Over the years, analysts have been searching for the holy grail of stock market investing. They feel that if they can find the solution as to when to buy and sell, there will be a guaranteed ability to make money with their investment strategy. This is not entirely wrong. The stock market has shown to move in trends over the years. The emergence of the internet and the ability to track almost real time data has enhanced the analysis of trends. As the famous saying goes, “Don’t bet against the trend”.

One of these trends that have been discovered is known as the Coppock curve. This curve was first published in 1962 in Barrons by Edwin Coppock. It is a technical analytic calculation that will supposedly determine when the market is bullish and when it is bearish. It is set to recognize major bottoms and tops within the stock market. The stock market typically has rounding tops and sharp bottoms, so the Coppock curve may be a viable calculation for the astute investor.

The math goes like this:

1. calculate the percentage gained or lost by the Dow for the past 11 months.
2. calculate the percentage gained or lost by the Dow for the past 14 months.
3. calculate the average of these two figures.
4. calculate a 10 month weighted average by multiplying this months average by 10, last months by 9, the previous month by 8, etc. and summing them. Then divide the sum by 55.

The value obtained in the above calculation is the Coppock value for this month. You can then plot the results on a graph to obtain the Coppock curve. The way the curve works is as follows:

When the curve line is below the zero point (in the negative) and then moves upward, it is a buy signal. If the curve line is above the zero point (in the positive) and makes a move downward, then it is a sell indicator. The chart below indicates how this works based on historical data. The upper panel is the Dow Jones index over the past years. The lower panel is the Coppock curve line. You can see the buy points highlighted in green and the sell points highlighted in pink.

Chart 1: DJIA and its Coppock signals

The Coppock curve is based on a monthly signal. Therefore you need to wait an entire month before you can obtain a reading. This delay may be a problem in a volatile market. I have not tested it, but I wonder if a two week reading would give a more timely reading. It has probably been tested before but bears (no pun intended) looking at. I also wonder what the reading would be for the S&P 500 instead of the Dow Jones index.
Another point is to watch for false signals. This may be possible Comparing the Coppock curve to other momentum indicators and other trending analysis may be helpful to obtain a confirming answer to the buy/sell question.
In one analysis of the Coppock curve indicator as compared to the buy and hold strategy, it was determined that except for the past couple of years, the Coppock curve beat the buy and hold strategy. This has not been the case since 2007 due to the volatile market conditions. Both strategies have basically been moving together during this time period.
The Coppock curve is one more step in the search for the Holy Grail of what the stock market may do. It is certainly a trending line that bears looking into and doing additional analysis on.
All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Buying penny stocks is kind of an exciting adventure. The stock prices are reasonable, and you can purchase a large quantity of stocks without a large investment. It also does not take a large jump in the stock price for you to make a lot of money. On the other hand, it does not take much of a fall for you to lose a lot of money. That is one of the problems with penny stocks. They are simply a very risky venture. However, if you are certain you want to find penny stocks to watch, here are some things to consider.

When creating your list of penny stocks to watch, make sure you are looking for stocks that have some value. Stocks which have stock prices of fractions of a penny are red flags. Please do not even consider these. Also look for those stocks which have some volume. The market cap should also be above 150 million dollars.

Take the time to do your own research into the stock list. Stay away from hot tips, newsletters and penny stock promotional sites. You do not know the motive of those people who are promoting these items. It probably is not your welfare. They are there to make money for themselves.

Be willing to do your own due diligence in creating your penny stock watch list. Begin with a stock filtering device and then take the time to do both financial and technical analysis. You should look at the book value, cash from operations, debt, stock price movement, the industry and products of the company. After you have done your financial due diligence, you can complete the technical analysis including moving average, candlestick, RSI, head and shoulders, double top and other types of analysis. I have written some additional tips on performing technical analysis on my website, www.mystocktradingtips.com.

Some stocks that I have recently found quite interesting in my stock filtering are:

AOB American Oriental Bioengineering
CNXT Conexant Systems, Inc
JOEZ Joes Jeans

You can practice your analytic skills on these three stocks. I do not own them and will not benefit at all if you decide to invest in them.

If you really want to invest in penny stocks, using a full service broker is another good idea. They can give you some advice on the stocks you pick out and you can learn from what they know. You need to realize that it is going to take some work to come up with your penny stocks to watch list.

