Trading Dreams and Stocks to Watch

Trading Dreams Can Reveal Good Ideas 

I have always been prone to having work dreams after I’ve been at a place for a while. When I was a very active trader, price charts were a constant occurrence in my dreams in which they had the strangest capacities. For instance, I couldn’t open a door until a stock price went up another 50 cents. Or I couldn’t get to a party until I made $1000 on a trade, so I’d have three trades open. Weird stuff like that.

I had one profound dream where I was talking to my buddy about stocks. In real life, I knew he had gambled unsuccessfully on penny stocks and sports. In this dream, we were catching up while looking at a glass wall that had a stock chart on it.

He told me that he stopped wasting his time on penny stocks. Instead, he decided to keep things simple. He bought the stock of a company that made sense to him. This company started to become successful rather quickly. Every time he had extra savings, he would just buy more shares and increase his position. Over the next five years, the stock kept going higher in share price. As he explained this, the chart on the glass wall started to grow live on a timeline. The chart finally stopped moving once it reached the present day. At that point, he was up $18,000 with that one stock.

Scaling In

While I don’t believe it’s a good idea to put all your money into one stock, I do believe in the strategy of adding to a good position. At the time of this dream, I wasn’t confident enough in my own methods to add to any position. If anything, I was exiting too soon. Over the years, I got over my fears; it eventually became a practice I employ in the situations I feel most confident in.

I’ll often decide on a stock because I like the chart and its sector. My initial strategy might be shorter term. I might sell shares to take profits or lighten my position and just keep some shares for the longer term. Other times, I’ll change my outlook. If the chart and the stock show more potential for longer term growth, I’ll buy more shares of it at the next opportune setup.

I don’t think of investment decisions in definite terms because there’s no way to predict exactly how much you’re going to make. I like the idea of interacting with your investments over time in order to be fluid with the demands of the market or to take advantage of new opportunities that come up.

My Own Stocks

The market has been doing a nicely controlled correction – thankfully, it hasn’t dropped rapidly. I don’t know if it will react further to the news next week if we find out for sure that interest rates will go up. The market doesn’t like surprises, so if interest rates do go up, then there should be no major shock to the market. If anything, the anticipated news is already priced into the market and we can move on once it comes out.

I’ve been casually looking for stocks, yet I haven’t been very inspired by much of what I’ve seen out there. When this happens, I become more interested in watching how the stocks in my own TFSA portfolio are doing. Some of them are either consolidating nicely or seem to be doing their own thing. Here are some of my stocks that I might scale into:

  • ZPR.TO
  • MSI.TO
  • ECN.TO

These other ones I’ll be watching for more confirmations from the sector and/or market:

  • BBD.B.TO
  • EXE.TO
  • TECK.TO
  • APH.TO

This week, I was actually considering buying shares of APH.TO for the RRSP, but it’s not quite ready yet. I know this one is capable of developing really good patterns. Once I see the trading range tighten, the selling volume lessen, and a pattern improvement on the daily and weekly charts, then I’ll pick the price I’d like to enter at and I’ll put in an order. I’ll give it another couple of weeks. If it ends up going up while I’m waiting for these things to align, I won’t be too concerned if I miss the run. It will either set up again later or I’ll find something else.


N.B.

The last thing I want to do is to make stock calls for the purpose of getting others to pump up my own stocks. I tend to pick stocks that trade higher in volume, so price jumps are less likely to occur unless A LOT of investors step in. I lack that kind of influence – this is a low-key blog, not BNN. I expect investors to do their own necessary due diligence before making investment decisions.

 

The Transparent RRSP: Interest

Action taken the week of June 26
  • Transferred $150.00 into the RRSP. That gives me $170.90 in cash.

If I see anything that looks interesting, I’ll be ready to take action with some cash in the account again. I’ve been looking around and I found a few compelling charts. However, the market is just so uninspiring right now. I’d much rather wait for it to settle down before I do anything. It would be great if there was nothing to do until next month.

