Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Friday, October 29, 2004

Making a Stock Watch List

…I am taking the time to help others learn the basics in evaluating stocks for investment using both fundamental and technical analysis. Both tools are equally important in making serious decisions with your hard earned CASH!

If you wish to invest in stocks, treat it like a business, NOT A HOBBY. (ex: a retail outfit can't make money if it doesn't have goods to sell; the same goes for investors, without cash, you can't invest). You need rules and you need to follow these rules or money WILL be LOST. Once proven rules have been established, they cannot be broke or you will lose money. Everyone loses money in investing but we must learn to cut losses quick and allow gains to develop. Small losses are acceptable because they teach us lessons that allow us to win big!

Start your search by looking for stocks with superior fundamentals. After fundamentals are established, look to see if this particular stock is in good company, by this I mean a strong industry group – similar stocks, historically move in the same direction (this is fact not opinion). This is not to say every stock in the industry group will move higher or lower because a sister stock is going in that direction (this is a generalization rule). After the industry group has been confirmed strong, determine if overall market is in a specific trend (up, down or sideways).
If you are long a stock, the market must be in a confirmed up-trend, if you are short a stock, confirm a down trend. Note that 75% of all stocks will follow in the direction of the overall market. Don’t fight the trend, the market is always RIGHT.

Let the market and the stock dictate how long you will be in a position. Don’t worry about time frames; price and volume will tell you when to exit the position as long as you follow rules.

After fundamental have been established, you must study the technical side of each individual stock, the specific industry group and the general market trends. Record if the stock is forming a proper base, if it’s about to break out of a base, if it’s extended or if it’s pulling back to a key support line.

At this point, add any qualifying stock to your watch list or buy the stock according to the technical entry signals (remember the fundamentals have been established earlier).

Key numbers to use in fundamentals:
Earnings (current, past: quarterly, yearly and future estimates)
Sales (current, past: quarterly, yearly and future estimates)
Return on Equity (ROE)
Price/Earnings Growth (PEG)
Price/Earnings Ratio (rise over time of base)
Debt/Equity
Assets, Liabilities
Accumulation/Distribution ratio
Up/Down Volume over past several months
Number of Institutional Holders (is this increasing or decreasing recently)

Key things to use for technical analysis:
Look at the 1 year daily chart
The 1 year weekly chart
Check volume action when bases are formed
Look at Point & Figure charts for support and resistance lines
Look for new 52-week highs


For further study, please go to the free Philosophy and Education section and the free Technical Analysis section of our website.

Enjoy the Weekend and Halloween Treats,
Piranha

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