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Newsletter Sponsor - Trade Freedom
The Stockscores Trading Clubs will be starting again in Calgary and Vancouver in September (tentatively the 8th for Calgary and the 9th for Vancouver).
The Toronto Stockscores user group will be meeting Thursday, August 26 from 7 till 10 pm. I won't be at this meeting (I hope to come out to Ontario soon) but I am hearing that the meetings are going well and good trading ideas are being shared. The location is:
Humber College
203 Homber College Blvd
Guelph Humber Building
Room GH122 Ground Floor
Enter in Driveway A and park in Lot 3
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Stockscores.com Perspectives
For the week ending August 14, 2004
In this week's issue:
There are two factors that affect the future price movement of a stock; factors relating specifically to the company, and those that relate to the general economy. Many investors focus on the individual characteristics of the company and forget that all stocks have some correlation to the overall market. Good companies have difficulty doing well if the overall market is going down. And in a good market, even bad companies can go up. Rather than a market of stocks, it truly is a stock market.
This point can be seen more clearly by comparing a stock with a very strong market correlation to the overall market. If you enter MSFT,QQQ on Stockscores, you will see a chart of Microsoft compared to the Nasdaq 100. The chart will show you that MSFT and the overall technology market tend to move together.
You will also see that MSFT has performed better over the last six weeks than the general market. That tells me that investors like MSFT better than the general technology market right now.
That presents a trading opportunity, because it implies that in if the technology market were able to make a bottom and begin to move higher again, MSFT would probably lead that advance upward.
This way of looking at the market is not restricted to longer term trading only. When I day trade, I always look at how a stock is performing relative to the overall market index.
For example, on Thursday, CYBX gapped down significantly on the open, and was trading very abnormal volume. While it was very weak at the open, it managed to hold up quite well through the first couple of hours of trading, while the overall Nasdaq market was weak. With this in mind, I felt that CYBX would rally if the Nasdaq in general could turn higher. It seemed like the weakness in the general market was holding CYBX back from going higher, but if the market could bounce, then CYBX would rally to the upside with greater intensity.
With this in mind, I accumulated 10,000 shares as the clock approached 11 ET. The Nasdaq had hit support at the previous day's low, and seemed to want to bounce back. My trade was based on short term optimism in CYBX fueled by a bounce back in the general market.
Soon after entering my position, CYBX managed to break from a good chart pattern and moved up about 60 cents. A bullish intraday chart on CYBX was able to break out because the general market also rallied.
When trading, it is important to not look solely at the stock you are considering, but also the overall market. Focus on where the market has support and resistance, and how the stock you are considering is performing relative to the overall market. Consider buying strong stocks if the overall market is near support, and shorting weak stocks if the overall market is near resistance. Particularly on larger, liquid stocks, this approach works very well.
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Stocks go up in price because investors are willing to pay more. Investors tend to buy companies that they are optimistic about, so it is important to measure whether investors are generally optimistic or pessimistic about a company. Stock charts can provide many clues about the mood of the market. For example, rising bottoms on a stock chart indicate greater enthusiasm among buyers than sellers.
The Sentiment Stockscore considers these kinds of chart pattern factors, and provides an indication of whether investors are showing optimism or pessimism. I have found that stocks that have a Sentiment Stockscore moving through 60 and rising tend to continue to rise as investor optimism carries them along.
The Sentiment Crossover Market Scan seeks stocks that have their Sentiment Stockscore crossing in to the 60 and greater zone after a lengthy period below 60. If this occurs, and the stock does not have significant overhead resistance, then there is a good potential for a future uptrend. By limiting downside potential with a stop loss point just below a short term support price, investors can better manage risk while leaving the potential for price gains.
This strategy is good for identifying longer term trades that do not require constant monitoring. The criteria are relatively simple, and a regular check of positions for an exit signal may only take a few minutes.
I ran this Market Scan on Friday, and found three NYSE stocks that have decent potential in an otherwise weak market.
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1. PMT
Rising bottoms over the past four months indicate that optimism is picking up. Friday brought a break through some resistance that may begin a short term up trend. This is a conservative trust unit that won't move very fast, but has decent potential to go higher in the months to come.
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2. MGF
MGF is another Income Trust with a very similar chart. Rising bottoms and a test of resistance, a break from here could see it move up to the next level of resistance around $6.75.
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3. VHI
VHI recently broke its down trend and is now breaking from a rising bottom, a good turnaround chart pattern. While there is overhead resistance for this stock to work through, the mood of the market does seem to be turning favorable for this company.
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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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