4 Stocks That Meet The Strategy of the Week

Posted by Tyler Bollhorn - StockScores

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Avoid Confirmation Bias

Screen Shot 2014-09-29 at 9.35.09 AMIn this week’s issue:

  • Weekly Commentary
  • Strategy of the Week
  • Stocks That Meet The Featured Strategy

perspectives commentary

In This Week’s Issue:

– Stockscores’ Market Minutes Video – When Support Works (and when it doesn’t)
– Stockscores Trader Training – Avoid Confirmation Bias
– Stock Features of the Week – Bargain Hunting Energy Stocks

The Toronto Money Show
Join Tyler Bollhorn and a star-studded cast of financial experts at The World MoneyShow Toronto (Metro Toronto Convention Center) this October 16-18. Tyler will be speaking on Saturday Oct 18th at 12:45 – 1:30 on How to Find and Trade Hot Stocks.

Attendance is free but you must register. For more information, and to register, click here:

Stockscores Market Minutes Video – When Support Works (and when it doesn’t)
In this week’s Market Minutes video, I look at what the two types of chart support are and how these price floors serve to stop selling pressure and under what conditions they fail to hold. If you are wondering whether the market is setting up for a big correction, this is a must watch video.

Avoid Confirmation Bias
Investors usually do some research on the stocks that they are considering purchasing. This might involve checking the company’s financial position, reading their recent news releases or consulting research done by experts. The aim is to make a well informed decision.

If the research satisfies their criteria, a trade will be made. For most investors, that trade brings with it a dangerous commitment. Since no one likes the pain of suffering a financial loss in the market, the investor now has a vested interest in finding any information that they can to confirm that they have done the right thing.

Behavioral finance researchers call this confirmation bias. This is the tendency to seek out information to confirm their trading position and ignore or underweight anything that runs contrary to their financial interest. It is dangerous practice and one of the reasons why I think the small investor should not seek out any information at all when buying stocks. Instead, just learn how to interpret the market’s message.

Let’s say you buy a mining stock that has some gold projects that have good potential. Before you buy the stock, you read the company’s news and some analysis done by a mining expert who publishes a newsletter. All indications from your analysis is that this stock is likely to go higher.

After you buy it, the stock does go higher, adding further credibility to the research work you have done. Then, one day, the stock makes a very abnormal move lower without any corresponding bad news. You go on to a stock market message board and find a few comments about initial results from the project rumored to be poor but most comments confirm what you know; the company has some great projects.

You ignore the naysayers and seek out other information that confirms that your stock is a good one to hold. You find enough good information to convince yourself that the market’s recent downward move is an overreaction and wrong.

In doing so, you have behaved like a normal human being eager to avoid pain and pursue pleasure. Unfortunately, we humans are myopic and, in this case, you are likely avoiding short term pain but increasing the chance for long term pain. The market moved down for a reason and, if you wait to find out why, it is usually too late.

I believe that fundamental analysis is essential for the market to function and has to be done. However, it does not have to be done by you because you do not have the resources to do it well. Those who do it right will tell you what they know by their actions in the market. Just listen to them.

If you know too much about a company you are likely to fall in love and commit the sin of confirmation bias. If you must seek out information, make sure you are balanced in how you do it.

perspectives strategy

Last week, I provided no trade ideas, preferring instead to cash up in anticipation of a pull back. That pull back came right now schedule this week. Friday’s action indicates the market may hold its long term upward trend line, making it a good time to go shopping for beat up stocks that still have good long term outlooks.

The sector that I like the most for bargain hunting is Energy. Oil has dropped sharply over the past two months but has now come to an important trend line of support. Oil stocks have followed Oil down and many have sold off so sharply that their trends have gone parabolic to the downside. That means opportunity.

On Friday, Oil showed signs that it would hold that upward trend line, making now a good time to look for Oil stocks in long term upward trends but which have suffered in the short term, taking them back to important areas of support.

This week, I went through the three year weekly charts of a number of Canadian Energy stocks. I was looking for those that were in upward trends long term but had pulled back over the past two months to come back to their upward trend lines. This is what the Canadian Energy Index Fund (T.XEG) has done. I found a lot of examples of what I was looking for, here are 4 that are worth considering for some bargain hunting:

perspectives stocksthatmeet

1. T.BNK
Red hot for the year ending in April, it has been sliding lower since and has now come back to the linear upward trend line where it is likely to reverse.

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2. T.PD
The service companies have been drifting lower but now appear likely to stabilize and strengthen. I could have picked T.TDG or T.CFW as they have similar charts. T.PD has made a big pull back over the past few months but has come back to support at the long term upward trend line. 

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3. T.SU
Oversold with support at $40, should end the downward slide here.

 Screen Shot 2014-09-29 at 9.43.26 AM

4. T.CPG
Has trend line support at $40 with upside to $46 and downside to $38.

 Screen Shot 2014-09-29 at 9.43.43 AM


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 diligenc