Commentary of the Week – The Bottom Fishing Pattern

Everyone loves to get a good deal and we tend to be attracted to things that are on sale. In the stock market, this means buying
stocks that have been going down dramatically recently. However, a stock is only a good deal if it is more likely to go higher in the
future. Stocks that are in downward trends can continue lower for a very long time and buying them while they are in their
downward trend is like trying to catch a falling knife. It can hurt.

There is a pattern that is pretty reliable for predicting when a weak stock has bottomed and is likely to move higher. I call it a
Bottom Fishing pattern and it has three stages.

First, the stock has to break the downward trend. To determine if it has, draw a line across the tops on the chart. If the price action
is moving up through the line, it has broken its downward trend line.

Second, there has to be the formation of a rising bottom on the chart. This means that the last pull back in price did not hit new lows
in the downward trend. Instead, it bottomed at a low point that was higher than the previous low.

Finally, the stock is breaking up from the rising bottom.

Usually, these things happen in the order I have described them but it is also possible that they all happen simultaneously. This
means that the stock could move up in price from a rising bottom and also break the downward trend line – all in one step.

It is important to understand why this is a reliable pattern. A downward trend shows that the sellers are more motivated than the
buyers. A break of the downward trend line is a sign that the buyers are finally motivated to buy the stock aggressively, something
that typically happens when they believe that the fundamentals of the business are worth more than what the stock is trading at.

A rising bottom is a sign of optimism. The last time the stock was weak and the sellers were able to push prices down, the stock
bottomed out a low price that was higher than the previous low. This means that the sellers are not as motivated as they were in
the past, making the formation of the rising bottom.

The pattern demonstrates a change in investor psychology with a shift from fear and panic to optimism. Price gets so low that the
buyers are motivated to act and the sellers are not. Fundamentals may be improving, giving the buyers another reason to act.

This week’s feature stocks utilize this pattern so check out the charts below to see if you can spot the three components of the
Bottom Fishing pattern.

Cannabis stocks are showing strength this morning as some stocks in the group make another attempt at reversing the extreme
weakness that they have suffered from this year. I ran the Morning Movers Market Scan and found a couple of charts that look
good for bottom fishing opportunities.

1. T.WEED
T.WEED (CGC) is the stock leading the group after announcing a new CEO who comes over from the executive group of majority
shareholder Constellation Brands. I think this move gives the group legitimacy and is what is driving the stock's break of its
downward trend from a rising bottom. Dual listed, support on the Canadian listing is at $23 and on the US listing it is at $17.50.
2. T.APHA
T.APHA (APHA) has a very similar pattern to T.WEED but not quite as clean. It is breaking its downward trend line from a rising
bottom as well and has support at $6 on the TSX listing and $4.60 on the NYSE listing.
Stockscores Market Minutes – When is Buying Overbought Stocks OK?

An overbought stock is one that has gone up significantly in a short time, taking it away from its trend line of support. Most of the
time, buying these stocks is a bad idea because they eventually pull back. However, sometimes they are worth considering and this
week, I show you when. Of course, I also show my weekly market analysis and consider whether there is more of a stock market
correction coming or if higher prices are ahead. I have a couple of trades to consider plus the trade of the week on LABU.

https://youtu.be/XdDIXmQ7HnU

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Commentary of the Week – Wait for Great Trades

Traders, particularly those who need to make money rather than those who would like to make money, tend to have a fear of
missing out. They hear about a trading idea or find an opportunity with their own effort and make the trade with less thought than
they might put into buying a microwave. They can invest thousands of dollars on an impulse, much like the drunken gambler who
throws down $1000 on Five Red.

One reason for this sort of reckless approach to trading is the belief that trading ideas are like gifts. They only come along from time
to time and you should feel grateful for the opportunity. If you spend 10 hours researching a company or receive the occasional bit
of insight from someone who should know more than the rest of us, it's easy to understand why you wouldn't want to let a
seemingly promising trade slip through your fingers. The problem is that this gratitude for trading ideas leads you to lower your
standards and place trades that are not much more than a gamble.

Have you ever made a trade and then, just a few minutes or days later, asked yourself what the heck you were thinking? If you are
normal, then it's likely that you have because it is easy to focus on the dream of making a profit. You should focus your attention on
the trading situation as it has been presented to you by the market rather than the words of an expert. Some trading opportunities
are so well marketed that it's hard to see the truth because you fixate on the profit potential that has been dangled before you as
the prize.

It is critical to only take trades that meet the criteria of a strategy that you have found to have a positive expected value. Rather
than look for a reason to take the trade, which is easy, look for a reason not to. Ask yourself, "If I buy this stock, who will be selling
to me, and what does she know that I don't know?" Looking at the other side of the argument will often highlight considerations that
you have missed.

Being fussy is a lot easier when you recognize that the market-even a slow market-will give you opportunities. The markets have
been pretty quiet this year but there are still stocks outperforming the market every day.

And if you can't find a trade today, tomorrow or in the next week, eventually you will. There is always another bus coming down the
road. If you miss one, just wait for the next.

I have found that you will actually make more money by trading less. If you maintain a very high standard for what trades you make,
you will always pass on some trades that end up doing very well. By being selective, however, you will also avoid many marginal
trades that would tie up your capital and then incur a loss. By being fussy and trading less, you end up taking only the very best
trades and your results will be better overall.

It is easy to be fussy when the market is strong and there are lots of opportunities. It's like fishing when every time you cast your
line you get a bite. With that kind of success, you will quickly throw back any fish that is too small because you know there's going
to be something better coming along soon. You only take the best of the best.

When the fish stop biting and you spend hours with no bounty, you take the first fish that grabs your hook. It could be a tiny fish that
you would never keep on even an average day, but with your desire to catch something, you keep it anyway. It would be better to
have just not gone fishing at all.
You'll do the same thing when trading a slow market. Eager to make a profit, you will take trades that show some potential even if
they don't meet all of your requirements. You will work hard to uncover a trade rather than wait for the obvious no-brainer trades
that you take when the market is in a giving mood.

I like to say that in trading, when the going gets tough, the tough get lazy. You can't control the market, so if the market is not giving
you opportunities, it's better to do nothing. Your hard work will not change what the market does.

This is hard for many people who have been programmed to relate hard work to success. If you try harder than the next person in a
sport, you should get a better result. If you study harder for an exam, you should get a better mark. If you work longer hours at your
job, you should make more money. In the stock market, if you work harder to find good trades, you will probably lose money.

The best trades are easy to find. Working hard to uncover something leads you to find questionable trades that you have to talk
yourself into. It's better to walk away when you have doubts.

This is not to say that hard work is not rewarded in trading. Traders who work hard at practicing their analytical skills or developing
new strategies will be rewarded. People who devote their time and effort to improving their emotional control will be better traders.
These are things that you can control and affect with hard work, but hard work won't change what the stock market does.

Back To Top

In the final hour of each trading day, I run a process on Tradestation that looks for Stockscores Action Candles. These are stocks
that are making abnormal price moves with abnormal volume. I then assess their charts and provide a rating out of 10 for the
subscribers to my Active Live service. Here are 5 stocks that I found today, along with their ratings:

1. TRVN
7/10

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2. WHLR
7/10

3. DTEA
7/10
4. JMEI
6/10

5. AWSM
7/10