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Stockscores Trading Clubs
The Stockscores Club Meetings are a great way to get an introduction to the Stockscores Approach to trading the markets, and meet others with an interest in stock trading. Each month, our groups meet to discuss trading methods and promising opportunities. The first meeting you attend is free, after that, the fee is $10 per meeting.
Calgary Stock Trading Club Meeting
Wednesday, September 8, 2004 7:00 - 9:00
University of Calgary, Murray Fraser Hall Room 160
Register Here
Vancouver Stock Trading Club Meeting
Thursday, September 9, 2004 6:30 - 8:00
Best Western Abercorn Inn, Richmond
Register Here
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Stockscores.com Perspectives
For the week ending August 29, 2004
In this week's issue:
For a long time, I have considered support and resistance as horizontal lines on a stock chart, defined by highs and lows established in the past. The more times that line was touched, the more important the floor or ceiling price was. Breaks through support or resistance were considered important, for they were often caused by significant changes in the fundamentals of the company, or perhaps a shift in investor psychology. But in recent weeks, I have started to think differently about support and resistance.
Slow markets are viewed by most investors as a drag, a limit to profitability. However, when the markets go in to a slow period like we have seen this past week (trading volumes were at their lowest for the year last week), good traders work to find new approaches to making money. Necessity is the mother of invention, and a quiet market is difficult to trade unless you can find a new way to approach it. I typically work on new trading methods when the market is slow.
While trading activity was slow this week, I was able to achieve a very high success rate in my trading this past week. It is hard to always make profitable trades, but this week, I would guess that I was profitable 80% of the time. For a very slow week, that was pretty good. Most of my trades were based on a very simple set up based on a slanted view of support and resistance.
If you took at stick, and laid it down on the highs of a stock that is trending downward, you would have a downward sloping line of resistance. If you took at stock that was trending upwards, and pushed a stick up against the bottoms of the upward trend, you would have a line that was sloping upwards. Not a conventional, horizontal line of support or resistance, but a line defining the psychological limit of investors just the same.
Stocks don't fall forever. Stocks don't rise forever. If you are short a stock that is falling, eventually you want to convert your paper profits in to real money, so you cover the short. If you own a stock that is rising, eventually you want to sell it and take your profits. This causes the market to move in waves, with pull back waves in the midst of the primary trend. These breaks of the primary trend are reliable ways to trade.
If a stock breaks its upward trend line, it tends to behave pretty predictably. A stock that is in an up trend will have a group of traders take profits, causing a break in the uptrend. Other traders will doubt the stall, and continue to buy while the optimism is shifting to pessimism, causing a brief stall after the break of the uptrend. Then, traders inflicted with a bit of pessimism sell on the next sign of weakness, and a more substantial sell off occurs, often pushing the stock down to the next level of horizontal support. For certain stocks, it happens over and over again, and is pretty predictable.
Therefore, it makes sense to short sell the stock that breaks it uptrend, and is working through the stage of second guessing that typically follows for a brief period. This strategy works particularly well if the overall market is also at a point where it appears likely to go lower.
Conversely, you can buy stocks that break their downward trend line, accumulating them at that brief period when sellers second guess the strength.
I applied this strategy by day trading a particular group of stocks this past week, and found it to be very effective. You don't only have to look to buy stocks breaking through horizontal resistance, or sell stocks breaking below horizontal support, the break of sloping trend lines is also important.
Support is a psychological threshold among investors, and it can be an upward sloping trend line. If that trend line is broken, short sell the stock. Resistance can also be a downward trending line that consistently resists buyer pressure. A break of that downward trend line can be a reason to buy. There is more to the strategy than that, and I will share the details with our members on the Stockscores Chat next week.
I hope this helps.
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Stocks rarely make V shaped bottoms after a downtrend. Instead, the reversal process tends to work in three stages. First, the downtrend is broken. Second, there is a price consolidation phase and finally, a break through resistance from a rising bottom. The Bottom Fishing Strategy and Market Scan seek stocks that may be reversing long term downtrends, presenting an opportunity for longer term traders.
Since the market is showing signs that it may want to go higher through the Fall and in to Christmas, I ran this Market Scan to see if I could find some opportunities. The Market Scan identified 26 candidates, of which the following stood out as worth considering:
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1. GMST
GMST recently made a Sentiment Stockscore crossover, and Friday it broke through $5 on more volume than normal. The rising bottoms on the stock chart indicate that optimism is picking up, and it looks like this stock can move toward the next resistance level around $6.50 - $7. Support is at about $4.75.
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2. GDT
GDT shows a good example of a head and shoulder bottom pattern, with a break through the neckline resistance on Friday. Falling tops have switched to rising bottoms, indicating investors are beginning to become optimistic.
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3. AMC
AMC made a recent Sentiment Stockscores Crossover above 60, and the stock is now breaking through resistance after a period of low price volatility. The stock looks like it can move up to the next level of resistance at $18
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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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