|
| Upcoming Events |
Stockscores Trading Club - Toronto
The Toronto Stockscores Trading club will be meeting on April 29th at 7:00 pm at:
Humber College
203 Humber College Blvd
Guelph Humber Building
Romm GH122 Ground Floor
Enter in driveway A and park in Lot 3
I will not be present at this meeting this time, but hope to come in the future. There is a good group of traders in the Toronto area, and hopefully many of you can get together at these meetings to share trading ideas.
|
|
Stockscores.com Perspectives
For the week ending April 17, 2004
In this week's issue:
While technical analysis offers hundreds of indicators all designed to offer some insight in to the future direction of a stock's price, one cliché rings true for successful stock traders.
A picture is worth a thousand words.
Reading chart patterns is a basic skill that all stock traders should master, for no single technical analysis indicator has made me money in the way that understanding chart patterns has. My approach to stock selection is simple; find stocks with good chart patterns and ignore most other aspects of stock analysis. Amazingly, the ability to read stock charts only requires the mastery of six simple concepts.
Support - this is a floor price that investors have established for a stock. Based on all fundamental information available to investors, this is the lower boundary for what investors are willing to accept for the stock. It is the bottom line, and is important because a break through the bottom line often signifies new and negative information, or a change in investor psychology.
Resistance - the exact opposite of support, resistance is the ceiling price that investors have established for a stock, and represents the maximum price investors are willing to pay for a stock, based on all the fundamental information that they have to judge. Breaks through resistance are often motivated by new, fundamental information in the hands of some investors who can then justify paying more for the stock.
Optimism - it has been said that investors should never fight the trend of the market. Ideally, we want to buy stocks that the market is optimistic about, since this optimism will help the stock to move higher. Optimism is characterized by rising bottoms on the price chart of the stock.
Pessimism - if the investment community is in a bad mood about a particular stock, that stock will not likely move higher since few investors will see the company's fundamentals in a favorable light. We can see pessimism on a stock chart if there are falling tops in the price behavior.
Volatility - volatility equals uncertainty. Investors are not really sure about what the stock is worth if the stock's price volatility is high. Therefore, the market has come to some consensus on what the company is worth when there is relatively less volatility in price. Most good chart patterns show breaks from low price volatility, because breaks from low price volatility often occur when there is significant fundamental change in the company's business.
Abnormal Behavior - as new information becomes available to investors, price and volume behavior often become relatively abnormal. The reality of the stock market is that it is not fair, and some investors have access to information before others. When these investors act on new information, they often create abnormal activity.
Good chart patterns are comprised of some combination of these six factors. For example, breakouts from Ascending Triangles often telegraph an up trend. Ascending Triangle Breakouts are defined as follows:
1. Rising bottoms on the stock chart, showing optimism.
2. A horizontal line of resistance at the top of the chart, showing an upward limit on fundamental value.
3. A movement from high price volatility to low price volatility over time, signifying an increased consensus among investors on what the company is worth.
4. Abnormal price and volume activity on the day that the stock breaks through the resistance price.
There are many chart patterns that have the predictive ability of Ascending Triangles. The Stockscores Approach was created around high probability chart patterns; good chart patterns will usually have good Stockscores. Essentially, the Stockscores indicator is based on Support, Resistance, Optimism, Pessimism, Volatility and Abnormal Activity. While chart patterns are difficult to define mathematically, it is possible to assign points to these six characteristics of chart patterns, and we have combined them to create the Stockscores.
Chart patterns are relatively easy to understand, and with practice, easy to identify. The StockSchool Pro home study training course teaches what good chart patterns are and how to find them. It teaches specific strategies for using Stockscores.com to identify high probability chart patterns to make money in the market. For more information, go to the Educational Products area of Stockscores.com.
Back To Top
This week, I highlight two stocks that show the various chart pattern components. I did a variety of Market Scans on Stockscores.com to find one stock that looks likely to go higher, and another that appears likely to go lower.Back To Top
1. ADBL
The market has not been willing to pay more than about $4.25 for ADBL over the last six months, but Friday found a reason to do so. This abnormal activity may be a sign that there is significant fundamental change coming. The stock is breaking from low volatility, which means that investors were comfortable with the valuation that they had given to the stock. Tthe rising bottoms on the recent portion of the stock chart indicate that investors are feeling optimistic about what the company is doing.
Back To Top
2. ONNN
ONNN was enjoying a nice uptrend until about two months ago, when the uptrend was broken as the sellers began to accept lower prices. This created the falling top patttern, which is actually the right shoulder of a head and shoulder pattern, and a sign of pessimism. $7 support at the neckline was broken Friday, indicating that some investors have found motivation to sell the stock. The Sentiment Stockscore is below 60 and falling, another sign of pessimism.
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
|
If you wish to unsubscribe from the Stockscores.com Weekly Perspectives or change the format of email you are receiving please visit here. Copyright 2003 Market Perspectives Inc.
|
