Stock Trading Alert originally published on April 13, 2015, 6:25 AM:

Briefly: In our opinion, no speculative positions are justified.

Our intraday outlook is neutral, and our short-term outlook is neutral:

Intraday outlook (next 24 hours): neutral
Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): bullish

The U.S. stock market indexes gained 0.4-0.6% on Friday, extending their short-term uptrend, as investors reacted to quarterly corporate earnings releases, among others. The S&P 500 index trades slightly above the level of 2,100. The nearest important level of resistance is at around 2,115-2,120, marked by February 25 all-time high of 2,119.59. On the other hand, support level is at 2,070-2,080, marked by previous resistance level, as we can see on the daily chart:

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Expectations before the opening of today’s trading session are virtually flat. The main European stock market indexes have been mixed so far. The S&P 500 futures contract (CFD) trades within an intraday consolidation, following Friday’s move up. The nearest important level of resistance is at around 2,095-2,100. On the other hand, support level is at 2,080, among others:

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The technology Nasdaq 100 futures contract (CFD) follows a similar path, as it fluctuates within a relatively narrow trading range. The nearest important level of support remains at 4,400, and resistance level is at 4,415-4,420, as the 15-minute chart shows:

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Concluding, the broad stock market extended its short-term uptrend, as investors reacted to quarterly earnings releases. For now, it looks like further medium-term consolidation, following last year’s October-November rally. We still prefer to be out of the market, avoiding low risk/reward ratio trades. We will let you know when we think it is safe to get back in the market.

Thank you.

#25. Horizon North Logistics Inc (TSE:HNL.CA) — 12.6% YIELD

Horizon North Logistics is engaged in the provision of camp and catering, ground matting, and marine transportation services to oil and gas exploration and production companies, oilfield service companies and mining companies working on oil sands, mineral exploration and development, and conventional oil and gas projects throughout Canada’s northern regions. Co. divides its operations into three business segments: Camps & Catering; Matting; and Marine Services.

In This Week’s Issue: 

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

In This Week’s Issue:

– Stockscores Free Webinars – How to Analyze Any Stock in 10 Seconds and When to Sell
– Stockscores’ Market Minutes Video – Overcoming Trading Fear
– Stockscores Trader Training – Trade Well
– Stock Features of the Week – Abnormal Breaks Canada

Stockscores Free Webinar – How to Analyze Any Stock in 10 Seconds
Wednesday April 8 – 6:00 pm PT, 9:00 pm ET
Understand Tyler Bollhorn’s six elements of chart patterns and you can quickly assess the health of any stock or market. Whether you are managing your retirement portfolio with longer term trades or actively trading the market, these elements will help you improve your market performance.
Click here to register

Stockscores Free Webinar – When to Sell – Common Signals That the Trend is Turning
Saturday April 11 – 11:00 am PT, 12:00 pm ET
The exit is one of the most frustrating decisions traders make. This webinar will highlight some of the common signals that come before a trend reverses. Plus, Stockscores founder Tyler Bollhorn will show how he knows when it is time to accept a small loss before it turns in to a big one. Click here to register

Stockscores Market Minutes Video – When to Enter Breakouts
A trader’s worst enemy is fear, this week I discuss a solution to three common fears that can hurt your trading performance. Plus, my regular weekly market analysis.
Click here to watch

Trader Training –
The clock beside the bed said 8:32 am; in my time zone the stock markets had been open for a little more than an hour. As was my custom, I had crawled back in to bed, not because I was in need of more sleep but because I needed some time to assess what I had done through the first part of my working day. I did this each morning, a celebratory ritual most days as I was on a hot streak and it was easy to make money. I had got in to the habit of analyzing what I had done right and what mistakes I had made each morning, knowing that trading is more art than science and it was impossible to profit from every trade.

“How much today?” asked my fiancée (who is now my wife). She was still in bed, half asleep.

“55” I answered back, half smiling, knowing that she would probably fail to add the number of zeroes that I had intended. She rolled over as she mumbled “that’s great” in a sort of unenthusiastic but pleased way, obviously more interested in continuing sleep than pondering my trades the way I was. Our wedding was a few months away and she had been up late working on the plans.

