The market has pulled back over the past two weeks taking many strong, dividend paying stocks back to their upward trends lines where they should bounce. To find stocks that are suitable for buying at their upward trend line, scan for stock using the following characteristics:

Sentiment Stockscore > 50 < 70
Short term moving average – bearish
Medium term moving average – bullish
Long term moving average – bullish
Pays Dividends filter turned on

I did this on the Canadian market with a minimum number of trades set to 500 and the Market Scan found 26 stocks. I inspected the charts and found the following to be in linear upward trends and at or near their upward trend lines where they should bounce:

1. T.WCP

2. T.CIX

3. T.MX

Ed Note: the Trading Lesson below explains the methodolgy that Tyler used to select the Dividend Stocks above, specifically :

Sentiment Stockscore > 50 < 70
Short term moving average – bearish
Medium term moving average – bullish
Long term moving average – bullish
Pays Dividends filter turned on

Trading the Channel

 Perspectives for the week ending June 11, 2013

This week’s Market Minutes video show the simplicity of evaluating charts with rising bottoms and falling tops. Watch it on YouTube by clicking here.

This Week’s Trading Lesson
The majority of strong price trends will begin with abnormal price action. A catalyst for a positive shift in the market’s perception of fundamentals ignites buyer interest and starts the stock higher. As the trend develops, improving fundamentals and the law of upticks help the trend to continue moving from the lower left to the upper right of the chart. An uptrend is in place.

It’s inevitable that the upward move will see pullbacks against the trend. There will be shareholders who want to take profits as the stock’s price climbs, and this causes shorter downward moves inside the upward trend. There is an increased chance of these pullbacks early in the trend because investors tend to doubt strength when it’s just getting started. As the trend progresses, stock owners grow more confident, believing that the upward climb legitimizes the company’s story.

The pullbacks are healthy. They work to shake out weak owners and build a more solid base of shareowners who will be committed to holding the stock. It’s the pullbacks that allow us to buy strong companies when they are on sale-the one time it makes sense to buy weakness.

Defining a Trend
To take advantage of the opportunity that trends provide requires the ability to define the trend. This is as simple as drawing a line across at least two inflection points in the trend. Typically, the first is the low before the trend starts, and the second is the low of the first pullback. Once defined, it is quite remarkable how well trend lines act as support and resistance for a stock.

There is a bit of an art to defining a trend line. You begin by highlighting the inflection points and then look for a line that best fits as many of those inflection points as possible. For an upward trend, the focus is on the inflection point lows, which will be rising over time. Downward trends will have a line that cuts across the inflection point tops as they fall from left to right.

Price trends usually develop as a company goes through a period of improving fundamentals. This is what carries the general rise higher in the stock, allowing it to outperform the overall market. In upward trends the tendency is for stocks to run away from their trend line and then come back to them. These fluctuations are primarily attributed to emotion. As investors feel greed and excitement about the improving fundamentals, they chase the stock higher, causing it to go up too fast. At some point, the sellers step in and limit the enthusiasm of the buyers by acting with strength, causing the stock to pull back through a round of profit-taking.

These pullbacks are shorter than the trend that came into them, allowing the stock to maintain its cycle of rising bottoms. It’s the pullbacks, and the resulting rising bottoms, that define the trend line. As chart watchers, we just have to pick out the lows of the rising bottoms and connect the dots, drawing a straight line that best fits the trend.

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 diligence.