The Transparent RRSP: My Own Stocks and Father’s Day

No actions taken the week of June 12

It’s been a very busy week for me, but it’s a good time to be busy as the markets are still looking like they’re headed lower. I don’t feel the need to take action quite yet. The US markets need to go down through May’s lows – at the very least – before going up again. This could affect the Canadian market; we have already been weakening the last couple of months and going through our own correction. If the US market goes down more and we don’t, then that’s a good sign for us that our correction could be over.

markets.jpg

Price charts of QQQ, AAPL, XIC, and SPY on freestockcharts.com

Apple (AAPL) is a big part of the NASDAQ (ETF: QQQ) and it’s been weakest of the big tech stocks (Facebook, Amazon, Netflix, and Google). Until it stops going down and levels out, it will continue to lead the NASDAQ down.

It’ll be interesting to see if the rest of the US market follows suit. I’ll keep my eye on the S&P 500 (the SPY ETF). Its financial sector (XLF) has been quite strong, but this sector is due for a correction. A slower summer market could cause it to stall and look less inspiring to investors. A correction in the financial sector could take the SPY down. There was a lot of selling last week in some of the big US banks (BAC, JPM and WFC) as well as Visa (V). Other big financial stocks (C, MA, and AXP) were trading strong. A divergence between a sector’s biggest stocks creates uncertainty.

Summer Trading Means Fewer Selections

Often, when the leading market heads lower, other markets eventually do the same. However, it can be different in the summer because of less trading volume. Performance is more stock and sector specific and less market dominant.

Investors and traders pile onto the fewer, more promising opportunities that stand out. Sectors kind of do their own thing and are less prone to overall market moves because there’s less of a dominant trend. It becomes more obvious which sectors are stronger and which ones are weaker. It’s actually a very good time to look for sectors and stocks that are about to embark on a new move or trend before it gets busier again in the fall.

For me, the summer is usually the time when I focus on the quiet under-performing sectors and I try to see if there will be a new longer-term opportunity in it. I’m going to watch the Canadian financial sector as it’s been weak since late February. I feel that it should correct just a titch more, and if it does, I will watch very closely for when it sets up again. If this happens, Canadian banks, here I come!

I didn’t have time to do a stock search this week – I only had time to look at my own portfolio. Here are a few of my stocks that I’m considering buying more shares of:

  • Aphria Inc. | APH.TO
  • Aritzia | ATZ
  • Bombardier | BBD.B
  • BMO SP TSX Laddered Index ETF | ZPR
  • ECN Capital Corp. | ECN
  • Extendicare REIT | EXE

I’ve been complaining a lot about having too many stocks. It’s better for me to focus on what I have and get more shares of the ones that I like. I just have to wait for a new entry point.


Thanks Dad!

My dad passed away in 2009. He was 59 and battling a long-term ailment. At least I can say that shortly before his death, he was living life to the fullest. What happened to me after his passing was something worth thinking about. Without his guidance, his half-believable stories, and hilarious anecdotes, I had to use whatever resources he’d passed onto me to keep going. I’m sure this recognition was all subconscious, but I finally had the courage to see things for what they were and let them go in order to do the things I most wanted to do. I took a promotion at my job, saw my career trajectory and said, “On second thought, I’m going to learn how to trade stocks. However that turns out.” The rest is my history.

I’m halfway through reading Jack D. Schwager’s, Market Wizards: Interviews with Top Traders. It’s been an incredible read so far. I’ve heard of some of these guys before. It’s so cool to hear about how they all had to overcome so many barriers to get to where they were. One thing none of them had to overcome was their gender. I can honestly say that neither have I, even though I am a woman.

Since I was young, my dad convinced me that being a girl was an advantage. His dad, my grandfather, was in the US Army, and he was away a lot. He served in WW2 and in Korea. So my grandmother ran the show when my grandpa was away. My dad was the youngest of seven siblings, four of whom were older, amazing sisters. My dad ended up being a very macho guy – who saw women as being greater than anything macho.

Because of my dad, I never felt disadvantaged for being a woman. I actually thought that I could do whatever I wanted to because I was female – he’d long convinced me it gave me an edge. Maybe it is true – our society has yet to accept this concept. Or maybe he just told me a tall tale knowing what I’d be up against. As I got older, I became more painfully aware of the disadvantages women frequently encounter. I love trading because the market doesn’t care about your personal details. You’re either in at the right time and right price, or you’re not. It doesn’t get more gender neutral than that.

