How to trade earnings Part 2

A variation of the earnings trade is also an useful addition to your trading arsenal. There are a handful of companies which have at any given time very high sales growth. They may or may not have earnings. This happens in biotech, pharma and high technology field. In these kind of companies the sales acceleration acts as a catalyst, kicking off multi month rallies post earnings.

So in addition to 100% plus earnings , I track companies which had a 100% plus sales/revenue growth and recent quarter sales/revenue are above 10 million. Now some of these might have good earnings growth, but the hyper sales growth alone acts as a catalyst in such cases. Now if these companies had no rally prior to the earnings season and show sudden revenue acceleration, you will notice they immediately jump. Again the rallies in such companies last for few quarters or years.

The biggest winners in a year typically come from such hyper growth companies.


Related posts :
How to trade earnings
Earnings Season- Time to be very careful...
Earnings and Dan Zanger
Earning Surprise System for $1495
Trading Earnings Breakouts
Earnings Acceleration- Long Term Impact
Trading Earnings Breakout -Part1
Trading Earnings Breakouts -Part2
Trading Earnings Breakouts -Part3

How to trade earnings

The earning season is fast approaching. Earning season offers some of the best opportunities for profitable trading. PEAD or post earnings announcement drift is a well studied and proven market anomaly. Stocks which have significant earnings surprise or acceleration, breakout post earnings and rally for next 3-6 months as market reacts to this new earnings power. Sometimes these rallies last years.

So if you are looking for a profitable strategy to trade, you might be interested in putting together a working plan for next earning season.

• Earnings Data Sources: You need a reliable source for earnings. I use the Investors Business Daily and Wall Street Journal for this. Besides these two there are many other sources of earnings. When choosing a source I look at how they adjust earnings for one time events. Overall IBD does a better job on this.
• Three types of earnings announcements: Earnings announcements are made after close, before close and in some rare set of companies during market hours. I concentrate on the earnings announced after market close. They appear in the IBD daily edition under 'Company Earnings Report' section.
• What to look for in earnings: To narrow the set of companies to track and trade for this strategy, based on my prior experience, I only track companies whose earnings are up 100% or more quarter over quarter and the earnings should be at least 5 cents. Sales/revenue should be up 5% or more. Doubling of earnings is significant. Few companies meet that criteria. So I put all the stock meeting this criteria in a list. Now what one is looking for is earnings acceleration. IBD will have those stocks with up arrow to indicate earnings acceleration. Besides that I look for price action on that stock by looking at how much they are up in last 65 days or so. I am looking for stocks which have not rallied in anticipation of earnings. Even better is stock which has no analyst coverage and is neglected. Stocks with less than 100% plus earnings also breakout, but to prioritize, I only focus on above 100.
  
• Breakout: An earnings surprise on stock which has not rallied significantly will lead to breakout next day. Most of the time I will enter in the morning and add to position later if the volume climbs above average volume. Many times such stocks will gap up 5 to 300% on day of earnings and still make further moves of 20 to several hundred percent in next 3 to 12 months. I look to capture such moves. Most of these breakouts will have minor pullback at best and just go up for 2 to 6 weeks before having a reaction. So if you don't enter on the earnings day you will be just a observer.
  
• Stops: I put stops 1 dollar below the gap low if it is gap up or at 2 days low and trail with stop. In these trades I move my stops quickly once it makes 20% move. Objective in such method is to capture several 20% moves.
• Watchlist: I maintain a watch list of stocks which respond with a high breakout on earnings day of 4% plus for next one year. These stocks often have several more breakouts during the year and make multi month or multi year moves. All major movers like NTRI, HANS, TIE, AAPL, ICE, GROW and several others had series of 100% plus earnings growth during their entire rally period. The oil stocks which had a stellar rallies for last couple of years or the steel stocks also had several triple digit earnings.
  
• How many opportunities: Even in bear markets you will find opportunities using this strategy. If you set up your system properly, you should find 20-25 opportunities like this in every earnings season. When market expectations are low, or market has had several months of correction, you will find 50 to 100 opportunities in an earning season.
  

