Daily time frame:

• The 100 dma once again has prevented a source of distress for the equity bulls (Fourth time since January)
• Once the 50 dma has provided a springboard (tested on Wednesday) with the help from the FED, SPX has ended the week back above all the major moving averages.
• Therefore the conclusion is that Bears have failed to jeopardize the trend, which remains firmly up.
• Odds should favor new ATH
• In a potential pullback the range 2093 – 2085 should hold (If bulls have regained the upper hand the 20 dma = 2089 should no be breached)’

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Weekly time frame:

• As I have suggested in previous posts, so far from the July high, SPX has been rising within the boundaries of a potential Rising Wedge.
• The assumed Rising Wedge has two possible upper trend lines. Next week the lower one will stand at 2131± while the upper one will stand at 2150±
• This week wide range candlestick has clearly negated a prolonged corrective phase (The 20 wma has acted as support in the weekly time frame like the 100 dma in the daily time frame)
• Important price levels:
• Below we have the support zone with a range 2093 – 2085
• Above as resistance we have the range 2019.59 (February high) – 2124 (Upper Bollinger band) then the first trend line which next week will stand at 2131

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The Ending Diagonal scenario:

An Ending Diagonal is a terminal pattern. If it pans out it could open the door to a multi-month or even multi-year retrracement of the rally from the 2009 lows.

We have two potential Ending Diagonals:

• A large one has been forming since the July high. The last wave (V) is in progress since the February low and probably it should be unfolding a complex Double Zig Zag which needs more time to be accomplished

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• A smaller Ending Diagonal can be counted from the December high. As in the previous scenario, in my opinion, it is probable that the last wave (V) will require more time to be completed.

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If SPX is forming an Ending Diagonal the major reasons that suggest a prolonged last wave are:

• AAII Bullish sentiment has dropped to the lowest level in nearly two years. It would be extremely odd that SPX establishes a major top with such a low reading of retail Bulls

• I would rule out a major top if the RSI of the NYSE is not in overbought territory. The RSI after barely crossing the oversold line is slowly reversing to the upside

However a bullish signal cross has not occurred yet (The NYSE Summation Index must cross its 10 dma):

60 minute time frame:

The rally from the March 11 low can only be counted as corrective hence barring a collapse it should fit with the scenario of an Ending Diagonal.

A corrective leg up can morph into multiple patterns. I will consider two options:

• A Double Zig Zag can be counted as completed. Hence we could assume that SPX has established the wave (A) of a larger Zig Zag up. If this is the case a wave (B) pullback should bottom in the range 2089 (200 hma and 20 dma) – 2077 (0.5 retracement). The following wave (C) up would have an equality extension target in the range 2151 – 2163 (Red count)
• SPX is unfolding a Triple Zig Zag. If this is the case a shallow wave (X) pullback should bottom around the 2099 zone. Once the wave (X) is in place price will unfold another Zig Zag higher (Blue count).

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In the mean time NDX should have concluded an impulsive up leg. The impulsive structure gives confidence to a bullish outcome but it should open the door to a larger pullback wave (2) or (B) provided the gap at 4427 is filled. A common spot for a wave (2) or (B) would be located in the range 4411 (20 dma) – 4384 (0.5 retracement)

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I have to tell you, for the most part, we get a great response at conferences across the country. I thoroughly enjoy speaking with both educated and novice investors alike. Today however, we start with a direct response from an article I recently authored on how to select great “long-term” growth stocks: “if they can’t’ tell you what will go up 100% in the next couple of days them guys (the research team at KeyStone) are useless and suck at picking stocks.”

Grammar issues aside, this type of get-rich-quick mentality scares the bejesus out of me.

Now, don’t get me wrong. I enjoy the fine art of stalking monster returns. Heck, I’ll even reveal your best shot at snagging the proverbial 10-bagger a little later in this piece. But first, let me warn you against an investing mistake that leads to many down quite the opposite route – towards a zero-bagger.

Fair Warning

My worst investing decisions have involved three common elements:

• The “need” to act quickly.
• The allure of unlimited upside.
• A lack of serious due diligence.

Visions of massive short-term unrealistic profits lead to hasty decision-making, which leads to losses. In other words, almost every time I’ve tried to swing out of my shoes to hit a home run, I’ve struck out.

To defend yourself against the kind of greed that leads to grief, put investing returns in perspective.

The critic above was looking for 100% returns in just a few days. Let’s put that in context for a minute. If you started with US$10,000 and made 100% gains even every week, you’d be the richest person in the world — surpassing Bill Gates’ approximate US$80 billion – in far less than six-months. Sounds pretty reasonable – NOT!

