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Investing at the End of a Bear Market

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Choosing the right Stock is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. Click here to know more

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Investing at the End of a Bear Market By Scott Cole

At this point in time, many traders and investors have no desire to be in the stock market after 40-50% losses in the major averages in just a year, and 70-100% losses in many individual stocks. However, as the market has tried to find its bottom, now is the time to scour the market for the next big winners. How can you identify these potential big winners? Well, the first good sign is a stock that has actually been rising while the market has been heading lower. The list of these stocks is actually pretty small. You can find a list of stocks making new 52 week highs or with high Relative Strength ratings in Investors Business Daily or in the Wall Street Journal. Personally, I use the TC2000 software produced by Worden Brothers. Once you have found a list of stocks that have been outperforming the stock market, it is time do dig a little deeper. One method of identifying potential big winners is the CANSLIM method outlined in his book "How to Make Money in Stocks" by William O'Neil, founder of Investors Business Daily. This book is an excellent read and a great source for learning how to invest and trade individual stocks. However, it is not a mechanical method for trading and requires some knowledge about a company's business, management and products. I prefer a method more similar to that discussed in Nicholas Darvas' classic book, "How I Made $2 Million In The Stock Market." This methodology identifies the stocks that have been rising the fastest on good volume, and then, using his Box method, determines a point of entry. Exiting the trade is a little more subjective as far as the initial stop loss is concerned, and using the pyramiding boxes as trailing stops can leave a lot of money on the table when the stock's trend is over. However, there are many different styles of investing and trading, and one would do well to conduct significant research into the Darvas method and the CANSLIM method. I also recommend the work of Gary Smith, author of "How I Trade For A Living" and "Live The Dream By Profitably Daytrading Stock Index Futures." Now is the time to start looking hard at the stock market for the next group of big winners. They may not appear for a few months, but the easiest and fastest money made in the stock market is in the first couple years of a bull market. Furthermore, even if the next big rally turns out to just be an intermediate term rally within the context of a larger bear market, there will be a few stocks worthy of
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trading to catch that ride up. Do your homework, and your portfolio will benefit handsomely in the years to come!

Scott Cole is a real estate professional and stock and futures market trader and analyst.  In the 1990's he worked for two Commodity Trading Advisors and a hedge fund as an analyst and execution trader.  He continues to develop models and strategies for trading stocks and futures. He is the owner of several trading related websites, including http://www.kungfutrader.com and http://www.theultimatestocktradingsystem.com

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Aging Demographics – The Other Super Secular Trend By Henry To, CFA

Aging Demographics – The Other Super Secular Trend by Henry To, CFA

The Dow Theorists (and yours truly) have always emphasized that the most profitable way to invest in the stock market for the average American is to invest in harmony with the primary trend. In Dow Theory terms, this would mean investing in a period of severe undervaluation and holding on to your stocks (or dollar cost-average into your portfolio) until the end of the bull market – such as September 1999 when the Dow Theory bear market signal was given -- and then stay out until the primary bear market has fully asserted itself. I myself sold all my stocks in January 2000, and since then, I have maintained that we are still in a secular bear market, despite the fact that I am still bullish in the intermediate term. When the current bear market bottoms, I believe that we will be seeing new lows in the major stock market indices -- such that stocks will be attractive from a valuation standpoint once again. Dear readers, this particular commentary will be a little bit different. In the previous paragraph, I discussed the importance of recognizing and investing in harmony with the primary trend. Easy to say, difficult to do. Secular bull markets are notorious for shaking the average investor out, and conversely secular bear markets are notorious for keeping the average investor in (such as the market we are experiencing now) – that is, keeping them in until it has parted them with their money. Another secular trend that is or will not be difficult to recognize, however, is the super, secular trend of aging demographics around the world. We have all heard it from the media, but how deep and pervasive is the “problem,” really? A good knowledge of this trend is very important. I will also use this forum to discuss the possible implications as well as other trends that I see happening in the future. I may well be wrong, but I definitely do not want to get caught off-guarded. To see the entire article, please go to: http://www.marketthoughts.com/z20040624.html

Henry To, CFA is the managing member of Independence Partners, LP, a SEC registered hedge fund. He is also editor of the investment website, www.marketthoughts.com.

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