Saturday, 24 June 2017

How to find a reliable stock, not letting you down

To find a stock in the sea of markets

This is always the question where do I start finding a reliable stock, not letting you down?

The only way in proceeding is the top-down method. Let me try simplify and explaining it. OK, let's start with this: The JSE stock market, have listed companies (All listed shares on the JSE) and it's grouped into sectors or indices.

Different type of indices:
•Broad Market Indices
•Sector Indices
•Strategy & Thematic Indices

Indices can serve as:
•Economic indicators
•Performance benchmarks
•The basis for index-linked investment products
•Tools for research & analysis

To more simplify and be specific, we can focus on the following indices:

Market Indices
•J203 ALSI

Broad Market Indices
•J200 Top 40
•J210 Resources
•J211 Industrial
•J212 Financial

Sector Indices
•J150 Gold Mining, J150 ANG CRD DRD GFI PAN SGL
•J153 Platinum Mining, J153 AMS IMP JBL LON NHM WEZ
•J173 Forestry & Paper, J173 MND MNP SAP
•J235 Construction, J235 AEG AFT ESR GRF MUR PPC RBX WBO
•J533 Food & Drugs Retailers, J533 CHP CLS PIK SHP SPP
•J540 Health Care, J540 ACT AIP APN AVL LHC MEI NTC
•J560 Telecommunications, J560 BLU HUG MTN PNC TKG VOD
•J857 Life Insurance, J857 CLI DSY LBH MMI OML SLM

In our process to find the one-and-only stock, using the top-down method, we will start analysing the Market or Broad Market Indices. We need determine the market’s direction. The easiest way doing it: Looking at the chart on a weekly scale, using a standard MACD indicator and while the MACD is above the signal line or the histogram is above the 0 line the market is defined bullish or in an up trend.

Using this same charting setup and run through all the Sector Indices. You can create a Watch List group including all indices, this will make life very easy.  Then find the best looking sector between them.

Switching back to a daily chart and with your favorite charting setup.  Zooming into this good looking Sector, we need to scan through those stocks and after that pick one of the best stocks in the best sector. This will give you a reliable stock, not letting you down. 

Using the above information and create Watch List groups for these ten Sectors and add the related stocks to them.

Consider the merits of the top-down approach for a moment. Let’s say you have correctly pegged the direction of the market, and it is rallying. In addition, you’ve successfully identified one of the best sectors, and it is  also  rallying.  Plus,  you  have  picked  a  strong  stock  in  one  of  the  best sectors. It would be difficult for your stock not to go up. Look at all the factors  favoring  your  trade.  The  general  market  trend  is  pulling  up  your stock, and the sector is also adding to the upward momentum. You have put the odds decidedly in your favor.

The goal of every trader is to make trades in which risk is the lowest and profit potential is the highest. The optimum opportunity to make such trades is when the market is at an extreme bottom and starting to rise.

To identify these trades, you must undertake the correct analysis, to identify bullish setups. These analyses must come first in order to have the  “wind at your back” — the most favorable market conditions. You cannot engage in sector analysis and stock analysis until you have determined that the overall market is in your favor (thus putting the wind at your back). Otherwise, the reliability of the signals generated by sectors and stocks will not be as accurate.

Once you know the market conditions are ripe for making a trade, you can buy virtually any stock and most likely it will be a profitable move because, as the saying goes, a rising tide raises all boats.

At this point, let’s quickly review the three steps of the top-down approach:
 1.    Find the direction of the overall market. 
 2.    Select the best sectors. 
 3.    Find the strongest stocks in the best sector.

Using Performance Comparisons to Find the Strongest Sectors and Stocks.

This line chart of the Gold Mining stocks displayed together, so that a trader can see the performances of each compared to the others. The stock that stayed near the top of this chart performed the best from the September top to the decline at the December bottom. These ones would likely be the ones to buy for the next rally phase.


The current index comparison status at 24 June 2017 looks as follow, with the Forestry and Paper index clearly outperforms:

Finding the stock, Sappi is the one who outperforms.

Zooming in on Sappi  more....

Trade with caution as the markets are very unstable and uncertain.
@Duplo123 or join us on Skype


  1. Hansie, hierdie is puik!
    Vanuit al die regte hoeke benader.

  2. This comment has been removed by the author.

  3. Baie dankie Hansie, dit was nou baie insiggewend en herinner ons net weereens aan hoe belangrik die basics is. Groete en hoop om nog baie sulke posts te sien.