So if you are looking for making gang buster returns in this coming earning season, just get your databases and information sources in place and you will find several opportunities. This is one trade which is easiest to trade as there is clear identifiable catalyst. Plus in a year there are 4 earnings season.

Season of profitable opportunities starts next week. You will be pleasantly surprised by the results you get. Carpe diem.



Related posts :
How to trade earnings Part2
How to trade earnings Part3
Earnings and Bulkowski
Improving odds in earnings breakout

Related posts from last earnings season:
Earnings Season- Time to be very careful...
Earnings and Dan Zanger
Earning Surprise System for $1495
Trading Earnings Breakouts
Earnings Acceleration- Long Term Impact
Trading Earnings Breakout -Part1
Trading Earnings Breakouts -Part2
Trading Earnings Breakouts -Part3

Shorts battle a tricky market

It is currently a difficult environment to trade in. The best long entries were couple of weeks ago when the market looked most vulnerable and the bears were dancing on the street. That was an ideal panic buy set up for quick profit. Now putting on long is tricky.

Even more tricky thing is shorts. Yesterday provided a good lesson in why you need to be very patient to put your shorts. The last two days action had shorts excited. The hypothesis is that this move is fated for failure. That is my hypothesis also, but timing is the issue. So overeager Index shorts were a very good fodder for the last 45 minutes rally. Part of the rally was quarter end effect and large part of it was again panicky shorts getting squeezed. The game always remains the same on the street.

Market Monitor
Total 4% plus bullish breakouts=99
Total 4% plus bearish breakouts=54
65 day bullish/bearish ratio= 727/319
Stocks up 50% or more in a month=7
Stocks up 25% or more in a month=53
Number of stocks with 100% plus move =320
Number of stocks up 200% or more = 64
4% plus signals for 100plus universe=8
4% plus signals for 200plus universe=3


Select stocks which had Episodic Pivot moves today. Unusual price and volume move often kick start a long duration rallies. Identifying the catalyst behind such one day move can help determine the likelihood of the move continuing. Short term momentum often translates in to long term momentum.

Episodic Pivots
GOL,Gollinhas Aereas Inteligentes (Google  Yahoo  Earnings  Chart) 
IPS,Ipsco Inc (Google  Yahoo  Earnings  Chart) 
PBR,Petroleo Brasileiro S.A. Petrobras ADS (Google  Yahoo  Earnings  Chart) 
PBR.A,Petroleo Brasileiro S.A. Petrobras ADS Class A (Google  Yahoo  Earnings  Chart) 
PKX,Posco (Google  Yahoo  Earnings  Chart) 


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".



Force Protection Inc, is a Iraq war play and stock is up 886% from 260 days low. I have had two very profitable trades in this stock in last 6 month and now in to third trade on this one. SPAR, Spartan Motors is a related company in this category and is up 238% from 260 days low.

BPA,Biosante Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
CCC,Calgon Carbon Corp (Google  Yahoo  Earnings  Chart) 
FRPT,Force Protection Inc (Google  Yahoo  Earnings  Chart) 
GMO,Idaho General Mines Inc (Google  Yahoo  Earnings  Chart) 
HMB,Homebanc Corp (Google  Yahoo  Earnings  Chart) 
TGX,Theragenics Corp (Google  Yahoo  Earnings  Chart) 
TSL,Trina Solar Ltd. (Google  Yahoo  Earnings  Chart) 
WBD,Wimm Bill Dann Foods Ojsc (Google  Yahoo  Earnings  Chart) 

Strange volume spikes.......

In next couple of days you will see strange volume and price spikes related to Index changes.

