In This Week’s Issue:
- Stockscores’ Market Minutes Video – Trust the Market
- Market Overview – Where is the Action?
- Stockscores Trader Training – It Only Takes 5 Minutes
- Stock Feature of the Week
Stockscores Market Minutes Video
Do you think you know more than the thousands of investors that put their money on the line in the market? Here are some ways to figure out what they are doing.
Watch the video by clicking here.
Between the Lines – A Market Overview
A pretty dull weak for stock traders; whether you choose to trade the speculative low priced stocks or the higher priced large caps, there were few strong movers.
Canadian banks had strong earnings which attracted buyers who put these stocks in to overbought territory with emotional buying. That means it is better to consider the Canadian Banks (
T.TD,
T.BMO,
T.CM,
T.BNS,
T.RY,
T.NA) on weakness if they manage to come back to their long term upward trend lines.
Oil prices moved to new local highs but the Canadian Energy Sector (
TSX:T.XEG,
Stock Forum) did not, likely because there continues to be profit taking across many names in the sector. There are still going to be good trades from the group, I like Canacol Energy (
TSX:T.CNE,
Stock Forum) which has pulled back to support after it broke out five weeks ago and now looks like it can resume the upward trend.
On the more speculative side, Petromanas (
TSX:V.PMI,
Stock Forum) is the hottest name on the Venture as investors speculate on drilling results from their Shell partnered project in Albania. I think this one will be classic buy the rumor, sell the news play as investors are pricing in perfection for results due soon, likely in July. I suggest investors take a good portion of their profits before the news comes out as it is just too risky, and upside too limited, to hold in to the news.
Mining still fights to gain respect from investors, generally the sector is in the doldrums but there are a few names that investors are getting optimistic about.
T.LUN,
T.HBM,
T.P,
SWC and
T.CUM are stocks outperforming the overall sector and are worth checking in to. We may see these stocks lead the sector in to a recovery which should then spread to a broader range of stocks.
US markets broke to new closing highs on light volume ahead of the Memorial Day long weekend. With the breakout came stability, and even some return of the buyers, to the recently maligned Biotech area. If this trend continues in to next week, expect an increase in tradable ideas, I like that Biotech has pulled back and is now bouncing off of its upward trend line. I don’t expect the feverish buying that we saw earlier in 2014 but strong stories from the group should be able to gain traction.
US Investors have been buying dividend paying stocks and funds lately as US Treasuries have been surging higher. I think that strength could dissipate next week as this group is now coming in to important resistance at the downward trend line. If the breakout for the S&P 500 (
NYSE:SPY,
Stock Forum) is to be believed, expect money to seek out more risk and move back in to the smaller cap stocks (
NYSE:IWM,
Stock Forum) next week, improving the quality and quantity of trades from what we have suffered through over the past few months.
Stockscores Trader Training – It Only Takes 5 Minutes
I often see traders take positions based on an idea that makes a lot of sense, if you listen to the story, but which the market has failed to show any support of. They buy in to the idea and then show the patience of a saint as they wait for the trade to materialize. This approach is one that I have always had trouble understanding.
If you are a large institutional investor with hundreds of million or even billions of dollars to invest, you do not have the luxury of being nimble. You have to be patient as you move in and out of positions because the liquidity of the market is not sufficient to absorb your large orders to buy and sell.
This is not a problem that individual investors face. If you factor in the time it takes to turn on your computer, log in to your broker’s trading platform (or call in to your broker) and then make the trade, it might be five minutes to take a position. Even the hottest of markets don’t move that much in five minutes.
We all come across exciting stories or trading ideas from time to time, but why not wait until the market shows the trading activity that validates the idea?
When you have a good reason to buy a stock or commodity from a fundamental perspective, look for some simple things in the chart that give the fundamentals legitimacy from a technical standpoint. Here is what I look for:
Rising bottoms – these are a sign that investors are optimistic because a rising bottom means that the sellers are losing strength and the buyers are gaining momentum.
A period of sideways trading – strong trends are built on strong foundations. When a stock trends sideways, it builds a good base of value that will minimize risk. The longer the period of sideways trading, the stronger the foundation
Abnormal activity – when a stock makes a move to the upside that is outside of the stock’s normal trading pattern, take notice. Abnormal trading activity is caused by buyers who have come across information that makes them excited about the company’s future and motivates them to buy the stock aggressively. Almost all market beating trends start with abnormal trading activity.
The chart below is a monthly chart of the Gold ETF (
NYSE:GLD,
Stock Forum) going back to 2005. The three blue arrows highlight the months when it was able to break through resistance abnormally after a period of sideways trading and optimism building. Notice that the current scenario is not yet showing optimism. Although the reasons for buying Gold may sound attractive right now, the market is not yet in agreement.
On a shorter term basis, here is the chart of V.PMI. I picked up on the stock February 24
th when it made an abnormal break from a good foundation with optimism:
Yes, by waiting for the market to validate the trade with the abnormal price gain, you end up paying more. However, you also significantly increase your probability of success and you can have your capital in stocks that are moving instead of sitting in a stock waiting for the market to catch on.
Features
It was a very slow, light volume week despite the break to new highs for the S&P 500. That makes it hard to find new stocks to consider. I don’t think it is a bad idea to not initiate any new positions right now and see how the market responds next week. Below is one US listed trading idea:
FLEX
Flextronics (
NASDAQ:FLEX,
Stock Forum) has been trending sideways for three months, building a good base on the right side of a lengthy cup and handle pattern. Thursday saw a break through resistance with an uptick in volume, a good sign that the stock wants to go higher. Support at $9.40.
Tyler Bollhorn
Founder of Stockscores.com (
www.stockscores.com) and author of The Mindless Investor (
www.stockscores.com/mindless)
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