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Useful Article
Cheap Stocks are Cheap for a Reason
William O'neil
New Highs: New Price Highs Mean New Opportunities
Many investors have passed up great stocks because they had reached new price highs. Yet, that's when many of the best stocks begin their major climbs, not when they've bottomed out. That's why buying bargain-priced stocks is often a frustrating experience.
Buy High, Sell Higher
How many times have you heard the phrase, "buy low, sell high"? This is the conventional wisdom in the investment world, but research shows you shouldn't be concerned with that part about buying low. Let's walk through this one step at a time. Research shows that the best-performing stocks make new highs before they make their major leaps in price. Moreover, stocks at new highs tend to continue moving higher, while stocks making new lows tend to continue to move even lower.
This is a concept many investors find difficult to accept. They assume it's too late to buy a stock that's reached an all-time high. But the great paradox of the stock market, as Investor's Business Daily Founder William O'Neil calls it, is "What seems too high and risky to most investors is likely to continue rising. And what seems low and cheap usually goes down."
Think about it. If a stock goes from $15 to $50 it has to reach new highs at $16, $17, $18 and so on. Stocks making new lows, on the other hand, manifest inherent weaknesses.
Just by applying the laws of supply and demand you can see why new highs are important. When stocks advance, they're demonstrating growing demand as investors raise their expectations about the company. On the other hand, stocks making new lows are usually afflicted by just the opposite: sagging expectations. Yes, there's plenty of stocks in the bargain basement, but they're there because the merchandise, so to speak, isn't hot.
Some stocks may have very strong fundamentals or great stories, yet they don't go up because there's little investor interest. So while you wait for a stock to be discovered -- if it ever does -- other stocks are moving into the spotlight. The spotlight, in a way, is the new-highs list, such as the one that appears daily in IBD and is explained later.
Stocks reaching new highs tell you professional investors are moving in and pushing prices higher.
Often, The Best Is Yet To Come
Would you shy away from stocks that more than doubled in the past year or less? Consider what happened with these stocks:
From the start of 1999 to August 1999, Qualcomm surged more than 500%, to $39. But the stock didn't let up, finishing the year at $176 -- a gain of 351% since August.
Jabil Circuit had grown from $11 to $27 in about nine months ending in May 1997, when it surged another 189% over the next five months.
In a good market, opportunities such as these, which start with new price highs, will surface every two or three weeks. In fact, if you ignore this simple rule, you would miss out on just about every major winning stock.
However, there can be such a thing as an "overextended" stock: one that truly has gone up too much, too fast and is likely headed down. As a rule, don't buy any stock that has risen more than 5% past its buy point. In a nutshell, the buy point is the price after a stock clears the highest point in its basing formation. Basing formations are periods of price consolidation when a stock moves more or less sideways for a number of weeks after earlier advances. The buy point and basing formations are explained in the stock charts lesson.
Avoid Cheap Stocks
Perhaps you're one of those investors who think they'll hit the jackpot buying a low-priced stock that goes on to make huge gains. Some investors equate cheap stocks with better value or low risk. If a stock costs just $5 a share, then you can't lose a whole lot, right? Wrong. The truth is that trying to consistently make money with cheap stocks is difficult, at best. Think of a stock's price as a measure of its quality and, consequently, its potential. Stocks selling at $10 or less have a much smaller chance of making major advances, because they're usually companies lacking good performance records. Also, professional investors shun low-priced stocks because they tend to be lightly traded, making it harder to move in and out of such stocks.
A study of the best stocks of 1996-97 found that, on average, they made their big jumps when trading at about $25 a share. Only three of the 120 top stocks were trading at less than $10 a share in that period.
So, you can see what research bears out: it's best to look for new highs in quality stocks. It's especially good when the stock is coming out of a base. But don't wait too long: As soon as you spot a buy point -- and if all other factors are in place, such as good earnings growth -- it's time to have confidence and conviction and make your move. Otherwise, you may miss your opportunity.
