Validate your stock news before taking your trade
From the desk of Sagar Nandi at Superior Profit
You
read a piece of news about some stocks you know in the newspaper. The paper
seems to make a sensible point about buying the stocks. You rush to your broker
and place your trade to buy those stocks. After all, the news claimed that some
of the largest funds in the world are accumulating the stocks. All you had to
do is to piggyback on them. Right? Wrong.
It
is not the point whether the analysis in the news makes sense or not. It is
about whether the stock meets the buy criteria. Don’t you have a system using
which to buy? Well, then you are going to drain your account down one way or
the other. Be it because of news trading or not. Before thinking of investing
in the next stock, the sensible thing to do will be to acquire a robust and
easy to use a system and learn how to use it.
Once
you have a system, the system should provide you with enough trading
opportunities through meaningful scans. And if you hear about some stocks in
the news, you can use the same system to validate if it is allowing you to buy.
Here
is a real-life example. On 15th January 2019, CNBC published an article titled
“Singapore shares are ‘cheap’ and ‘attractive’ — and major wealth managers say
it’s time to buy”. No doubt the wealth managers disseminated that information
out of a feeling of generosity to help you make a ton of profit. We get that.
Still, as a disciplined trader, we would like to validate the
stocks with our own system. Whatever be the system that we are using. Let me
use the CUE system to look at some of the stocks mentioned in that article.
Three banking stocks: DBS, UOB, and OUB.
Regarding
fundamentals, the article claimed that the stocks are (a) cheap historically
and regionally, (b) good dividend payers. Let me validate that using CUE Vital
stock scorecard which calculates scorecard across various dimensions including
valuation, growth, dividend, etc. Reading from the attached snapshot of CUE
Vital:
(1)
None of the stocks has an optimal valuation. They are all overvalued, and that
is shown by the Valuation score being in magenta color.
(2)
All the stocks pay a decent dividend. That is a valid reason to look for buying
opportunities in these stocks.
(3)
Though the valuation is not optimal as per Vital calculation, all the three
stocks have reasonable earnings growth in recent quarters. That shows the
stocks are improving their performance and that can be one reason to consider
buying these stocks.
That
was our fundamental analysis. What about the stocks being cheap relative to
their history? We use CUE Pendulum chart (that shows price extremes using color
codes) to see if the stocks are at a historically low price. Here is that chart
for DBS. Red or magenta candles show historically low prices. And you will
start to look for buying opportunities when a stock begins to move up from
there. Using that technique, you would begin to look for buying opportunities
in DBS in the 23-23.5 price range. It has gone up from there; not very far, but
has gone up.
Could
you buy the stock decisively in the last few days or weeks? Yes, you could.
Using CUE At A Glance weekly-daily templates that shows unambiguous
checklist-based trade-setups, you could buy DBS on 4th Jan 2019 as it was
bouncing up from the Memory support trendlines in daily and weekly both.
(1)
The daily chart displayed a Bull Release signal as the stock went up from
Watermark pivot support as well as Memory trendline support.
(2)
The weekly had Memory support at the same price level.
(3)
The weekly had displayed the unique CUE Headwind possible reversal signal a few
weeks earlier. That effectively could catch the very low of the stock.
The
news report mentioned the stocks on 15th Jan. As per our above objective
analysis, that was a bit late to buy the stock. From CUE buy signal day of 4th
Jan to the news date of 15th Jan, the stock had gone up by 7.4%. And as of 15th
Jan, there was no low-risk entry opportunity in the stock.
You
may keep an eye on the DBS stock for the next low-risk buy opportunity. What is
the low-risk buy point? A point where the stop-loss is not far away from your
entry price. Such low-risk buy points are handy as you can quickly exit your
trade with a small loss if the stock goes down instead of going up after you
enter the trade. Yes, as unfortunate as it may sound, sometimes the stock will
fall after you buy it. And you need to protect your capital by exiting the trade
with a small loss. The small and first loss is your best loss and is, in fact,
a friend of yours.
One
last thing. Before buying any of the banking stocks in Singapore, you would
also check that the industry is strong relative to others. As of today 16th Jan
2019, using CUE Edge real-time industry rotation analysis, we see that the
Diversified Bank industry (DBS
belongs to this industry) is indeed strong.
(1)
The five days (5D) score of the Diversified Banks industry is in cyan, showing
it is strong relative to other industries. Looking to the right you can see
that it has been cyan for a while. That means the best time to buy DBS bank
(buy at the bottom) might have passed.
Overall
conclusion based on CUE 360° analysis where you can combine the edges of
industry strength, fundamental strength, and technical strength before buying a
stock, DBS is a robust fundamental stock concerning growth, and it has a decent
dividend. Its industry is also strong. Technically the stock is strong but not
at a low-risk buy point. You may wait to have a low-risk buy point on technical
charts and carry out the 360° analysis at that time to ensure all the
industry-fundamental-technical forces are aligned in your favor before buying
the stock.
That
was my analysis using the CUE systems that I use for my trading. You may use
CUE systems standalone or combine its powerful 360° analysis with other
techniques. Whatever be your approach, I strongly suggest you check out any
news-based stock using your system and only buy if that tells you to buy.