Let’s go one step further. Perhaps you’re thinking of the huge gains we’ve had over the course of the last year or even in the first 2-months of 2015. Our 2014 top rated specialty pharmaceutical company, Cipher Pharmaceuticals Inc. (CLH:TSX) has gained over 100% and, in the last 2-months alone, our top rated Canadian Small-Cap Software developer has also gained nearly 100%.

Although these are real returns some clients have achieved, they’re not the sort of realistic gains (on average) anyone can expect over the long term. Folks, it would be silly to extrapolate Usain Bolt’s 100-meter times to conclude that he could run a marathon in 70 minutes. Similarly, even the best investors can’t generate 100% returns year-after-year.

What’s the upper limit of reasonable?

Peter Lynch is recognized as one of the greatest investors of all time. The widely followed investment guru ran Fidelity Magellan Fund from 1977 to 1990 — less than 15 years, during one hell of a bull market. Even in those perfect conditions, he “only” averaged 29% annual returns.

How about Warren Buffett? His returns are lower than Lynch’s (albeit over a longer period and with larger amounts of capital). If you got in on his company, Berkshire Hathaway, in 1965, you’d have generated average annual returns in the neighborhood of 20%.

Now, because of the power of compounding for 45 years, those returns are tremendous. A $10,000 investment back then would leave you a millionaire many times over.

Believing you can do much better than the 20% to 30% long-term annual returns of Lynch and Buffett is almost surely a road to overconfidence and failure. Remember, doing half of what they did can make you a very, very rich investor.

Your best shot at a 10-bagger

Now that we’re grounded in reality, let’s talk about what it takes to snag a ten bagger over the next 10-years, while limiting your risk.
To show you we are not just whistling Dixie, I have provided examples of three stocks KeyStone recommended that not only achieved the elusive “10-bagger” status, but hit rarified air at the 20+ bagger level.

The first, Hammond Power Solutions (HPS:TSX), was recommended at $0.62 in February of 2002. Just five years later in 2007, we sold the manufacturer of custom electrical-engineered magnetics and electrical dry-type transformers, when the company’s shares traded at $13.10 – a 2,012% return.

The second, WaterFurnace Renewable Energy Inc. (WFI:TSX), was originally recommended in January 2001 at $1.15 and subsequently purchased for $30.60 per share in 2014. The company, a leading manufacturer of residential, commercial, industrial and institutional geothermal and water source heat pumps, produced a whopping gain of 2,561% (not even including dividends)!

Finally, the latest edition to our 20-bagger club, The Boyd Group Income Fund (BYD.UN:TSX), which we originally recommended to client in November of 2008 at $2.30. Boyd, a simple car repair business that has grown to become one of the largest independent shops in the U.S, has seen it shares rocket to recently close at $46.70. In fact, over that period the company has created such strong cash flow it has distributed over $2.20 per share in distributions (dividends) to shareholders on top of the tremendous share price gains. Again it has paid us $2.20 in cash and we bought the shares for $2.30! That is a gain of over 2,000%!

Satisfied that we have some experience in this area? Ok, now for a stock to be worth 10 times its buy-in price in 10 years requires a 26% annual return. As the returns of Lynch and Buffett attest, that’s huge!

Going after that kind of return, even in an individual stock, isn’t for everyone and you should have a higher than average tolerance for risk. But, it does not mean you should be taking “undue” risk.

For those of us who want to pick some individual stocks and go after a 10-bagger or two, small-cap stocks (i.e., stocks with market caps of $1 billion (Canada) or less) are our best shot.

Large-cap stocks like Wal-Mart Stores Inc. (WMT:NYSE) ($267 billion market cap) and Cisco Systems, Inc. (CSCO:NASD) ($148 billion market cap) simply don’t have the room to grow that their $1-billion or $500 million-and-under brethren do. Now, large caps have their place in your portfolio, but that place isn’t in the area dedicated to the 10-bagger.

To maximize your chances of achieving a 10-bagger in 10 years without throwing Hail Mary’s, focus on smaller companies that have:
• Excellent balance sheets (high net cash positions).
• Strong cash flows.
• Strong growth prospects.
• Trade at reasonable valuations given the above.

Since the start of 2015, our small-cap experts in the KeyStone’s Small-Cap Research Department have selected 6-new stocks. All have already produced gains with one stock up in the range of 100% and another over 50%. If you want to find a potential 10-bagger, start with these stocks and employ our “Focus BUY” Strategy. While there are not many out there, it is our job to find them. Adding 10-12 of these to your portfolio over the next year is your best chance at finding the “next one.”

When building your Small-Cap Growth Stock Portfolio, we suggest you follow the following simple steps.

• Purchase between 10-12 Small-Cap Stocks and equally weight each selection initially. For example; $100,000 portfolio with 10 stocks would allocate $10,000 per stock.
• Construct your portfolio over at least a year period – ensuring you do not buy at a market peak within a year or cycle.
• We recommend companies from a diverse set of industries allowing you to achieve our focussed level of diversification.
• Review and pay careful attention to our updates and use our continuing research to guide your decisions to BUY, HOLD, or SELL given your time horizon and tolerance for risk.

