Stockscores.com Perspectives
For the week ending September 15, 2000
In this week's issue:
- Commentary: How Do I Use the Stockscores?
- Feature Strategy: A Stockscores.com Stockscores Market Scan
- Tip of the Week: Examples of good charts
- How to subscribe to the Stockscores.com Perspectives Daily Edition
***Stockscores.com Commentary***
The namesake of the Stockscores.com web site is the scoring system that the
site uses to rate stocks. Stockscores.com covers over 21,000 North American
stocks and updates the Stockscores on a daily basis. This week, I thought I
would describe the scoring system and how to best use it to help you find good
investment opportunities.
Technical analysis utilizes stock market activity to identify stocks that are
trading on private information or situations where the psychology of investors
is changing. Technical analysts have developed a wide array of price, volume
and momentum indicators to help predict the future direction of stocks. One of
the indicators that is exclusive to Stockscores.com is the Stockscore itself.
This indicator is really a combination of a number of other technical
indicators. Some of the indicator components are very common; others are unique
to Stockscores.com. Some are as simple as a moving average; others are as
complex as a measure of the statistical significance of abnormal price
activity.
The combination of the technical indicators that form the Stockscores.com
scoring system creates a much more powerful indicator that is a useful measure
of the technical state of a particular stock or market index. What is also
important is that the indicator is easier to understand than the many
components that make it up. For the neophyte, it may be difficult to understand
the signals created by a MACD or Stochastic indicator, but simple to recognize
the significance of a numerical scale. In this way, Stockscores.com
accomplishes its goal to interpret technical analysis for its users.
What is important to understand is the Stockscores.com scoring system is an
indicator, and not a black box that will bring each of its users their
fortunes. Its power can not replace the ability of the user to further conduct
their analysis and due diligence on a company, enabling them to find stocks
that are worthy of their investment.
As a successful trader, I utilize the Stockscores to identify stocks that have
good potential. I then apply other skills of technical analysis to further
filter through those stocks. Visual chart inspection is the most important of
these technical analysis skills, and it is the one that requires the power of
the human mind.
Assuming we are looking for stocks to buy, the primary things that we want to
look for when looking at charts are optimism and abnormal behavior. We also
want to ensure that the opportunity has not already been priced in to the
stock, making entry too risky.
Optimism is a psychological condition we want to seek out. Stocks that are in
strong down trends or are not trading any significant volume are not showing
any optimism. Stocks that are trading sideways but are moving closer to a line
of resistance are showing optimism, as are stocks that are starting to trade
stronger volume than normal. We want to focus on stocks that are showing
optimism.
We also want to find stocks that are behaving abnormally. The reality of the
stock market is that there are people who anticipate positive new information,
either by knowing the information in advance or by conducting good analysis and
figuring it out. These people act in the market with strength, and leave a
trail of abnormal behaviour.
For example, if a stock has been trading under $20 for some time, and then
breaks through $20 one day to close at $23, it has done something abnormal.
What would make market participants willing to pay more for the stock than they
had been willing to pay for some time? We can hypothesize that some people
acting in the market are anticipating new information, significant enough to
make them willing to pay more for the stock. These investors may be acting on
private information, or simply anticipating new information through good
analysis.
Finally, we want to make sure that the stock we are considering is not too
risky for us. A stock that has moved higher the last five days in a row has a
greater potential for a pullback than one that has been trading sideways for
five days in a row. While the uptrend indicates the stock is strong, the stock
is also risky and may not be worth considering.
The Stockscores.com scoring model factors in optimism, abnormal behavior and
risk, providing an effective way to filter the wide world of stocks down to a
short list of candidates. As investors, we can then visually inspect the charts
of these stocks to ensure that they are appropriate for us. Combining the
powerful Stockscores indicator with the rationality of our own analysis can
yield some excellent opportunities.
Enough Said.
***Stockscores.com Feature Strategy ***
The Stockscores.com Market Scan tool allows users to scan the thousands of
North American stocks that the site covers to reveal those stocks that meet the
specific scan requirements that the user establishes. This week, we are going
to implement a scan that focuses on the Stockscore.com scoring model to find
some good candidates. Setting up the scan is relatively simple, while
inspecting the charts visually requires more experience. Conduct this scan
yourself and look at the charts that I have found to be the best candidates so
you can see what to look for when looking at stock charts.
To set up the Market Scan, set:
Score >= 90
Exchange to one that you want to focus on. I have chosen NASDAQ
Today relative to 150 day volume average to above
$ Value Volume to some minimum requirement for liquidity. The higher you set
this filter, the fewer the candidates you will get. I have chosen $5,000,000,
which is entered as 5000000
This scan revealed 24 candidates. The following are the ones that I like the
best, and the reason why:
CTAC making a break from a consolidation, and is in a longer term up trend.
This shows abnormal behavior and optimism. It is on its first day of the
breakout, making the short term risk factor lower. However, this stock has been
going up for quite a while so there is some risk that it may be topping out
soon. Good to consider, but this may only be a short term trade.
FISV has not made a breakout yet, but the trading volume is indicating and
this stock is consolidating upward, demonstrating optimism and some abnormal
behavior. This stock has excellent potential.
GSTRF has made a break through resistance with heavy volume support. Did not
close at its high, which is a slight and very short term negative, but
otherwise this stock looks very good.
KSTN pushing resistance and trading with good volume, this stock has good
potential to make a break soon and should be checked out.
LPNT the first day of a breakout through resistance that has held up for over
a month. Volume has increased, and the stock closed near its high making this
stock a strong technical situation.
PPDI another stock making a break through resistance, this time from what
technical analysts call a cup and handle formation. Significant volume on the
breakout, this stock has good potential.
SATC actually made its abnormal breakout two days ago, but has not yet made
significant enough gains to make the stock risky. This stock has longer term
resistance at $45, which may impede its longer term uptrend.
Give these charts a look and try this market scan on a regular basis with a
focus on the markets and kind of stocks that you are most interested in. It can
pay off well once you learn the basics of chart analysis.
***Stockscores.com Site Tip of the Week***
If you want help learning how to identify good charts, visit Stockscores.com
each day to see a new Feature Stock of the Day, which are my choices for good
technical situations. Examples of good charts are often the best way to learn,
and the Feature Stock of the Day can be found right on the Stockscores.com home
page.
***Stockscores.com Perspective Daily Edition***
Each day, we scan the market for opportunities and reveal only the best to our
Daily Edition subscribers by email. Plus, we provide comments on past features
with regular updates, helping you understand how to trade these features.
A two-week free trial is available for new subscribers. To enroll, simply send
a request to tyler@stockscores.com. We will have you added within a week of
your
request.
One-year subscriptions are available at the following rates:
$100US
$125CDN
Checks can be sent, made out to Perspectives, to:
Perspectives
1919B - 4th Street S.W.
Suite 167
Calgary, AB T2S 1W4
***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 |
