Validate your stock news before taking your trade.
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.