Stockscores.com Perspectives
For the week ending November 3, 2000
In this week's issue:
- Commentary: The Probability Game
- Feature Strategy: Optimism
- Tip of the Week: Fundamental Links
- How to subscribe to the Stockscores.com Perspectives Daily Edition
***Stockscores.com Commentary***
I think there is a perception that a good technical analyst or trader can
predict the future direction of any stock. Show them a chart, and they should
be able to tell you whether you should own the stock or short it. They may not
be right all the time, but most of the time a good analyst should be on with
their comments. Therefore, they should be able to pick any stock and trade it
as it oscillates up and down, often being just ahead of the curve.
This approach is probably the reason that many traders don't succeed in the
long run. They pick a stock and then apply their knowledge and indicators to
it, with the aim of determining what kind of a position they should take. I
have heard of traders who only watch ten stocks, and trade them exclusively as
they go through their market gyrations. The problem is that most stocks don't
present opportunities to make high probability trades very often.
The best opportunity for a trader or investor is to get in to a stock before it
makes a sustained and abnormal move. If you look at 20 stock charts, you will
find few that do that on a weekly basis. Most stocks spend a lot of time doing
a lot of nothing, but may make strong moves from time to time. I would say that
the average stock makes a sustained up or down trend once a year, but an
investor can certainly wait a lot longer than that to see a stock make its
shareholders decent profits.
So, a bottom up approach to find a significant opportunity can often be futile.
However, if we start at the broader market and then work downward to find
stocks that are showing some indications that they are likely to go in to a
trend, we should have more success.
Instead of picking a stock and applying knowledge to determine where the stock
is headed, we should apply our knowledge to a market of stocks to find those
that have the highest probability to make a profit-yielding move. This way, we
are focusing on the best opportunities, and increasing our odds for success.
Stock investing and trading is a probability game. The markets are far too
complex and full of uncertainty for anyone to be right all the time. We have to
focus on opportunities where, on the balance of probability, we should be
right. Then, over a number of trades, we should be profitable so long as our
analysis that originally determined the probability of success is well founded.
For example, it is my experience (but I have not completed an empirical study)
that stocks that break through resistance from an upward consolidating triangle
tend to go in to up trends about 75% of the time (for a description of what an
upward consolidating triangle is, please read the essay "Using Consolidations
to Anticipate Upward Moves" found in the Strategy area of Stockscores.com). I
know this because this is the type of thing that I look for almost exclusively
when I trade stocks, and I have been profitable on about 75% of my trades.
I tend to ignore many other opportunities because I don't have evidence that
they have a high enough probability of success. I can analyze a stock like
Microsoft, and say that I think it has about a 60% chance of moving higher, but
because that is not good enough I never take advantage of the opportunity.
Defining a strategy and applying it to the market on a daily basis will yield
the best results because you are focusing on finding the best opportunities.
This is an approach that could only come into existence within the past few
years because technologies like the Market Scan tool found at Stockscores.com
make it possible to search through 20,000 stocks in less than 5 seconds.
The stock market is a probability game, so play the stocks with the best
probability of success. Make sure that you have a strategy that has proven its
ability to find stocks with a high probability for profits.
***Stockscores.com Feature Strategy ***
These are nervous markets. Most stocks are down from their highs, and face a
good deal of pessimism that has to be overcome before they can move higher. To
find stocks that are decent investment opportunities, you can focus on those
that aren't operating under the cloud of uneasiness.
Here are settings for the Market Scan tool found on Stockscores.com that should
help you find some decent stocks in otherwise poor markets, as well as my
reasons for using each filter.
Set up a Market Scan with the following:
Stockscore >= 80
The Stockscores.com Scoring system is pretty good at identifying strength, and
I have found that stocks whose scores break above 80 for the first time in a
while tend to have a good potential to go upward.
Short Term Moving Average = Bullish
A short term uptrend demonstrates optimism.
Price of 40 day high <= 15 %
This will find all the stocks that are within 15% of their 40 day high. Stocks
hitting new highs, or near them have less psychological overhead that they have
to work through, making their probability for an move better.
Today relative to 20 day volume average = Above
This will focus on stocks that are trading more volume than normal, a positive
sign that the stock is getting more attention from the market.
MACD Bullish
A bullish MACD is a sign of some upward momentum.
I chose to focus on the TSE this week, since many of our readers are Canadian.
To do this, set Exchange = TSE
$ Value Volume = 1000000 (one million dollars)
We want to focus on stocks that have good liquidity so we can get in and out
easily.
Now that we have set our filters, we hit End of Day Market Report, which
produces a list of candidates.
To see a slide show of the charts, we go to the bottom of the results table and
click on Check All, and the View. We can now visually inspect the charts,
looking for stocks that are showing optimistic trading patterns and appear
likely to go to new highs.
This can revealed 10 stocks this week. Here are my comments on the ten:
T.ANP great stock if you own it, but entering here is risky as this one has
already made good gains.
T.BRK looks very good, I would like to see this stock break through resistance
at about $11.30, with good volume support, at which point I would consider it a
buy.
T.CCO looks very good as it is showing signs of optimism and pushing against
resistance. Should break through soon.
T.CM.PR.A preferred shares are not of much interest to me, but those seeking a
stock with a yield and the potential for capital appreciations should take a
look at this as it looks good to go higher.
T.CNR has been doing well lately, and may need to take a bit of a breather.
However, a break through resistance at $48.50 would be positive technically.
T.CSN made its breakout on Thursday, and looks like a very good candidate to
outperform the market. May see a bit of profit taking over the next few days,
but that is likely a buying opportunity.
T.IPV quite risky entering here, but those who can handle the risk may want to
try and go for a ride. Great if you already own it.
T.POT a great performer recently, a little too risky entering here because it
is getting close to seeing a profit taking phase.
T.TRP Pipeline stocks are the top scoring sector on the TSE (see the Sector
Watch tool on Stockscores.com) and this stock looks good but I think it could
see some short term profit taking. Consider on a dip.
T.WN Great looking stock, it may be a bit late entering (notice the breakout
at the $70 level, that was the buying opportunity) but a nimble investor could
still have some fun.
***Stockscores.com Site Tip of the Week***
Interested in fundamental information on a stock? At any time, you can go from
the Stockscores Report to "Snapshot" (found at the top of the report) to see a
variety of information provided by our sister site, Smallcapcenter.com. Or
click on the Company's name and you will usually visit their web site (so long
as we know they have one).
***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. Subscriptions entitle readers to see our
regular stock picks and our daily market commentaries where we show a
historical line representing the Stockscores. A valuable way to find stock
opportunities, but to also learn about picking and trading stocks.
Subscriptions are $2500 per year. For more information, please contact Cindy
Rowe, who is in charge of subscription sales, at perspectives@stockscores.com.
***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. |