Another thing to note: If we raise interest rates sooner, that will greatly impact the market. I plan to consider, over the next week or so, some good trading/investing ideas.


July xic

XIC ETF in freestockcharts.com

Let’s look at the monthly chart of my favourite TSX index ETF, the XIC. I would like the market to pull back until the blue line. I mentioned in a previous blog that I’d like a market correction to come down to the same area we were at around November last year.

I think, though, that we’ll likely only pull back to the orange line, which is where we were at in December. This year so far, we had the heaviest selling volume in June. To get significantly below June’s levels we’d have to sell a lot more.

If interest rates do actually go up, a lot of sectors like retail and housing will be impacted. The financials, on the other hand, have been recovering since late May. Higher interest rates will be better for their business, especially after they’ve been running on low interest rates for so long.

I wrote previously that I think there’ll be a recovery in energy (oil) this summer – and I still think that. It’s worth considering swing trade opportunities in this sector as it could go up over the next few months to a year.

After a quick search, I noticed that the following stocks have had heavy selling volume the last few months:

  • SU.TO
  • PD.TO
  • CVE.TO
  • BTE.TO
  • ENB.TO
  • ECA.TO

If you feel conflicted about putting money into the yucky oil industry, you can just treat this as a study into my process when I look at sectors that have been beaten up. Here is a general run down of my process:

  • Watch the daily and weekly charts of stocks;
  • Look for signs of sideways trading;
  • Watch for reduction in trade volume. The volume should indicate less selling some more buying;
  • Check the monthly chart – it should look like a reversal is happening;
  • Compare all this to the sector ETFs;
  • Among the sector’s stocks, watch for the ones that are looking the best;
  • For swing trades, look at the strongest stocks that meet your criteria for entry, price, and trading ranges. In other words, figure out which ones that will give you the most bang for your buck.

I’ll share my ideas on this more recent trade idea and if I do take a trade, I will let you know. If this makes you nervous, then you can sit back, relax, and enjoy watching me fall flat on my face. I often go into trades thinking that I will do just that, but it’s exciting enough for me to take action. This mindset forces me to only risk enough so that I won’t be devastated if I’m totally wrong. Personally, it’s more devastating to not financially benefit from an idea I had that actually worked.

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: Month-end Market Read

Action for the week of April 24
  • I transferred another $150.00 to the RRSP account’s current cash of $29.90, which will give me $179.90 for the month of May.

I also didn’t do anything for the RRSP last week (the week of April 17). I mainly sold more shares of other stocks in my TFSA. I was feeling exposed having so many stocks at a time that I feel the market is going to have a correction. The fact that I still have 28 stocks in this account is still a head-scratcher. I managed to make a decent profit on some of these, so I’m sitting on more cash than I have in a long while.


Marks

The XIC and SPY ETFs on freestockcharts.com

The Canadian Market

You can see on the XIC that the Canadian market has just been trading sideways. At the time of writing this, there still remains one more trading day this month. There is usually a lot of selling at around month-end mainly because funds are re-balancing their portfolios for cash to pay investors. So, it remains to be seen how we’ll close, but I don’t think it will be too far off from where we closed last month.

The Canadian market has been lagging the US market this year so far. It’s not a surprise. Check out the two bottom charts where I drew the circles. Upon quick visual inspection, you can see we covered way more distance in 2016 than the US market. We (our economy and our loonie) got beat up so badly from the underperformance of oil/energy in 2015, that we had so much room to climb up and recover. And that we did. Our sectors in energy, mining, and finance gave great performances.

Every good run needs a break to slow down and catch its breath. If I want to find out what is making the market do what it’s doing, or where the market could be heading, I will look at the major players. I’ll either check out the sector ETFs, or the biggest companies in the influencing sectors.

For this scenario, I’m keeping an eye on the banks, all of which are in the process of a correction. It could be just a bit of a selloff, or it could be a substantial selloff that will keep going until mid-late summer or fall. Now, don’t go on selling your dividend-paying bank stocks – I’m just saying keep an eye on them if you want to have a better gauge as to where the market is going.

