Are You Guessing?
Stockscores.com Perspectives for the week ending October 2, 2004
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In this week's issue:
I meet a lot of people that invest in the stock market. On the golf course, at parties, through friends; when people hear that I am a stock trader, they open up to me about their own investing style.
Many trade on tips, most try to know something about the companies that they buy. Some will look at stock charts and a few have "experts" making their investment decisions for them. But one thing I have found to be constant among most retail investors is their surprisingly simple method:
They guess.
When all is said and done, most people don't really understand what they are buying, or know if they have a good chance of being successful or not. In good markets, they do well and think they are smart. In bad markets, they give back the gains they had in the good times, and blame the stock market for their woes. But in all markets, most investors just make a guess.
I have never understood why schools don't teach people how to analyze stocks. I went to a good University, got a degree in Business with a concentration in Finance, but I don't think I learned a single thing about how to picks stocks. With the importance placed on saving for retirement, shouldn't we at least be taught something?
When you think about all the biases that exist in the financial arena, it is no wonder that so many investors have lost money in the stock market. With a lack of knowledge and experience, many get taken advantage of because they just don't know any better.
While most people do not expect to be right all the time when investing in stocks, many people fail to realize that trading stocks is a game of probability. To be successful, you have to understand what the probabilities of being right are on a particular stock, and limit your downside potential when you are wrong. If more investors followed what was said in that one short sentence, more investors would be doing a lot better in the stock market.
If you are analyzing a stock, and get to a point where you are really not sure, but decide to "go for it" anyway, I have some advice for you. Take the money you are going to put in to the stock and fly to Las Vegas. At least there they will give you a free drink while they take your money.
I believe it is so important for people to make their own investment decisions. It is a simple fact that no one cares more about your money than you, so shouldn't you understand how to invest your money? But if you decide to take control of your own investment decisions, please learn how to do so. The cost of guessing is just too high.
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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.
This is a free market scan that anyone can use. Since the overall market is making a Sentiment Crossover today (the Nasdaq, QQQ), I think now is an excellent time to use this strategy. Historically, the market performs the best from October till May, so I think now is a good time to start looking for opportunities again after a slow year.Back To Top
1. ORCL
ORCL's down trend was broken earlier in the month, and now the stock is breaking from a rising bottom with good volume support. Support at $11, next level of resistance at about $14.
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2. FLEX
FLEX is forming a rising bottom consolidation after breaking its downtrend recently. Volume traded on the stock is picking up this week, and I think this stock has very good potential to break higher from this consolidation phase. If the stock breaks below support at $12.50, I would consider this to be a bad pick.
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3. NVDA
NVDA has a similar chart to FLEX, with a rising bottom consolidation forming after a lengthy downtrend was broken recently. Support at $13.50, with upside potential to about $22.
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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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