SO, even traders might start having a hard time -
in the LA Times business section today-
'Channeling' Is Latest Trading Fad
Investing: Strategy of playing a single stock as it moves within a range gets skeptical
reception.
By JOSH FRIEDMAN, TIMES STAFF WRITER
The idea sounds enticing enough. In a
commercial that runs regularly between
CNBC's stock market reports, a
twentysomething who presents himself as
an investing success reveals his secret:
"Buy low, sell high--the same stock, again
and again."
The ad is from ChannelingStocks.com,
which offers investors a seemingly simple
way to make money in today's dicey
market: Play stocks that can be traded as
they travel up and down through an
established price channel. The concept is
to repeatedly buy at the low end and sell at
the high end.
But some Wall Street "technical" analysts, who interpret stock
price charts and track other market trends, say ChannelingStocks,
which is owned by Stock Firm Inc., has a pitch that vastly
understates the difficulties of trading successfully. "That guy on
the commercial, I'd like to reach out and smack him every time
he comes on," said Bill Ryder, an analyst at First Union Securities
in Richmond, Va. "The premise that a stock will continue to
move in a channel, like it's physics or something, is ludicrous."
Though stocks often can be stuck in a particular range for a
while, Ryder said, "That's no guarantee the pattern will continue."
At some point a stock's price will break out of that range, to the
upside or the downside, he said.
Stock Firm Chief Executive Timothy Thompson said the Port
Washington, Wis., firm, which started its ad blitz in December,
has "several thousand" customers, with 80% to 85% renewing
their monthly or quarterly subscriptions. He said the retention rate
indicates "people like the service."
Fees are $15 a month, $40 a quarter or $120 a year. For the
money, subscribers get information on 15 "channeling" candidate
stocks each week--issues that have been trading in a range for
some time.
Some analysts believe there is indeed plenty of money to be made
trading stocks, rather than buying and holding, in the current
choppy market environment.
"We've transitioned to a sideways market that could last for a
long time, and that means you're going to have to trade to make
money," said John Bollinger, head of Manhattan Beach
investment firm Bollinger Capital Management. He started his
career near the end of a 16-year span that saw the Dow Jones
industrial average mostly stuck between 800 and 1,000, before it
lifted off in 1982.
But some experts say the ChannelingStocks approach
oversimplifies the challenges facing traders, which include not just
getting the buy and sell points correct but absorbing commission
costs, as well as paying taxes on any short-term capital gains.
Of course, trading strategies are always coming and going on Wall
Street. In the dot-com heyday, thousands of investors were lured
into "day trading"--rapid-fire buying and selling of hot stocks, with
the goal of making small amounts on each trade, in hopes of
accumulating big sums by day's end.
More recently, "swing trading" has attracted investors. Swing
traders look for suddenly hot stocks that they can ride for weeks
or months, until the price momentum peters out.
Rather than just pick a stock that is at the low end of a recent
trading range, Bollinger looks for upward momentum not only in
an individual stock but also in its industry group and broad sector,
as well as the overall market.
"With all four oars in the water, you get the biggest burst of
speed," he said. "Even if 'XYZ' stock is moving in a channel, if its
industry group deteriorates around it, my best advice would be to
respect that deterioration and move on to something else."
By contrast, ChannelingStocks and other Web sites pitching
channeling or "rolling" stock strategies generally focus on single
issues and take a shorter-term approach.
"If a stock 'channels' only once every four months, we'd look for
something more active," Thompson said. Stocks often channel
between their low and high price targets within days or weeks, the
Web site notes.
Each Thursday night, ChannelingStocks releases a list of about a
dozen stocks trading near the bottom of their recent channels. It
also highlights three issues trading near the top of their channels,
for aggressive investors who wish to "short" them, or bet on a
decline.
Thompson said the company's seven chart watchers handpick the
stocks based on patterns over the last 12 months.
ChannelingStocks doesn't suggest buy or sell target prices, but
highlights the upper and lower ends of a stock's recent channel.
Users are expected to set their buy and sell targets based on how
aggressive or conservative they are.
Thompson acknowledges that there are no guarantees any stock
will stay in a channel, and he said the site advises traders to use
plenty of caution.
ChannelingStocks suggests, for example, that traders wait until a
stock is heading higher before buying, a concept Thompson calls
"confirming direction." If a stock has channeled between $10 and
$15 and now is at $10.50, Thompson said, a trader might buy it
only if it rises to $11. At the same time, the trader might put in a
standing order to sell the stock if it rises to $13 or $14, depending
on his or her aggressiveness, or if it falls to $9.50, which would
limit any loss.
The company also suggests customers make practice
trades--trading on paper, not with real money--for two months to
learn confirming direction and other trading nuances.
"We're not suggesting anybody cash out their 401(k) and do this,"
Thompson said. But "it might be something for a portion of
someone's portfolio."
Investors have had mixed reactions to ChannelingStocks.
Jerry Miller, a 51-year-old window company salesman in Smock,
Pa., who signed up in December, said that after two months of
practice trading he is close to "taking the plunge" with real money.
"I was impressed by the tone of the Web site. They tell you not
to be greedy and just jump in," Miller said. "They encourage you
to practice, practice, practice, unlike the get-rich-quick sites out
there on the Internet."
Miller said he supplements the service by researching the business
trends of any company he might invest in. "These are just
charts," he said of ChannelingStocks' ideas. "If a company misses
its earnings target, the pattern isn't going to prevent the shares
from falling."
Stephan Lewis, a 44-year-old Hermosa Beach resident who
stepped away from his job writing software books five months
ago to become a full-time stock trader, said he wouldn't touch
ChannelingStocks.com "with a 10-foot pole."
Like many others, Lewis believes investors now face a volatile
market in which traders can thrive, but he said he prefers trading
services he considers more sophisticated. He subscribes to
TheStreet.com's new "daily swing trade" feature written by Alan
Farley, author of "The Master Swing Trader," along with another
site for active traders.
Noting that several of the stocks ChannelingStocks lists trade for
less than $10, Lewis said "bid-ask spreads"--the difference
between the price investors must pay when buying a stock and
the price they could get by selling it immediately--could eat
severely into trading profits.
Lewis said that during the bull market of the late 1990s, traders
had success playing "breakouts," or stocks starting to move higher
after being stuck in a range. That was one form of classic
"momentum" investing. But those are harder to find now.
"Everybody's looking for some other concept," he said.
Bollinger said it's human nature for investors to seek out "a
simplistic paradigm." But he said investors should have learned by
now that "there is no easy way to riches" in the market.
latimes.com |