$55,000 will not sound like a lot of money to a professional money manager or Wall Street power trader but for me, it was a good day. I was not yet 30 years old and did not have a real job. I lived in a small apartment which also housed my home trading office. Only two years prior, I had made less than $55,000 over the entire year.

I had aspired to be a trader since my first year of University but success had taken time – too much time! While those that I graduated with had now taken well-paying jobs with big corporations, I had been working evenings so I could study the market by day. There is not a lot of glamour in deejaying school dances but it afforded me the daytime to digest the market. For eight years, the stock market had been my hobby. Over the previous year, it also became my primary source of income.

Today’s profits had come quickly, I had taken a few positions the day before, held them overnight and unloaded them in to a strong open. This was something that I did often, each day spending an hour at the end of the day and an hour in the morning, entering one day and selling the next. Some days I might buy five or six stocks but on others I would do nothing. I had already learned the hard way that you have to let the market tell you what to do and never try to work harder if the market was not prepared to give you profits. Today the market was in a giving mood.

As I lay there thinking about stocks, I could not help but remember what a University professor had told our class of eager business school students,

“The stock market cannot be beat” he said. “The markets are efficient and short term profits will be balanced out by losses and ultimately, you will earn what the market earns. Trading the market has no benefit; you are better to buy and hold an index fund rather than try to time the market.”

Was my success just good luck, destined to be balanced out by bad luck over time? It did not feel like it, but the words of the legendary stock promoter Murray Pezim stood out in my head,

“Profits in the stock market are just short term loans.”

I certainly hoped that was not true. I had been having a good year, growing the 20 or 30 thousand dollars that I had saved over a number of years in to a nice sized trading account, something better than half a million dollars. My success had not come by hitting on one or a few lucky trades; I had done it one day at a time trading hundreds of different stocks over a year. Sometimes losing on individual trades, but making much more when I was right, my account had been growing steadily day after day.

Would I give it all back if the markets turned against me? I had seen strong up trends reverse before and felt that I had learned a lot from the experience of letting winners turn in to losers. I had studied reversals and knew the signs of a changing trend. I was sure I would not get caught paying back my profits, but only time would tell.

Right now, I knew that my simple set of rules was working well. Although I could explain my trading strategy in less than 30 seconds, it had taken a long time to develop my approach. Eight years earlier, a friend had told me about someone he knew that made a living trading. This person’s career was buying and selling stocks.

I had grown up believing that you made money by doing something that added value to society. You sold a product or service that people needed or wanted. The notion that you could make money simply by buying something, not changing it at all and then selling it a short time later for a profit did not make a lot of sense to me. I did, however, love the idea.

I had bought my first stock on a tip from a friend. I ignored his first recommendation to buy but I did watch the stock and, of course, it climbed higher. After watching it move up week after week, I finally bought the stock with the little cash I had and some that I borrowed from my Visa card. I bought the stock after it had more than tripled in price; the upward trend seemed to convince me that my friend’s tip was correct. It turned out that I bought the stock near its high and it only went lower once I owned it. It was a tough first foray in to stock market trading yet, despite the loss, I was hooked.

From that first trade, I set out to study everything I could about trading. At the time, trading was not something commonly done, there were few books that focused on it and the Internet did not exist in the way it does today. Company information was much harder to get and stock charts came from aged chart books.

In my early trading, I drew the charts myself, pulling the daily price information out of stacks of newspapers that I had saved.

Trading has been my passion for over 20 years, occupying more of my time than any other pursuit. In his book, Outliers: The Story of Success, author Malcolm Gladwell discusses the 10,000 hour rule. This rule states that to be a master at something requires 10,000 hours of practice. I estimate that I have spent more than 20,000 hours trading and analyzing the stock market.

The success that I achieved after the first eight years of my trading career was only a start, since then I have continued to learn and develop my approach to the market. Why do I spend so much time working toward mastery of the market?
Simply, it is because I love it. Trading is about outthinking the thousands of others market participants that are out there. It is constantly evolving and it is impossible to ever stop learning something new. It is a very fun game to play, but one where there are real stakes that can have a profound impact on life.

There is no profession that has a higher income potential. In 2005, the magazine Trader Monthly published its list of the top 100 traders based on income. At the top of the list was T. Boone Pickens with reported annual earnings of $1.5 Billion. To be in the list’s top 10, a trader had to make more than $300 million in one year.

