Trade With a Look Ahead, Not Back
Stockscores.com Perspectives for the week ending May 18, 2013
In this week's issue:
Stockscores Market Minutes Video
Stocks don't always do things that make sense. This week, Tyler looks at how strong some stocks can be and the importance of patience. Watch it on YouTube by clicking here.
See Tyler's interview on BNN from Friday May 10, click here.
Michael Campbell, host of the Money Talks syndicated radio show, is hosting the Emergency Gold Summit in Vancouver on May 23. For more information on the conference, click here.
This Week's Trading Lesson
Most investors tend to evaluate stocks by looking at what the companies behind them have done in the past. They look at the information that is out there and make a judgment on whether the stock is good or not.
Unfortunately, the market does not really care about what a company has done in the past, it is focused on what it expects the company will do in the future. The market looks forward while many investors are looking backward.
Investors often say that what a company's stock is doing makes no sense. This is because they are judging the movement of the stock with the information that they have, which is generally old information, rather than the information that the people who are moving the price are using.
Consider the recent price movement in Gold. There are many people who argue that the recent collapse in Gold prices is unjustified, that is must soon bounce back and resume its long term upward trend. The base of their argument is that central banks continue to print money, which will be inflationary eventually, and that will lead to a price increase in Gold.
The assumption is that the drop in the price of Gold is caused by the market making a mistake about what determines Gold price. Is that the case? Isn't the price of Gold driven by the people who buy and sell it?
We do not know today why Gold has suffered such a significant price drop. It may be that a central bank is selling Gold to raise cash. It could be that a large hedge fund is being forced in to selling Gold because the fund is over levered. It may be that investors are eager to move money out of what is not working and in to something that is.
The point is, we are not smarter than the market. Our outlook on the price of something could be based on sound and intelligent analysis but we are still destined to lose if the market does not share the outlook.
I have found that the more obvious the outlook, the more popular the opinion, the less likely the expected outcome. When everyone agrees something is likely to happen, it often does not.
Many argue that the price appreciation in US large cap stocks right now does not make any sense and is unjustified. That may be so but as it is right now, the market does not agree. Until that changes, do not fight the trend.
The stock market is a place where people argue about price. The buyers buy because they think the stock is worth more and the sellers sell because they think the stock is worth less. There are thousands, even millions of people involved in this debate, making the market very efficient at pricing in new information.
If you want to beat the market, you have to look forward and figure out what will be important to the buyers and sellers in the future. The best way to do that is to get information that most investors do not have. Since that is a hard thing to do, the easier alternative is to follow the message of the markets. Don't try to be smart, just follow the actions of the market using basic chart analysis.
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I continued applying the idea of analyzing the longer term, weekly chart, for picking stocks using the Stockscores Market Scan this week. First, I set my default chart view to weekly using the chart tab found below the large chart on the Stockscores site. I then ran the Stockscores Simple and Abnormal Breaks scans to identify stocks showing optimism and potentially good patterns. Not too much came up this week but here is one standout.Back To Top
1. LIWA
LIWA broke through resistance on Friday from a rising bottom, a sign of optimism and excitement. The long term weekly chart shows the stock in the early stages of a long term trend reversal. This is a longer term position trading idea. Support at $4.95.
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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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