You need to remember what Thomas Edison said about opportunity. He said, “Opportunity is missed my most people because it is dressed in overalls and looks like work”

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Technical analysis is the process of using stock charts to plot your strategy and timing for trading stocks. It is the opposite of fundamental analysis. Fundamental analysis is the analyzing of a company’s financial statements to determine the strategy.   There are multiple methods to use in technical analysis. Some of these are momentum analysis such as rate of change (roc), stochastic, relative strength index (rsi). Trend analysis are moving averages, moving average convergence divergence (MACD), price oscillator (PPO). Volume analysis uses Accumulation Distribution, Volume Rate of Change, Demand Index. Other analytic methods are to analyze the swings of the stock prices or use Bollinger Bands. There are many others technical analysis tools available.

When determining the analysis to use, it is important to not use the same type of analysis. This will mean that each of the analytics used will move in the same direction and give false information. Try to use indicators from different categories as detailed above.

Stochastic was developed by George C. Lane in the late 1950’s. I will not detail the math behind the tool. That can be found elsewhere. However, I did want to state how the trader would use this tool. The stochastic fluctuates between a high range of 80 and a low range of 20. When the stochastic range is above 80, it indicates a overbought situation. When it is below 20, it shows the stock as oversold. However, a trader needs to be careful. Just because the indicator is above 80 does not necessarily indicate a sell trigger. Conversely, below 20 does not mean a buy signal. Lane believed that some of the best signals were when the oscillator moved from overbought territory back below 80 and from the oversold territory back above 20. Another rule to remember is to not act on the first instance of a crossover. Wait for a second crossover to occur. For example, if the oscillator moves above 20, wait for the dip down and then when it move above 20 again, it is an indication to buy the stock.

Bollinger bands were developed by John Bollinger. They consist of three bands. There is a simple moving average band in the middle, an upper band and a lower band. The price of a stock will generally move within the upper and lower band. A double bottom buy is indicated when the price of the stock falls below the lower band and then remains above the lower band when a second low develops. The bullish scenario continues when the price of the stock moves above the middle simple average. The opposite would be true for a sell signal. Warning: Bollinger bands are not an indicator by themselves of trading action to take. They merely show the volatility of a stock. Other trend analysis is required to further confirm the signal.

Demand Index, developed by James Sibbel, combines price and volume so it becomes a leading indicator of a price change. The calculation is quite complex and will not be detailed. Some rules that apply to the demand index are:

1.  A divergence between the demand index and the price trend suggests an approaching price weakness.
2.  Higher prices with a lower demand index usually coincides with an important top.
3.  The demand index penetrates the level of zero indicating a change in trend.
4.  When the demand index stays near the level of zero for a period of time, it is an indicator of weak price movement that will not last long.
5.  A large long-term divergence between price and the demand index indicates a major top or bottom.

Swing charting is the process of evaluating the swings of the stock prices. A simple rule of thumb is to buy when the current stock price goes above the highs of the previous full 4 week period, The opposite would be true. Sell when the current price falls below the lows of the previous full 4 week periods.

Technical analytics are tools available for a trader to use. Price trends, momentum and volume analysis, supplemented with other analysis will certainly help make good purchasing or selling decisions. However, never take the analytics by themselves. This may work but it may not. You should always do some financial analysis before determining the action to take concerning a possible trade. If the financial analysis does not confirm what the technical analysis tells you, be wise and hold off on the determined action.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Technical analysis is nothing more than using the past history of a stock to predict its future. Traders use the axiom that “history repeats itself” to predict when to buy or sell a stock. Trend analysis is the reviewing of how the stock price is moving. This analysis uses both the movement of the stock itself and a weighted average method which serves to smooth out the daily movement of the stock.

There are three types of trends. They are uptrends, downtrends, and sideways. In reviewing the movement of the stock prices you can determine which direction the stock is moving. Predicting when the stock will reverse its trend is what trend analysis attempts to do.

Trend lines are drawn to determine the movement of the stock prices. For example a line is drawn connecting the stocks high over time. Another line can be drawn connecting the stocks lows. The space between these lines is known as the channel. Stock traders believe that a stock price will generally move between these lines or move within the channel.

Another set of terms that are used is support and resistance. Support is the lower level of the trend line. When the price of the stock comes close to the support price, buyers will come in and cause the price of the stock to climb. When the price comes close to the resistance, sellers will cause the price of the stock to go down. Thus it tends to move within the channel.

Traders believe it is important to understand the trends of a stock. Two important sayings are that the “trend is your friend” and “don’t buck the trend”

Once a resistance or support is broken, the roles get reversed. If the price falls below the support level, that price now becomes the resistance level. Conversely, if a price rises above the resistance level, that price now becomes the support level. This is important to remember when watching the movements of stock prices.

