Rising Star Stocks
The Rising Star Stock Program is based on technical analysis that is termed “Directional Investing”. This method attempts to identify when a stock is trending up, down or is trendless. By monitoring a basket of potential purchase candidates we are able to gauge the health and likely direction of the stock market in general. When a large percentage of the basket of potential candidates for purchase are on a “Sell” signal, the market may be nearing an intermediate term market bottom. Waiting for the purchase candidates to turn the corner and reverse their direction allows an investor to be a buyer of stocks when the trend moves higher.
While a large percentage of stocks on the “Sell” side may indicate a market bottom the opposite is also true. When the percentage of stocks on the “Buy” side reaches extremes the market may be ready to change direction and fall into an intermediate term correction. By monitoring the basket of purchase candidates we are able to raise cash as stocks move from buy to sell.
In building a portfolio we will consider adding a stock position if a stock is moving from “Sell” to “Buy”. When the portfolio becomes fully invested and one of the stocks in the portfolio reverses direction and generates a “Sell”, that position will be sold. However, a new stock will only be added if a stock generates a new “Buy” signal. In this manner as the market rolls over from an uptrend to a downtrend we do not stay fully invested. During the bear market of 2008, 100% of the potential stock candidates were on a “Sell” signal during October, thus allowing the model to remain in cash waiting for the direction to change.
This method of investing does create activity in an account and it is anticipated that positions may be bought and sold three to four times during the year. The frequency of trading opportunities will depend on the general market conditions in any given year. Choppy directionless markets will create more trading opportunities than trending markets. The average holding period for a position is not likely to be longer than a year and is more likely to be in the range of 60 days or less. Inverse ETFs may be used to hedge existing long positions when appropriate.
As we move forward there is certain to be bull and bear market periods. The goal of the Rising Star Stock Program is to avoid the significant bear market declines that devastate portfolio values, but still force a portfolio to buy when the opportunities present themselves.