Stockscores.com Perspectives
For the week ending June 9, 2000
In this week?s issue:
- Commentary: Seasonality
- Feature Strategy: Short Term Breakouts
- Tip of the Week: Chart Viewer
- How to subscribe to the Stockscores.com Perspectives Daily Edition
***Stockscores.com Commentary***
It has been said many times that the trend is your friend. The idea behind this
often-used clich‚ is that it is much easier to make money when you are trading
with the trend of the overall market.
A recent conversation with a friend had me thinking about how seasonality seems
to affect my trading. Without fail, it seems that I do best during a period
that tends to stretch from just before Christmas until the late Spring. The
rest of the year is pretty quiet, with opportunities coming up only
occasionally.
Burton Malkiel wrote what is a very famous book on the markets called ?A Random
Walk Down Wall Street?. In it, he argues that investment returns are random,
and your chance of success in the market is as likely as tossing a coin 100
times and have it come up heads more than 50 times. If we believe in the Random
Walk theory, we should simply accept the fact that the stock market is a giant
casino, and our success in it is random.
For about ten years I have made my living off the stock market, and I did not
have the benefit of a large infusion of capital to get me started. By my own
experience, it seemed that Malkiel?s theory must be flawed, as I have been able
to toss a few more heads and maintain a decent living.
Perhaps there are forces that reduce the randomness of the markets during
certain time periods. I am sure that an engineer somewhere could exert some
sort of an outside force on a coin toss to ensure a greater number of heads or
tails than is expected. Is there a similar force acting on the market, making
it trend during certain times of the year?
Looking back on about nine years of data for the Dow and TSE 300, it was clear
that the months of October to June have historically been the best for the
market, with the only exception during that period being the month of February.
When I think about outside forces and that time of the year, the one thing that
comes to mind is one of the two sure things in life.
Taxes.
As the tax year is rounding out, investors make infusions of capital in to the
market via their tax shelters; 401K?s in the US and RRSP?s in Canada. This
abnormal amount of investment gets the rally going around October. This creates
a rally that lasts through the Spring until investors start to take profits off
the table. Better to enjoy a barbecue or a summer holiday than worry about the
performance of the investment portfolio. After a particularly good year like we
had in 1999, there is the added selling pressure that comes from investors
having to sell stock to pay capital gains taxes.
After the sell off, we get what is often referred to as a summer rally;
basically, a bounce from the bottom where the market stabilizes and start to
gear up for the next move higher. August and September are historically two of
the worst months as investors are frustrated from the lack of activity and are
unmotivated to put money in the market. However, tax shelter season is just
around the corner, and optimism comes back as we move through October and in to
the Christmas season. Soon, the big rally will start up in January and carry us
through the Spring.
While it may not follow the exact months every year, this cycle does tend to
play itself out every year. This year, the end of the rally season came a
little bit earlier than previous years, but I also expect the summer rally will
come a little bit sooner (seems to have already started), carrying us higher
through June and in to July. August will be quiet, with September lower, before
investors start to get bullish again in October and carry us on a mini rally
through Christmas. Of course, things will be very quiet, but also stable,
through the holiday season, but then start to gain momentum in January and
carry us through what is for me the money making season of Spring.
Don?t get frustrated by the relative lack of excitement that we are seeing
right now. Choose opportunities carefully and realize that seasonality will
eventually be on your side to ensure you land heads up.
Enough Said.
***Stockscores.com Feature Strategy ***
If I could pick one technical indicator that I use the most, it is resistance.
Stocks that break through well-defined resistance on strong volume often enter
in to up trends. The key is knowing what breakouts are solid, and which are not
worth considering.
For a refresher on support and resistance, see the essay in the Stockscores
School:
stockscores.com
tance.asp
For this week?s strategy, I am going to look for stocks breaking through a 15
day resistance, with abnormal volume of at least $1,000,000. I am going to
restrict my search to NASDAQ stocks as I think this market is going to do the
best in the weeks to come.
Set the Market Scan tool to the following:
Exchange = NASDAQ
Price >= 5 <= 50
Candle = Bullish Candle
15 Day Resistance = Breakout
Abnormal Volume = Abnormal Volume
$ Value Volume >= 1000000
This revealed 43 candidates. I now visually inspect the charts to focus on
stocks that are making their breakouts for the first time today, and are doing
so through well-defined resistance.
Of the 43, here are the two stocks I like the best:
Creative Technologies (CREAF)
Vicor Corporation (VICR)
Each are worth considering, and this scan is worth doing on a daily basis.
***Stockscores.com Site Tip of the Week***
The Chart Viewer tool allows you to take a quick view of any portfolio of
stocks that you create, and check them on a regular basis. Once a portfolio is
created, you can go to the Chart Viewer tool where you will find a pull down
menu with all of your portfolios listed. Select one and use the Next command to
quickly look through the slide show of charts and Stockscores to see you your
stocks are performing. Or, build a watch list of stocks you like and check them
on a regular basis to see when the timing is right.
***Stockscores.com Perspective Daily Edition***
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with regular updates, helping you understand how to trade these features.
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***References***
To get the Stockscore on any of over 20,000 North American stocks:
stockscores.com
For a background on the theories used by Stockscores:
stockscores.com
For strategies that can help you find new opportunities:
stockscores.com
To scan the market using extensive filter criteria:
stockscores.com
To build a portfolio of stocks and view a slide show of their charts:
stockscores.com
To see which sectors are leading the market, and the stock components:
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 |