Standard & Poor's Announces Changes to U.S. Indices

NEW YORK, March 27 /PRNewswire-FirstCall/ -- Standard & Poor's will
make the following changes to the S&P 500, S&P MidCap 400, S&P SmallCap
600, and S&P REIT Composite indices:
-- S&P MidCap 400 constituent Abercrombie & Fitch Co. (NYSE: ANF) will
replace Univision Communications Inc. (NYSE: UVN) in the S&P 500, S&P
SmallCap 600 constituent Phillips-Van Heusen Corp. (NYSE: PVH) will
replace Abercrombie & Fitch in the S&P MidCap 400, and Blackbaud Inc.
(Nasdaq: BLKB) will replace Phillips-Van Heusen in the S&P SmallCap
600 after the close of trading on Wednesday, March 28. Univision is
being acquired by an investor group including Madison Dearborn
Partners, Providence Equity Partners, Texas Pacific Group, Thomas H.
Lee Partners and Saban Capital Group in a deal expected to close on or
about that date, pending final approvals.

-- S&P SmallCap 600 constituent NVR Inc. (Amex: NVR) will replace New
Plan Excel Realty Trust Inc. (NYSE: NXL) in the S&P MidCap 400, Arris
Group Inc. (Nasdaq: ARRS) will replace NVR Inc. in the S&P SmallCap
600, and One Liberty Properties Inc. (NYSE: OLP) will replace New Plan
Excel Realty Trust in the S&P REIT Composite after the close of
trading on Wednesday, April 4. New Plan Excel Realty Trust is being
acquired by S&P Global 1200 constituent Centro Properties Group in a
deal expected to close on or about that date, pending final approvals.

-- Spartan Stores Inc. (Nasdaq: SPTN) will replace Carreker Corp.
(Nasdaq: CANI) in the S&P SmallCap 600 after the close of trading on
Friday, March 30. Carreker is being acquired by S&P MidCap 400
constituent Checkfree Corp. (Nasdaq: CKFR) in a deal expected to close
on or about that date, pending final approvals.

-- Education Realty Trust Inc. (NYSE: EDR) will replace The Mills Corp.
(NYSE: MLS) in the S&P REIT Composite after the close of trading on
Wednesday, March 28. Mills is being acquired by S&P 500 and S&P REIT
Composite constituent Simon Property Group Inc. (NYSE: SPG) in a deal
expected to close on or about that date, pending final approvals.
Standard & Poor's will monitor these transactions, and post any
relevant updates on its website: http://www.standardandpoors.com.
Abercrombie & Fitch operates as a specialty retailer in the United
States. Headquartered in New Albany, OH, the company will be added to the
S&P 500 GICS (Global Industry Classification Standard) Apparel Retail
Sub-Industry index.
Phillips-Van Heusen engages in the design and marketing of various
apparel products. Headquartered in New York, NY, the company will be added
to the S&P MidCap 400 GICS Apparel, Accessories & Luxury Goods Sub-Industry
index.
Blackbaud provides software and related services for nonprofit
organizations. Headquartered in Charleston, SC, the company will be added
to the S&P SmallCap 600 GICS Application Software Sub-Industry index.
NVR Inc. operates as a homebuilder in the United States. Headquartered
in Reston, VA, the company will be added to the S&P MidCap 400 GICS
Homebuilding Sub-Industry index.
Arris Group operates as a communications technology company.
Headquartered in Suwanee, GA, the company will be added to the S&P SmallCap
600 GICS Communications Equipment Sub-Industry index.
One Liberty Properties is a REIT that engages in the acquisition,
ownership, and management of commercial real estate properties in the
United States. Headquartered in Great Neck, NY, the company will be added
to the S&P REIT Composite Diversified REITs sub-industry.
Spartan Stores engages in the distribution and retailing of groceries.
Headquartered in Grand Rapids, MI, the company will be added to the S&P
SmallCap 600 GICS Food Distributors Sub-Industry index.
Education Realty Trust is a REIT that engages in the acquisition,
ownership, leasing, and management of student housing communities near
university campuses in the United States. Headquartered in Memphis, TN, the
company will be added to the S&P REIT Composite Residential REITs
sub-industry.
Following is a summary of the changes:


S&P 500 INDEX - March 28, 2007
COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
SECTOR
ADDED Abercrombie & Consumer Apparel Retail
Fitch Discretionary
DELETED Univision Consumer Broadcasting & Cable TV
Discretionary


