STRATEGIES

After 30+ years in the financial markets, MoneyShow’s Tom Aspray has learned a thing or two about how to stack the odds in your favor and he shares them to help you achieve a profitable year.

The financial media is full of analysts’ lists of what will be the best stocks or ETFs for the year. Some have inquired why I don’t publish a list each year.

At the start of a bull market you will often find a number of stocks that have completed basing patterns that span a year or longer, which when completed makes them strong candidates to move higher over the next year or more.

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In 2009, Neflix Inc. (NFLX) was such a stock as it had been trading between the 2004 high at $39.77 and the 2004 low of $9.25. The monthly chart shows  a broad trading range, lines a and b, with key resistance at $40.90, which was the April 2008 high.

The relative performance broke through its resistance, line c, at the end of December 2008 as NFLX closed above its 20-month EMA. The following month, the OBV moved above its WMA (line 1) and NFLX completed its bottom formation at the end of March 2009 as it closed at $42.92.

The on-balance volume (OBV) did not break through its resistance until the end of January 2010 as NFLX gained over 84% in 2009. By the time it peaked in July 2011, NFLX had reached a high of $304.79.

When a market has been rising for almost four years it is much more difficult to find stocks with long-term bases. Even though I do concentrate on monthly and weekly charts, they generally spot trends that last four-six months, but not always a whole year.

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Given the volatility of the stock market in the past two years, market picking a list of stocks to hold for the entire year is a waste of time as very few stocks stay in sustained up trends for an entire year.

This chart of the Spyder Trust (SPY) shows the various swings that occurred in 2012. From the beginning of the year, the SPY rose 11.5% to the April 2 high before dropping 11.2% into the June lows as the SPY came all the way back to just a 0.3% gain for the year.

By September 14, SPY was back up over 16% for the year as it had gained 15.8% from the June lows. In just two months, the SPY had lost 9.8% with SPY finishing the year with an 11.7% gain.

From a risk management standpoint, giving up over a 10% gain is a bad habit to develop if you want to make money over the long haul. I feel that these lists can often encourage investors to make some of the classic investing or trading mistakes, which drastically reduces their chances of success. In this article I will propose five rules that if followed in 2013 will increase your chances for a profitable year.

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Caterpillar Inc. (CAT) was one of  the 10 Best Stocks for 2012 that was featured on CNNMoney. Most of the lists come from fundamental analysts who make their recommendations based on their estimate of the company’s earnings or other fundamental factors that they expect will drive the stock price higher for the whole year.

NEXT PAGE: Don’t Chase Markets

Tickers Mentioned: NFLX, SPY, CAT, UTX, SLB