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Stockscores.com Perspectives
For the week ending September 26, 2003
In this week's issue:
Most of us would agree that it is risky to jump off a cliff, or to drive a car too fast on icy roads is pushing risk a little too far. When it comes to day to day life, and risking our lives doing stupid things, all but the most masochistic of people accept responsibility for risk. Playing with guns is risky, so we don’t do it. Pretty simple.
Oddly, when it comes to the stock market, we blame risk on the stock. We describe stocks as risky, as if they determine whether we win or lose. Many investors, with the bear market of the last three years fresh in their minds, have chosen not to invest in stocks at all because they are “too risky”. Understandable I suppose, when you consider the number of people who have seen their stock market investments decimated.
Unlike our ability to avoid high cliffs or travel in hostile countries, we tend to not accept responsibility for risk in the stock market. It is this sort of passive acceptance of risk that is the very root of our stock market troubles. What is stock market risk? How can we protect ourselves from it?
All stocks have some volatility in price. It is price volatility that gives us the potential to earn a return on an investment. Some stocks routinely move 10% up or down in a week, while others will barely do that in a year. Most investors, when considering risk, are really talking about the volatility in the price of the stock. A volatile stock is deemed more risky than one that does not fluctuate much in price.
However, let us remember that we as investors have some control. Just as we can avoid jumping in front of an oncoming subway train, we can also avoid taking big losses in the stock market. If we buy a volatile stock, one that is described as risky, it is really only risky if we are willing to tolerate a significant price move to the downside. After all, we do have the choice to sell the stock when it gets to the threshold of our risk tolerance, don’t we?
Ahh, but it is not that simple. You see, we as humans are not that clear thinking or rational. We have emotion, and emotion causes us to hold on to losers past our risk tolerance. We hope that our losing stocks will turn around, we dance with danger like a puppet guided by cruel hands. And if our losing stocks don’t turn around, we pass on responsibility for our loss by saying that the stock we bought was just too darn risky.
All investors should remember that stocks have no morality. They have no voice on their future, they are not out to get or reward you. They go up, they go down and you can not do a whole lot to influence when they will do either. The moment you give them the power to determine your risk, you are destined to lose.
Only the investor can control risk. You have the power because you can choose to sell losers when they have gone too far against you. Each investor should determine how much they are willing to lose on any one investment before they purchase a stock. If that stock gets to the risk limit, let it go. No different than refusing to send money to a Nigerian doctor looking to liberate money from his country, or not signing up for the pyramid scheme that your nephew’s friends sister says will make you rich. Accept control over risk, and watch your market performance improve.
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This week, the market showed signs that investors were prepared to take some of the profits that they had accumulated over the past few months off the table. We had a few strong down days as the buyers seemed to switch teams.
With that in mind, I set out to find some short selling opportunities in stocks that have had great years, but may have been pushed too high by an overly optimistic investing community. I used the Short Term Breakdowns scan to identify stocks that were showing weakness after a good move to the upside. This scan looks at stocks breaking through short term support levels and weakening Stockscores indicators.
Running the Market Scan revealed a lot of candidates, telling me that there is indeed growing pessimism among investors. I could have featured a lot of stocks that appear more likely to go lower than higher, but here are a few names whose charts stand out and make them worth considering for short sales.Back To Top
1. TUES
TUES is breaking down from a falling top consolidation, notice how the Sentiment Stockscore line is below 60 and sloping downward.
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2. SHFL
SHFL has had support at $27 for a number of months, but today investors showed a willingness to sell it at lower levels. Sentiment line is pointing down and below 60. Falling tops on the chart indicate pessimism.
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3. T.WJA
I like the service this airline provides, but the chart tells me that T.WJA has flown a little too high and needs to ease up the throttle and come a little lower. Gapped down earlier this week and the Sentiment Stockscore line is losing altitude fast.
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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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