S&P MIDCAP 400 INDEX - March 28, 2007
COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
SECTOR
ADDED Phillips-Van Consumer Apparel, Accessories &
Heusen Discretionary Luxury Goods
DELETED Abercrombie & Consumer Apparel Retail
Fitch Discretionary


S&P MIDCAP 400 INDEX - April 4, 2007
COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
SECTOR
ADDED NVR Inc. Consumer Homebuilding
Discretionary
DELETED New Plan Excel Financials Retail REITs
Realty Trust


S&P SMALLCAP 600 INDEX - March 28, 2007
COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
SECTOR
ADDED Blackbaud Information Application Software
Technology
DELETED Phillips-Van Consumer Apparel, Accessories &
Heusen Discretionary Luxury Goods


S&P SMALLCAP 600 INDEX - March 30, 2007
COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
SECTOR
ADDED Spartan Stores Consumer Staples Food Distributors
DELETED Carreker Information Data Processing &
Technology Outsourced Services


S&P SMALLCAP 600 INDEX - April 4, 2007
COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
SECTOR
ADDED Arris Group Information Communications
Technology Equipment
DELETED NVR Inc. Consumer Homebuilding
Discretionary


S&P REIT COMPOSITE INDEX - March 28, 2007
COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
SECTOR
ADDED Education Financials Residential REITs
Realty Trust
DELETED Mills Financials Retail REITs


S&P REIT COMPOSITE INDEX - April 4, 2007
COMPANY GICS ECONOMIC SECTOR GICS SUB-INDUSTRY
ADDED One Liberty Financials Diversified REITs
Properties
DELETED New Plan Excel Financials Retail REITs
Realty Trust

Rally runs out of steam

The counter trend rally from the panicky bottom seems to have run out of steam. The longevity of the rally was always a question mark because it was happening to quickly after the correction. But the few weeks offered lots of opportunities and number of new stocks like BTJ, DXPE, WFR, JSDA, ROCM, ACAD, CPHD, PRGX, etc. had a quick 25 to 50% move within that time period. There still might be another attempt at bounce , driven by month end and quarter end dynamics.

The next phase of down move is likely to be characterized by steady systematic selling. That kind of steady selling can be enduring. Panics are always of short duration and good opportunities for long.

Long opportunities will still continue to offer better options. Especially the episodic pivot scans will work, even if we go in to a down move. Only thing is greater selectivity will be required. As bulk of my focus is on Episodic Pivots, I have added that scan information to this post and hence forth will shift attention to it rather than 100% plus moves.

Market Monitor
Total 4% plus bullish breakouts=67
Total 4% plus bearish breakouts=61
65 day bullish/bearish ratio= 707/328
Stocks up 50% or more in a month=7
Stocks up 25% or more in a month=51
Number of stocks with 100% plus move =322
Number of stocks up 200% or more = 59
4% plus signals for 100plus universe=16
4% plus signals for 200plus universe=5


Select stocks which had Episodic Pivot moves today. Unusual price and volume move often kick start a long duration rallies. Identifying the catalyst behind such one day move can help determine the likelihood of the move continuing.