As I’m reading Market Wizards, I feel that I can relate to these traders on so many levels, but it feels a bit too much like a boys club. I know there are a lot of extremely successful female traders out there. We’ll just have to cover our own stories. Whether or not I become a market wizard worth writing about one day, I’m sure my dad would be proud of me.

Happy Father’s Day, Dad!

 

The Transparent RRSP: Share Prices & Flash Crashes

Action taken the week of June 5
  • Bought 20 shares of TransAlta (TA.TO) for 7.74. This cost me $154.80 + 0.20 cents of commission. I now have 45 shares of TA. There is $16.90 in cash left in the RRSP account.

If you buy a stock at different times and at different prices, then it makes sense to figure out the average cost of the shares. The previous 25 shares of TA were purchased at $7.63 per share. I’ve worked it out below:

  • 25 shares * $7.63 = $190.75 + $0.25 commission = $191
  • 20 shares * $7.74 = $154.80 + $0.20 commission = $155
  • $191 + $155 = $346
  • $346 / 45 total shares = $7.69

This is also known as the adjusted cost base, or ACB. I use the share price of $7.69 to determine how much I make in profits (or losses) when I sell the shares at a different price later on.

If I want to determine just the average price of the shares, I can do the same thing, only I leave out the commission fees. It works out to be $7.68. It doesn’t seem like much of a difference, but that’s only because my commissions are extremely low.


Flash Crashes

Yesterday the Canadian market closed positive. We traded sideways all week. Not much action, which I prefer. The US market, mainly the NASDAQ, however, experienced a flash crash. I saw the charts and so I had to see what the news had to say about it. They explained that the mega-cap tech stocks (Facebook, Apple, Amazon, Netflix, Google – aka FAANG) were starting to sell off. They weren’t the only ones selling off hard before the crash. The semiconductor stocks (SMH is a semi-conductor ETF in case you’re interested in viewing its chart) were selling off heavily after noon. It had been a long while since the tech sector had shown any major weakness.

After hitting new highs this week, investors were starting to collect profits and play defence by unloading some shares to be less exposed to a sell-off. Well, if enough investors with large holdings (particularly institutional investors) get the same idea, this triggers a mass sell-off. These sales which began around noon triggered the automated trading programs to sell later on in the day, which led to an overall big sell-off in the market. This domino effect happens when giant stocks fall; sometimes even one giant stock can affect the general market. The NASDAQ market lost its last three weeks of gains in minutes. It recovered partially at the end.

I have shares in a few of these tech stocks and I was thinking this week, “Wow, I can’t believe it just keeps going up! When will it come to an end?” I had sold some shares to collect profits a few weeks ago; I was left with the disappointing feeling that I had acted a little too soon. However, I did so because I was anticipating this. (If you’ve been reading my blogs, then you know this isn’t hindsight commentary.) I’ve lived through enough flash crashes to know that I’d rather make my decisions away from such events, not in reaction to them. I still have some shares left in these stocks, but I’ll see how they do over the next couple of weeks.

The Canadian market came down a bit in reaction, but it came back and closed positively. These flashes tend to be more pronounced in the US markets. Because the US market is so big, a crash can affect the global markets if sustained recovery doesn’t follow.

It’s events like this that could deter people from wanting to ever invest in the market in the first place. These things can happen in any market, though, because people are prone to panic. Rather than cave into your feelings and react out of fear of the worst to come, it’s best to try to be objective: Observe the sentiment of other investors and see how your holdings are doing on the bigger time frames like the monthly charts. There is a good chance that your charts are still looking healthy. A correction here and there is to be expected as nothing ever goes straight up. All I can say to all that is to keep calm and let your stock carry on!

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The Transparent RRSP: Managing Doubts

Action taken the week of May 22
  • I reviewed my holdings in both my RRSP and TFSA. I am considering buying more shares of TransAlta Corp. (TA.TO) next week because I like the monthly chart.

A Glance at the Market

XIC may

The XIC ETF price history charts on freestockcharts.com

As you can see on the weekly chart, there has been mostly selling in May, which is consistent with the saying, “Sell in May and go away.” It would take more buying than all the selling that’s gone on all May for the market to trade above that. If the selling continues to consistently happen, even in small amounts, we’ll start to move lower.


