Stockscores.com Perspectives
For the week ending December 8, 2000
In this week's issue:
- Commentary: Trading Rules Can Lead to Losses
- Feature Strategy: The Stockscore
- Tip of the Week: Overall Market Strength
- How to subscribe to the Stockscores.com Perspectives Daily Edition
***Stockscores.com Commentary***
Being too dependant on rules is a common mistake that investors and traders
make. They will develop a trading strategy using a computer program or from a
book on investing and enumerate a number of rules that define the strategy. "If
my stock moves down 8% from where I buy it, I will sell." "If the short term
moving average crosses above the long term moving average, I will buy."
Unfortunately, this easy to follow methodology is usually a recipe for failure.
If Then statements are the simplest form of logical expression. They are easy
to understand and easy for a computer to compute. We can complicate the
expression by adding a number of conditions to the argument, seemingly making
it more sophisticated. However, no matter how sophisticated we make the logic,
the power of our rules will fall short of our ability to think.
I have found that computerized trading models don't work that well because they
are rarely sophisticated enough to factor in all the evolving variables that
the stock market gives us. However, the eight inches between our ears has the
power to understand and beat the market.
The main problem with a dependency on rules is that it encourages a lazy
approach to investing, and a move away from understanding the market dynamics.
A strategy that works in one type of market may not work in another, and it is
up to our thought process to evaluate the market conditions that are at work
and apply the appropriate thinking for those conditions.
In this way, we should really apply guidelines. For example, instead of selling
stocks that move down a certain percentage, we should sell stocks that break
below support. A 10% move for a speculative stock may not be a signal of
changing psychology, but it will be for a large cap conservative stock. A
support level will typically factor in this difference because lines of support
are relative to the volatility of the stock.
Trading rules are tools to help us understand what the market is thinking. A
move of the short term moving average above the long term moving average is a
sign that the market is becoming more optimistic. A stock with a Stockscore of
90 has very good potential, and is typically better than one with a 50 score.
However, neither of these signs are sufficient to make a decision, they are
only tools. By using the power of our brains, we can consider all the signs and
better understand the market forces and better predict where a stock is going.
Let rules help you, but don't let them make your decision. Leave that job to
the computer in your head.
Enough Said.
***Stockscores.com Feature Strategy ***
We can describe all kinds of different technical analysis indicators and
investment strategies, but using the Stockscores as a tool for finding
opportunities is often the simplest way to find good stocks. The algorithm that
calculates the Stockscore is very sophisticated, and factors in many of the
theories and indicators that make up technical analysis. If we want to find
stocks that have good potential, simply using the Stockscores to filter the
market is a great way to get a list of stocks to think about.
With this list we can look at the charts and think about what the market is
telling us about the future of the stock. Generally, we want to focus on stocks
whose charts are showing optimism.
Here is the Market Scan:
Pick an exchange, as your dollar volume requirement will depend on which market
you are looking at.
Set Stockscores > 90
Set $ Value Volume >= 250000 for the CDNX, 500000 for the OTC BB, TSE or AMEX,
and 1000000 for the NYSE or NASDAQ. This will allow you to focus on stocks with
enough liquidity to validate the message that their trading activity indicates.
To narrow the search results, you may also want to define a price range for the
stocks you are considering by using the price filter.
This week, I did this scan for the CDNX and found that no stocks met the
criteria. That should tell you about the state of the Canadian speculative
stock market. The situation for the OTC BB is very similar, with only two
stocks meeting my requirements, so I decided to try the TSE. I set an upper
price limit of $150 to eliminate stocks that are too pricey, and found 27
candidates. The following stocks look the best out of the group:
Brookfield Properties (T.BPO) breaking through strong resistance and from a
period of stability.
Enbridge (T.ENB) breaking from an upward consolidating triangle, and in a good
up trend. A bit risky as this stock has already moved higher, but still has
good potential.
Jean Coutu Group (T.PJC.A) this chart is a bit deceptive as we have not
adjusted the stock for a recent split, but the chart looks very good as the
stock is breaking from a good upward consolidation. A bit risky as it has
already done quite well, but looks good to continue.
Power Corporation Of Canada (T.POW) recent breakout that looks good to
continue in to an up trend.
Westcoast Energy (T.W) looks good to go to new highs, volume has picked up
lately which is also positive. Pipeline stocks are strong right now.
There are about 1200 stocks on the TSE, and our scan revealed 27 candidates. Of
those, only five met my chart analysis requirements. This should hopefully show
how picky we need to be when looking for opportunities in the stock market.
***Stockscores.com Site Tip of the Week***
On the bottom of the home page are tables showing the most active stocks for
the five major North American stock exchanges. I find that looking at the
general color tone of these tables is a good way to measure overall market
strength. For example, there is a lot more green now than there was a few days
ago, particularly on the TSE. This indicates we may be seeing a shift in
psychology after a pretty negative period, and makes the TSE a good place to
look for opportunities.
***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. |
