Stock Picks – let’s discuss

It’s scary when I open the weekend AFR and see the commentary is almost 100% bullish on the economic recovery and share prices for 2022. That was back in December and the reality is forward progress has proved tough since August 2021 and here we are in the new year with renewed selling pressure.

How can we make confident progress with our portfolios in an ever-changing landscape?

The simple answer is, don’t panic

The simple answer, don’t panic, stay focused and be true to your strategy and realistically we should consider it a stock market investment as a five-year journey at a minimum to absorb the ups and downs of the market and allow a strategy to show its true colours.  The fact is markets go up and down so we control what we can.

Everything was looking pretty good, albeit with a little interest rate tickle and an elevating oil price to distract us, but we naturally latch onto the comfort of the crowd and immerse ourselves in a somewhat perilous confidence (i.e. complacency). It happens. Don’t be shy, be realistic.

We have been ‘high’ compared to where we were 1 year ago and even more than 2 years ago, but this has been a momentum wave which has been struggling to move higher over recent months. Momentum has been sagging.

So where does that leave us? We still track confirmed trends no matter where they exist not knowing where they will eventually end despite reaching what we feel as perilously high levels. Money drivers can be a surprisingly powerful force which often drive extremes in both directions. Sometimes our logical minds find that hard to deal with, but it does happen, and with consistent regularity.

But we don’t ride the market, our strategy is to ride stocks, and the reality is that the source of opportunities has been shrinking fast being guided by Stockradar’s Stock Pick Count.

Stock Pick Count and Trend Intensity indicator

The Stock Pick count tallies the number of stocks with qualified uptrends (currently 22) from within a defined pool of stocks (currently 168). Stocks are qualified by completing one of two price setups (Trend Reversal or New High) which are then further filtered for indicator strength by the Stockradar Trend Intensity Indicator. The Trend Intensity Indicator combines and weighs four different sentiment measuring tools, the price action itself, the volume, moving averages and momentum.

The Trend Intensity Rating gives a maximum value of +10 for strongly up trending stocks down to -10 for stocks with no up-trending qualities at all. A table typically looks like this with the Trend Intensity Rating for each stock in the coloured column on the left with an explanation of the scale below that.

The Stock Pick Count has been declining steadily recently as momentum sags dropping now to 22 stocks with qualified uptrends from a pool of 168 stocks. That’s 13% of stocks rising in a qualified trend and that leaves 87% who don’t, and they will be either going sideways or down. High market capitalisation stocks that drive the index can confuse us somewhat as to the real substance of the market. Use this information the way you wish but it does make a statement about market breadth based on trends.

As the rally in the index continued albeit now at a cooler rate over recent months the breadth gets narrower and some of those rising stocks that we call high valuation growth stocks clearly have room to adjust back, probably abruptly, should tail winds fade. So that has put up the beware sign. Your strategy tells you how to respond that.

So, they have been carrying the weight of investors confidence and it is probably no coincidence the ASX/200 has stalled as the banks take a breather and other leaders like BHP RIO and FMG have taken a bit of a beating recently from their highs.

Stock Pick Count gives us a guide as to the

substance of a market trend

So, the Stock Pick Count gives us a guide as to the substance of a market trend but also allows us to be more focused on specific stocks with qualified trends and that adds a degree of safety.

With the ASX/200’s strong weighting towards larger capitalised stocks (BHP just got a whole lot bigger) it doesn’t really help us with stocks with a small weighting. It seems the bigger get bigger and the smaller get a smaller.

We can all have our own strategies which can lie outside the controlling influence of the major stocks or index, such as a microcap focus, biotech, or other specific targets. Stockradar simply trades up trends, when they’re available, and subsequently rates each stock equally using price behaviour as our guide with particular attention on breakouts, trend and momentum moves. The Trend Intensity Indicator then plays a further filtering process to tip those odds a little bit further in our favour.

This is the corner of the ASX/200 where we locate our value outside the majors but being smart enough to focus on stocks with a large enough capitalisation to be in the ASX/200. It’s a safety thing and provides additional long-term  protection.

Be specific and targeted with your selection process 

So armed with a clear and focused ‘trend and stop’ strategy it allows us to be targeted as to how we set our selection process and tailored risk management settings towards stocks devoid of outside influences.

The Stock Pick Count provides the source of filtered stocks and when coupled with the price behaviour analysis and the Trend Intensity indicator it allows us to further home in and provide high probability-based stock selections.

This is a simple, uncomplicated, and very focused approach.