A Pull Back in a Longer Term Upward Trend
Stockscores.com Perspectives for the week ending February 11, 2012
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In this week's issue:
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Stocks gave up some of the gains they have made over the past 6 weeks as investors took profits on Friday. This move was expected for a number of reasons. Anytime a market moves up for 6 weeks straight, there is a high probability that traders will want to sell positions and lock in short term profits. They will tend to do this as markets come in to resistance, which is what the S&P 500 did this week. Finally, the VIX broke its downward trend line on Wednesday and in to Thursday. The VIX is an indication of fear as it moves up when investors start paying more for options which many investors use as insurance.
Thus far, the weakness does not represent a signal that the market is going to go in to a lasting downward trend. Investors who are in the market remain optimistic overall as the upward trend line has not been violated.
Volume has been light so, while market participants are optimistic, they are hardly a large group. Most investors continue to sit on the sidelines in cash. The stability of the US Treasury bond market over the past six weeks tells us that money remains in safety even while stocks have been going up.
The rally in stocks since Dec 20th has been on very light volume. Normally, it takes volume to move stocks up because the buyers have to overcome willful sellers. In this market, it seems the market has been going up because there is a lack of sellers. A drift higher for no apparent good reason has been the result.
The market has been so tumultuous over the past few years that any weak stomached investors have now thrown in the towel. That leaves primarily longer term money invested in stocks. The typical retail investor is not participating in this market.
That makes this recent rally one for traders, those with a myopic view for their trades, eager to move in and out in a relatively short time frame. Therefore, just as this has been a trader rally, I expect the pull back to also be short term in nature. There will be profit taking in the very short term but I don't expect the long term turnaround to finish.
Look for the market to show uncertainty over the next week or two but strength in the months ahead. This strength will be driven by a change in investor psychology, resolution of problems in Europe and a slowly improving global economy. We should not underestimate the potential for stimulus that tends to comes with a US Presidential election.
What we have seen in recent weeks is a move away from the high correlation between assets. Stocks are not all moving together the way they did for the latter half of 2011. Individual stocks are able to make strong, market beating moves if they capture the attention of investors.
I continue to seek out stocks that show abnormal trading activity out of otherwise boring trading. It is reasonable to expect good things when stocks make a strong price gain on heavy volume after trading very quietly for some time.
Remember that stocks and markets do not move on what has happened, they move on what investors expect will happen. Looking at headlines has little use because that information is already priced in. Always look forward and what change is coming when you are analyzing any stock or market.
It is difficult to buy stocks when there is no apparent reason to do so. The emotionally hard trade is usually the right one to take, waiting for everyone to agree that a stock is good means you are getting in too late. To be successful, you have to buy in to the risk phase, not the reward phase.
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This week, rather than describe how I found the featured stocks, I have created a video for you to watch by clicking here. This video is under 3 minutes long and shows the process and Market Scan settings I used to find the stocks below:Back To Top
1. V.AUN
V.AUN had a strong week with strong volume this week, moving out of a pennant pattern on the weekly chart. Support is at $0.68.
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2. T.PKI
T.PKI is moving through long term resistance and is showing good upward momentum. The stock also yields 7.45% historically.
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3. T.ACM.A
T.ACM.A is breaking from a rising bottom on the weekly chart this week and is showing more volume than normal, a sign that the buyers are interested. Looks good to move higher and has an historical yield of 2.8%
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References
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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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