When I’m in Doubt I Stay Out

I’ve been going over my portfolio and considering each stock that I bought and sold over the last year. First, I listed my primary and secondary financial goals for each one. If I had sold the stock or some of the shares, I made note of why I made the sale. Then I looked at the price history charts for each stock on my list and considered whether the stock’s performance was still in line with my intentions and goals.

Of course, my ultimate financial goal is to make money in any stock that I invest in. The major distinctions between each of them are determined by how I want to make money (dividends? capital gains? both?) and when (in the next few months? in a few years? in decades?). It was interesting to see how many of my holdings were initially intended for a swing trade after which I ended up wanting to keep them for much longer. This tends to be a pattern with me.

I’ll often buy a stock with this thought process: Let’s see how this performs. If it’s good, I’m keeping it. I might sell some and keep the rest. I might buy more the next time it has a good setup. If it’s a dud (a stock that sees zero action despite the market or its sector), then I’ll opt to sell it at break even or for a small profit and move on.

Selling at a loss is almost never an option for me. This only happens if, for whatever number of reasons, it becomes obvious beyond any doubt that the stock appears to be worth significantly less. I then have to ask myself if I’m willing to hold until that lower point and then wait for its recovery. If it does recover, at what price will it likely recover to before it goes up – or down – again? I rarely have to address the prospect of selling at a loss. This is not because I’m a decent stock picker. It’s because after years of trading, I saw that most of the stocks I sold at a loss ended up doing well weeks, months, or years after I bought them and sold them.

This basically means that it doesn’t matter if a stock has a good chart or not. It also doesn’t matter if you can time the market. More time in the market surpasses any well-timed entry. For a chart reader like myself, admitting this an act of hypocrisy! The price history chart is merely a tool that helps me understand the bigger picture.

Once I decide to invest, I rely on my ability to be patient. I believe strongly that patience is the key factor to growing a strong portfolio. Getting in and out of stocks frequently can really mess with your mind and potential to do really well. I learned that the biggest threat to patience is doubt. Doubt can be very powerful if you don’t trust the market, the world of investing, and yourself.

Whenever doubt starts to creep into my thoughts, I remind myself this: There is a finite amount of money and this puts a limit to the value that we place on things. Collective optimism makes things go up, but not forever. Collective pessimism leads to fear and this makes investors sell, but only until that fear exhausts itself. Humans are generally optimistic, and this is reflected in the overall market’s tendency to go up. I can’t always time everyone’s optimism or predict the end of all pessimism. If I get into a stock during its early signs of new optimism, it’s easier for me to exercise patience, even if it takes a while before market consensus helps the stock take off.

The main reason why I look at charts is because I can’t wait around until some analyst goes on TV to talk about a security that has been doing well already. While many investors might feel more confident in making investment decisions by waiting for an expert to give his or her opinion, it’s often too late for me at that point. I am more likely to act on doubtful thoughts if I know I got into a stock later rather than early on. I end up self-sabotaging my efforts by looking only for factors that confirm my doubts and fears. I’ve done this enough to know not to listen to such counter-productive thoughts. I’ve learned to trust my process and to stick with the strategies that give me the most confidence. Now, I only buy – and sell, even at a loss – when I’m confident in the factors contributing to the decision. I’m not afraid to make mistakes, but I don’t and won’t act on doubt.

 

 

The Transparent RRSP: Book Review

No action was taken the week of May 1

I did an extensive search and didn’t find any good candidates for the RRSP. I think that once we see a more substantial correction in the market followed by some stabilization, we’ll see more options.


 

Market

The XIC, SPY, and QQQ ETFs on freestockcharts.com

 

Chart 1 is the weekly chart of the XIC ETF. It didn’t budge much last week and traded sideways for the most part. However, as you can see from the arrow I drew, it had some strong selling as indicated by the red trade volume bar.

Chart 2 shows the monthly chart of XIC. We finished close to where we opened. The arrow shows that overall for the month of April, there was more buying. As we’ve seen from a shorter timeframe of the weekly chart, there was heavy selling last week. Well, investors like a strong finish.

Already in this week alone, we traded lower than the month of April’s lows. This means investors are getting cautious and losing a bit of confidence. They’re selling shares, taking profits, and holding out on new opportunities – and if investors do trade, it might be with fewer than normal shares to reduce risk. No market can go straight up, so this isn’t anything to get too nervous about.

