Stockscores.com Perspectives
For the week ending Aug 18, 2000
In this week’s issue:
- Commentary: Don’t Eat Yellow Snow
- Feature Strategy: Explanations for some Price Indicator filters
- Tip of the Week: Setting up a Market Scan
- How to subscribe to the Stockscores.com Perspectives Daily Edition
***Stockscores.com Commentary***
“Don’t eat yellow snow.”
As a child, these words rang in my head as I marched out the door to prepare
for battle in a neighborhood snowball fight. Perhaps it was the emotional
stress of dodging hard packed ice spheres hurled by kids much larger than I was
that made sucking on a ball of snow so enjoyable. Maybe it is just the inherent
drive in kids to stuff things in to their mouths. Whatever it was, I had to
remember the simple words that my parents drove in to my head, always with a
cynical smile on their face.
“Don’t eat yellow snow, don’t eat yellow snow, don’t eat yellow snow.”
It was never difficult to remember these words, for I had a dog and knew the
reason why. I had seen the creation of yellow snow, and the rule seemed well
founded and pretty simple really. However, I suppose for a youngster growing up
in Texas but visiting a winter climate, it was pretty sound advice, a necessary
chapter in life’s book of rules.
I guess what seems obvious to some may be a total mystery to others, simply
because of a lack of information. Remember that guy who dropped out of the
Millionaire show on the $100 question? He was not stupid, just not experienced
in the topic he was questioned on.
For this reason, I want to share another very simple rule regarding the stock
market and the process of choosing a company to invest in. To me, it is a
yellow snow rule, one that is obvious because I have seen the dark underbelly
of the stock market mechanism, and its desire to coax your money into its
schemes.
Don’t believe in the dream.
Don’t believe anything you hear, no matter how credible you think the source
is. Don’t believe in the promises from company management, the reports from
expert analysts, the whispers from stock tipsters, the monologues from esteemed
members of the media. Don’t believe in the dream.
The stock market is a mechanism for raising money to finance new ideas. Most
new ideas fail, either because the idea was not sound, or the process of
implementation was flawed. Most new ideas fail, but in their infancy, every new
idea promises to make its investors significant profits. That is according to
those raising the money for the idea, the promoters of the dream. They have to
carry this kind of positive attitude or they won’t be able to convince
investors to part with their money. They have to promote.
But what about the great ideas that do succeed, the Intels and Microsofts who
implement great ideas and make their investors huge amounts of money?
You could have made a lot of money on these deals even if you did not believe
in the dream. You can ride the stock higher, using sound judgement not
prejudiced by emotion to call your exit strategy.
I have heard so many stories of investors who bought a stock at a dollar and
watched it go to eight dollars, but still hold it today when it is at $0.30.
Why? They believed in the dream that it was going to $20. After all, that is
what the analysts, promoters and media said was its potential. The dream of $20
a share was a fascinating one, filled with thoughts of a shiny new car and a
summer home on the lake. At $0.30, it is a bit of a nightmare.
Never get emotional about stocks, it clouds the judgement. Dreams end when you
wake up, sellers make money.
Enough Said.
***Stockscores.com Feature Strategy ***
The Stockscores.com Market Scan tool is extremely useful for finding
opportunities in the market. The filters available allow users to identify
stocks that may be in situations where new information or shifts in psychology
will make the stock go higher. This week, I want to discuss some of the Price
Indicator filters available and why they are useful.
Abnormal Activity
This indicator measures the statistical significance of market activity. If a
stock makes an abnormal move up or down, the abnormal Day Up or Abnormal Day
Down filter will be triggered.
Suppose you are working on a secret new project at a large public company, and
you realize that the project is going to work out great and make your company’s
stock worth a lot more. You might buy some stock, or tell some friends to buy
some stock. Analysts who talk to you about your stock may ask questions that
make you squirm a little, telling them that something is up. Eventually, there
is a good likelihood that the information you have begins to be priced in to
the market before it is officially announced. This makes the stock perform
abnormally. When supported by strong volume, this filter is very useful for
finding stocks that are pricing in significant new information.
Price of 40, 80, or 150 day High or Low
Measures how far, in percentage terms, the current stock price is from the 40,
80 or 150 day high or low. For example, if the 80 day high for a stock is
$10.00, and the stock is currently at $9, then the stock is 11.1% from its 80
Day High -- ($10 - $9)/$9. If the stock is at $9.50, it is 5.26% from its 80
Day High.
Historic highs and lows tend to form areas of support and resistance for a
stock. A stock that is getting close to one of these thresholds has the
potential to make a break, or to turn in the opposite direction. For this
reason, technical analysts like to consider stocks that are near support or
resistance as these stocks have a higher potential to go in to significant
trends. Therefore, they may want to consider stocks that are within 10% of
their 80 day highs, for example.
If you want to find a stock making a new high from one of the 40, 80 or 150 day
look back periods, simply set the indicator to scan for stocks that are <= 0,
as this will bring out stocks that are higher than their previous period high.
Volatility Index Today, Volatility Index Yesterday
Volatility defines uncertainty. The more volatile a stock is, the more
uncertain the market is about what the company is worth. Stocks tend to be
volatile when new information is being priced in to the stock, so stocks going
from periods of low volatility to high volatility may present an opportunity.
Stocks with high volatility are also more risky, so those who are risk averse
may want to focus on stocks that are trading in periods of lower volatility.
These are a few of the Price Indicator Queries that are harder to understand, I
will consider others in future issues of the weekly newsletter.
***Stockscores.com Site Tip of the Week***
Do you have a technical scan that you are trying to achieve with the market
scan tool, but can’t figure out the filters to accomplish it? Send me an email
to tyler@stockscores.com and I will see if I can help you.
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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
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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. |
