Stockscores.com Perspectives
For the week ending June 23, 2000
In this week?s issue:
- Commentary: A Touch of Cynicism
- Feature Strategy: Potential Breakouts
- Tip of the Week: Intra-day Scans
- How to subscribe to the Stockscores.com Perspectives Daily Edition
***Stockscores.com Commentary***
Our story starts at a well-known business school where some first year students
are getting ready for their 10:00 class, Finance 101. In walks the professor,
ready to espouse the great truths of basic financial theory. He speaks,
?All right, class, settle down, let?s get things started. My name is Dr.
Greenmail, and I will be your instructor for this class, which focuses on the
basics of the stock market. Over the next four months, you will develop
valuable tools that will help you in your personal lives and, hopefully, in
your professional lives. We are going to start with the fundamental tenet of
the stock market, the Efficient Market Hypothesis. Now, has anyone heard of
this??
It was difficult to know whether no one had heard of the concept, or whether
everyone was simply too shy to answer, but nobody piped up with an explanation
of what the Efficient Market Hypothesis could be. The professor gazed back at
the throng of young students, who seemed so willing to learn what he had to
teach. Dr. Greenmail thought he would impress them with their first financial
acronym.
?The EMH simply states that the stock market?s process of pricing in new
information is efficient, and since all market participants are rational, it is
not possible to consistently outperform the stock market. The release of
important information is random, making success at predicting the stock market
also random. A more detailed explanation can be found on page 7 of your text, I
suggest everyone take the time to understand it.?
Lids popped off highlighters and the students quickly opened their books and
began to yellow the key definition. Dr. Greenmail noticed one student with a
confused look on his face, apparently unable to grasp the concept. He asked,
?You sir, are you having trouble with the EMH??
?Well, yeah, I guess so,? replied the student. ?It seems pretty silly when you
consider how many people make their livings as analysts, brokers and financial
advisors. What you are saying is that it is impossible to consistently
outperform the stock market, yet there are a lot of people getting paid a lot
of money to do exactly that. To believe what you are telling us is to also
believe that no one is earning their money.?
A wry grin came across the professor?s face. It was not the first time he had
heard such an objection, and it reminded him of why he had left Wall Street 21
years ago to pursue his doctorate. The system was a sham! He had learned the
hard way that he could not beat the market over time, and that it was no
different than stepping up to a blackjack table. This student, with hopes for
stock market prosperity on his mind, was pretty green. It would be fun showing
him how things really worked. The student continued,
?I really don?t think that the spread of information is always fair, nor are
all investors rational. There are always investors who know more than the rest
of us, and they get in on new information first, and sell when the rest of the
world hears about it. Plus, emotional responses to fear and greed cause
investors to act irrationally during certain times, pushing stocks beyond their
fair value as investors buy or sell based on emotion, and not rational thought.
If you watch market activity closely, you can not only see when those acting on
private information are participating in markets, but you can also make money
from it. And, you can take advantage of the irrational swings in price caused
by emotional market participants. I just think this EMH thing is about as
useful as a mud fence.?
Ignoring the student?s cynicism, the Professor replied,
?Some intelligent arguments, young fellow, perhaps you can expand the argument
in your term paper. However, I assure you that over time, you will see that
markets can not be beat. Now, does anyone else have any questions??
The class, realizing that their highlighting time was up, quickly looked up
from their texts and focused on their instructor. Few had heard what had just
transpired, no one had anything to say.
Later that day, the student who had questioned the Efficient Market Hypothesis
was sitting at a traffic light, when he noticed his Professor in the Lexus that
sat next to him. ?Hmmm,? he thought, ?maybe I should become a professor one
day.? He caught himself, and answered his own question with a casual no.
The light turned green, he pressed down the accelerator of his red Ferrari and
took off from the light. He hoped that the professor would figure out what his
license plate meant.
TRDORDI.
***Stockscores.com Feature Strategy ***
Potential Breakouts
Stocks that break through resistance often do so because new information has
motivated market participants to pay more than they had been willing to pay for
some time. The shift in psychology among a small group of investors can expand
as more investors learn of the changes and look to accumulate the stock. As the
information spreads, stocks that make breakouts often enjoy sustained up
trends.
Traders who are interested in getting in early should monitor stocks that have
the potential to make breakouts, so they can capitalize early when the breakout
occurs. Our market scan focuses on stocks that are within 10% of an 80-day
high, but have not gained more than 15% in the past ten days. They have bullish
Stockscores ratings and are below 80-day resistance.
We want stocks that are starting to capture the market?s attention, so we look
for stocks that are trading more volume than normal for the past 150 days. We
select Williams Volume Accumulation = Bullish as this will pinpoint stocks that
are trading strong volume on days when the stock goes up. To focus on stocks
that have good liquidity, we limit the search to stocks that trade at least
$5,000,000 in volume.
From a momentum standpoint, we want stocks starting to gain momentum, but not
in overbought situations. To accomplish this, we set the MACD to Bullish, and
the RSI to Neutral.
Score Rating = Bullish
Gain/Loss <= 15 % over the last 10 days
Price of 80 day high <= 10%
80 Day Resistance = Below
Today relative to 150 day volume average = Above
Williams Volume Accumulation = Bullish
RSI = Neutral
MACD = Bullish
$ Value Volume >= 5000000
When you inspect the charts, look for stocks in well-defined trading ranges
that are pushing up against resistance. Then, watch for the breakouts.
***Stockscores.com Site Tip of the Week***
The charts at Stockscores.com update intra-day, providing a useful way to find
opportunities that require good timing. If you are looking for stocks that make
breakouts through resistance, prepare a portfolio of stocks that are trading
just under resistance. Then, scan these charts during the trading day to see if
any of them have made the breakout. You can beat the crowd of technical
analysts who may be eager to buy the stock because of the breakout.
***Stockscores.com Perspective Daily Edition***
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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
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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. |