The first chart shown above shows Dollar General's stock coming out of a so-called flat base (A chart pattern in which the stock price moves basically sideways for at least five weeks or more. It often precedes a further price advance. This and other chart patterns are explained in the Stock Charts lesson.) on a surge in trading volume. After this point, in July 1982, Dollar General's stock surged about 340% over the next 14 months, which is shown in the second chart, which has been adjusted for a stock split.
Avoiding Pitfalls
Like you've seen in earlier chapters, you don't want to buy a stock on any single factor. Where a stock is in relation to its 52-week high and low price is just one part of your stock-selection checklist. Other important ingredients are the Earnings Per Share (EPS) Rating, the Relative Price Strength (RS) Rating, the Industry Group Relative Strength (Group RS), and so on. These concepts are explained in the lessons on earnings, leaders and industry groups.
Also, be careful with stocks that make new highs on less and less trading volume. This could be a sign of a stock topping (reaching its peak), especially in cases when a stock has gone up at least 50% in a few weeks after an extended advance. When a stock goes up on low volume, it's a gain produced by relatively small purchases. It's much safer to go with a stock that makes a new price high on higher volume, which indicates broader support for the stock.
Key Points To Remember
Quality stocks making new price highs just as they emerge from sound bases on higher volume are often likely to continue climbing, while stocks making new lows are probably headed even lower. Therefore, focus on the new price highs list for the best potential opportunities.
The great paradox of the stock market is that what seems too high and risky to most investors is likely to continue rising. And what seems low and cheap usually goes down.
You can think of a stock's price as a measure of its quality and, consequently, its potential. Typically, stocks higher in price reflect higher quality.
Lowtrade,
Do I have to sign up for Scottrade to see real-time level 2? At times I also use http://www.inetats.com/, doesn't list OTC Stocks, nor Canadian listed companies.
I've been going for some of your writings at AtomicBob, interesting.
Fast STO wasn't an indicator I've been looking at for exits, will pay close attention to it.
Thanks
BoomTime
Lowtrade,
Thanks, all your input is gonna be vital for my success, already its getting me thinking about how I can trade in a more discplined manner! Thanks
You are quite correct about breakout stocks not hitting your targets, I have a hard time picking exits, but will now have a percentage sell target. I will also pay more attention to previous rallies to determine when pullback (at least historically) should occur.
The info you are teaching is not repetitive to me. Since I'm a newbee, all disscussion is good.
I'll consider myself a day trader when I have more to show for my efforts.
Your Questions
1. Do you use a good level II and do you watch tic by tic to read MM intervention in the daily PPs movement?
I don't subscribe to any level 2 at the moment, will when it can pay for itself.
2. Do you normally get in and out in a day or wait until the stock reaches the next support, or falls?
Since this style of trading is relatively new to me I only have a few experiences. I normally hold until the next support level, depending if I view the stock has a long term hold or not. And sell when support is broken.
3. Do you choose a time frame to get out, if your targets aren't reached?
My time frame alters according to each stock and its unique situation.
Fixed my mistake on Friday, sometimes you do get a second chance! :->
Thanks
BoomTime
Lowtrade thanks for the input, duly noted!
My watchlist consists of stocks that are currently basing, I find that longer the base usually higer the explosion. The one book that I found very helpful to myself would be Stan Weinstein's "How to Profit in a Bull and Bear Market". Thanks for the links, I do visit those sites time and again.
I can answer all question here, I know they are others that will find your proverbs helpful! :->
Your Questions
The reason I play breakout stocks is cause I've done well with them in the past, buy high and sell higher, and I also have made money on them and because I think I can make more money on them. I've had bad experiences last year (which was my first year trading) in buying stocks within trading ranges that didn't move pass it. I am trading mostly with extra money, I would be sadden if I lost it all, but do understand that this is the nature of the game. I'm trading cause its a hobby of mine. I'm fairly young 25 years old, so the level of risk at least to me can be of a higher nature.
