a bounce yet but that could happen this week.
With this in mind, I looked at the 100 most active stocks on the TSX using the free to use Chart Watch Tool on Tradescores.com. I was looking for stocks that have been falling recently but are now at or near a floor price on their charts.
Three stood out which should be watched on their intraday chart for a break of the downward trend line, preferably from a rising bottom. Consider the three stocks listed below and watch them for an entry signal to trade for a reversal:
Back To Top
1. T.CM
T.CM has a tendency to bounce off of $68 a share and is nearing that price now. Pull up an intraday chart and draw a line across the falling tops going back over the last 15 days. Consider buying the stock when it is able to break that downward trend line.
Back To Top
2. T.MFL
T.MFL has fallen from $18.50 to $11.50 in only two months but it made a good bounce off of $11.25 five months ago. Watch the 30 day, 60 minute chart on Stockscores.com for a break of the downward trend line.
Back To Top
3. T.SMF
$7 is support for T.SMF, the stock is nearing that price now. Monitor the 30 day, 60 minute chart for a break of the downward trend line and ride the stock higher so long as it does not fall back through support.
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
|
