Stockscores.com Perspectives
For the week ending June 2, 2000
In this week?s issue:
- Commentary: Wise Words from the Stock Prophet
- Feature Strategy: Finding Turnarounds
- Tip of the Week: Plotting the charts of multiple stocks at once
- How to subscribe to the Stockscores.com Perspectives Daily Edition
***Stockscores.com Commentary***
Individual Investor: ?Oh Stock Prophet, my investments are not doing well, and
I can?t make money in the market. When I buy, invariably the stock goes down.
When I sell, it often turns around and heads higher yet again. Help me, Stock
Prophet, for soon I will have no money left.?
Stock Prophet: ?Let us take one step at a time my friend. The market is like a
great game of chess; to win, you must become a good chess player. Do not
despair at your apparent ineptitude, for like the development of a chess
master, it takes time to become masterful at the art of investing. Now tell me
specifically of one of your recent failures.?
Individual Investor: ?While at work, nature beckoned and I went to the
lavatory. There I met someone I deemed to be wise about the ways of the market
and listened with great interest as he told me of a wonderful market
opportunity that would pass me by if I did not act quickly. I bought 5,000
shares, but the promise bestowed upon me has not yet materialized, and I worry
because the value of my original investment is now significantly lower than
when I purchased it.?
Stock Prophet: ?You are the victim of a misguided tip, my friend. Few men are
interested in making wealth for another, for greed demands they make money for
themselves first. Your tipster?s motivation was to see the stock move higher so
that he could sell, and having you buy stock is a step in that direction. I
have rarely made money on tips, no matter how great the source, for greed?s
emotions clouds the judgment of many, and brings them to attach greater
significance to events than is warranted.?
Individual Investor: ?Thank-you Stock Prophet, from this day forth I will
recognize the tipster and his motivations, and require that I do my own due
diligence absent the emotion of ownership. But what about the information
exchanged on electronic stock message boards??
Stock Prophet: ?In many ways, these are similar to the tipster, but often worse
for these individuals are afforded a secret identity, and need not answer to
their market prognostications. Be wary of those whose track record you can not
judge, for they may be seeking a buyer for their stock.?
Individual Investor: ?I have trouble selling stocks at a loss, and now find
myself with a stable of losers. What should I do??
Stock Prophet: ?You must first change your view on what constitutes a loss. Do
not judge your worthiness on the outcome of individual trades, but rather, on
the change in the size of your portfolio over time. To be successful, you must
cut a loser loose when the market has proven you wrong, for like a lame horse,
a bad stock will have trouble keeping up with the rest of the market until it
has had time to heal. You must judge each stock each day and decide whether it
has more potential to appreciate than the alternative. If the answer is not
yes, then it should be set free, so your capital can be better put to work.?
Individual Investor: ?But it seems that when I do sell the stock, it turns
around and proves me wrong again.?
Stock Prophet: ?That is because you do not sell when you have been proven
wrong, but instead, you sell when your emotional threshold has been stretched
to its limit. As other investors experience the same pain, they sell a stock
lower than the company?s fundamentals justify. Savvy market players, realizing
that emotion has replaced rational thought, jump in to the market and take
advantage of the short term trading opportunity. To avoid this, you must
maintain the discipline to sell when the market has told you to do so, and not
to wait until you can suffer no more.?
Individual Investor: ?You speak of rational thought, but it seems that when I
apply the rules of logic, my analysis leads to failure. I read about a company
that has a great product so I buy their stock and then watch as it heads lower.
Is what I read a lie??
Stock Prophet: ?No my fine friend, what you read may be the truth, but your
logical progression of thought is what is suspect. Remember that logical
arguments are based upon a series of premises. If you fail to factor in an
important premise, then the output of your logical reasoning may be at fault.
In the stock market, there could be thousands of important premises. If you
only factor in some, you may make the wrong conclusion. Trust the market to
factor in all the premises, and learn to read market activity so that you can
judge what the market will ultimately conclude. In the example you offer, it is
likely that the company had a great product that the market liked, but that it
had already priced in the information. By the time you read about, it was too
late.?