I will suggest that if you’re interested in accumulating more shares in bank stocks, you might want to wait a while for the prices to come down more and have settled down for a bit before going up again. I am a huge fan of waiting for new buying opportunities and I will wait months, even years, to get into good stocks.

The US Market

I can’t invest or trade or think anything stock-related without looking at “the SPY,” the most popular American S&P 500 Index ETF. It’s more out of habit having used it so much for day trading than it is out of necessity. I look at it to get the feel for the market, its momentum, and its sentiment. It often is quite off from the actual S&P 500 Index, but it’s where the action is at. This is where I discovered the importance of monitoring trade volume.

I never look at the SPY without looking at the QQQ, the NASDAQ Index ETF. Plus, I never look at “the Qs” without looking at some of its big players/action stars: Apple, Microsoft, Facebook, Google, etc. I attribute the US market’s most recent run, not as much to its new president (but I’m sure he’ll take full credit for it, very true), but to the technology sector. I’m sure this would stir a lot of debate, but I’m speaking from an on-the-ground perspective because I own a few tech stocks.

The tech sector has been the leading sector over the last year, so it’s important to keep an eye on it along with its biggest stocks. You can watch the Qs and the tech ETF, XLK and the semiconductor ETF, SMH. When observing the big players in tech, look out for shifts in volume and ask is the buying volume is lessening? is the selling volume increasing? or whenever the prices drop, is there a lot of buying or just a little?

I would also be watching the US financial sector’s ETF, XLF. Like Canada’s, the US financial sector has been pulling back the last couple of months. If tech starts to come down along with the financials, then I’d expect a more prominent correction in the US market before more new buying opportunities start presenting themselves again.


This is my process and how I see the market. I’m always trying to find clues that indicate optimism (buying), euphoria (heavy buying with big price moves), panic (heavy selling with quick and large drops in price), pessimism (selling), or neutrality (lower volume, sideways trading).

I still hear over and over that timing the market is useless. I don’t look at it as ‘timing’ because it’s not a science, nor is it something you can accurately measure. It’s more about reading the market. Investors’ feelings and sentiment move the markets, not numbers. I hope that one day, more people will see it this way and learn how to invest with the flow.

 

 

 

 

Your Special 4/20 Newsletter of 2017: Medicinal Stocks

“What weed stock should I buy?”

If there is one question I am asked the most, it’s the cannabis question. I’m asked about this more than whether to buy Facebook, Apple, or Lululemon. I don’t know anything about cannabis strains, but I can speak a bit more about cannabis stocks.


2016 to 2017

Last year I posted a newsletter on this celebrated day. I listed a few stocks to check out:

  • Canopy Growth Corporation | Ticker symbol CGC.V | $2.60
  • Aphria Incorporated | APH.V | $1.56
  • OrganiGram | OGI.V | $1.10
  • Mettrum Health | MT. V | $1.66
  • Emerald Health Botanicals | EMH.V | $ 0.17

This is where they’re at now:

  • Canopy Growth Corp.| Ticker symbol now WEED.TO on the TSX | $10.24
  • Aphria Inc. | APH.TO now on the TSX | $7
  • OrganiGram | $2.87
  • Mettrum Health | It halted trading at $7.05 because it’s merging with Canopy Growth Corporation
  • Emerald Health Botanicals| $ 1.54

WOW.

I wanted to buy all of them out of pure excitement, but at the time, it was a decision between me and JP. We decided on Aphria, mainly because of its price and proven earnings.


Cannabis presents a new industry for the public, and it’s still in its early stages as it’s working its way through various long and rigorous legalization processes. You can’t expect this journey to be straight and easy, but it’s going to happen whether you agree with legalization or not. (Interesting personal observation: Among the people who ask me what weed stocks to buy, half of them are very conservative and would never smoke it. The other half smoke it and still have shown no indication of buying any of these stocks.)

I remember the time when Colorado and the few other states were legalizing. It was impossible to tell which weed stocks to buy on the US exchanges. They each had the patterns of the new publicly traded company in a speculative industry: cheap with wild swings in volume and price moves. I had to wonder if a company was going places or was just another pump and dump.

I watched a lot of media coverage on Colorado. There was definitely a saturation of industry players – in other words, too many suppliers. Some went just as quickly as they arrived. The stronger, more resilient, established, and adaptive ones survived and endured. Others joined forces and resources to become bigger companies. It will be interesting to see how the industry plays out in Canada.

I’d purchased a couple of other weed stocks since, both of which trade on the TSX Venture Exchange. I bought shares of:

  • Maple Leaf Green World Inc. | MGW.V | 0.62 and
  • The Hydropothecary Corporation | THCX.V |$2.28

I did a quick search and found other stocks with good trading volume:

  • ICC International Cannabis Corp. | ICC.V | $1.29
  • Aurora Cannabis Inc. | ACB.V | $2.84
  • CanniMed Therapeutics Inc. | CMED.TO | $11.61

Oh! And I love that Horizons has created a new ETF: Horizons Medicinal Marijuana Life Sciences ETF (ticker symbol HMMJ.TO, $10.80). It’s got a wonderful mix of medicinal cannabis stocks from Canada, the US, and the UK, including one of my portfolio darlings, Aphria. It also owns some of the stocks mentioned in this newsletter so far. At some point, this ETF will start paying distributions (none yet). If this is a long-term investment for you, then you might want to hold this in your RRSP to avoid withholding taxes.

There are a few things to note about Canadian cannabis stocks. They’re inexpensive and they all overreact to any cannabis information that comes out of Trudeau’s mouth. They settle down after the market reaction to any news and shape up again for more investors to get on board before the prices go up for another run. It’s generally been run after run at higher and higher prices.

Most of these stocks trade very similarly to each other, with only their prices and trading ranges that might differ. If your stock isn’t moving like the others, you might have to wait longer to better see whether or not it’s a dud before getting rid of it. It also might just be a company that needs a lot more time before it proves itself to the market.

If you’re considering buying shares of cannabis stock, you’d have to look deeper into the company’s fundamentals. Remember, because they’re new and in their early phases of development, they all promise growth. I would pay most attention to company earnings and pick the one generating profits already.


The Cannabis Industry vs. the Market

Without trying to sound the alarm, I will strongly suggest that I feel that the market is going to have a major correction soon. The market had a huge nine-year run. We’re now facing rising inflation rates, a new US president, and heavier selling volume in the market as of late. Major stocks that had a good run outshining the market, are showing signs that their investors are now being cautious, even uncertain.

As proactive investors start to unload their positions, they’ll be executing their defensive plays (getting into utilities and consumer staples), as well as looking for what is trading on its own page and less affected by market moves. I think that cannabis stocks, given their industry newness and lower prices, will provide that opportunity for investors.

You might feel conflicted about cannabis and if you do, then you should probably feel the same way about alcohol. As we all know, booze was once outlawed and look at it now. The same will happen to weed. They say if you can’t beat them, then join them. What’s nice about a cannabis stock is that you don’t have to smoke it to own it.

 

 

 

 

Stock Picking – Part 2: Determine Your Investment Goals

Part 2: Determine Your Investment Goals

Objective: Identify your investment objectives first, and then let them guide you when you’re choosing a stock.


The main objective for investing in anything is to make money. With stocks, you make money two ways by selling your shares at a higher price than you paid and from dividend payments. Additionally, your decision to invest in a stock could be supported by a number of other reasons. Such reasons will guide you in the selection process.

Here are some reasons to buy a stock:

  • To fund your retirement 
  • For faster portfolio growth
  • To generate dividend income
  • You see potential growth in a particular sector, so you want a good stock from that sector
  • The economy is looking to slow down, so you want to invest in a defensive stock
  • The economy has been in a slump for a while but now business activity is starting to pick up, so you want to buy stocks to get in on the action
  • You like a company for its products, services, or growth potential, so you want to be a shareholder.

