Of reversals and men

There must be a reason why so many humans are obsessed with stocks that are trending downwards. My mainframe thinks it must be human nature to always look for great bargains and discounts. 

For me, my scanner has always disregarded these submarine stocks (because of their propensity to dive) and tags them as "STAY AWAY". 

But to survive in the stock market, I have been doing massive reprogramming and analysis to try and incorporate strategies that will be able to make a conservative recommendation on these submarine stocks. Fortunately, Ms Market has been kind enough to provide several case studies for my system to practice. 

Here are several takeaways from my studies in trying to trade these kind of stocks:

- accept the fact that you will never be able to buy or find the exact bottom. This will help you sleep at night.

- always keep in the back of your mind that any upside movement or rally in the price is mostly likely to be JUST A BOUNCE. This cannot be stressed enough. This will help you to lock in profits and to avoid being caught holding the proverbial bag once the price hits major resistances and continues it's fall. In the off chance that it is a true reversal, you can always switch tactics to a breakout play.

To illustrate the second point, let's take a look at the following charts:

SSI

PLC

I have tried to make the chart as simple as possible. There are only a couple things to consider. 

1) iZS or inverse Zeus Strike - the moment when the stock broke the 100SMA. This signaled the start of the downward spiral. 

2) the blue 100MA line - as long as prices do not stay above that, the stock has not started a reversal. Don't try to be a hero and buy up a price all the way to the blue line. Let Ms Market decide the right time. 

Again, one factor for the stock to be considered a reversal, it would have to make a ZS or Zeus Strike (go above the 100MA line) and stay above it. Clearly, you can see that there is currently a strong downward direction in the price. SSI and PLC have shown only small bounces or rallies. A reversal isn't coming anytime soon. 

Learn to set your expectations to prevent further heartbreak and capital loss. The same is true for other stocks like MCP, BLOOM and of course, FNI. Don't let anyone tell you that they know a reversal has occurred. Chances are they are just saying that to sound smart. Learn to read and look at the charts. 

As for buy points for the bounces, that is still something that my system needs to determine with a high rate of accuracy.