Technical Talk

1. According to Benjamin F. King in his “The Latent Statistical Structure of Securities Price Changes,” 50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own. So, if you must pick individual stocks, use fundamental analysis for stock selection and technical analysis for the timing of purchasing or selling. Do not ignore market risk, however.

2. A point and figure chart is a disciplined approach to selection and managing risks. It was created by Charles Dow and is based on supply and demand (economics). See www.dorseywright.com for more information on sector selection.

3. The best method of picking & trading stocks was developed by William J. O’Neil, founder of Investor’s Business Daily financial newspaper, a must read for active traders. O’Neil created a formula called “Canslim” for picking stocks with the best chance of going up and making money. See www.investors.com for more information.

I am a premium subscriber to a service called www.canslim.net It provides a market update each day called a “Break-outs” report as well as an after market report. On the first day of each month, Canslim.net provides a report on four stocks that are noteworthy and buyable, providing pivot points, buy range, technical and fundamental analysis, a chart and an exit strategy. All stocks are filtered through the Canslim formula before being presented as “buy” candidates or before being highlighted in special reports. Strict sell disciplines are expected to be in place (with 7-9% stop-losses) and the service makes itself available to answer e-mail and phone questions during market hours. Canslim type stocks are generally small cap stocks with a smaller float and are sometimes called, “momentum stocks.” Momentum stocks run in and out of favor.

A loud warning from William O'Neil himself: You absolutely do not buy breakouts during a bear market.

4. The other way to pick trading ideas is from companies reporting better than expected results and guide higher in which Wall Street analysts must raise their estimates and price targets. According to Zacks Investment research, “These earnings per share (EPS) estimate revisions are the most powerful force impacting stock prices.” Go to www.zacks.com to learn more.

5. 75% of Market Leaders in each cycle were new companies that incorporated in prior then years, 80% paid no dividends, and earning growth was the driver of market leaders, not dividends.

6. Avoid Catastrophic Losses by Selling:
+When the Stock decline breaks below it’s 50 day or 70 day moving average.
+When the stock declines 7-8%.
+When the underlying fundamentals have deteriorated
+When the price to earnings ratio is well ahead of its peers
+Do not look at the price you paid when it is time to sell
+Consider selling after a gain of 20-25%