Episodic Pivots

ACPW,Active Power Inc (Google  Yahoo  Earnings  Chart) 
ANF,Abercrombie & Fitch Co (Google  Yahoo  Earnings  Chart) 
BDCO,Blue Dolphin Energy Co (Google  Yahoo  Earnings  Chart) 
BLKB,Blackbaud Inc (Google  Yahoo  Earnings  Chart) 
CYCC,Cyclacel Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
CYTK,Cytokinetics (Google  Yahoo  Earnings  Chart) 
DIO,Diomed Holdings Inc (Google  Yahoo  Earnings  Chart) 
DNDN,Dendreon Corporation (Google  Yahoo  Earnings  Chart) 
DVSA,Diversa Corporation (Google  Yahoo  Earnings  Chart) 
FUL,H.b. Fuller Co (Google  Yahoo  Earnings  Chart) 
GHCI,Genesis Healthcare Corp (Google  Yahoo  Earnings  Chart) 
GRZ,Gold Reserve Inc (Google  Yahoo  Earnings  Chart) 
HAYZ,Hayes Lemmerz International Inc (Google  Yahoo  Earnings  Chart) 
HWCC,Houston Wire & Cable Company (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
KRY,Crystallex Internat Corp (Google  Yahoo  Earnings  Chart) 
LMRA,Lumera Corporation (Google  Yahoo  Earnings  Chart) 
LNDC,Landec Corporation (Google  Yahoo  Earnings  Chart) 
NCST,NUCRYST Pharmaceuticals Corp (Google  Yahoo  Earnings  Chart) 
NOIZ,Micronetics Inc (Google  Yahoo  Earnings  Chart) 
NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart) 
PVH,Phillips-Van Heusen Corp (Google  Yahoo  Earnings  Chart) 
SYPR,Sypris Solutions Inc (Google  Yahoo  Earnings  Chart) 
TECUA,Tecumseh Products Cl A (Google  Yahoo  Earnings  Chart) 
VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".
BPA,Biosante Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
BRLC,Syntax-Brillian Corp (Google  Yahoo  Earnings  Chart) 
CDY,Cardero Resource Corp (Google  Yahoo  Earnings  Chart) 
CNST,Constar Internatl (Google  Yahoo  Earnings  Chart) 
CTCH,Commtouch Software Ltd (Google  Yahoo  Earnings  Chart) 
CYNO,Cynosure Inc (Google  Yahoo  Earnings  Chart) 
GMO,Idaho General Mines Inc (Google  Yahoo  Earnings  Chart) 
GOT,Gottschalks Inc (Google  Yahoo  Earnings  Chart) 
HAYZ,Hayes Lemmerz International Inc (Google  Yahoo  Earnings  Chart) 
HOKU,Hoku Scientific Inc (Google  Yahoo  Earnings  Chart) 
MFW,M&F Worldwide Corp (Google  Yahoo  Earnings  Chart) 
NTY,Nbty Inc (Google  Yahoo  Earnings  Chart) 
NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart) 
SPTN,Spartan Stores Inc (Google  Yahoo  Earnings  Chart) 
VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 

Low Volume Pause

Market has been churning after the FOMC induced big move. The down days have been on lower volume. The month end and quarter end effect will provide a support for this move at this stage. After that market attention will again focus on earnings season. The real next move would reassert itself after the earning season or midway through it once the earnings picture become clearer. On individual stock price moves will be driven by pre earning drift and pre announcements.

As usual the earnings season is a season of opportunity and I look froward to it for profit making opportunities. I will later have a series of my customary pre earning season posts on how to profit from the " Post Earnings Announcement Drift (PEADS)" strategy.

Notice the dramatic increase in stocks up 25% or more in a month within few days of rally after the down move.So there were 64 opportunities to make 25% plus in individual stocks. If you could not find much of an opportunity, you must go through those 64 stock list to find what you are missing. A well designed strategy should have you invested in some of them and capturing part of the move on some. 57 of the 64 stocks in that list had a Episodic Pivot in last 6 months or less. Around half of the members in that 64 had already moved 100% plus before they made the 25% plus move in last one month. More than half of them had the 25% plus move triggered by earnings announcements.

Market Monitor
Total 4% plus bullish breakouts=61
Total 4% plus bearish breakouts=63
65 day bullish/bearish ratio= 751/305
Stocks up 50% or more in a month=6
Stocks up 25% or more in a month=64
Number of stocks with 100% plus move =334
Number of stocks up 200% or more = 59
4% plus signals for 100plus universe=18
4% plus signals for 200plus universe=5


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".