Support and resistance levels are important to observe since they can tell the trader when to buy or sell. If a stock continues to move within a channel, the trend of the movement will continue. However, if the channel is broken, either above the high or below the low, the current trend is suspect. It may be a sign of the need to make a decision on the stock.

Moving averages are another method to use to chart the stock trend. The calculation of a simple moving average is nothing more than summing the closing prices of a stock over a period of time and dividing by the number of days summed. A weighted moving average or EMA weights the latest days higher in the calculation. Thus the EMA moving average tends to be more accurate on the most recent trend than does the simple moving average.

Moving averages can be used to identify if a stock is in an upward trend or a downward trend. If the price of the stock is trading above the average, it is in an upward trend. If it is trading below the average, it is in a downward trend. Another way to discover a stocks momentum is by observing the short term (say 50 day) and the long term (say 200 day) lines. When the short term average is above the long term average, the stock is in an upward trend. When the opposite is true, the stock is in a downward trend.

Trend reversals can be predicted by two different methods. When the price of the stock moves across the moving average line and when it moves through moving average crossovers. For example if the price of a stock falls through a 50 day average, it is a sign that the stock movement is reversing. Another type of signal is when one moving average crosses another moving average. For example, if the 15 day average moves above the 50 day average, the stock is said to be reversing to an upward trend.

Moving averages are a useful method of determining the trend of a stock. They help smooth out the stock prices and are used by traders to attempt to predict the stock momentum.

This all sounds rather well and is a method of trying to predict a stock movement. I have always been an advocate of buy and hold rather than trying to predict the movement of a stock. However, when evaluating a stock that has fallen to an abnormal stock price, this method could be useful in determining when to purchase the stock.

Another problem with this method is the influence of the outside world. If a stock is beginning to look like it is reversing its trend and something happens to cause uncertainty or exuberance in the stock market as a whole, the signal could be disturbed. This is important to keep in mind. There is always the possibility of a bump in this theory. The rule is to be careful when investing in any theory that sounds foolproof.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Trying to grow your investment by timing the market is a difficult thing to do. Market timing is the strategy of using technical analysis tools and trend analysis to predict when a stock price is going to drop or rise. No one has a crystal ball and can not predict what will occur in the future. This is what makes day trading so difficult.

In 1975, William Sharpe published an article in which he demonstrated statistically that in order to benefit from a market timing strategy you would need to be correct 74% of the time. Another study has shown that between 80 -90% of the stock returns occur between 2% – 7% of the time. If you are out of the market, when the stock begins to move you may miss the ride.

During the 20 year period between 1986 and 2005, the S&P 500 grew at a compounded rate of 11.9%. However, the average investor’s portfolio grew only 3.9% during that time. The reason was due to attempted market timing.

What happens is that a stock that an investor is following begins to move. He has watched it drop down from its high to a point where he thinks he may purchase it. However it starts to move up and then before he jumps in, it has reached a point that in his mind has become too high to jump in. He has watched it drop before so he figures it will do so again. He ends up watching it climb and climb and he does not own it.

This happened to me with a stock. I owned 1000 shares at 7.00. It dropped and I felt lucky to get out after it had come back to 7.60. I then watched that stock climb to 50.00 per share. Market timing certainly did not work for me then.

Another recent example is Brigham Exploration (BEXP). It has grown from 1.00 in March 2009 to over 11.00 nine months later. It has grown through the finding and establishing of producing oil fields. The price of oil in 2009 certainly did not reflect the prices in 2008 so who would have predicted that BEXP would have done as well. In fact, if you looked at the technical analysis for this fund, you may have jumped out early and are missing the run.

It turns out that it is not timing that is the key but the amount of time you are in the market. American Century investments used Bloomberg and did a study of the period from 1990 to 2005. It found that a $10,000 investment grew during that period to $51,354. Apparently if you had missed the best 10 days during that 15 year period your investment would have been just $31,994 and if you had missed the best 30 days, your investment would have been a mere $15,730. While the long-term investors were making their money, the market timers were trying to figure what was happening and when to get in and out.

For most investors the safest course is to find good strong companies or mutual funds that fit your goals and risk pattern and stay the course.

Of course, that does not mean you should not do some technical analysis and try and find companies that appear undervalued that may be poised to move up sharply. Some companies or industries are good investments, they have just had an occasion to drop. My example above of BEXP is a good case. At one time it was trading at $18. It was still a good investment and jumping in around $3.00 or $4.00 after it had started its move would still have resulted in a nice return.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.