From Hao Sun, at Trade with Precision:
When trading stocks, we are not limited to trade only those from our country of residence; CMC Markets clients have access to over 19 country’s stock markets with more than 5000 stocks to trade from the Next Generation platform. This gives us the ability to widen our vision to encompass the global stock markets to look for the best stock trading opportunities. But, how are we supposed to find the right opportunities out of the vast pool of stocks?
My method for stock selection is called the Top-Down approach. Firstly, I confirm the global market force. Secondly, I identify the strongest/weakest local market. Thirdly, I select the strongest/weakest stocks from the local market for further analysis. Lastly, I time the entry of a possible trade. Let’s go into more details of each step.
To confirm the global market force, I look at the US stock markets as this is the world’s largest economy. The US stock market is seen by many as the btarometer of global economic health. There are three major indices in the states: US30, SPX500 and Nasdaq 100. If all of them are trending in the same direction then other major stock markets around the world are likely to follow suit. Referring to the charts below, it is evident from these weekly charts of the three major US indices that they are trending up with US30 and SPX500 both at all-time highs. The definition of an uptrend is when price makes higher highs and higher lows, as you can see this is currently the case. It can be said that the current global market force is bullish.
To identify the strongest/weakest local markets, I mainly focus on the major indices around the world (excluding the three major US markets) they are UK100, Germany 30, France 40, Hong Kong 43, Japan 225 and Australia 200. After comparing these weekly charts, I can tell that the Germany 30 stands out of the bunch. Why? Well the US30, SPX500, Nasdaq 100 and Japan 225 are currently finding support at a major level. The UK100 and Hong Kong 43 hasn’t broken out of the major resistance yet and the France 40 and Australia 200 are stuck in a big trading range without any real direction.
The Germany 30 however, has broken out of the 2014 trading range with a firm close at the high of the week which is a resumption of the longer term weekly uptrend. On top of that, the 10,000 psychological level has now been cleared.
I choose to select the strongest/weakest stocks from the local market. There are 30 components of the Germany 30 index and I am looking for the ones behaving stronger than, or, as strong as the index. In my opinion, the following stocks are performing stronger than the index; they are Deutsche Telekom, Fresenius KGaA and Henkel AG & Co. The Germany 30 index has just broken out of the weekly range last week. Fresenius KGaA has been in an uptrend for a number of months making new highs quite frequently without showing any sign of slowing down. Deutsche Telekom and Henkel AG & Co both have broken out of their ranges in November 2014 and have tested the breakout level in December 2014 which has already confirmed the bullishness of both stocks.
The last step is timing the entry of these stocks as I look to place a trade. I am looking for multiple technical factors for a high probability low risk entry. For this I use a strategy. For further information about the two trading strategies I use, please join us for the clients’ only premium trading course which runs bi-monthly for all the details.