Here's the conclusion's simplest explanation of January 2nd announcement :
- The market was absolutely bullish (positive) that day and has been bullish for the whole week, because for 98% of the Americans and small businesses don't have their taxes increased. Taxes only increase for the wealthiest families. All in all, the final result of the change is much less agile then the market projected (predicted).
- Regarding this, I saw a great opportunity and bought shares of two stocks that I saw potential for growth and also, these two have been in my watch list for a week now :
ITMN +6.1% which is a rapid increase for 2 days. had a triple bottom indicator and also a gentle growth trend that is not risky. Also shows an efficient MACD. Unfortunately It will change in a couple weeks. Why? Explanations are below the chart.
- The trend is trustworthy and not risky as long as it's below 45-degrees comparing to the horisontal. When the trend is getting too rapid and steep, there's a risk for the trend to change from bullish to bearish (from positive to negative). Examples :
- The second reason the trend will change is MACD. As I explained in one of my precious posts, MACD works like this : when the blue MACD line is above the green signal line, it shows a bullish trend and vice versa. Now in case of ITMN, there's a very small chance for the MACD line to stay above signal line for very long. Maybe 1-2 weeks. Then they cut into each other and when the MACD line moves below signal line, this is the sign for selling.
- The other stock I bought is SBUX (Starbucks) +3.8% in two days. The reason I bought it was also the 'fiscal cliff' positive outcome and second - rounding bottoms. The new indicator helps helps recognise the point where the trend changes. Though the SBUX changing looks much more fluctuating and bigger than in the example, it is not. Just look at the percentages (share price). Also It's important for the volume to grow simirarly to the example.
- Let's get to my previous investments :
ALXA +0.4 To be honest, I predicted at least 5% increase by now, but I think it still has potential and I'm holding it.
KIM +2.8% I've been holding it for a long time now and in case it won't reach 7% in a week, I'm dumping it. Frankly, there's a rally out there in the moment and in those moments it's important to search for a stock that keeps up with the rest of the market or that moves even faster then the rest of the market.
L +1.4% I will sell it next week because of the slow movement. The trend-change signal wasn't strong enough, either. Which means, there's a possibility for no change and no fast movements.
What will I do next ?
One of my blog's readers suggested a very good blog that helps you notice the stocks that are underrated my the market and that actually have very good fundamentals, which means a long-term growth. notablecalls.blogspot.com
- From that page, I found a retailer FRAN stock that certainly has strong fundamentals, also triple bottom indicator and good MACD. Moreover, it decreased 25%, because the market overreacted to the resignation of the CEO. Usually, when the hit is that huge, it is caused by weak results, but FRAN had good results.All in all, I'm buying and will hope a 10% increase in next two weeks, especially on bullish market.
What is the overreacting market ?
It means when first something bad or good happens to the company. For example, the quarters results are a disappointment or the news announce that a CEO resigns etc. Then secondly, the market takes it too seriously and start selling. The share price decreases too much. One way to analyse this, is to use P/E, which I introduced in my previous post. It shows, if the share price is too low or high for its results. For example, when the market overreacts because of little worse results than predicted and the price plummets, the P/E might be below 10. If you believe that this company's shares should cost more then the current price and it's just the market overreacting because of something that doesn't really affect the results in the future, you should purchase it.
Now, I have been wanting to see, which way is better for investing - speculating* or long-term investments (over a year). In order to test that, I will make a long-term experiment. I will buy three stocks that are not very fluctuating and that are constantly decreasing/increasing. Same time I will continue to trade within couple weeks, which I have been doing here.
The three stocks are Ford, Citigroup and Pfizer. I'll keep you in the loop, how they are doing.
Guess, we'll see if the quote "The mother of all evil is speculation." is true.
*speculation - The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in expectation of a substantial gain. With speculation, the risk of loss is more than offset by the possibility of a huge gain; otherwise, there would be very little motivation to speculate.
Happy new year, I hope 2013 will be prosperous !
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