I don't chase stocks that have gone 20% - 40% higher, realize that they will be others always. Just slipped up in Friday's trading by buying AGNT, who looks like they are selling basically all their assets on June 6th. Important lesson of merging DD and TA.
http://www.argotech.com/
Thanks
BoomTime
Lowtrade,
I appreciate the candid feedback, it will undoubtingly make me a better trader. I don't take it the wrong way at all, for a newbee like myself all criticism is constructive. And I appreciate the time you have taken to respond back to me.
Well one think is for certain is that AGNT was an emotional buy, I realized after I made the trade that I didn't follow my game plan when I buy a stock. I was too worried about missing another boat. I bought due to the fact that its has been quite sometime since AGNT has reached above $1.00, should've waited for heavier volume but I was too impatient.
I usually buy stocks on a clear breakout on heavy volume, it is usually at elevated price, however I do like buying into strength. At other times I also buy when a stock bounces nicely of its support level.
My selling strategy needs to be formed far better, I find it to easy to buy stocks, and rather difficult to get rid of them. My selling strategy is simply selling when a support level is broken.
Thanks
BoomTime
Added AGNT to my portfolio, unfortuately bought at the high of the day @ $1.04. Oh well, time will tell!
http://stockcharts.com/def/servlet/SC.web?c=AGNT,uu[w,a]daclyyay[db][pd10,2!b50!f][vc60][iLv3!Ll14]&...
Lowtrade just wondering what you thought?
An insider Lyron Bentovim (Director) just bought 555 550 shares "indirect" yesterday. Lowtrade or anyone else know what "indirect" means?
http://finance.yahoo.com/q/it?s=AGNT
Thanks in advance
BoomTime
AGNT - what do u guys/girls think of this, if it can hold above $1.00, it could get interesting?
BoomTime
CES - Consolidated Ecoprogress Tech
Listed on The TSX - Venture (Canada's Junior Board)
Not listed in the US currently, a US investor should be able
to buy on the TSX -V.
Their product is a female hygiene products (pads & liners) that are flushable and biodegrades in 28 days. Their product is named Flushaway.
http://www.flushaway.com/
They distribute Flushaway to 1700 Walmart stores in the US through Dr. Fresh, which started last year. And are re-ordering.
http://www.drfresh.com/
They also recently announced another distributer Envirostar (South Africa)
Recent rise was due to a new distributer in the USA - SPD Corp, who sells to Whole Foods and HEB etc.
http://www.stockhouse.ca/news/news.asp?newsid=2792366&tick=
Just recently launched their product in Canada as well. A biodegradable diaper is in the works as well.
Thanks for the TA, much appreciated
BoomTime
Lowtrade - Was wondering if you thought CES.V had more in her to move up. I recently bought @ 0.175 & 0.18. It came out of a good base.
http://stockcharts.com/def/servlet/SC.web?c=CES.V,uu[w,a]daolyyay[pb20!b50][vc60][iLc20!La12,26,9]&a...
Thanks your input is appreciated
BoomTime
CES.V - Just wondering your guys take on it? Their product is a female hygene product that women can flush into the toilet, creatively called "Flushaway". lol
http://stockcharts.com/def/servlet/SC.web?c=CES.V,uu[w,a]daolyyay[dd][pb50!b200!f][vc60][iLb14!La12,....
My response is on the other board! Getting kinda ridicilous but I responded on the other board!
BoomTime
Your welcome Lowtrade, we should be thanking you tough!
BoomTime
Well I always thought it be quite funny that the other board doesn't talk about share price, makes you wonder. Rocky is good for DD, but everyones wrong here and there. I do remember I asked the other board about if an R/S was needed for AMEX, board stated no, always wondered why, never seen an AMEX listed stock with so many shares, maybe I'm wrong. Maybe they didn't know, but at least say "I don't know" Lowtrade/Gtelong trust me there's alot of people that read your everyword, even if we don't get a TA board, we would all appreciate your input. Most likely we will though from a business standpoint for IHUB to many people read these boards.
