Stockscores.com Perspectives
For the week ending November 10, 2000
In this week's issue:
- Commentary: Consolidations
- Feature Strategy: Use the Stockscores
- Tip of the Week: Stockscores.com's Founder Speaketh
- How to subscribe to the Stockscores.com Perspectives Daily Edition
***Stockscores.com Commentary***
Information and market sentiment combine to decide the price of a stock. During
periods of important new information and a strong market opinion, stocks move
in trends. If the market is in a bad mood, negative information is exaggerated
with a trend to the downside. Through a market's rose-colored glasses, good
information takes a stock steadily higher.
But stocks do not always trend. There are periods when the market works to find
some consensus about the value of a company. These consolidation periods are
when stocks trend sideways, and work to find a well-defined floor and ceiling
price for the value of the underlying company. Typically, during consolidation
periods, uncertainty about the value of the asset diminishes through time as
the market gains a greater confidence in the price it has assigned to
fundamental information about the company.
Consolidations are opportune times for investors looking to take advantage of a
future trend, for they are often the calm before an impending storm. The
pattern that a consolidation forms can tell us a lot about what the market
expects, and tends to telegraph the future trend.
For example, if a stock's chart shows a sideways trend during which the lows
that the stock hits on its down strokes tend to become higher over time, while
the stock has a well defined horizontal line of resistance, we expect to see a
break to the upside. This is because the willingness of the market to buy at a
higher price when the stock is showing weakness shows optimism. This pattern is
referred to as an upward consolidating triangle.
A downward consolidating triangle is similar, except instead of rising bottoms,
the chart shows falling tops toward a flat line of support. The fact that the
bears sell into strength more aggressively as time goes by indicates a growing
feeling of pessimism that often results in a future downtrend.
For the bulk of this year we have seen a rapid decline in stock prices.
Following the summer, the market started to consolidate; trend sideways and
catch its breath after beating up investors for most of the year. I had been
encouraged by the fact that, after bouncing from heavily oversold conditions,
key market indices were showing optimistic consolidation patterns indicating a
willingness to go higher to end the year.
The optimism ended when the US Presidential election resulted in an even
greater level of political uncertainty as the race to the White became too
close to call. Investors don't like uncertainty, and the pending outcome has
instilled a recurrence of fear in the market, and taken out the optimistic
upward consolidation that had been forming.
The Nasdaq has penetrated support out of a downward consolidation, the S&P 500
has broken its upward trend, the Dow is taking profits after a decent couple of
weeks, the TSE 300 can't seem to break the downtrend that Nortel has
intensified and the speculative CDNX has yet to find the spark that will ignite
the promotion season that tends to start around now.
Investors looking to play market momentum should wait until the Stockscore for
the market index is able to jump above 80. I follow the following proxies of a
market's health as a gauge of the market sectors:
The Dow watch the Dow Diamonds, symbol DIA
The Nasdaq the Nasdaq 100 trust units, symbol QQQ
The S&P 500 the Spiders, symbol SPY
The TSE 300 the index itself, symbol IT.TI
The CDNX the index itself, symbol IV.VSEI
Until we see a market show strength and notch a Stockscore above 80, I suggest
seeking individual stocks that are beating the market and staying away from the
general market weighted index and mutual funds. There will be individual stocks
worth playing, but it will be hard to fight the negative current that is
flowing right now.
Enough Said.
***Stockscores.com Feature Strategy ***
Where is there strength in an otherwise weak market? Trust the Stockscore
ratings to find stocks that have some hope. The scan that I use daily to find
stocks worth considering is very simple. I pick a market that I am interested
in, and filter to see all stocks that have a Stockscore of better than 80. I
set a minimum volume requirement to eliminate stocks that lack liquidity,
somewhere between $250,000 and $2,500,000 depending on the market I am scanning
(a lower amount for the CDNX versus the Nasdaq or NYSE). I then simply look
through the charts for good technical patterns, as discussed in the strategy
and school essays found on Stockscores.com.
This week, I did this scan for the Nasdaq market, setting a volume minimum of
$2,500,000 (entered as 2500000). The scan revealed 13 candidates, and I comment
on each chart below so that you can understand what to look for:
ACVC this stock was a great opportunity a few days ago when it first broke
through resistance, but we missed the opportunity. The company is being bought
out and the price is unlikely to change much going forward.
BPUR a strong stock, but entry here is risky as the up trend is well underway.
This stock has had a strong Stockscore for some time.
DRYR another opportunity missed, this stock would have come up using this scan
a week ago when it first made its breakout and started the up trend. Too risky
now.
FRNT again, too late, but looks good if you own it.
JKHY risky also, but the recent short-term consolidation could predicate
another move higher. A stock for traders to watch.
MENT not bad, but a lack of stability indicates a potential for future
volatility making this stock risky.
OXHP looks very good, entry is a bit late but this stock likely has some up
trend left in it.
PHSY a breakout from a period of stability, this stock will have to fight
overhead resistance but looks to have found its bottom and has good potential
to move higher.
PSIX this stock has sold off very heavily in the past while which is why it
has a high Stockscore. However, I would not want to touch it.
RYAAY Not bad, but a little too risky because of a lack of consolidation. Good
chance it will not break through resistance and instead fall back on some
profit taking.
SEIC a stock with great momentum, could top out soon but has not shown signs
yet. Good for nimble investors.
SRNA worth considering, this stock broke out recently then pulled back on some
profit taking. Showing signs that it is ready for the next leg up.
TESTB demonstrating the problem of bad data, ignore this stock.
Generally, I do this scan daily and look for stocks that are breaking out of
well defined consolidation patterns, preferably the upward consolidations that
show optimism. It is a great way to find at least an opportunity a week.
***Stockscores.com Site Tip of the Week***
For our readers in the Calgary, Alberta area of the world, you may want to
check out the Calgary Online Investor Open House, sponsored by TD Waterhouse
and Shaw @Home. The event will be held on Saturday, November 25th between
10:00am and 3:00pm at the Shaw Court Foyer, 630 3rd Ave SW. I will be speaking
at the event, along with other presentations:
Are You Ready to Invest for Yourself?
Seminar topics are:
10:00 am - Demonstration of Online Trading with TD Waterhouse WebBroker
11:00 am - Accessing Comprehensive Online Investment Research
12:00 pm - Preview of Investment Websites - for the Self Directed Investor
1:00 pm - Strategies for Market Success Using Stockscores.com
2:00 pm - Demonstration of Online Trading with TD Waterhouse WebBroker
RSVP 403-292-2875 or 1-800-472-9717
If you are in the area, come down and say hi!
***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
***Change of Email Address or Removal from Email List
Please go to the Registration area of the site, and utilize the Edit tool.
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. |
