Stockscores.com Perspectives for the week ending June 27, 2010
Why Not to Take a Trade
In this week’s issue:
Strategy of the Week
Stocks That Meet The Featured Strategy
The market has changed a tremendous amount over the past few years as technology has taken a greater role in how stocks are priced and traded. The market today moves faster than it did even three years ago and computers are doing most of the work. This means it is important for traders to adapt to the new realities of the stock market.
Despite the major role that computers take in completing market analysis and trades, the factors that drive the market remain the same. Human emotion in the form of fear and greed still determine where prices will go. Fundamentals matter over the long term but in the short term, very tradable gyrations of the market are based on how people feel about stocks.
What has changed is how quickly things move. It is becoming increasingly important to use intraday charts to make trading decisions and manage risk. A few years ago, my position and swing trading decisions were made off of the daily chart. Now, I check intraday 5, 15 and 60 minute charts for entry and exit signals. I also use these charts to identify price floors and ceilings to use for stop loss points and potential limits on the reward potential of my trades. (continued below)
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This time frame shortening means that traders have to more closely watch the market for opportunities. Fortunately, technology is there to help us. Cellular products like the iPhone give the trader the ability to check prices and charts while they are away from their full functioning computer. There are a number of applications available to make this easy.
You can even make trades from your phone now as brokerages launch mobile trading applications. However, don’t do it while you drive as you may give new meaning to the term market crash.
What I look for in stocks has not changed in 20 years. I want to see evidence that the market is excited or worried about something. Every company has a group of investors that follow the company very closely. These people will know when something important is changing and will act aggressively immediately if there is significant fundamental change. I don’t need to know anything; I just follow what they are doing by reading the chart.
Since information moves so fast and markets can react to new information so quickly, I now have to look for the evidence of abnormal action in a stock in a shorter time frame. Computers can do most of the work to give me a list of stocks behaving abnormally, I then check their intraday charts to see if the patterns leading in to the abnormal behavior are predictive.
On Friday, we saw a good example of how quickly information moves in the US Financial stocks. These companies have been moving lower on fears of how new financial regulation would impact the earnings of US financial companies. The US Congress released the details of their bill and, at a little after 1:00 ET, these stocks started to move higher, breaking the downward trend line that had been in place over the previous four days. The new rules are not as restrictive to financial companies as had been expected. The market told that story before the information was discussed in the media.
Intellectually, trading today is no harder than it was 3, 5 or 10 years ago. Like so many things in our world today, the markets move faster and we have to be able to think and act quickly to take advantage of trading opportunities. It is important to keep it simple when doing your analysis but act quickly when making your trades.
A late day rally in US Financials helped the S&P 500 break its recent downward trend that began June 21st. This means there is a good chance that the markets will bounce back to the upside next week, although a rally will likely only be short as the market is locked in a trading range.
With this in mind, I ran the Stockscores Simple Market Scan to identify some stocks that have good daily charts and could move higher next week if the market does the same. Here are a couple of names to consider:
Late day rally on LGF with strong volume support takes the stock through resistance on the daily chart. The pattern in to the breakout is an optimistic ascending triangle, a good indication that the breakout is a valid signal of an upward trend building. Support at $6.95.
SNMX has been trading abnormal volume for two days and that has taken the stock up to test resistance. I am a little bit concerned about whether the stock can get through $4.35 which has held up as a price ceiling for some time, but the volume that has been building over the past couple of days is encouraging. Support at $3.90.
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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.