BoomTime
Thanks, I see now what you're seeing.
BoomTime
TechBear, just wondering what indicators you were looking at, thats got you thinking a run is in order today? Thanks in advance
BoomTime
Doc80ca,
Actually not swinging at the moment, waiting for ASCO news to come out. Then I'll decide what to do. They will provide an update on their lead candidate BLP25. Will presented two poster presentations on BLP25. ASCO starts May 13th. Looking for more volume leading up to ASCO. Its been trading interestingly in the last week. Keep it on your watchlist. Alot of people watching on the sidelines.
BoomTime
BIOM looking interesting, breaking out @ 2.15, next test level will be @ 2.50ish, ASCO coming up May 13 - 16, will be presenting two poster presentations on BLP25. Just be careful of head fakes. Volume started to pick up, slowing down. Tell me what you guys/girls think about this chart.
http://www.investorshub.com/boards/read_msg.asp?message_id=6226933
BoomTime
BIOM acting up in the last 30 minutes, volume increasing .. past resistance @ 2.15 next test level 2.50ish. Just be careful for head fakes. ASCO coming up May 13 - 16, presenting two poster presentations on BLP25.
BoomTime
Appreciate your feedback thanks eom
BIOM's Story
Biomira, Canadian Biotech company, will present updated survival rates on its lead candidate BLP25. Please remember that BLP25 has only gotten through Phase 2B trials only. Their partner is Merck Kgaa (Germany) not Merck & Co. We already know BLP25 has had impressive results on the last update given in early Dec 2004, that was the reason for the super spike you see on the charts. They will release updated survival rates, and we will know if Medium Survival Rates (MST) has been met or not. The last update indicated that MST has not been met. Which is a good thing.
Here's the Press Release Feb 22nd, 2005 Headline
American Society of Clinical Oncology (ASCO) Accepts Biomira's BLP25 Liposome Vaccine Phase IIb Non-Small Cell Lung Cancer Trial Results for Two Poster Presentations at 2005 Meeting
The meeting will take place in Orlando, Florida, May 13-17, 2005.
The ASCO Annual Meeting is the premier educational and scientific event for oncology professionals. The 2005 meeting is expected to attract more than 28,000 attendees from all over the world.
L-BLP25 is a synthetic MUC1 peptide vaccine. L-BLP25 incorporates a 25-amino acid sequence of the MUC1 cancer mucin, encapsulated in a liposomal delivery system. The liposome enhances recognition of the cancer antigen by the immune system and facilitates better delivery. L-BLP25 is designed to induce an immune response to cancer cells.
If you check up Dendreon (DNDN) they will also be presenting at ASCO had an impressive day today.
The professionals that attend ASCO have already received abstracts for the companies' presenting, look for more volatity in the Biotech sector and for possible news leak.
BoomTime
BIOM - wondering what you guys thought? ASCO is coming up May 13 - 16, will be presenting 2 poster presentations on BLP25.
Thx BoomTime
Juststocks,
When you have time could you please add BIOM to Friends Charts. Thanks in advance
BoomTime
XDSL, Nano play - Just wondering what you guys that about this chart?
0.235 150 15:40:29
0.234 600 15:39:59
0.235 699 15:39:47
0.234 200 15:39:40
0.235 205 15:39:26
0.234 400 15:38:22
0.235 202 15:38:06
0.234 200 15:37:58
0.235 202 15:37:46
0.234 400 15:36:20
0.235 417 15:36:10
0.234 300 15:34:32
0.235 313 15:34:22
Anyone have a clue what this means? Is it just MM playing around?