My investment objectives vary as I want to invest for the long-term (a fun and comfy retirement life) and the short-term (concerts, trips, and buying a couple of properties in Canada and somewhere hot).

For my retirement portfolio, it’s all about the long game and I’m looking to invest in something that will do me well for years, even decades. So, I look for stocks that have ‘blue chip’ qualities: they pay dividends, they’re well-known, well-established and have been around for a long time, and they usually offer more than one type of product or service which allows them to adapt to various consumer demands and trends. It’s also a bonus when the stocks are in defensive sectors such as utilities and consumer staples. I don’t do much analysis here, I apply a very basic, rudimentary logic.

There is no guarantee these stocks won’t suffer when the economy is slow, but the idea is that even during tough times, they’ll do better or suffer less, and they’ll still likely pay you dividends. If their stock prices take a hit, I’ll likely buy more shares when they start to recover because they’ll be cheaper.

For my swing trades, I look for stocks that look like they’ll do well over the next few months to a year. I look for typically strong stocks that have been quiet for a while and haven’t seen much trading action. When this happens, it’s usually because their sectors have also been quiet. If all the stocks in a particular sector have been down for a while, I’ll narrow down my selection based on the stock price and volume. (See Stock Picking – Part 1.)

The selection process for my swing trades is more involved as I use a very basic form of technical analysis of a stock’s price history to help me decide on where I’m going to buy and where I’m likely going to sell. Technical analysis is about analyzing the price history of a stock in relation to its trading volume, sector, and market environment. 

Many people dispute the validity of technical analysis and prefer to examine the fundamentals of a company’s value in relation to its share price instead. They’re all valid to some degree and many financial pros analyze both the technical and fundamental information.

I prefer to analyze charts because I’d rather see if I’m paying much more than others who got in earlier than me. The lower the price I pay for a stock, the more confident I am in the trade. It’s not a guarantee that the price won’t go lower, but even if it does, I will suffer less by getting in at a lower price than if I bought a stock after it became hot and expensive. I never buy a stock after it makes the news because it’s usually too expensive by then.

chart-1d

Above is a very basic chart of a stock that I actually own. I consider a stock to be ‘quiet’ if it’s trading sideways (the first horizontal line). Think of a stock’s price in terms of flying in an airplane; trading sideways is like starting on the runway. I try to buy either when it’s still on the runway or just as it’s taking off (no higher than where the airplane is). So I just have a quick glance at a stock’s chart to determine if it’s just taken off or if it’s gone far beyond the clouds. If it has long taken off already, I’ll just wait for another sideways setup. Sometimes this wait time could take months to years and I’ll just keep checking the charts every now and then.

For years, I’ve been using freestockcharts.com to look up charts for Canadian and U.S. stocks. It’s FREE and the features and tools for the charts are very similar to what you would use if you had a pro trading account with a brokerage. To look up a stock, you just type the company name and you can select it from the list of options it provides. Sometimes a company will trade on both the Canadian and US stock exchanges, so be sure you’re selecting the proper exchange for you. There are many short and informative tutorials available on its site and on YouTube.

__________________________

I look at the charts for everything I buy for both long-term buys and shorter-term swing trades as my goal is always to buy shares at lower prices. For the long-term trades, it’s more important that the stocks meet some ‘blue chip’ criteria. For the swing trades, I rely more on technical analysis, the sectors, and the markets.

Next time, I’ll get into how I analyze sectors and markets!

 

 

Column Published in Investor’s Digest

 

investors-2

August 26th Issue

 

If you’re interested in investing in exchange-traded funds, you can read about the various ETF strategies I recommend in this issue of Investor’s Digest of Canada! 


Other columns published since…

October 7, 2016 Issue: Getting Heavy Into Metal

November 25, 2016 Issue: The Investor’s Investor and Stock Picking

February 10, 2017 Issue: Smaller Time Frames, Bigger Profits