When I was a young man, and interested in stocks, the accepted theory at the time was that the Stock Market was a random walk, and so there was no way to predict it’s movement or the movement of the stocks traded therein. I didn’t believe it at the time and later was lucky enough to learn how to pick stocks that outperformed the general market as a whole.
I used to go to the old line brokerage company, W.E. Hutton, at 4th and Walnut Sts. in Cincinnati, and watch the traders. On one wall of the office, there was a large (probably 20 feet long and 18 inches high) moving, celluloid tape that reported all trades- as they were happening- on the floor of the New York Stock Exchange (NYSE).
On the wall surrounding the tape, on each side and below it, were a great number of stock symbols, including the 30 stocks that made up the Dow Jones Industrial Average and various regional and local Cincinnati stocks, with their latest price and volume figures.
Joseph Cotton
On the chairs in front of and below the tape, were a 7-10 regulars, mostly old men that watched the tape all day long, and traded from time to time. I later learned that some of them were successful “tape readers”, an elite group of traders that could tell whether a stock was going to go up or down merely by watching the trading in a particular stock. “Fascinating,” I thought. Later, after many hours of watching that same tape, I came to understand how it was done.
Some of the biggest and most successful traders in Cincinnati, like Jimmy Stone, and Lloyd I. Miller, were clients of that office and Miller was a tape reader, and in his office on 4th street, at American Controlled Industries, he had a monitor that showed NYSE trades as they occurred. W.E. Hutton had a weekly (or perhaps daily) conference call from a man by the name of Lucien Hooper, and all brokers and managers were required to listen in.
A young broker I became friendly with, Robert W. Slemmer, took me under his wing and, for some unknown reason, let me in on what he could do with regard to using Technical Analysis ( studying a stock’s chart ) to predict the direction of the Dow Jones Industrial Average, as well as that of individual stocks. That was a big deal, and he coached me to show me how he did it, thank the lord.
Robert Slemmer had interned with Lucien Hooper at Hutton’s New York office. It wasn’t until a few years ago that I found out that Lucien Hooper was considered to be the acknowledged master of technical analysis and the finest market technician in the country. It was then that I realized how Robert Slemmer had acquired his arcane knowledge. You can bet that no one that has this knowledge will ever let you know they possess it…(and many people do in fact possess it)… nor will they show you how to use it. It’s like the Masonic handshake.
There are a few basic rules that I try to follow when investing in stocks:
1) I never buy a stock without looking at the chart. Unless you look at a company’s stock chart, you can’t tell whether you are buying at a low, medium, or high historic price.
2) I try to buy stocks that are trading at reasonable prices, and that are preferably trading at close to low historic prices.
3) I try to only buy stocks that are recently recommended by reputable, national brokerage houses like – Bank of America, Citibank, Goldman Sachs, Cowen & Co., Ramond James, etc. Because, if they are recommending a stock, then a lot of the downside risk should be reduced….a) because the brokerage houses have lots of smart analysts who pore over the companies’ quarterly reports and visit with management before making a Buy or Outperform Rating, and b) because the brokerage house recommendation itself, will create a buying demand in the stock that should help it to go higher.
4.) After I do my own due diligence for the company, I check to see whether the Insiders (Management & Large 10% Shareholders) are buying the stock.
If the stock is selling at an historic low price, and Insiders are buying, then that combination of factors often can result in a rapid increase in the stock’s price, even so much that the stock doubles within 30 days. Most people will tell you it’s impossible to pick stocks that double in 30 days, more than once. Au Contraire.
The stock here, Key Energy Services (Symbol KEG) is a perfect example of the combination mentioned.
I looked at the chart after it was reported that Insiders bought $650,000 of the company’s stock at $2.07 per share during the week ended March 1, 2019. The chart showed that it was selling at a fraction of its price of $17.50 in July, 2018, and that it had just broken out of a Bottom Triangle Formation on the upside with big volume. It had closed at $2.68 on Friday, March 1, and I gave it a BUY Rating on Monday, March 4th (marked with a red asterisk). As you can see, the stock more than doubled in price within 2 weeks.
The two sources I use to find out what the insiders are buying are Barron’s and www.insidermonitor.com.
NKY’s Joseph W. Cotton is publisher of the market newsletter, Cotton’s Technically Speaking. He is a graduate of Xavier University, a former bank manager and credit analyst, and a registered investment representative. Contact him at cottonstocks@hotmail.com