Remember, you do not need to buy many stocks that achieve this level of success in your entire investment lifetime to put an overwhelmingly positive light on your investment career. They can also allow you to make a few mistakes along the way as we all do.

3/3/2015
IP COMPANY REPORTS SOLID 2014 EARNINGS, WEAKER OUTLOOK FOR Q1 2015 – RATING DOWNGRADED

2/26/2015
UNKNOWN SPECIALTY FINANCIAL LENDER POSTS EMERGING TRACK RECORD OF GROWTH, PE OF UNDER 10 AND SOLID GROWTH PROSPECTS – INITIATE BUY RATING

2/17/2015
P&C INSURANCE OPERATOR POSTS STRONG 2014 RESULTS, BOOK VALUE INCREASES, MODERATE NEAR-TERM GROWTH, SOLID LONG-TERM – MAINTAIN BUY LONG-TERM

2/12/2015
UNDERVALUED SPECIALTY PHARMA POSTS STRONG Q1 2015, COULD RECEIVE RE-RATING HIGHER BY INVESTORS IN 2015 VIA LATEST ACQUISITION AND NEW CEO OUTLOOK – UPGRADE RATING

2/4/2015
EXTRUSION & AUTOMOTIVE MANUFACTURER REPORTS STRONG START TO 2015, DIVIDEND INCREASES 20%, ACCRETIVE ACQUISITION/EXISTING BUSINESS EXPANSION POWER GROWTH, OUTLOOK POSITIVE FOR 2015

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

Our intraday outlook is now 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 main U.S. stock market indexes gained between 1.1% and 1.3% on Wednesday, extending their recent move up, as investors reacted to the Fed’s Decision release. The S&P 500 index got closer to its February 25 all-time high of 2,119.59, as it reached daily high at 2,106.85. The nearest important resistance level is at around 2,100-2,120. On the other hand, support level is at 2,080-2,090, 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 European stock market indexes have gained 0.1% so far. Investors will now wait for some economic data announcements: Initial Claims at 8:30 a.m., Leading Indicators, Philadelphia Fed number at 10:00 a.m. The S&P 500 futures contract (CFD) is in an intraday consolidation, following yesterday’s rally. The nearest important level of resistance is at around 2,100, as the 15-minute chart shows:

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The technology Nasdaq 100 futures contract (CFD) follows a similar path, as it trades along the level of 4,420. The nearest important level of resistance is at around 4,420-4,430, marked by local highs. On the other hand, support level is at 4,400, among others:

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Concluding, the broad stock market retraced most of its March move down, as investors reacted to Fed’s Decision announcement. For now, it looks like some further medium-term consolidation, following last year’s October-November rally. We 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.

In This Week’s Issue: 

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

In This Week’s Issue:

– Stockscores Free Webinar – Trading Styles
– Stockscores’ Market Minutes Video – Raise Your Standards
– Stockscores Trader Training – The Economics of Trading
– Stock Features of the Week – Small Cap Revival

Stockscores Market Minutes Video – Raise Your Standards
The fear of missing out causes over trading. Raise your standards, trade less and make more. That plus my complete analysis of the markets with thoughts on equities, the US Dollar, Gold, Oil and Fear.Click here to watch

Trader Training – The Economics of Trading
I am often asked, “How much money can you make day trading the stock market?” I understand why people ask the question but it is a question that is hard to answer because there are so many variables. It is like asking, “How much money can you make playing hockey?” For some, it is millions, for others, it only costs them money.

Of course, trading skill is the most important factor. Trading is not complicated, in fact, it is the simple things that work the best. This is not to say that trading is easy; it is actually quite hard but not because it is intellectually demanding. It is just hard for most people to disconnect themselves from their emotional attachment to money.

The rules for most of my trading strategies could be written down on the back of a napkin – they are simple. Executing them properly takes practice and emotional control. For some, that is not too hard. For others, it can be close to impossible.

You do not have to be exceptionally smart to be a good stock trader; I think most people are smart enough. It does take more determination and hard work than a lot of people are willing to invest but the great thing about both of those things is that neither is exclusive. No matter what your age, gender, looks, intelligence, nationality or social status, hard work and determination are achievable.

Before I go in to the economics of trading, let me first explain a few important concepts. The first is risk, the difference between the price you buy a stock and the stop loss point. If you buy a stock at $20 and have a stop loss at $19, you are risking $1 a share.

The reward is the difference between the entry price and the profitable exit price, assuming you are not stopped out with a loss. That stock you bought at $20 has a reward of $5 if you sell it at $25.