Chart 3 is the monthly chart of the SPY for the US market’s S&P 500 Index. The arrow identifies trading in March. You can see there was heavier selling in March. April had more buying than selling, however, it wasn’t able to trade higher than it did in March. All week it has been trading sideways. It might still have a positive May, but watch the volume and look for signs of less buying.

Chart 4 is the monthly chart of QQQ ETF for the Nasdaq 100 Index. The tech sector, especially the semiconductors, have been extremely strong since last summer. May will mean the seventh month up on a strong move. The arrow shows that April had a huge move up, but with lesser buying than in March. Are the Qs losing steam? We shall see…

There is naturally lower trade volume going into the summer months, starting in May. I will be keeping a close eye on the weekly and daily charts to look for more immediate signs of a reversal in the markets.


Last week I finally finished reading Michael Lewis’ hugely entertaining book, Liar’s Poker. I was sad to be done, but I feel like the story hasn’t ended because I’m living it through my own trading and from watching the markets. There is a story behind every trade and each investment decision. He skillfully addressed throughout the book how the human element of emotion is what drives markets.

This true story was about Lewis’ introduction into Wall Street as a bond salesman for Saloman Brothers, a securities firm. Every successful sale was done by convincing an investor that what he was selling them was going to be worth more later on. This sounds conniving and this book reads more like a humourous confessional as Lewis grew increasingly conflicted the more successful he became.

Even though this book focusses on the bond market, it translates the same way for stocks and any other security for that matter. Optimism is what drives the markets and allows them to thrive and continue. Pessimism morphs into fear and will make most investors regret their decisions and jump ship into something else.

All year so far, I’ve been providing you with analyses of the ups and downs of markets and making shorter-term projections based on price moves and the corresponding trade volume. These moves occur because of optimism and pessimism. The reason why I trade is because I’m generally an optimistic person and my long-term view is that the markets will always keep going up because I believe that most people are inherently optimistic. That is why, despite all these tales of glory and failures that come out of Wall Street, it’s still around. The markets aren’t going anywhere and I’m happy to believe that more of us are getting involved.

 

The Transparent RRSP: More Thoughts on the Market

I posted on Monday that I had bought another 16 shares of LFE.TO at $6.12. This cost me $97.92 + 0.16 of commission. I now have $60.90 of cash remaining in my account. This was at the same price I got the previous 24 shares of LFE.TO at, giving me 40 shares of this stock.

Currently, I’m not crazy about entering any new positions given the market. I would prefer it to have a more substantial correction before it resumes going up. My preference would be for the market to just slightly sell off below February’s lows. The market could just move sideways for the rest of March, which I’ll be satisfied with. If the market isn’t going to have a correction, then it at least needs to take a break from going straight up.

When the market is operating near a peak like this, I tend to find that stocks with great setups are merely shortlived opportunities in that they might only be in the profit zone for a few days – then people get scared at the slightest hint of a reversal and sell their positions to take their profits.

Another thing I find when the market is iffy: investors tend to gravitate towards stocks doing their own thing regardless of what the market is doing. That is the only reason why I bought more shares of LFE. I said earlier this month that I didn’t want to take any new positions for the RRSP until the market had a decent correction. This stock was resilient during some market weakness and looked like it was taking off.

When I am doing something that goes against my intentions, I have to ask myself, “If this stock takes off without me, will I be upset?” Some setups are dodgy enough that I wouldn’t have regret even if it works because I’ve learned that if I took such setups every time, I’d have consistently worse returns. The setup LFE was demonstrating is the kind you just can’t ignore.

Below is a comparison of the daily and weekly charts of LFE to one of my favourite market index ETFs to watch, the XIC. I also watch the actual TSX Composite Index, however, I prefer looking at the XIC because I get a better view of the trading volume in the market.

lfe

I haven’t lost sight of the increased amount of risk when taking trades in a market like this. I feel that LFE will trade on its own page for a while. Eventually, it’ll likely be more affected by the market. Hopefully, that happens when it’s at a much higher price!

 

The Transparent RRSP: Post #5

Actions Taken the Week of January 30th

  • Deposited $150 into the RRSP, which now has $1316.50

The RRSP’s only security so far is ZPR, my ETF darling. It has been steadily going up since I bought it at $10.86. It’s up 0.34 cents as of yesterday, making me $16.50 so far (after paying 0.50 cents in commissions). I have yet to receive my first dividend payment from this stock, but it’ll come soon.


zpr

The charts for ZPR still look healthy. I can’t help but think I should have bought 75 shares instead! The idea was that I wanted to find another stock to invest in late January, but I just didn’t find anything suitable.

