Find Strong Stocks with the Sentiment Stockscore
Stockscores.com Perspectives for the week ending March 5, 2013
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SCATE 2013
The 2013 Stockscores Canadian Active Trader Expo is coming this Spring.
Victoria, Vancouver, Calgary, Edmonton, Toronto, Montreal.
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| Lose Your Mind and Trade Well |
The Mindless Investor
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In this week's issue:
Read Chapter 1 of The Mindless Investor book now
The dedicated page for my book, The Mindless Investor, is now up, view it by clicking here. You can read Chapter 1 and purchase the hard copy or electronic version right from this page.
Stockscores Market Minutes Video
Capital preservation is the name of the trading game. Avoid big losses but also avoid having your capital stuck in lousy stocks. This week's Market Minutes video discusses some of the ways you can preserve your capital. Watch it by clicking here. To receive email alerts any time I upload a new video, subscribe to the Stockscores channel at www.youtube.com/stockscoresdotcom.
This week's Trading Lesson
Strong stocks in strong sectors have a better potential to go up than strong stocks in weak sectors. A large portion of a stock's performance is based on the movement of the industry group that it is part of. You can use the Stockscores indicators to help understand what industries investors are optimistic on and which they do not favor.
First, a quick lesson on how the Stockscores indicators are calculated. Every stock, index or ETF that we cover is given 50 points to start. Points are added for chart characteristics that are good and deducted for negatives. For example, breaks through price resistance indicates buyers are stronger than sellers and so the algorithm awards points when this happens. A downward sloping moving average is a sign that the sellers are in control so points are deducted when this happens. I created the algorithm with about 15 different metrics that can be measured from market activity, each awarding or deducting points based on whether that metric was a positive or negative signal of future price direction.
This algorithm defines the Signal Stockscore which tends to bounce around quite a bit. To smooth out the line, the system then calculates a 7 day exponential moving average of the Signal Stockscore to produce the Sentiment Stockscore. This is the important number to watch.
A Sentiment Stockscore above 60 indicates that investors are generally optimistic about the stock, index or ETF. One below 40 indicates the market is pessimistic. The sweet spot is to find Sentiment Stockscore lines, which can be seen on any Stockscores.com chart, sloping upward and crossing through 60. You should then look to the price chart to see a confirming price pattern where stock price is moving up through resistance from low price volatility.
I don't recommend buying a stock just because it's Sentiment Stockscore is 60 or higher but I do find that strong, market beating stocks, tend to have solid Sentiment Stockscores early in their trend. The Stockscores indicators are a great way to provide a quick reference for the strength or weakness of a stock. I encourage you to prove this to yourself by checking the charts of stocks that have done well over the past 6 months and compare them with stocks that have done poorly.
You can check the Stockscore for most North American stocks, ETFs and indexes by entering the symbol in the upper right hand corner of Stockscores.com. The Stockscore algorithm requires 200 days of data to calculate the Stockscores indicators so newly listed companies will only display a chart and not the indicators.
For most liquid stocks, we also display the stock's sector. When you enter the company symbol on Stockscores.com, you will see the stocks Quick Report which displays the chart and a number of information tabs. One of these tabs is labeled Sector and, for most larger companies, you can see the chart and Stockscore of the company's sector as well. This allows you to seek that second confirmation that a stock is worth considering.
For example, over the past few months, gold mining stocks have performed miserably. The charts of these stocks all show that the Sentiment Stockscore has been below 60 while this market fell lower. Check the charts of most stocks in the gold sector to see what I mean (try T.IMG, GG, T.ELD, T.YRI as a few examples). Avoiding stocks with Sentiment Stockscores of less than 60 kept you out of these names.
Radian Group (RDN) has been a big winner the past few months, doubling since December. It's Sentiment Stockscore has been above 60 for the duration of the upward trend.
You can review the charts of any North American stock and see the Sentiment Stockscore for free. Just enter the symbol in the box at the upper right of the site. Canadian symbols require a prefix, T. for the TSX and V. for the Venture. Members can use the Sector Watch to see what areas of the market are strong and the Market Scan to screen the market for stocks that have good Sentiment Stockscores or perhaps those that are just crossing above 60 today.
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This week I ran the Abnormal Breaks US and CDN scans to find stocks making abnormal price gains from good chart patterns. Most of the stocks that the Market Scan found were already well in to their upward trends but a few look like they may be starting new trends now. Below are a few charts that I think have potential:Back To Top
1. SVU
SVU has some upward momentum already but has been trading sideways through most of February. Today it broke to the upside late in the day with volume increasing in the last hour, a sign that investors are excited about something. Support at $3.90.
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2. V.LAR
V.LAR does not have a great chart pattern but it really came alive today with abnormal price and volume action and the Sentiment Stockscore is just starting to cross through 60.
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3. T.TMB
T.TMB has been building a pennant pattern over the past two months after making a quick jump higher late in December. The stock is breaking out of that pennant today, support at $2.95.
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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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