The reward for risk is the reward divided by the risk. In this example, the reward for risk is 5 since the profit was $5 for a risk of $1. How much you actually make depends on what your risk tolerance is.

If you are willing to lose $500 on a trade then you would have bought 500 shares in this example. $500 of risk tolerance divided by $1 of risk demands you buy 500 shares. With an exit at $25, you earn $2500 or five times your risk.

How much money did it take to make the $2500? 500 shares of a $20 stock costs you $10,000, assuming you only use your capital. If you use leverage, which most brokerages will give you at 2 to 1 and some brokers will give you at 3 to 1, you lower the capital requirement. With 2 to 1 leverage, you need $5000 to make the $2500 profit. With 3 to 1, you only need $3333. With more leverage, the percentage return goes up but so too does the potential percentage loss.

Now, what can you expect to make in terms of reward for risk? This is where there are variables outside your control that have a big effect on performance. If the market is hot, it is much easier to find winning stocks and the size of those winners will be greater than if the stock is dead. No matter how hard you work or how skilled you are as a trader, you cannot control how many opportunities the stock market is going to give you.

As a general guideline, I think that a skilled trader in a reasonable market can earn an average of 10 times risk in a week. So, if you risk $500 on each trade, you should be able to make $5000. I want to stress, however, that your skill and the state of the market are two very important variables in this calculation.

The final question is how much capital do you need to risk $500 on each trade? Again, the state of the market is an important part of this equation. There are times when the hot sector of the market is the low priced stocks. The size of your position in these stocks tends to be smaller because these stocks are more volatile. You may be able to take $500 or risk with a $5000 position (which with leverage may require less than $2000 of your capital).

In a market where the large cap stocks are the hot area you could need 10 times as much capital to achieve the same amount of risk.

As a general rule, take your risk tolerance and multiply it by 100 to get the required capital, before leverage. So, if you risk $500 you will need $50,000 of capital to take the trades that come to you. If the stocks you trade are smaller, more volatile names, that amount could be a lot less.

Above all else, none of this works if you are a person who approaches the market with a gamblers mentality. Losses are part of trading and you have to be prepared to take the small loss when the market leads you astray. When you get a winner you have to be willing to let the profit run so that the winners can pay for the losers and still leave you some overall profit.

Over the past couple of weeks, the Russell 2000 Small Cap index has outperformed the S&P 500 index of large cap stocks. Although price does not define a company’s market cap, generally lower priced stocks have smaller valuations. This week, I ran the Stockscores Simple Market Scan on the US and Canadian markets but with an upper price threshold of $15. I then inspected the charts in search of stocks showing breaks from positive chart patterns, here are two that I like:

1. SIGM
SIGM is breaking out from a cup and handle pattern with good volume support to three year highs. Support at $7.20.

2. MTG
MTG has been stuck under resistance at $9.50 for over a year but today broke through that threshold and looks like it could be in the early stage of an upward trend. Support at $9.15.

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

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,090 and profit target at 1,980, S&P 500 index)

Our intraday outlook is bearish, and our short-term outlook is bearish – (Stock Trading Alert originally published on March 12, 2015, 7:53 AM):

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

The U.S. stock market indexes lost between 0.2% and 0.6% on Wednesday, as the broad stock market slightly extended its short-term downtrend. Our yesterday’s negative intraday outlook has proved accurate. The S&P 500 index trades within November-January consolidation. The nearest important resistance level remains at around 2,060-2,065, marked by some previous local extreme levels. On the other hand, support level is at 2,020-2,025, among others, as we can see on the daily chart:

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Expectations before the opening of today’s trading session are positive, with index futures currently up 0.2%. The main

European stock market indexes have been mixed so far. Investors will now wait for economic data announcements: Initial Claims, Retail Sales at 8:30 a.m., Business Inventories number at 10:00 a.m. The S&P 500 futures contract (CFD) extends its short-term consolidation today, as it fluctuates along the level of 2,040. The nearest important level of resistance is at around 2,050:

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The technology Nasdaq 100 futures contract (CFD) bounced off support level at around 4,300. The nearest important resistance level is at 4,320-4,340, marked by recent local lows. For now, it looks like a relatively flat correction within a short-term downtrend, as the 15-minute chart shows:

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Concluding, the broad stock market remains in a short-term downtrend, following February advance. We continue to maintain our speculative short position (opened on February 18 at 2,099.16, S&P 500 index), as we expect some more downside. We decided to lower our stop-loss level to 2,090 (S&P 500 index), just to protect our gains. Potential profit target remains at 1,980. You can trade S&P 500 index using futures contracts (S&P 500 futures contract – SP, E-mini S&P 500 futures contract – ES) or an ETF like the SPDR S&P 500 ETF – SPY. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.

Thank you.