ACAD,Acadia Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
AKRX,Akorn Inc (Google  Yahoo  Earnings  Chart) 
AVCI,Avici Systems (Google  Yahoo  Earnings  Chart) 
BWLD,Buffalo Wild Wings (Google  Yahoo  Earnings  Chart) 
CHRK,Cherokee Intl (Google  Yahoo  Earnings  Chart) 
CIMT,Cimatron Ltd (Google  Yahoo  Earnings  Chart) 
GRIL,Grill Concepts Inc (Google  Yahoo  Earnings  Chart) 
HAYZ,Hayes Lemmerz International Inc (Google  Yahoo  Earnings  Chart) 
HRT,Arrhythmia Research Tech (Google  Yahoo  Earnings  Chart) 
LNET,Lodgenet Entertainment (Google  Yahoo  Earnings  Chart) 
LTS,Ladenburg Thalmann Finl (Google  Yahoo  Earnings  Chart) 
ORCH,Orchid Cellmark Inc (Google  Yahoo  Earnings  Chart) 
SLP,Simulations Plus Inc (Google  Yahoo  Earnings  Chart) 
SMSI,Smith Micro Software Inc (Google  Yahoo  Earnings  Chart) 
SPEX,Spherix Inc (Google  Yahoo  Earnings  Chart) 
VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 
WHT,Westside Energy Corp (Google  Yahoo  Earnings  Chart) 
WRSP,WorldSpace Inc (Google  Yahoo  Earnings  Chart) 

Never underestimate the strength of a bounce after a panicky move to the downside

Momentum is cyclical and long side momentum takes some time to play itself out. Things are different on short side. Markets often turn on dime on short side. Yesterday's action is a classic example of this market observation. The market rebounded from the weak open and ended at top of range.

In few weeks the market has rebounded sharply and erased the effect of the China induced down move. If you look at the numbers below and compare them to the numbers just a few weeks ago, you would notice very impressive recovery. It is not yet clear if this rally has more legs, but the learning is clear, never underestimate the strength of a bounce after a panicky move. That is the way markets work.

Market Monitor
Total 4% plus bullish breakouts=108
Total 4% plus bearish breakouts=39
65 day bullish/bearish ratio= 789/297
Stocks up 50% or more in a month=6
Stocks up 25% or more in a month=38
Number of stocks with 100% plus move =355
Number of stocks up 200% or more = 68
4% plus signals for 100plus universe=34
4% plus signals for 200plus universe=11

Month end would be bullish

Month end and quarter end dynamics should help push the market higher. New sectors are emerging to take on leadership and lot of stocks in transport sector are attracting buy interest.

Market Monitor
Total 4% plus bullish breakouts=103
Total 4% plus bearish breakouts=26
65 day bullish/bearish ratio= 792/304
Stocks up 50% or more in a month=5
Stocks up 25% or more in a month=36
Number of stocks with 100% plus move =342
Number of stocks up 200% or more = 63
4% plus signals for 100plus universe=20
4% plus signals for 200plus universe=4


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".

ACAD,Acadia Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
AFAM,Almost Family Inc (Google  Yahoo  Earnings  Chart) 
AMSC,American Superconductor (Google  Yahoo  Earnings  Chart) 
EGHT,8x8 Inc (Google  Yahoo  Earnings  Chart) 
EGR,Commerce Energy Group (Google  Yahoo  Earnings  Chart) 
FTGX,FiberNet Telecom Group Inc (Google  Yahoo  Earnings  Chart) 
HAYZ,Hayes Lemmerz International Inc (Google  Yahoo  Earnings  Chart) 
HMB,Homebanc Corp (Google  Yahoo  Earnings  Chart) 
HOKU,Hoku Scientific Inc (Google  Yahoo  Earnings  Chart) 
IMMU,Immunomedics Inc (Google  Yahoo  Earnings  Chart) 
IOC,Interoil Corporation (Google  Yahoo  Earnings  Chart) 
LJPC,La Jolla Pharmaceutical (Google  Yahoo  Earnings  Chart) 
LNOP,Lanoptics Ltd (Google  Yahoo  Earnings  Chart) 
MFB,Maidenform Inc (Google  Yahoo  Earnings  Chart) 
OMR,Odyssey Marine Exploration Inc (Google  Yahoo  Earnings  Chart) 
ROCM,Rochester Medical Corp (Google  Yahoo  Earnings  Chart) 
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings  Chart) 
SPIL,Siliconware Precision Industries Company Ltd ADS (Google  Yahoo  Earnings  Chart) 
VNDA,Vanda Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
WFR,Memc Electronic Material (Google  Yahoo  Earnings  Chart) 

How to find shorts on stocks which are not overextended on the downside

Similar to the concept of How to find breakouts on stocks which are not overextended , you can develop set of scans to find short breakouts on stocks which are probably just about to start a short move.