The best charts for the right prices were in the gold sector. For me, gold is more of a swing trade to actively watch – I didn’t feel that would be a suitable choice for new investors. I recognize that gold is considered a hedge if you anticipate a drop in the market. After trading gold and silver for years, I can tell you that the market going down isn’t a guarantee that gold stock prices will go up. Commodities aren’t always the easiest trade. So much depends on the supply and demand in their own markets where people actually buy the raw or processed materials.

I’m not saying to not invest in gold or silver stocks. I just think it’s better to start diversifying when you have more money and own enough of the standard securities to give your portfolio a solid foundation.


Another thing I’d like to mention is to never lose sight of your goals. It’s a big mantra of mine. I tell that to myself all the time, particularly when times are challenging.

I’m in the Florida Keys right now on a short vacation. It’s hard to beat lying in the sun, reading, napping, drinking, and just totally recharging. I want my retirement to have plenty of days such as this. As sad as I am to leave this  wonderful place, I’m more motivated than ever to make this goal a reality.

Canadian Stocks $10 to $20

This is a continuation of last week’s picks taken from the XIC ETF, only this post focuses on stocks between $10 and $20.

Some of these pay dividends. I’m only making special note of the ones that pay monthly because personally, I’m very drawn to the concept of investment income coming in more frequently. Some of the others listed pay quarterly, and some none at all.

Remember to please always double check the facts for yourself and invest in accordance with your plan. Factor in the stock’s industry/sector, and consider whether you’re investing for income, capital gains, or both.


Top Picks Based on Chart Patterns 

  • ATA – ATS Automation Tooling Systems
  • GEI – Gibson Energy Inc.

Stocks with so-so looking charts but very attractive monthly dividends

  • SPB – Superior Plus (I own this stock. This one could take a LONG time to get beyond the $15 zone but it’ll be well worth it if you’re already in and it does.)
  • VSN – Veresen Inc.
  • RNW – Transalta Renewables Inc.
  • CHE.UN – Chemtrade Logistics Income Fund (This is an income fund.)

Stocks that I’d prefer to consolidate longer

I think these should consolidate for a bit longer, like another one to two months. I mention them now because I think it’s good practice to keep an eye on stocks should they set up later on. 

  • HSE Husky Energy Inc.
  • SES – Secure Energy Services
  • INE – Innergex Renewable Energy Inc.
  • CUF.UN – Cominar Real Estate Investment Trust (This is a REIT.)

 

Things to Ponder

I have missed out on stocks that made incredible moves despite the lack of a good setup and I still do. I also missed out because I just overestimated how much time a stock would take to come around. I’m okay with this now because part of my confidence as a stock investor with a 70% return on my portfolio comes from the following:

  • Looking for and waiting for good setups
  • Taking lesser risk on stocks with less-than-perfect setups by using fewer shares
  • Watching the sectors and the market
  • Having a plan for each stock (dividend income? swing trade for profits? retirement? portfolio diversification? hedge?)
  • Being okay with missing out and not getting into everything that looks good or works
  • Years of experience in the markets

I generally have a relaxed attitude towards my portfolio and how I select for it. If I start making compromised choices, I get stressed out and I either talk myself out of staying in a winner, or I get into something much too late because I spent too much time overanalyzing its potential.

You shouldn’t invest feeling fear, whether it’s the fear of starting out or the fear of missing out (FOMO). If you’re new to investing in stocks, just use less money. If you feeling a bit of FOMO, then you must realize that the stock market isn’t going anywhere and that there will always be another opportunity when you’re more ready.

Stock Picking 4: Investment Income

Part 4: Earning Investment Income from Stocks

Objective: To buy and hold dividend-paying stocks in my retirement fund.


Over the last couple of months, I’ve held off making any long-term buys for my retirement portfolio as I wanted to wait until after the US election. Now that it’s over, I can see how the markets, sectors, and stocks from both Canada and the US reacted. For the last week, JP and I had been watching stocks and making decisions on what to hold for the long haul. If there’s one thing they all have in common, they all pay a dividend.

