11/21/2014

Using momentum pause for anticipation



PAYX is one of the stocks I am watching for breakout anticipation currently. The stock has a momentum pause.

When stocks establish momentum, they do not keep going straight. They go up for few weeks or days and then there is momentum pause as buying pressure decreases. When this happens the stock spends time consolidating.

These kind of setups are trend continuation or momentum continuation setups. The momentum reasserts itself and you often get next up leg.

It is easy to identify these kind of setups and anticipate a breakout on them. Once you setup a process flow to identify them, you can daily find 5 to 10 candidates like these. to find them you just need to focus on stocks with established momentum

11/20/2014

What I look for in a short setup


NFLX is a short I initiated yesterday. I was watching it for couple of weeks for possible short entry.

NFLX was a market leader for last few years. Recently it missed earnings. That lead to a big volume drop . Which was followed by dead cat bounce on low volume. Yesterday that bounce attempt failed with range expansion on high volume.


Once a stock misses earnings after a big rally and a history of good earnings surprise previously, stocks tend to move in direction of the initial earnings reaction. On short side this effect gets delayed as bargain hunters buy on weakness.

It is too early to say whether the trade will work but these kind of failure setup after long rally have good risk reward potential.

In order to find them I look for stocks that had long periods in uptrend and that have recently dropped in momentum. (The momentum is calculated using 65 days Trend Intensity). Once the momentum shifts you have to find good shorting point.

A similar setup I am watching currently is SKX. After a multi month rally it recently had big volume drops followed by dead cat bounce. I have it on my short watchlist.



11/19/2014

What I look for in a good IPO setup



Market action is dominated by 8 to 20% moves on 3 to 5 days timeframe. These are momentum burst or impulse kind moves where in a very short period of time stocks make a explosive move of few days. This same phenomenon also works on IPO.

To find opportunities like BOOT , I look for an IPO having a range expansion. The range expansion scan gives stocks that had bigger move than last few days of move. Along with range expansion I like to see a volume surge.

In ideal situation stock should close near high on breakout day. A stock that breaks out and say makes 1 dollar move on breakout day but intraday gave 50 cents of that move, is not something that I like to enter. If it pulls back say 25 cents after making high it is acceptable.

As you can see in BOOT prior to breakout day it was a negative day with stock down -.17%. I like to select stocks that had negative day prior to breakout day or a stock that is up less than 1%. I also avoid stocks that are up 3 days in a row prior to breakout. This ensures that the entry is at start of a swing move.

These kind of trades are typically of 8 to 40% magnitude and that move happens in 3 to 5 days time. To exit them I look for a price target of around 8 to 12%. If it is low priced stock then it can make even 20 to 40% move in 3 to 5 days as they tend to be more explosive. As far as possible I exit in t0 strength.

As we are entering the start of a momentum burst a tight stop can be used on these trades . If the trade violates the breakout day low the momentum is over and it is not worth holding it . So stop goes in at low of the entry day.

The market offers hundreds of such trading opportunities. Not every trade works like a charm like BOOT, but as long as half of them work and we keep losses small on one that do not work, it is ok. H

To find such trade daily on IPO you need to track IPO with less than one year trading history. Once you have that watchlist you can use a range expansion scan to find opportunities. If you set this up you can regularly generate your own trade candidates on your own. 

11/18/2014

Loss of momentum


The market was over heated and in recent days there is some loss of momentum.

The sectors that were first to breakout out like biotech  and REITS are taking a pause or pulling back. But new sectors are breaking out so usual rotation kind action is happening.

One of the key thing to watch is small caps losing momentum. as a momentum trader small caps offer you best opportunities. when they move they can quickly make 10 to 20% move in days. However in last few days they have been losing momentum. If this trend accelerate then it will be cause for worry.

However based on daily  stocks in uptrend study on stocks using trend intensity,  I see ton of orderly pullbacks and consolidation. many stocks have started to pause after first up leg. These kind of continuation patterns have high probability of resolving to upside. Besides that the Trend Intensity universe is not showing signs of breakdown as of now. That means likely next up leg  for many of these stocks after a pause.


11/14/2014

Stocks up 50% plus in a month above 20 tends to lead to correction



Stocks up 50% plus in a month above 20 tends to lead to correction /pullback in next small time frame. You can see it for yourself in the data. There can be delay of few days or 2 weeks but extremely positive readings on this indicators are short term bearish.

So far we have not seen a pullback or consolidation  but it is just a matter of time. When everyone is convinced this time is different, it tends to happen.

A pullback or consolidation will not likely be end of rally as the underlying setups are good. Lot of sideways action after first burst on many stocks. Plus dip buyers will ensure that it is shallow pullback.

11/12/2014

To find big winner look at stocks that have doubled recently

There are around 7000 stocks in the market . If you are looking for a stock likely to double look for a stock that has already doubled recently from its 52 week low.

When a stock doubles from its low , in many cases  (but not all) there is a significant catalyst for such powerful move. That catalyst can remain valid for many months or at times years. If the move has such identifiable catalyst then those are the stock you can focus on for next part of the big move. Every stock that makes a 1000% move first has to  double.

If you use this kind of approach you narrow down the universe of stock to focus on to a small number of around 200 stocks in the market. That makes task of researching them easier. Within the 200 stocks many will have already made there big moves so they get eliminated. The one that recently doubled for the first time are the one worth focusing on.

You can set this up pretty easily in Telchart by using the scan:

 c/minl252>=2 and minv3.1>=100000

Once you get scan candidate you need to further research them to find the 5 to 6 good candidates with big catalyst.