Of course, these are traders managing billions of dollars within a sophisticated organization. While these ultra-successful traders may not be individuals trading out of their homes, it is possible for the home based trader to make more money than most can imagine.

One trader went from building swimming pools to holding the world record for one year stock market portfolio appreciation. Between June 1998 and December 1999, he turned $10,775 in to $18 million. The methods he used are similar to my own.

Money was my motivation for learning to trade, and I do enjoy what making money has allowed me to have and do. However, I believe the greatest benefit of trading is the freedom that it offers. Technology today allows me to be in touch with the market from anywhere in the world that has an Internet connection. I can work as much or as little as I want, making trading the ideal profession.

Do not be fooled, trading is not easy. The vast majority of people who trade eventually fail. However, we must put this in perspective. In trading, there are few barriers to entry. Anyone with some capital can open a brokerage account and trade the stock market. There is no educational requirement or accreditation from a professional organization. Many believe that they can become a trader simply by reading a book or two.

Imagine if a doctor conducted his first operation after reading a medical text book, would we expect him to succeed? How about a lawyer who went to court for a client after a weekend legal course, would she win the trial? Of course, people in these situations would likely have a high failure rate too. Since their failure affects others there are requirements in place to prevent them from practicing. There are no such requirements to stop someone from becoming a trader and so most who try ultimately fail.

Even among those who work very hard at learning how to trade, there is still a high failure rate. Aspiring traders underestimate how hard it is to beat the market. Most traders are focused on the entry decision and obsess with finding the right formula for picking stocks. I did that for many years and was a very good stock picker but lacked consistent profitability. It was not until I realized that trading is about a lot more than picking the right stock that I was able to succeed. 

Keep in mind that if you do what everyone is doing, you will be average. I trade on ideas that do not fall under the title of “conventional wisdom”, but which I have found to be effective. Don’t be afraid of concepts that sound strange, it is only that they are uncommon.

How I analyze stocks is relatively simple; I can analyze any stock or market in less than 10 seconds by focusing on five simple concepts. With the tools that I have developed, it is possible to search the entire market for opportunities in 10 minutes. Anyone determined enough can learn how to do the same. Take the time to learn my approach and you can be an expert on any stock or market.

Stock trading is simple, but it is not easy. Mastery of the market is more about mastery of self than it is anything else. Consistently beating the stock market requires skill but, more importantly, it requires the emotional control to execute those skills without influence from your emotional attachment to money. This is no different for the home based trader than it is for the multibillion dollar hedge fund manager. Trading is an art, not a science.

The market has no prejudice; it does not care about the color of your skin, your social status, your age or whether you are physically attractive. You can trade from a beach or an office, the market does not know the difference. The market does not care whether you make or lose money and will never exercise a vendetta against you, although it will often seem that way. The market appears cruel because it gives the test first and the lesson second, but the market does not know you or care about whether you succeed or fail.

Want to learn how I trade? Start by participating in my free webinars (the schedule is on the Stockscores home page). To learn more about the courses that I teach, go towww.stockscores.com/learn. Live online training begins May 23.

Trade well.

Two important things happened today. First, the US Dollar broke through its steep upward trend line after making a falling top pattern. That sets up for more of a pullback in the near term.

Second, and related to the weakness in the US Dollar, Oil jumped up from a rising bottom, breaking a short term downward trend line.

Does this mean that the uptrend in the US Dollar and the downtrend in Oil are over? Not with certainty but it is the first, positive sign that things are turning.

With that in mind, I did the Abnormal Breaks Canada Market Scan on Stockscores and found a few good turnaround charts, all in the Energy sector. The leaders today were the drillers, here are a few names to consider:

1. T.CDI
T.CDI has broken its downward trend, built a base with rising bottoms and today broken higher through short term resistance. This is a good turnaround chart pattern set up. Historic yield is 2.96% (this could be changed, contact the company to find out what is expected).

2. T.TOG
T.TOG has a very similar pattern to T.CDI with a break higher from a rising bottom pattern. Has a good historic yield of 5.28%.

