Weak Market Plan - Trade Alpha
Stockscores Foundation for the week ending April 14, 2025
In this week's issue:
In This Week’s Issue:
- Market Outlook – Uncertainty Diminishing, but …
- This Week’s Market Minutes video – Stock Market Crash, Buy, Sell or Hold?
- Trader Training – Weak Market Plan, Trade Alpha
- Strategy – The Bounce Back
Market Outlook – Uncertainty Diminishing, but …
After some strong fear based selling, the market’s bounced back from oversold conditions to give some sense of stability. However, the markets have not reversed the downward trend and therefore caution should still be exercised. I have made a number of videos on the Stockscores YouTube channel highlighting the pattern we need to see for a reversal of the downward trend. Essentially, a break of the downward trend line from a rising bottom. Until that happens, focus on Alpha stocks, those trading with abnormal price and volume activity.
This Week’s Market Minutes Video – Stock Market Crash, Buy Sell or Hold?
Many are wondering if it is better to sell their holdings in light of the recent market weakness or if it is time to buy bargains. This week, I teach you how to know whether you should buy, sell or hold stocks. Then, I provide my analysis of the markets and look at the trade of the week on PRTG.
CLICK HERE TO WATCH THIS WEEK'S VIDEO
https://youtu.be/lUsBz6ubvEE
Commentary – Bear Market Plan, Trade Alpha
Except for the large cap tech stocks, most have been sliding lower for a number of months and, while we are starting to see stability and buying opportunities, the overall market is still far from enjoying an upward trend.
How do you make money buying stocks in a market like this?
Before I answer that question, I know many will ask why we not just short sell stocks and benefit from the market weakness. There are a few issues to consider.
Short selling is effective when the market is trending lower. However, it is also quite capital intensive. For a trader with a significant amount of trading capital, shorting makes sense. However, stocks that go down with the market usually go down at a pace similar to the overall market. That means making outsized profits is not that likely because individual stocks will not be as volatile to the downside as a hot stock can be to the upside. You might see a stock go from $100 to $80 over a few months but there will also be stocks that go from $2 to $8 in a few weeks, if they are in play.
This leads to what should be the focus for buying in a weak stock market. You have to focus on Alpha stocks.
These are stocks that are trading on their own story. There is news or a rumor that has a significant effect on the market’s perception of company fundamentals. A crowd gathers and chases the stock higher, causing huge gains in a relatively short time. Each week, there are 5 to 20 of these stocks, even when the overall market is trending lower.
What has to be understood, however, is that these moves are usually quite short term. Check the charts of JNVR, TOI or T.DSV and you will see stocks that made big gains today despite having been in downward trends in the recent past.
How do you find these stocks? You have to look for stocks trading with volume that is much higher than normal, strong liquidity and which surprise the market with strength. Return to the charts of JNVR, TOI or T.DSV and you will these things started the upward trends.
Almost all hot stocks start their market beating trends with abnormal activity but not all abnormal activity leads to market beating trends. When I find a stock that is trading abnormally, I go through a process of evaluating the chart to identify the time to enter. I want to make sure that potential reward outweighs the downside risk. I never chase stocks that are well into their trend. We have to buy when they just start to break from low volatility, not well into the trend when the crowd is chasing them higher.
These trades tend to be shorter term because the crowd quickly moves from what hot story to the next. For longer term trades, the overall trend of the market is more important. So, in this market, we need to be more short term oriented. We can start to look for longer term trades when the market’s trend turns back up.
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Last week, I featured a Dead Cat Bounce on AAPL and NVDA, stocks that were oversold. We can call stocks oversold when they have fallen far below their downward trendline, making them likely to bounce back. The trade is for the move back up to the downward trend line.
Both of these stocks did this over the past week, hit their downward trend lines where they were sells. They must now be watched for a build of a rising bottom and a break of the downward trend line. Until that happens, they are not worth considering for buys, unless they get oversold again with another strong downward wave.
Here are the charts so you can see how they performed over the past week.
1. AAPL
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2. NVDA
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