Ever since the stock market crash of ’29 (or maybe it just seems that long), I have been waging war with the stock market.

It’s a losing game. The market is ruthless and takes no prisoners.

The school of hard knocks has since taught me that a stock can be your friend if you treat her right. If you treat a stock like a friend, she will return that friendship.

If not, send roses.

On the other hand, if you get mad at these sensitive creatures known as stocks, they will sucker- punch you, and it ain’t fun playing this game punch drunk.

It’s the relationship between the trader and the stock that separates the winners from the losers. That rapport must be purely platonic, not a steamy love affair.

If you fall head over heels in love with a stock, your heart may cause your brain to fog over and you will lose your way. Which is to say, you will chase her when she seduces you.

Stock-chasing gets you in the Stock Market Hall of Shame. It may also get you a margin call.

If you’re patient, the stock will almost always show common courtesy by coming back to you and offering you a reasonable entry point for the next ride.

Check out the charts of some stocks that have recently enjoyed massive rallies and you’ll see that none of them spiked in a straight line for an entire day. Often, they will dip substantially on the breakout day on profit taking, often by as much as 50 per cent or more.

Hence, those traders who have the discipline to stay on the sidelines during the euphoria and take a position when the stock goes on sale are the ones who usually prosper.

The risk of stock-chasing is even greater if you’re playing a sexy tech stock in a hot sector.

A small Canadian company named Spectrum Signal Processing (SSY-TSX) recently staged a miraculous two-minute sprint out of the gate after the opening bell, surging to $8 for an instant 200-per-cent gain.

This extraordinary run was fuelled by investors’ short-term love affair with anything that had any connection to the defence sector and U.S. homeland security. Shares in Burnaby-based Spectrum Signal went berserk on news of a measly $1.2-million US contract with a defence contractor for its technology.

Those mad stock- chasers who got caught up in the allure of this market flame took a shameful beating, earning a hard lesson as the stock tumbled 55 per cent within three days of its massive spike.

Because Spectrum’s run was spurred more by emotion than fundamentals, the selloff was particularly excruciating to those who bought it in the stratosphere. The stock’s three-day collapse resulted in a loss in the 70-per-cent range from its price prior to the issuing of the news of the contract.

Generally, the pullback in a hot stock isn’t nearly as drastic as was the case with Spectrum Signal.

A more typical pullback would be in the 50-per-cent range. Pet Valu Canada (PVC-TSX) recently exhibited a typical form chart for a surging stock. When the company released surprisingly robust financials, the stock quickly surged from $1.75 to $2.75.

Yet, if you trusted Pet Valu like a true friend, the shares played right into your hands, pulling back to $1.88 on the first day of the rally before resuming its upward swing late in the day. The stock hit $3 the next day, a whopping 65-per-cent winner for those who didn’t get sucked into the initial blast off.

With a disciplined mental game plan, the stock market can be a friendly environment.

Just remember one thing.

Stocks are only human.

PENNIES FROM HEAVEN: As we take stock with a quarterly update, another stock in the Edge’s Dirty Dozen Penny Stock Index, Imaging Dynamics (IDL-TSXV) has broken over $1, becoming the eighth stock of the original 12 to vault the dollar barrier.

Shares in the Calgary firm are up 337 per cent since the Dirty Dozen launched 15 months ago. Overall, the index has trounced the other North American indices with a 56-per-cent return.

We’re replacing Imaging Dynamics with Innexus Biotechnology (IXS-TSXV) at 59 cents. Rounding out the current Dirty Dozen are: Versatile Mobile Systems (VMS-TSXV) +228 per cent (entry price .09); DataWave (DTV-TSXV), -20 per cent (from .15); International Utility Structures (IUS-TSX), -69 per cent (from .46); Mainframe International (MFE-TSX), -24 per cent (from .35); Maxim Power (MXG-TSXV) +54 per cent (from .25); Twin Mining (TWG-TSX) +9 per cent (from .33); Thistle Mining (THT-TSX) -51 per cent (from .60); X-Cal Resources (XCL-TSX) +127 per cent (from .33); Option (OPN-TSXV) +11 per cent (from .11); Excellon Resources (EXN-TSXV) +31 per cent (from .175); and Caledonia Mining (CAL-TSXV) -18 per cent (from .40).

SAGE WORDS: “What can look appealing can equate to jumping into the cloak of the Grim Reaper. Always giddy during periods of excessive speculation, at the final count they (stock chasers) are the fodder that feeds those who conduct themselves professionally.”

– Pro trader Robert Drach



HOT ALBERTA STOCK: NORTHWAY EXPLORATIONS
NOW-TSX $2.10
Up 90 cents (+75.0%) on 689,600 shares (for week ending April 23).
Hey, Northway, the suspense is killing the gold bugs. Say something. Anything. Nothing, not even mining stocks, spike 75 per cent for nothing on escalating volume. Judging by the lack of news, may we suggest the gold bugs hold off on that champagne celebration until the company breaks its silence?



COLD ALBERTA STOCK: SIERRA WIRELESS
SW-TSX $39.01
Down $17.49 (-30.9%) on 3,862,500 shares (for week ending April 23).
Is that a bit of a bubble we sense in the wireless sector? Burnaby-based Sierra said it earned $4.6 million or 18 cents per share in the first quarter (through March 31), up from $361,000 and two cents per share in the year-ago period. The robust pre-earnings runup had sucker rally written over it.