March 2nd, 2012

Stock Picking Now Feels Like Shooting Fish in a Barrel – Chapter 2

We hear a lot today about the individual investor being frightened away from the stock market.  We hear that the young, those who face the challenge of having to replace social security for their retirement have no interest in owning stocks.  Many today believe that owning stocks is risky, difficult and is nothing more than gambling.

However, the performance of the market and of individual stocks since the beginning of the year should have been an excellent testament to exactly the opposite.  Over the past several of months, I often feel as I did on July 23, 2009 when I wrote Stock Picking Now Feels Like Shooting Fish in a Barrel.  You should click on the link and read the piece but, for you who are too lazy, here are some choice quotations from it:

“This is a great time to be a stock picker! You don’t hear many say this these days but it’s exactly the way I feel. The market and economy felt like they were going you know where in a hand basket on March 9. But now that seems so long ago and with the vantage of the slow, 10-month market turnaround ….. picking stocks feels almost as easy as shooting fish in a barrel …… It’s not often that you can start with a clean slate (i.e., essentially a 100% cash position) …. we have little garbage to clean out and now have the pleasant task of finding new seeds to plant ….. Many stocks have charts that closely reflect the market’s bottom reversal pattern….”

The technique I described there was the “Stocks on the Move” scan; these days I run daily and it always delivers a long list of excellent candidates.  As I wrote in 2009, the scan parameters

“Sounds complex but the results filtered out with 135 amazing stocks.  I don’t mind saying I have a hard time deciding which of these 135 I’m going to add to my portfolio but I would feel comfortable and sleep well with nearly any of them (with the caveat that the market remains constructive by crossing above the neckline by Labor Day, as I expect it will). “

I present charts of the following stocks as examples in that July 22, 2009 post.  Note that by that year-end, the four stocks were up an average of 35% (the market had risen 16.88% of the period) and up over 100% by the following year-end (market up 31.82%):

As members to Instant Alerts know, I’ve bought I’ve bought 60 stocks for my portfolio since October 24, 2011 and today 75% of them show gains (four of over 20%) while I’m confident the remaining 25% will soon also show profits.

I don’t intend to boast; I mention this only to prove the point about how easy it is to find great stock to buy in at times like these.  If you buy stocks at the beginning of a bull run and are patient enough to ride them to the end of that wave then it should be relatively easy to generate some huge gains.  On the other hand,  it almost doesn’t matter what stock you buy or how good it’s chart appears to be, you’re facing significant risks and the probability of only small rewards when the trade is near the end of a market life cycle,.

In 2009, the Market Momentum Meter had turned Bull/Green on June 24, 2009, three weeks prior to the above post and the tool I use to time the market (the relative positions of four moving averages plus the Index itself as described in Market Momentum Meter) turned Bull/Green came on November 18, 2009.  We might again be at a similar inflection point, the beginning of a new market life cycle, because  Momentum Meter turned Bull/Green on January 31, 2012 and the moving averages are only 45-60 days away from a perfect bullish alignment.

Finding stocks to buy again feels like a bounty or riches, like shooting fish in a barrel.   The “Stocks on the Move” scan is again spitting out up to 200 stocks worthy of purchase (most of my 60 trades came from that scan).  As was true in 2009, many of those stocks presented classical bullish chart patterns or potential break out situations (click on image to enlarge) including:

  • ISRG on 11/3/11
  • SCSS on 1/27/12
  • EQIX on 2/2/12

At time like these, the challenge isn’t in separating the winners from losers, it’s in putting money to work quickly enough to take advantage of the market momentum move.

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