The US market as well as foreign markets rose this week. My indicator of global market strength rose from +2 to +4, which to me shows that the path of least resistance is up.
Here are two stocks that my weekend scanning session identified this week:
I like this chart for several reasons. The long and short term trends are up, which is key. The dark blue cloud in the chart above measures the 150 day moving average. The 150 day moving average is equivalent to the 30 week moving average and anyone who is familiar with Stan Weinstein's work realizes the importance of this. Specifically, not only should the stock be above this line, but the line itself should be rising.
I also prefer to buy stocks making new all time highs. Why are new all time highs desirable? Again, Stain Weinstein hits the nail on the head:
Whenever a breakout occurs with a stock moving into virgin territory (it's never traded there before), this is the most bullish situation you can buy.
Think about it. There isn't one person who is long and has a loss.
Think about it. There isn't one person who is long and has a loss.
Buying new all time highs can be difficult psychologically, but I think that it's another reason why it works. Here's some logic as to why it works: Successful speculators win the money that average traders lose. There must be many more losing traders than successful speculators. Therefore, successful speculators must necessarily be doing something that average investors find nearly impossible to do.
Put another way, successful speculators are a small minority that are doing the opposite of what the majority find psychologically easy to do. Perhaps that is what Richard Dennis, a speculator who turned a small account into over $100 million, meant when he said, "if it feels good, don't do it".
Just as buying new highs is hard, buying new lows is easy, which is why I like to do the opposite of what is easy and short new lows.
Here is a chart that I would consider shorting if it broke to a new low:
After working at one of Canada's discount brokerage firms and being able to peer inside clients' accounts, I can definitely say that new traders find it irresistible to buy something that hits a new low, sell it quickly if it goes up, and hang on to it forever if it goes down. These ultra leveraged ETFs were always a crowd favourite, which is why if I ever touch these products, it is on the short side only.