3. T.PSI
T.PSI is another reversal pattern, breaking higher from a rising bottom with abnormal price action today. Support at 3.36%.

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.

Click here to register

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

For starters, how about the fact that KeyStone has recommended six (profitable small-cap stocks) to start 2015 – each one has already produced significant gains.

In fact our top rated Cash Rich Canadian Software small-cap has now produced a tremendous 123.13%  gains since mid-January, after jumping nearly 30% in one day this week on the announcement of another game changing contract. Despite the gain, the market is only starting to catch on to the potential of this company and it still ranks as a BUY!

Our top ranked, value-priced Canadian Specialty Pharmaceutical small-cap is up 59.43% in the past 2-months, but still trades at a significant discount to its peers and all large-caps in its sector – despite its superior growth profile.

KeyStone’s recommendation in late 2014 of a profitable cash rich small-cap that is servicing the semiconductor segment has jumped 56.52% in the last month and a half. The stock just posted record 2014 annual earnings this week (we have updated our clients on this) and reported and unexpectedly high backlog that bodes well for the next quarter.

In fact, the “laggard” of this group of 6 profitable Canadian Small-Cap is up 12.70% in the last month and pays us a healthy 7% dividend!

These gains were produced against the backdrop of Toronto’s main market, represented by th TSX Composite Index, posting a gain of just over 2% in the first quarter.

Why have these recommendations been so successful (other than because of the countless days and endless nights we put into the research behind them)? Quite simply, these stocks fly under the radar – they are underfollowed and the potential to uncover true value is real.

Heck, the proof as they say, is in the pudding.

Come to think of it, I have never had much luck finding great stocks in my pudding. The proof is in the results.

If two or three of these stocks above made it into your portfolio to start 2015, you would already be off to a smashing start!

But three months is not an extremely strong sample size. Do small-caps actually stand the test of time?

Let’s examine that.

Between 1926 and 2004, large-cap stocks had an average annual return of about 9.26%. Accordingly, $10,000 invested in large-cap stocks in 1926 would have grown to about $10 million by 2004. That’s not too shabby. However, it pales in comparison to the astonishing 15.9% annual return of small-cap stocks over the same time period. $10,000 invested in small-cap stocks in 1926 would have grown to about $1 billion by 2004! There is also a famous Ibbotson study, which examined the U.S. markets over 70 years and found that small-cap stocks outperformed large-cap stocks 79% of the time over a 15-year period and 95% of the time over a 20-year period.

Small-Caps Vastly Outperform Large Cap Stocks (historically)

But why do small-caps outperform their large-cap brethren?

By Before Big Institutions Can Buy

The universe I can’t play in has become more attractive than the universe I can play in. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in.”

– Warren Buffett, discussing the advantages of small-cap stocks

Just like the Buffett quote above states, you have an advantage buying at the small-cap level. It is one of the biggest advantages of investing in small-cap stocks and gives you the opportunity to beat institutional investors. Because mutual funds and other investment vehicles have restrictions that limit them from buying large portions of any one issuer’s outstanding shares, many funds will not be able to give the small cap a meaningful position in the fund. As small-cap investors, we can buy in early and benefit from institutional buying down the road as the company grows and larger investors are able to buy in – often providing better liquidity and pushing the valuations higher.

Lack of Coverage Creates Potential Small-Cap Bargains

In many cases, when Keystone discovers a small-cap stock, we are initially the only official research coverage on the stock and almost always the only independent analysts covering the stock. Compare this too many large-cap stocks which have hundreds of analysts analyzing and following their every move. You can immediately see why the potential to find an undervalued and undiscovered gem is far more likely in the small-cap segment of the market. This is one of the primary reasons why we apply our fundamental research to this area of the market, where we can truly add value and find the best growth and value stocks for your portfolio.

Small-Cap Have Higher Growth Prospects

Due to their size alone, small caps typically have higher growth rates than larger companies. At a basic level, it is easier to double earnings of $1 million to $2 million then to double earnings of $1 billion to $2 billion. However, the market often under prices small caps relative to similar larger companies. That means investors are typically getting better value for their investment dollar with the type of small-cap companies we recommend through our research service due to their growth potential, often not fully recognized by the market because of lack of analyst coverage.

