Stockscores.com Perspectives for the week ending April 17, 2010
In this week’s issue:
Strategy of the Week
Stocks That Meet The Featured Strategy
I am in Vancouver on Wednesday and Victoria on Thursday doing one trading workshop at 7:00pm in each city. These workshops are mini-classes where I will teach some analytical methods and then demonstrate how I use those methods to find and execute trading opportunities. We’ll also do analysis of the overall market and hopefully find some trading opportunities to take advantage of.
These presentations are free to attend courtesy of Disnat, who will be on hand to open brokerage accounts for anyone interested. For location details and to register, go to this link. We are expecting large turn outs so you may want to arrive a bit early to get a good seat.
I was speaking with a friend about the markets, he expressed a very bearish outlook on not only the stock market but the economy over the next year or two. His arguments were good, based mostly on the follow through from the financial collapse and the inability of the housing market to sustain the prices that prevail in the city where we live.
My tendency is to always argue the other side, so I countered with the show of increasing strength in Asia and their need to drive expansion with the purchase of commodities. Since I live in Canada, our area is well positioned to benefit from the rise of the middle class in China and India and their need for the goods that the Western World has had for 50 years. The evidence of this trend can be seen by the strength in the Canadian dollar.
But here is the thing. I have no idea what is going to happen. If my friend had told me that he felt the stock market was going to go crazy to the upside over the next two years because of strength in Asia, I might have countered that he should not be so optimistic, that this strength would bring inflation which would bring rising interest rates which would drive down the domestic economy.
And that’s just because I like a good debate, a tendency that drives my wife crazy.
I have met a lot of very smart people who present very smart arguments about what will happen in the future. I respectfully consider each of their opinions as nothing more than a well articulated guess. We don’t know what will happen, the future is uncertain.
When making predictions, one has to respect that being right is not enough. You must also be right at the right time. How many times have you watched the market do things that you thought were completely irrational? Is the market wrong to go higher day after day when your analysis indicates that it is way over valued? Perhaps, but you can go broke being right if the market does not agree with you.
Therefore, what is important beyond all else, is what you do when you are wrong in your predictions. Being wrong is inevitable so you must have a plan for what to do when you are wrong. Every investor needs to know that point where the market will have proven their prognostication wrong. They need to know where the emergency exit door so they can minimize the damage.
If you want to put the odds in your favor, I think it is also helpful to wait for the market to show signs that it is starting to agree with you. Think the banking stocks are priced too high and destined for a sharp correction? Great! But wait for a break of the upward trend line in banking stocks before you initiate the trade.
Finally, no matter how smart you are, you are not smarter than the collective wisdom of the millions of people who invest in the stock market. This is not to say that you can not be right and they can be wrong. What I mean is that until they start to agree with you, being right will not make you any money. Timing is everything.
The market faced strong selling pressure on Friday after it was announced that Goldman Sachs was being investigated for fraud relating to some products they developed for short seller John Paulson. My Paulson made a couple billion dollars on the collapse of the home mortgage market.
I don’t think this investigation was the real cause for the selling pressure on Friday, just a catalyst. The market has been overdue for some profit taking since it has been on a steady climb higher over the past few months.
However, the US market indexes did have an abnormal down day on abnormal volume and the Dow and S&P 500 broke their short term upward trend lines. This is the Reversal of Fortunes strategy set up.
I don’t think that the market is going to head in to a substantial sell off from here. What is more likely is that we will see some profit taking which will take the major indexes back to their long term upward trend lines.
This should set up for a short sell swing trade on stocks that had an abnormal down day on Friday and broke their upward trend lines. I consider this a swing trade because I don’t think the move lower will be a long one. I would look for a confirming signal on the intraday, 15 or 60 minutes charts, of the following stocks which I found using the Stockscores Market Scan tool.
EWJ is an ETF representing the Japanese market, it broke its upward trend line and should now fall back to the longer term downward trend line. Watch for a confirming chart patter on the intraday chart before taking the trade.
Unlike the market indexes, JAZZ has actually broken its long term upward trend line and did so from a falling top chart pattern. Watch for a confirming chart patter on the intraday chart before taking the trade.
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Tyler Bollhorn started trading the stock market with $3,000 in capital, some borrowed from his credit card, when he was just 19 years old. As he worked through the Business program at the University of Calgary, he constantly followed the market and traded stocks. Upon graduation, he could not shake his addiction to the market, and so he continued to trade and study the market by day, while working as a DJ at night. From his 600 square foot basement suite that he shared with his brother, Mr. Bollhorn pursued his dream of making his living buying and selling stocks.
Slowly, he began to learn how the market works, and more importantly, how to consistently make money from it. He realized that the stock market is not fair, and that a small group of people make most of the money while the general public suffers. Eventually, he found some of the key ingredients to success, and turned $30,000 in to half a million dollars in only 3 months. His career as a stock trader had finally flourished.
Much of Mr Bollhorn’s work was pioneering, so he had to create his own tools to identify opportunities. With a vision of making the research process simpler and more effective, he created the Stockscores Approach to trading, and partnered with Stockgroup in the creation of the Stockscores.com web site. He found that he enjoyed teaching others how the market works almost as much as trading it, and he has since taught hundreds of traders how to apply the Stockscores Approach to the market.
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.