In This Week’s Issue:
In This Week’s Issue:
– Stockscores Free Webinar – Trading Styles
– Stockscores’ Market Minutes Video – Playing Defense
– Stockscores Trader Training – Perception of Fundamentals
– Stock Features of the Week – Stockscores Simple Weekly
Stockscores Free Webinar – Trading Styles
There are many ways to trade the market, the choice you make depends on your time, capital, personality and skill. This webinar will consider the different choices, demonstrate the process for each and answer your questions on whether you should be a long term investor, a short term active trader or something in the middle.
Stockscores Market Minutes Video -Playing Defence
The markets are starting a pull back phase in the long term upward trend, making it appropriate to play defence. This week, I discuss ways to do that plus my regular weekly market analysis. Click here to watch
Trader Training – The Perception of Fundamentals
What moves stock price? Information filtered by the psychology of the market defines the market’s perception of a company’s fundamentals. It is the perception of fundamentals that determines stock price, and it is changes in the perception that leads to changes in price.
There are many investors and market experts who base investment decisions on fundamentals alone. They apply scientific analysis to the financial reality of a company’s business to arrive at the value of their stock. If this logical value of the stock is higher than the price the stock trades at, the stock is deemed worthy of purchase.
This analysis process leaves little room for the artful interpretation of value. Fundamental analysis is either black or white, leaving little room for the color of reality.
What make the financial markets colorful are the characters, motives and moods that taint the process of logical deduction. A stock whose fundamental value is $20 may only trade at $10 because a large investor has lots of stock to sell, a group of short sellers may have the stock gripped in fear, or investors may simply not like the color of the story.
There is an art to predicting stock price change.
It is not enough to know what the fundamentals will be tomorrow, it is also important to know how the market will judge those fundamentals. It seems obvious that a company announcing positive news will go up in price, yet we as investors have often seen the opposite happen.
Investors will judge fundamentals not only on their merit, but also on how they relate to expectations. Sometimes, fundamental change will be ignored in favor of more pressing macro economic issues.
Suppose you are told that a mining company will announce the discovery of a significant gold discovery in two days. In anticipation of news, and based on your privileged information, you buy the stock. You are excited by the prospect of what will be easy money, to materialize when the news is made public.
Two days later, the news is announced and you watch the stock with excited anticipation. But instead of jumping higher and higher, it goes up for a couple of minutes, and then suddenly begins a free fall lower. Your expectation of quick and easy profit quickly and easily turns to loss.
You can not understand why, it seems to make no logical sense.
Here are some of the possible reasons why the trade did not work:
1. The stock market is not fair. The inside information that you received two days before the news was obtained by others weeks earlier, and the stock already priced in its value. Your stock has been going up in anticipation of news for some time.
2. Expectations rarely live up to reality. Investors have a wonderful imagination, and the visions of those who were buying the stock in anticipation of the news pushed the stock beyond what the news was worth.
3. Without a reason to own, investors will sell. Many short term investors bought this stock in anticipation of news. When the news came out, so went the reason for owning the stock. Investors who buy in anticipation of news often sell when it is released.
4. The exit door is only so big. When a stock starts to do what investors don’t expect it to do, investors panic and all try to get out at once. This creates emotional selling that has no regard for fundamentals.
5. The tipster has motives different than yours. Believe it or not, the only person who cares about your money is you. Whoever gave you the “inside” information is only concerned about their money, and probably encouraged you to buy the stock because they already had.
6. Every stock correlates to the market. If the market is going down and pessimistic, buying a stock is like trying to paddle up stream. Some can succeed, but most eventually go with the flow.
Do not ever judge a stock through scientific analysis of fundamentals alone. You must always ask, what does the market think? How will the market judge this company? What effect will the mood of the market have on the perception of fundamentals?
Fundamentals don’t matter, only the perception of fundamentals is important.
With the markets starting a pull back, I think it is a good time to be cautious with stocks. There will likely be lower prices in the near term.
With that in mind, I went in search of strong long term charts where an uptrend appears to be in an early stage. I focused on finding stocks that have built a strong base of optimism and are breaking through some resistance with the idea that money may rotate out of the strongest stocks and search for value in those that have lagged.
I searched using the Stockscores Simple Weekly Market Scan and found a couple names to consider:
1. EBAY
EBAY has been stuck under $58 for most of the past two years but this week broke out to $60, a sign that investors have found a reason to accumulate the stock. Support at $57.50.
2. AEO
AEO made a good breakout this week through $15 and looks like it is making a long term turnaround as this break is from a rising bottom. Support at $14.50.
References
- Get the Stockscore on any of over 20,000 North American stocks.
- Background on the theories used by Stockscores.
- Strategies that can help you find new opportunities.
- Scan the market using extensive filter criteria.
- Build a portfolio of stocks and view a slide show of their charts.
- See which sectors are leading the market, and their components.
Disclaimer
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
