Avoid Stocks Hitting
By Saghir Aslam
Rawalpindi, Pakistan

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities

People love a bargain and so do I. As a matter of fact, I am a big sucker for them. Be it in apparel or food items, I love a bargain. But I have disciplined myself not to apply the same for the stock market, as it does not work. In the stock market, buying cheap-looking merchandise often fetches less than you paid.

A new share-price low flashes one of the clearest signs of danger. The company has fallen to a new low point in the eyes of the market. Chances are, something is seriously wrong. Such stocks usually head lower.

Each day, newspapers and Web sites whet our appetite for such dubious bargains by displaying the 52-week low for thousands of stocks. Why bother with such junky merchandise?

If a stock sinks to a 52-week low, that often marks the start of further declines. And stock market downtrends-like bad habits-are hard to break.

When it comes to share-price behavior, hunt for stocks moving toward new highs that boost high Relative Price Strength Ratings.

Time your buys as target stocks emerge from sound price bases. Be ready to sell if a stock falls more than 7% to 8% below your purchase price. Avoid stocks in downtrends, evidenced by low RS scores. For your stop losses you need to use your own judgment for each company. For example, the percentage of drop will be higher for internet stocks and lower for blue chips and different for small caps. Each stock is on its own merit.

Let me share with you really old historical example several years ago 1997. Read below the story and decline of Reebok International shares. This should be very good learning experience for all of us and there are some other examples.

Reebok International shares demonstrate how chasing a stock making new lows can leave you in the dust. On Dec. 5, 1997, the athletic show maker’s stock sank on heavy volume to a 52-week low of 33 7/8.

As is often the case, a new price low often precedes bad news. Later in December, Reebok management warned of earnings trouble. When the company finally reported the October-December quarter, its per-share earnings shrank 9% from year-ago levels. That marked Reebok’s first profit decline in four quarters. (To be continued)

(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)

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Editor: Akhtar M. Faruqui
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