The Market Signals Big Price Moves
Stockscores.com Perspectives for the week ending July 31, 2012
In this week's issue:
The market never lies. It is amazing how often people trade stocks with the benefit of inside knowledge. Today I read an article about a trader who bought 2000 out of the money call option contracts of Shaw Group (SHAW) at $0.25. Today, it was announced that Shaw is being bought for $46 a share. Those options went up to $14, a 5600% return in just a few days. I am sure the securities regulators are looking in to that trader.
I have bought AUTH a few times in the last couple of weeks because it too was trading abnormally, this time in the stock market. Abnormal price gains with abnormal volume point to something going on at the company and when it happens twice in two weeks, you have to wonder what is up. Friday brought the answer, the company is being bought by Apple (AAPL). The stock moved from $5 to $8.50 in a single day. For more on this take a look at this week's Stockscores Market Minutes video which you can watch on YouTube by clicking here.
It is illegal to trade on inside information but it is not illegal to trade off of market activity. The market is giving you a message, listen to it! Each day I look for stocks trading with abnormal price action and abnormal volume. You can do this using the Stockscores Market Scan tool, I created specific filters for this. It takes about 10 minutes to search the entire market for stocks that are trading abnormally.
I like to see stocks that start trading abnormally out of very quiet trading with no apparent reason. From the list of stocks that the Market Scan finds, I inspect the charts to see which show a market that is surprised by something. I don't want to chase stocks that have been going up for a while, I want to find those that the market has not noticed yet, where the abnormal activity is being driven by a still small group of people.
Abnormal action is not always driven by a company buyout, it can often be some other significant fundamental event. A couple of weeks ago I found STEM trading abnormally shortly after the open of trading. It nearly doubled in price since. To be frank, I have no idea why.
The reason does not matter, as traders we are concerned solely with where price goes. I often say that my definition of a good company is one that goes up after I buy it. Focusing on abnormal trading action can often point you in the right direction toward that pursuit.
Back To Top
The Energy Sector is turning around nicely now that oil prices have bounced back from oversold conditions. In the past few days I found a number of lower priced Oil and Gas stocks showing signs of reversing from their long term downward trends. On Friday, I featured one of these stocks to the readers of my daily newsletter (available at www.tradescores.com).
Some of the best looking charts in the Energy sector are in companies with a focus on Natural Gas. This commodity has had a dismal performance over the past 5 years. The high was in mid 2008 when the United States Natural Gas Fund (an ETF based on Natural Gas, UNG) was trading at a split adjusted $500 a share. In April of this year it nearly hit $14 a share.
Natural Gas has been building rising bottoms since June and now the NG weighted stocks are showing signs of reversing. Below are a couple of charts worth considering for longer term holds on a turned around in Natural Gas.
Back To Top
1. T.ERF
Enerplus is not all Natural Gas but it does have a heavy weighting in its portfolio. The chart is building a good ascending triangle through July and a break through $14.50 would indicate that an upward leg is likely coming. Historical yield is 7.68%. Support at $13.50.
Back To Top
2. T.GAS
T.GAS is an ETF based on Alberta Natural Gas. It broke through some resistance today and looks like it has good potential to continue higher in the weeks ahead. Support at $11.75.
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
|
