This is Your Wake Up Call
Stockscores.com Perspectives for the week ending January 29, 2012
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In this week's issue:
I have created a short video introducing how the Stockscores indicators work and how you can use them to help you perform better in the market. You can view the video by clicking here.
There was no Market Minutes video last week as my wife and I welcomed a new baby in to the world on Sunday night. He has volunteered to help me do the video this week so expect the new one will be uploaded to YouTube Monday night. You can view all of my free videos by going to www.youtube.com/stockscoresdotcom.
This is your wake up call.
The market is turning around and I estimate it has a 75% chance of being higher than it is now by the end of the year. Most individual investors have been scared away and are going to miss out on a good part of the gain, as they always do. If you have been frustrated by the market and have decided to leave it alone, I suggest you come back.
The markets have been frustrating for a number of years. The most recent drop from May until late December was, I think, the final straw for many investors. I too was frustrated by it but stressed over and over the importance of not turning your back on a weak market. The best rallies come out of weakness because downtrends create the value that motivates buyers to act.
If you have read any financial headlines you are likely doubtful of my assertion that we are in the early stages of a bull market. Consider, however, that since Dec 20th, the market has been rising day after day. Despite all of the negativity about stocks, politics and the global economy, the markets have trended higher for over a month.
Keep in mind that negative sentiment means most people are avoiding the market. I can tell by looking at the traffic on Stockscores.com that most investors are avoiding stocks. If so many people are avoiding the stock market, how can it possibly be moving up?
There are two reasons. First, the large, knowledgeable investors are buying. Second, if someone wanted to sell their stocks, they have done so by now. The downtrend exhausted any weak holders of stocks and provided the value that has motivated some buyers to start coming back to stocks.
The overall market traded at a fear related discount. The potential for a breakdown in the European Union had many investors protecting themselves by selling all but the safest of assets. That allowed US Treasuries to remain strong and option premiums to trade at high prices.
The market is demonstrating the belief that the problems in Europe will get worked out, although it will likely take time. The Euro has rebounded (take a look at the chart of FXE) and the VIX has been trending lower (look at the chart of the VXX). The market is getting back to normal and individual stocks are able to do well.
In my daily newsletter (www.tradescores.com), I have featured 18 trading ideas since the market made its reversal signal on Dec 20th. Of those, 14 are profitable. One of the losers was a hedge against the potential for market weakness, a way to protect against market downside that never came. I have not had that high of a success rate since before the market fell apart in May 2011.
Up trends in markets always begin with a fight against a high level of doubt. It is usually too late if you start playing the market when everyone says it is a good idea. The best time to buy is when the market is showing signs of optimism and the crowd disagrees.
There is no certainty in the stock market; we can only play probabilities that work in our favor. My analysis indicates the probability that market continues higher through this year is strong. More importantly, the upside potential is greater than the downside. If I am wrong, the loss should not be substantial.
Thus far, the majority of the strength has been in commodity related sectors. Mining and some Energy stocks have been leading the market and most of my daily newsletter features have been from these areas. As the buyers gather momentum, the strength will evolve outward.
This is your wake up call. If you are out of the market, it is time to start trading again. Don't wait until everyone else is doing it, by then it will be too late.
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This week I ran the Stockscores Simple Market Scan but increase the number of trades criteria to 1000 for US stocks and 200 for Canadian. There are a lot more results being found right now, another sign that the market is improving. For example, running this scan on the US markets found 160 candidates. A month ago I would be lucky to find 20.
Step two is to review the charts; I look for the charts showing a break on good volume from an optimistic chart pattern. Ultimately, I like abnormal price breaks from optimism and low price volatility with abnormal volume.
Here are a couple of charts that I think stand out from this weekend's Market Scans.
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1. XIDE
XIDE started to show life on Thursday but the sellers stepped in to make the close disappointing. On Friday, the buyers came back with force and pushed the stock up, volume was higher than normal on both days. The daily chart shows a stock that has broken its long term downward trend line and is now breaking from a rising bottom. Support at $3.05.
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2. RPTP
RPTP made a strong breakout on Friday from a cup and handle pattern and had abnormally high volume supporting the price move. Support at $6.30.
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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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