Small-Cap Volatility Creates Opportunities

To be clear, small-cap stocks are intrinsically more volatile, you also need to exercise extra care in examining their fundamentals. Small caps higher relative volatility stems from their relatively low liquidity. This means there are fewer shares available to buy or sell on the open market compared to larger companies, so small caps can move fast, even on relatively small pieces of information or news. For the savvy and well-researched investor, this can mean quick or long-term (as is most often the case) sizable gains. For those who fail to do adequate legwork, steep losses can just as easily be the result.

The financial crisis of 2008 presented generational buying opportunities and our 15 BUY (5 months following) recommendations in the wake of this crisis have made many of our client’s excellent returns. Corrections and other mini-crisis’ will continue to provide excellent opportunities for the savvy investor. The key is to have an experienced navigator constantly evaluating and identifying long-term opportunities in all market conditions with the singular goal of providing you with strong, long-term growth for your portfolio.

Investing in a selective group of individual stocks poised for rapid growth and trading at attractive valuations can deliver big gains and improve the total return for your overall investment portfolio. This is precisely what KeyStone’s Small-Cap Research Service is designed to do for you!

Our final tip is in reference to diversification – “Diversify, But Do Not Over-diversify” – Try to avoid accumulating too many stocks that operate in the same sector (or similar industries) or are dependent on the same geographies, or reside in the same risk category (cyclical, defensive, etc). Within your 8 to 12 stock Small-Cap portfolio, you will have room to diversify into a multitude of different industries and geographies. Having said this, we believe in focussing on a manageable number of great stocks rather than a shot-gun approach which sees many average investors holding 30-150 or more individual stocks in a growth stock portfolio. Avoid this strategy or just buy an index ETF and call it a day.

You cannot beat the market if you are the market.

Some think that we are in a secular bull market that began in March 2009. I disagree because that would mean that the secular bear market only lasted for 9 years, Mar-00-Mar’09, when 17 years is more typical. Also, as of now the inflation adjusted S&P 500 has not made a new high reached in March 2000 (it is close, though). Warren Buffet seems to have been aware of this 17-year secular bull & bear cycles when he commented in 1999 that the next 17 years for the US stock market would not be the same as the last 17 years. Here is how I date the last two secular bull and bear markets in the current longwave cycle that began in the middle of 1949, including the probable outcome of the current secular bear market: Prior to 1995 there were periods of mostly sideways moves during a secular bull or bear market, with cyclical market moves, e.g., Feb’66-Jan’73, but since then we only have relatively long cyclical bull markets followed by very sharp bear markets and that is expected to be the case when the current cyclical bull market ends.

Prior to 1995 there were periods of mostly sideways moves during a secular bull or bear market, with cyclical market moves, e.g., Feb’66-Jan’73, but since then we only have relatively long cyclical bull markets followed by very sharp bear markets and that is expected to be the case when the current cyclical bull market ends.

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Fig. 1 above shows the current cyclical bull market, approximately 6 years in duration, and the cyclical bull market of Nov’94-Mar’00, 64 months in duration, both over-valued compared to the cyclical bull market of 2003-07. Interestingly, the last 33 months of the current market are following an identical trend line, shown in brown, with slightly over 20% per year gain, as the bull market of the late 1990s.

Most cyclical bear markets take place in the context of the economic cycle, i.e., a recession follows downturn in the stock market. This has been the norm since 1995 and there couldn’t be any doubt that the end of the current bull market would foreshadow the next recession. If the current bull market is nearing the end then the recession couldn’t be far behind.

Extremes of Over-Valuation

Using all the well-known measures of valuation of the US stock market, the current market is the most over-valued except for the bull market of the late 1990s, and probably the late 1920s. I posit that the current market is more over-valued than the market of 1990s. What is my valuation criterion? The economic growth, the mother’s milk of the growth of the stock prices.

Looking at the economic data over a 7-year period smoothes out most of the cyclicality in the data due to the economic cycles. The annual GDP growth and the annual employment growth for the past 7 years is 1.21% and 0.31%, respectively. The same numbers 15 years ago were 3.7% and 2.6%! The economic and the employment growth is less than 1/3rd of the growth 15 years ago that was fueling the bull market of late 1990s. I rest my case.