Page 514 - How to Make Money in Stocks Trilogy

Watching the Market and Reacting to News 383

More than half the stocks that look inviting on the tape will fail the
CAN SLIM test and prove to be deficient, mediocre investments. However,
sooner or later, convincing market action will point you to a golden oppor-
tunity that meets all your criteria for a possible star performer.

Scan Chart Books Weekly
and List Your Buy Points
Another way to use market action productively is to review a comprehensive
online or printed chart book or charts from a special screen every week and
list stocks that meet your technical and fundamental criteria. Then jot down
the buy point at which you would consider buying each stock. Also note the
average daily volume for each stock on your prospect list so that you can eas-
ily verify any noteworthy increases in volume.
Keep this shopping list with you every day for the next couple of weeks as
you watch the market. In time, one or two of the stocks on your list will
begin to approach your buy point. This is the time to get ready to buy—
when the stock trades at your buy point, you anticipate the day’s volume will
be at least 50% above average and the general market direction is positive.
The more demand there is for a stock at the buy point, the better.
Tape and market watchers expect the pace of activity to slow down
around lunchtime in New York (12 p.m. to 1 p.m. Eastern). They also know
the market frequently shows its true colors in the last hour of the day, either
coming on and closing strong, or suddenly weakening and failing to hold the
gains established earlier in the session.

Don’t Buy on Tips and Rumors

I never buy stocks on tips, rumors, or inside information. Doing so simply
isn’t sound. Of course, tips, rumors, and inside information are what most
people are looking for. However, I should remind you again that what most
people believe and do in the market doesn’t work very well. Beware of
falling into the typical market traps.
Certain advisory services and columns in some business newspapers are
fed by Street gossip, rumors, and tips, along with planted personal opinions
or inside information. These services and columns, in my opinion, are
unprofessional and unsophisticated. There are far sounder and safer meth-
ods of gathering information.
Bernard Baruch stressed the importance of separating the facts of a situ-
ation from tips, “inside dope,” and wishful thinking. One of his rules was to
beware of barbers, beauticians, waiters, or anyone else bearing such gifts.