Hot or Not - How to Find The Hot Stocks of the Future
Stockscores.com Perspectives for the week ending October 7, 2013
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BC and Alberta Events
Coming this November, in depth educational events focused on the Stockscores Approach to finding winning stocks. Details to be released soon.
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In this week's issue:
Stockscores Market Minutes Video
This week, I show how abnormal trading activity precedes strong up trends and how to use the Stockscores Market Scan tool to find it, plus my regular weekly analysis. Watch the video by clicking here.
BNN
Tyler Bollhorn will be on Canada's Business News Network (BNN) on Thursday at 3:30 ET discussing his approach.
Survive and Thrive 2014 - Calgary
Tyler will be speaking at the Survive and Thrive 2014 conference in Calgary presented by Michael Campbell's MoneyTalks. For more information and to register, click here.
Finding Hot Stocks with the Stockscores Market Scan
Most stocks that make the steep, exciting upward trends that we all want to be part of start those market beating trends with abnormal price activity. I want to show you what to look for and how to find these stocks early in these trends.
First, consider that each of the top 10 performing stocks on the TSX over the last 60 days started their trend with a day of statistically significant price gain which was usually accompanied by statistically significant volume. By statistically significant, I mean the price movement or trading volume is not something that the market would see 95 days out of 100. It only happens 5% of the time.
For example, here is the chart of Tekmira Pharmaceuticals (T.TKM) which was trading around $5 three months ago. Today it closed at $10.98 with the majority of the price gain coming over the past three weeks. The stock made an abnormal price gain with strong volume on Sept 16, closing that day at $6.13. That represents at 79% gain from the abnormal day to now.
Among the top ten winners are T.COM, T.STP, T.PLI and V.KLH. All showed abnormal activity early in their upward trends.
Why does abnormal activity telegraph strong trends?
Strong price trends are driven by important changes in the fundamentals of the company's business. It could be a mining discovery, successful treatment for a disease or an exciting new product. The market starts to trend when information about the fundamental change reaches investors. Those who follow the company the closest pick up on the information first and buy the stock aggressively, causing the abnormal activity. The strong price trend is driven by the spread of information from those who know the most to the general public.
The key is to catch the stock early and abnormal activity is our best clue. The Stockscores.com Market Scan has filters for abnormal price and volume behavior. You can scan the entire market for stocks making abnormal price moves starting about half an hour after the market opens each day.
The Stockscores Market Scan has the filters to scan the entire market for abnormal stocks and high Stockscores.
While most stocks that make strong price trends start with abnormal activity, not all abnormal activity leads to strong price trends. We need to add other criteria to increase our probability of success.
I have found that it is important to look at the chart of stocks making abnormal price action and check whether the stock is also breaking from a predictive chart pattern. T.TKM broke out from a pennant pattern which, because this is a pattern that often leads to price trends, helped to make it a better pick than other stocks.
I also use the Sentiment Stockscore indicator to shorten my list of candidates. Abnormal price gain combined with a Sentiment Stockscore of at least 60 will get better results than abnormal activity alone. By being more selective, you will miss some of the big winners but your success rate overall will be higher. For example, one of the top 10 performers over the past three months is Air Canada (T.AC.A) but it's burst of abnormal activity came on a day when the Sentiment Stockscore was below 60. It did well, but most stocks that show a similar chart pattern will not.
These examples are all based on daily charts on the Canadian stock markets. I have done similar studies for stocks listed on the US exchanges and got similar results. Since the US market has done better overall over the past 60 days, the results have actually been better with bigger gains and more winners.
You can use this concept for long term trading, looking at weekly or even monthly charts. The weekly chart Yelp (YELP) made an abnormal gain the week of May 3 2013 and has since gained 125%.
I also use abnormal activity for day trading, focusing on the stocks that start the day with abnormal volume and price action and then ride the trend that continues through the day. It is not uncommon for some hot stocks to make double digit percentage gains from early in the day until the close.
The great thing about this approach is that it does not take long to find abnormal stocks. The Market Scan gives you a list in seconds and that list updates throughout the day as stocks show abnormal activity.
You can do a free 14 day trial of the Advanced tools on Stockscores at this page.
You can see the process carried out in this week's Market Minutes Video, click here to view.Back To Top
Each day, I look for stocks showing abnormal activity. A few times a week, the combination of abnormal performance and a predictive chart patterns presents a good trading opportunity. Here are a few that I have found recently which still have good potential:Back To Top
1. T.QRM
The Rare Earths sector has been showing life lately and T.QRM has been making some abnormal moves as a result. This is a turnaround chart as the stock made a break from a rising bottom after recently breaking its downward trend line. As an early stage reversal, it will take time to play out but the recent trading activity in the stock and the sector are positive.
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2. MTSN
MTSN made an abnormal price gain with abnormal volume from a Rectangle Consolidation pattern five days ago. That gives it a very good chance of moving higher from here, as long as support at $2.40 is not violated.
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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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