Thanks for all the input ... truly understanding that buying is the easiest part, selling the hardest. Appreciate the input ... I've been in TMG.V since 0.125 cents. Might be looking for an exit if it falls below its support level of 0.30 cents. Last time it did that, some buyers came in and pushed it passed 0.30.
The low volume is because its list on the CDNX venture, Canada's junior board.
Thanks in advance
BoomTime
Hello everyone ... enjoy reading your posts SNAP and MACD, would appreciate your take on a stock I've been holding
TMG.V.
http://www.investorshub.com/boards/read_msg.asp?message_id=6171958
Any help would be welcomed. New to TA.
Thanks in advance
BoomTime
thanks for the clarifaction everyone eom
Boom
Fashionman: Why do you see Aroon 8 has indicating a possible reversal? Am I missing something? Thanks in advance
Boom
Your the bestest! ;->
Juststocks,
TMG.V, thanks in advance
and I thought they only came out on holidays! lol thanks
Is it just me ... or was SCHB and NITE holding GTEL down today?
Is GNET going crazy? seeing large bid orders
Thanks for the invite, appreciate it, I need all the help I find lol, the ticker symbol is TMG.V not THG. I was comparing TMG.V and GTEL charts to see similiarities in aroons, thanks for helping understand aroons. With lowtrades ADX we should have some winning patterns!
Look forward to talking to everyone on these board through the coming months!
Cheers and goodluck
Hello Juststocks & Board members,
Juststocks - thanks for the charts, been tickering with them, been a helpful tool. Thanks.
I like the concept of this board, "friends' who want to make money" hopefully, we can make more together, like they say two heads are better then one :->, and in this case several heads.
I'm new in investing, been a little over one year now, can't believe I didn't lose my shirt in the first year, made alot of mistakes, but hoping I learned from them.
Was introduced to Stan Weinstein's "Secrets for profiting in Bull & Bear Markets" interesting read, and easy to understand. Do recommend it, if you haven't read it already. He's a breakout on heavy volume theorist.
Since I live North of the 49th, I'm into alot of Canadian companies, mainly penny stocks.
An interesting turnaround penny stock company I'm currently holding is a little unknown company, Thermal Energy International (TMG on the Canadian Venture Exchange, TMG.V on stockcharts). It's an interesting environmental play, been holding since 0.12, been a rollercoaster ride, with the future looking more bright. The company has gone through many changes in the last two months, new CEO, new Board members, people who left the company coming back now.
http://www.thermalenergy.com
They do have a partnership agreement with Johnson Controls, Fortune 100 company. Their last contract was 1.3 million CDN, and in about 3 weeks we will hear if they will receive another contract through Johnson Controls after the potential client receives a more indpeth engineering report. I'm not saying invest in the company, only stating that its an interesting story, please do your own DD. Currently the company is tested support levels at 0.30. Liquidity in the stock isn't impressive, more so in the last week as there isn't to many sellers nor buyers at these levels. Invested in this company for the sole reason the Johnson Control stands behind them. To me its a good vote of confidence.
http://stockcharts.com/def/servlet/SC.web?c=TMG.V,uu[w,a]daclyyay[dd][pb50!b200!f][vc60][iUc20!Ul14]...
Second company that recently caught my eye, don't have any shares in it, is AETH looking to break out from its base. Volume last week was impressive. Just remember to place stop losses.
http://stockcharts.com/def/servlet/SC.web?c=AETH,uu[w,a]daclyyay[dc][pb50!b200!f][vc60][iUc20!Ul14]&...
Just place these stocks on your watchlist, and we'll see what happens.
Sorry for the lengthy post
Thanks & Goodluck BoomTime
Aroon Question?
What does it mean when aroons (5) & aroons (8)are running in sequence, downwards, without no gap in between? Does that mean no established trend?
Secondly, if I'm setting Aroons say at 5, I take it I would also set Aroons Oscillator at 5 as well?
Any help would be welcomed!
BoomTime
you can e-mail me at boomtime7@hotmail.com
appreciate the help!
Thanks