The Dividend Income Strategy

The big goal  with stocks is to be able to sell your shares at a higher price for a capital gain or profit. When stocks give their shareholders a dividend, then it makes it less desirable to sell your shares as they’re now a source of income!

If you’re buying stocks purely for dividend income, then the price you pay per share and what the sector and market are doing at the time have little significance. It’s intended as a long-term strategy and the idea is that over time, a dividend-paying stock of a good company should go up in value the longer it’s around and able to maintain dividend payments to its shareholders.

For me, these stocks are intended for my retirement fund. I’m still decades away from retiring, so I haven’t sold these stocks yet! With lesser ability to work and fewer job options, I want to have an investment source of income, and dividends are just that. In my opinion, this is the most simple form of stock investing and from a long-term perspective, the wisest.

If you have a blue chip company like a big bank or utility company you’d like to invest in for dividends, then you can accumulate shares over time, buying whenever it suits you. For me, when my stock goes down in price, I plan to buy more shares as it’s more affordable. I met a guy who buys shares of just one bank stock — his bank. He watches the stock price and whenever his stock takes a hit, he’s buying more shares. Over time, you can accumulate a lot of shares; the more shares you have, the more you make in dividend income.

So if you look up a stock on its company website, they’ll usually have its dividend payment schedule as well as what they pay their shareholders for each share they own. It’s usually on a quarterly basis, but sometimes dividends are paid monthly.

Here are some things to note:

  • Not all companies pay a dividend as they don’t HAVE to;
  • Companies don’t always pay the same amount in dividends each time – they can pay more or less each time;
  • Companies can suspend dividend payments for periods of time if it financially makes sense for them – doing this can often make the stock price go down;
  • If you’re receiving dividends from a Canadian company, you get a tax credit, so you can hold these stocks in non-registered accounts;
  • If the company or your brokerage doesn’t have the DRIP (dividend reinvestment plan) feature to automatically buy more shares, the dividend income just goes into your investment account and you can reinvest it at your discretion;
  • If you’re receiving dividends from US companies, then you should hold these stocks in your RRSP as we have an agreement with the US that investment income in retirement accounts won’t be subject to international withholding tax.

My dividend-paying stocks so far are in utilities, energy, finance, and consumer staples. My discount brokerage doesn’t offer the DRIP option, so the money just comes in regularly into my investment account and it’s nice to see my portfolio increase in value from both the capital appreciation of my stocks and from regular dividend payments.

If you’re off stock picking, you can also buy shares of a dividend income ETF. The dividends that are generated by the stocks in the fund are paid to you in the form of distributions (but also often called dividends). I, too, own a preferred share laddered ETF that pays me a substantial dividend every month!


 Generating a regular investment income from solid dividend-paying stocks of Canadian companies is a great strategy for the long term!

Stock Picking – Part 3: Factoring in Sectors and the Market

Part 3: Factoring in the Sectors and the Stock Market

Objective: To look at how a stock is performing in relation to its sector and the market.


Sectors

Many things can move the market. A major recession. An increase in interest rates. A major election. A major sector going up or down.

In the last couple of years, the oil sector took a big hit due to a saturated market with too many players getting greedy. A lot of the Canadian market is affected by oil because it’s one of our major commodities. So the Canadian market took a huge hit, along with our loonie. This impacted our businesses as it reduced our buying power outside Canada. Having said that, after being so down last year, we had a remarkable recovery and better performance than the US markets since January of this year.

Although the Canadian and US stock markets are different, I often check out the US stock market and sectors to give me an idea of the major trends going on in our part of the world. (I will definitely be looking at the US markets after the election results come out this November!)

The following is my list of sectors and industries that I like to examine. You may be more general or more specific as you can further categorize sectors by looking at the different industries that fall within them. I like to check these out from time to time to see if there are new opportunities, or if current opportunities look like they might run dry soon. Please note that this list doesn’t contain all the sectors and industries.

  • Utilities (XLU)
  • Consumer staples (food & beverages, cigarettes, household & personal care products) (XLP)
  • Healthcare (XLV)
  • Pharmaceuticals (PJP, XPH)
  • Transportation, shipping, and delivery services (IYT)
  • Financial (banking, lending services, and insurance) (XLF)
  • Retail (XRT)
  • Basic materials & construction (IYM)
  • Tech (XLK, AAPL, MSFT)
  • Energy (OIL, XOP, IYE )
  • Home building (XHB)
  • Gold (GLD, GG, AU, NEM)
  • Silver (SLV, SLW, AG/FR.TO)

The way I check out these sectors is by looking at their respective ETFs (exchange-traded funds) or the biggest stocks in those sectors, marked by the blue ticker symbols. If you’re not sure what an ETF is, that means you definitely haven’t yet read my book where I explain ETFs and indexes in easy-to-understand terms (Read it! The eBook is $2 right now!). I look at more than one ETF for some of the sectors.