Individual Investor: ?I see the wisdom in what you espouse, and you have spoken
well on the topic of discipline. Is there anything more important that this??
Stock Prophet: ?Simply put, there is nothing more important to successful
trading than discipline.?
Individual Investor: ?But I have often discovered what I deemed a great
opportunity and ignored it for too long. When I finally bought in, the stock
had run its course and I was left with yet another loss. Has discipline served
me poorly??
Stock Prophet: ?It is not the case, for instead what you suffer from is a lack
of confidence. There is security in numbers, and you seek comfort knowing that
others share your enthusiasm for a stock. You wait until many buy in to a
story, and then do so yourself at that time that your judgement has been proven
correct. Alas, it is too late, for the confirmation of your market call is also
the thing that takes away the opportunity. It is not necessary to be a leader,
but you do need to be at the front of the pack, for it is those at the front
who reach the bounty.?
Individual Investor: ?Tell me more, please.?
Stock Prophet: ?That will have to wait, my friend, for patience is also of
utmost importance. Investing is a skill to be developed over time, but the lack
of barriers to entry into the market allows for failure as a result of
inexperience. Take time to learn, and risk little until you have developed the
skills necessary for success. We will talk again, my friend.?
***Stockscores.com Feature Strategy ***
New Economy stocks have been beat up pretty badly since March, and many are at
heavily oversold levels. The market had been unwilling to jump in with both
feet and buy these stocks back, but the performance of the NASDAQ this week
indicates we are likely seeing the formation of a bottom.
While the tech stocks are not out of the woods yet, there is a better potential
for a turnaround now. The activity that we saw to close out this past week
signifies a break in down trend. It is now important to see if these stocks can
show stability at these levels and for a decent base. This week, we look at a
way to discover stocks that are truly reversing trend and likely to head
higher.
Too often we try to buy stocks that seem cheap, only to watch them get cheaper.
Timing the turnaround is not easy, but a few steps will help you to minimize
risk and buy cheap stocks early in the turnaround phase.
When trying to time the turnaround, consider the following:
We must first see a break from the downtrend. If you draw a line along the top
of the downtrend of prices, a break from the downtrend will occur when the line
is violated. This is what we have seen in the Nasdaq Composite average this
week (Stockscores Symbol: COMP).
A break in the downtrend is not enough for there is no show of stability or
optimism. The next thing that we want to look for are stocks that are making a
short-term consolidation (a sign of stability) and a move to positive for the
short term moving average (optimism).
To scan for stocks that are doing this, set the Market Scan filters as follows:
Candle = Bullish
Long Term and Medium Term moving average = Bearish
Short Term moving average = Bullish
Short Term Consolidation = Yes
$ Value Volume >= 1000000 (one million $)
Williams Volume Accumulation = Bullish
For my scan, I selected Exchange = Nasdaq so that I could focus on tech stocks.
The scan revealed 56 potentials. Here are the ones that stand out:
COVD a break from a rising bottom, with strong volume support. Good.
FOSL a nice upward consolidation that has broken the downtrend. Would like to
see a break through the $21 level.
OSTE a break from a rising bottom, the stock may find resistance at $12.50.
Many tech stocks have broken their downtrend this week, but still need to show
stability. I expect these stocks will suffer a minor pullback before working
into a trading range that is higher than the recently set lows. Use this
strategy in the weeks to come to discover the stocks that will lead a recovery
in the new economy stocks.
***Stockscores.com Site Tip of the Week***
Want to compare the charts of more than one stock at once? You can plot a line
chart of more than one stock by entering the symbols in a box with a comma
separating them. For example, if you would like to display Microsoft vs. Intel,
you would enter MSFT, INTC. For this to work, you can not change the charting
defaults.
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***References***
To get the Stockscore on any of over 20,000 North American stocks:
stockscores.com
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stockscores.com
For strategies that can help you find new opportunities:
stockscores.com
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stockscores.com
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stockscores.com
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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. |
