Trading Lesson of the Week

• March 4, 2024
• LASE | RSKD

In This Week’s Issue:

• Market Outlook – Broadening of the Bull
• This Week’s Market Minutes video – Is the Stock Market About to Crash?
• Trader Training – The Profitable Way to Buy Weak Stocks
• Strategy – Stocks That are In Play

Market Outlook – Broadening of the Bull

The small cap index, IWM, has been moving up and threatening a break of resistance this past week. I am noticing a slow improvement in the broader stock market as investors look for better value than the large cap tech stocks that have lead the market rally higher. Some improvement in commodity stocks with Precious Metals and Energy starting to catch buyer interest. The bond market is still in a downward trend but momentum starting to turn as investor look toward possible central bank rate cuts.

This Week’s Market Minutes video – Is the Stock Market About to Crash?

Big gains in the stock market have many wondering if a stock market crash is coming. This week, I show why a crash in the near term is not likely and where the opportunity in stocks lies. Plus, my regular market analysis and the trade of the week on NNOX.

Click here to watch this week’s video

https://youtu.be/NT9POuocj1g

Trader Education – The Profitable Way to be Buy Weak Stocks

Stocks do not go straight up but investors love to chase stocks that try. This chasing of strength, buying when emotion pushes us to make a bad decision, is what causes many investors to lose on their ride of the emotional stock market roller coaster. There is a way to take advantage of the ups and downs, but it requires some reprogramming of our normal human tendencies.

If you are going to buy strength, do so after a period of weakness. Do not chase stocks as they go higher but wait for the inevitable pullback as way to get accumulate good stocks when they are on sale.

To do this, first focus on stocks that are in longer term upward trends. This is easy to spot when you look at a 1-year, daily chart. If the bottoms are going up from right to left, the stock is in an upward trend.

Next, look for stocks that have this long-term optimism but have been suffering from lower prices in a shorter term downward trend. These pullbacks in upward trends are a normal occurrence, driven by investor’s desires to take profits after a run up. It is the metaphoric release of air from the hot balloon that was blown up by irrational investor action. These pullbacks create opportunity.

Stocks that are in upward trends typically have improving company fundamentals, or at least that is what investors perceive to be the case. Their improving business and the accumulation of stock by institutional investors can allow for the steady, long term upward trennd

The best time to buy these favored stocks is not when price has been bid up by aggressive buyers but, instead, when they break their short-term pullback in the upward trend. It is buying strong stocks when they are on sale but waiting for some confirmation that the buyers are coming back.

Specifically, if a stock goes up steadily for two weeks, don’t chase it. Wait for it to pullback for a few days, and then break the pullback with an up day. That is the cue that the upward trend is likely continuing.

Using the Stockscores Market Scan tool, search for stocks that have a Sentiment Stockscore of at least 50. These are the stocks that are likely in longer term upward trends. Filter these stocks for a gain of 2% and add in criteria that fit your situation, like the price range you are interested in and a minimum number of trades so you are not looking at really illiquid stocks. Inspect the charts to find those that are breaking a short downward trend while being in a longer term upward trend.

For an example, go to Stockscores.com and look at the chart of PASG. The stock made strong gains in December and into the first week of January. It then pulled back for a couple of weeks before breaking its pullback near the end of January. The result was a 70% gain through February.