You can create lists of any stocks you want to keep an eye on when you use freestockcharts.com. I have a list saved for sector ETFs. I can just easily go through my list on freestockcharts.com and check out the charts. Also, you can look up a sector by typing something like,”Retail etf,” anywhere on the screen in FreeStockCharts and a bunch of options will come up and you can select from the multiple options.

chart-1d

I apply the same principles when looking at the charts of each sector as I do stocks. I try to see if the sector has been hot for a while (well above the airplane) or if it’s just starting to warm up (at or below the airplane), or if it’s been quiet and moving sideways (along the runway). If a sector has been moving sideways and just starting to move up, I’m more interested in stocks that fall in that sector because it means there could be new opportunities to buy at lower prices. In investing, this is called “sector rotation.” If a sector is hot, I’ll wait for it and its stocks to cool off.

Remember the main M.O. of a savvy investor is to always look for new opportunities, not to follow a trend that’s far into its season.


The Stock Market

There is a lot of fear-mongering, even among savvy investors, with regards to stock picking and timing your investments with the market. It’s because people hate being wrong. No one wants to give wrong information. But for anyone who’s invested, you know you can be wrong for one month and then be right the next month and be well in the money. You can be right for one or two days and it’ll be months or, in rare cases, years before you’re in the money again.

It is hard to know exactly where the market is headed, but it’s easy to see where it’s been–to me, this is more important than making predictions. The way I see it, if it’s happened already, then you have something real to work with.

For the Canadian stock market, I look at these ETFs:

  • XIU (iShares X&P/TSX 60 Index)
  • XIC (iShares Canadian S&P/TSX Capped Composite Index)

For the US stock market, I look at these ETFs:

  • SPY (S&P 500 index)
  • DIA (SPDR Dow Jones Industrial Average)
  • QQQ (Nasdaq 100 Index)
  • IWM (Russell 2000 Index for smaller US companies)

I analyze the charts the same way I do for sectors and stocks on freestockcharts.com. I always compare stocks and sectors against the market. I ask these questions:

  • Is a stock lagging or leading its sector?
  • Is a stock lagging or leading its market (Canadian or US)?
  • Is a sector lagging or leading the markets?

My ideal situation: A sector trading on its own page

If the stock market is moving downwards (for the previous month or longer), but a sector has been moving sideways and is starting to heat up, it’s likely going to lead the market. I’ll be looking for stocks in that sector using the criteria I discussed in Stock Picking Part 1.

My less ideal situation: A sector trading like the market will be more affected by the market

If a sector’s chart looks just like the stock market’s chart over the previous month or more, it’ll likely be affected by the market, so if the market goes down, your sector will likely go down with it too. An individual stock better have an amazing chart (LONG sideways trading–we’re talking about a LONG RUNWAY lasting months!) for me to buy it without a stabilized sector behind it.

The situation I avoid: A sector in trouble

If a sector is weaker than the market and it has been heading down on its own, I’ll avoid it and any stock in that sector until I see the sector stabilize and trade sideways again.

I’m not that concerned with what the stock market is doing. In the past, I’ve been shaken out of some great opportunities because I was staring too hard at the market, trying to predict its next move. As soon as the market sells off just a little bit, I’d freak out and exit my positions, only to have the market recover after (as it always does since the beginning of stock market history). What is most important to me is how a stock is trading relative to its sector and how the sector is trading relative to the market. I’m always looking to get in early, not late after the party has already started.

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I recognize this is advanced information. You really can buy stocks of companies that you like without ever having to look at a chart and do well. This is more about my swing trading strategies which for me, it has been a great way to make money.


When I look for stocks, I always look at their sectors and the market. I check to see whether a stock is leading or lagging its sector and whether the sector is leading or lagging the stock market. 

Is the idea of stock picking getting you down? You can still invest in stocks without having to pick one. Next time, I’ll get into ‘buying the market’ which is code for investing in ETFs!