Trades Don't Have to Make Sense
Stockscores Foundation for the week ending February 3, 2026
In this week's issue:
In this week's issue:
In This Week’s Issue:
- Market Outlook – Bursting Bubbles
- This Week’s Market Minutes video – Gold and Silver Crash, Are Stocks Next?
- Trader Training – Trades Don’t Have to Make Sense
- Strategy – 2 Low Priced Gainers
Market Outlook – Bursting Bubbles
The hot market in Gold and Silver saw a collapse last week as someone yelled fire and everyone ran for the exit door at the same time. While the long term trend remains up, breaks of parabolic trends usually market a high so I expect we won’t see new highs anytime soon. There will probably be volatility in the group but only savvy short term traders should try to take advantage of that. Meanwhile, the overall markets are quiet but stable, allowing strong stocks to do well but most stocks to be pretty boring. Be picky about the trades you take as the buyers lack enthusiasm.
This Week’s Market Minutes Video – Gold and Silver Crash, Are Stocks Next?
The big price drop in gold and silver this week, many are concerned about a stock market crash. This week, I teach the key signals that predicted the drop in Gold and Silver and whether those apply to stocks. Then, I provide my analysis of the overall markets and the trade of the week on FEED.
CLICK HERE TO WATCH ON YOUTUBE
https://youtu.be/m37LaKqMPjA
Commentary – Trades Don’t Have to Make Sense
For as long as I have been a stock trader, there have been “head scratching” moments when the market did something that made little sense. Stocks that go up on bad news or down on good news happens often. Understanding a few simple lessons that I have learned the hard way will help to explain why.
The Market Does Not Care Much About the Past
The stock market predicts, it does not react. Investors consider all available information to predict the future earnings of companies. It is like a giant polling tool, taking in the opinions of millions of investors to determine what stocks are worth.
So, when a company announces something positive, and the stock goes down, it is not because investors are irrational. This happens because the market already predicted the positive news before it came out. Often, stocks go up before the news as some investors, with better access to information, anticipate what the news will be.
How People Judge Information Depends on their Mood
The value that the market gives to information will depend on whether investors are feeling optimistic or pessimistic. Their mood is mostly influenced by the direction of the market.
This is why I always encourage investors to look at the chart of the market and the stock that they are considering. Are there rising bottoms on the chart or falling tops. Rising bottoms mean investors are optimistic and falling tops are a sign of pessimism. Buying pessimism is like trying to catch a falling knife.
If the stock is trending up and the company announces news, it is more likely that the market will judge the news favorably. At least until expectations are much higher than what the news justifies.
Parabolic Trends Are Bubbles Waiting to Burst
Investors buying on positive news and general optimism has a limit. Stocks in up trends can continue higher for some time, carried by the positive momentum. However, when the trend gets steeper and price runs up and away from the trend line, there is an increased chance that the stock, or market, will have a downward price correction.
This is because expectations get very high and a broad range of investors have bought the stock. Eventually, there are just not many more buyers to take ownership and the stock can quickly collapse, even when the story remains positive. Hold linear upward trends but get ready to exit when the trend goes parabolic.
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Here are two stocks that I think have good chart patterns for gains provided they can hold above support.
1. GERNGERN breaking a downward trend line from a rising bottom with stronger volume today. Position trade with support at $1.28.
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2. CGTLCGTL made a strong push higher in the first half of January and then went into a profit taking pullback. That pullback has been broken, setting up for a rise toward $6 resistance. Position trade with support at $2.95.
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