Watch These Two Indicators to Find Good Stocks to Buy

There’s a perception amongst beginner traders that you have to find the next groundbreaking, cutting edge company to make money in the market.

Not true.

In today’s Money Morning I’ll show you why.

Let’s take look at AMA Group Ltd [ASX:AMA]. This company focuses on the automotive aftercare market.

In essence, AMA Group is a panel repair shop business.

Not exactly Google, is it?

Here’s why I want to get your attention about this….

We trade the charts, not the story

So just what is the chart telling us? Here’s how AMA Group looks on the monthly.

AMA Group Monthly Chart

Source: STEX

Click to enlarge

If you bought the stock around 43 cents early this year, you could have potentially realised 123% gains from this company.

So how are you able to pick up stocks like AMA Group early, before they run?

Do I spend hours poring over the company reports? Or have some special talent for unearthing overlooked stocks? I wish I could make claim to. But it’s not the case.

AMA Group came onto my watch list automatically, because of an indicator we use at Cycles, Trends and Forecasts. You don’t need to pore over company reports, or spend hours doing the analysis to unearth good stocks. Just look for stocks going into 52 week highs.

Take a look at the chart from February this year.

The company broke into prices it had not seen since 2008. This was the market telling you that this company was growing revenues.

It had to be, or what was driving the share price higher?

This is simple basic chart reading really.

Here’s your takeaway. The chart will move before the wider public becomes aware of why.

So when the full year results were announced at the end of August, you didn’t to be Warren Buffett to know good news was coming. The chart had already run higher. All that was left was to find out the reason why.

The AMA directors announced revenue was up 49% and net profit after tax up 60.8%.

As a trader, you could’ve had an inkling of those results back in February by watching the chart.

Learn in hindsight, trade in real time

I know it is so, so easy to say all this in hindsight. But this is how you learn about markets.

And then you take what you have learnt in hindsight and apply it to real time.

AMA Group is not cutting edge. It’s only a panel repair shop business. But the company is building a strong relationship with major insurers, creating more work opportunities and growing its revenues. That sounds like a business you want to own!

Here’s what I want to leave you with today.

If you’re around the market long enough, you’ll know different sectors get hyped at any one time.

I’ve seen it in rare earths, uranium, tech and gold stocks.

Don’t trade stories. The history of the market is littered with liars and crooked types who hype stocks so they can cash out before the proverbial hits the fan.

The charts protect you from the very worst elements in the market.

Before you let stories about the next hot sector sway you, bring up the chart of the stocks.

Are they rising or falling? How does the stock price react to public announcements from the company?

So for example, if someone is talking about the hottest new mineral of 2016 and those stocks aren’t breaking highs, then you can assume your money is probably better off in a stronger sector of the market.

If the stocks are breaking lower, then you will know to keep your capital safe. Don’t tie up your money in stocks going down. They’re absolutely destructive to you as an investor or trader.

Watch the charts, and look for stocks breaking into 52 week highs.


Terence Duffy,

Lead Researcher, Cycles Trends & Forecasts

From the Port Phillip Publishing Library

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Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia