Common CentsInvestment GroupWelcome!

Monday September 30th

Agenda• Today in the Market• Technical Analysis• Random Stock Pick

Today in the Market Gov’t announced it will

shutdown tonight◦Market sell off (worldwide)◦Maybe a good buying opportunity

http://finance.yahoo.com/video/closing-bell-exchange-190400323.html

Technical AnalysisAn investment strategy using

technical indicatorsA more “numbers” and chart

based decision making processOften viewed as the opposite of

fundamental analysis

Main ConceptsOperates on the assumption that

all news and related information is already reflected in the stock price

My view: a mixture of the two approaches, for an overall financial analysis

TimeframeDay Trader – buy & sell within the

same day◦5 minute chart

Swing Trader – buy & sell within 1-3 weeks◦Daily chart, hourly chart

Long Term Trader – hold for 3 months+◦Weekly chart, daily chart

Candlestick Chart

Line Chart vs. Candlestick ChartAGNC – Mortgage REIT

StochasticStochastic Oscillator - A technical

momentum indicator that compares a security's closing price to its price range over a given time period

%K = 100[(C - L14)/(H14 - L14)] C = the most recent closing price L14 = the low of the 14 previous trading sessions H14 = the highest price traded during the same 14-day period.

Stochastics - Good ExampleBuy when below 20% and Sell when

above 80%

Stochastics – Bad ExampleBe careful!

Moving Averages50 day moving average

◦Resistance on downtrend◦Support on uptrend

50 day to 200 day crossover◦Typically indicates bullish or bearish

50 DMA - Resistance

50 DMA - Support

Caution!

50 DMA not during trend

Bollinger BandsPurpose: measure volatility & give

relative highs and lows20 day Simple Moving AverageBands 2 standard deviations from

20-dmaStock within bands 85-90% of time

Suggested Reading: Bollinger on Bollinger Bands by John Bollinger

B.B. - What do I look for?

Volatility Squeeze◦When bands become very close

togetherHook at Bottom – Indicates trend is

over

B.B. - What do I look for?“Walking the Bands”

◦Uptrend that hugs the upper bandBuy when hits 20 or 50 day

moving average

Important PatternsHead & Shoulders formation

◦Bearish reversal (end of uptrend)“W” formation

◦Bullish reversal (end of downtrend)3 Stage Trend (rise, rest, rise)Recognizing Channels

◦Range stock is trading

Patterns – Head & Shoulders

Daily chart of ANR

Neckline

Shoulder 1

Head

Shoulder 2

ANR becomes BEARish when drops below neckline after Shoulder 2

Taller peak (HEAD) between two lower peaks (SHOULDERS) of similar height

Patterns – “W” Formation

3 Stage TrendRise, rest, riseBuy during rest

UptrendMaster Card [MA] - 3 year weekly chart

RESISTANC

E

SUPPORT

20%-25% gain if bought when touched RESISTANCE line and sold when touched SUPPORT line

Range BoundKohl’s [KSS] – 3 year chart

(weekly candlestick)$54

$42

+29%

SUPPORT

RESISTANCE

Downtrend

SUPPORT

RESISTANCE

15%-20% gain if bought when touched RESISTANCE line and sold when touched SUPPORT line

How to find a trending stockPerform stock screen with these

parameters:◦Moving Averages: 20 > 50 > 200◦Price: $8+◦Price/Earnings: 5 < x < 70◦Daily Volume: 500,000+◦EPS Growth Rate (5 year): 20 < x <

100◦Revenue Growth (5 year): 15<x<100

Current List – 28 stocks

Next StepsLook at each individual stock

◦Cross out for charts you don’t like◦Look deeper into fundamentals for any

red flags ◦Develop your own rules for what is

acceptableOr modify search criteria to cut down

listCreate Excel spreadsheet for stocks

that make initial cut◦Highlight in green favorite stocks

EPAM (good)

MELI (bad)Trend not discernible or logical

SYNA (really bad)1 year growth – 14%2 year growth – 40%3 year growth – 37%

Caution!“Shot to the Bow”

◦Signal trend is over; Significant departurefrom channel

Current List – 18 stocks

Favorites List

Last March’s FavoritesIf purchased all 7 last March,

return of 16% !!

My Personal Goal

Usually goal is to gain 20%+ on a tradeMinimize risk

◦Place stop 7% below entry price or just below resistance line

◦Raise stop after each 5% gainClearly identify entry point and exit

point before executing tradeIf trade fails, admit defeat and cut your

losses◦Don’t get emotionally attached!◦Patterns fail, it’s just the nature of the beast

Some Tips

Avoid holding over earnings◦Reactions to earnings ignore

technicals of chartIf technical trade fails, sell and cut

losses◦Look to see what you missed or what

you “ignored”Don’t get discouragedSign up for the free daily videos:

◦http://www.stockmarketmentor.com/

Resourceshttp://stockcharts.com/freecharts

/index.html http://www.investopedia.com/acti

ve-trading/charts-and-patterns/

http://library.morningstar.com.proxy.lib.ohio-state.edu/default.html

http://www.stockmarketmentor.com/