Again essentially you are looking at stocks which had rallied majorly in last one year and now running out of steam. Some minor adjustments are needed in the scans to achieve this.

Now this set of scans have been created using TC2000, but you can recreate the same in any other software once you understand the logic.

1 We are looking for long term strength. So the first scan will give you a way to rank stocks based on price change from 260 days low.
100 * ((C + .01) - ( MINC260 + .01)) / (MINC260 + .01) ( One year Growth)
We will take top 20% stock ranked by this scan. So in TC2000 you will take stocks ranked 80 or above on above scan.

2 We are looking for near term weakness. Near term I am defining as one quarter weakness. That is 1/4 th of 260, or 65 trading days.
(100 * (C1 - C65.1) / C65.1 <= 10)and C >= .80 * MAXC65 (quarter growth)
Which gives you stocks which have less than 10% price growth in last 65 days. Plus it is within 20% of its 65 day high price. Here the change is 20% of 65 high as against 10% for long scan.
So this condition gives you a pause/ consolidation within a high relative strength stock. Stocks with high relative strength can break in either direction. All high relative strength stocks at some stage reverse or have significant pullback. This happens mostly after everyone gets excited about a sector.

3 Breakdown condition. Now to above two scans we will add our breakdown condition of 4% down move for today on high volume.
( 100 * (C - C1) / C1) <= ( - 4) AND V >= 1000 AND V > V1

Now see the stocks meting this set of scan. Under good circumstances for short selling, you will find very good candidates in these set of scans. This gives shorts which are just about to breakdown after a long up move.

There are always opportunities in market for those who know how to find them. Enjoy your profits.........

Many good short sell set ups

The bounce has created number of god short sell set ups in sectors like Airlines, investment banks and many other sectors which were leading sectors few months ago.

The individual stocks which broke out in last couple of weeks like BTJ,RRI,ALJ,WNR,ADBL,GLBL,METH, HTC,UCTT,JSDA,EVEP,JAV, DXPE,FFH,TRCR, PRGX, WFR, etc., have been moving up. Most of them are up 25% or more since then breakout. All of these stocks broke out post market correction. More than 70% of them had a Episodic Pivot breakout in last 20-30 days.

While such stocks and more stocks from the Episodic Pivot list and 100% list and IBD200 list will have such moves, overall I am skeptical of the bounce. The main reasons being, it has come too soon. It takes certain amount of time, ideally 40 to 60 days from start of correction for a tradable and sustainable bounce to develop. I am anticipating the current move to fail. Number of individual stocks which had rallied till now in the up move from July onwards are showing signs of breaking down.So the move might lead to failure or long sideways move. In such environment, individual stock selection is the key. The best method for that in my current scheme of things is Episodic Pivots.


Market Monitor
Total 4% plus bullish breakouts=139
Total 4% plus bearish breakouts=44
65 day bullish/bearish ratio= 773/310
Stocks up 50% or more in a month=2
Stocks up 25% or more in a month=32
Number of stocks with 100% plus move =343
Number of stocks up 200% or more = 66
4% plus signals for 100plus universe=24
4% plus signals for 200plus universe=7


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".

ASTI,Ascent Solar Technologies Inc (Google  Yahoo  Earnings  Chart) 
AVCI,Avici Systems (Google  Yahoo  Earnings  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings  Chart) 
CECE,Ceco Environmental Corp (Google  Yahoo  Earnings  Chart) 
CMGI,CMGI Inc (Google  Yahoo  Earnings  Chart) 
CTIB,Cti Industries Corp (Google  Yahoo  Earnings  Chart) 
DSTI,Daystar Technologies Inc (Google  Yahoo  Earnings  Chart) 
EGR,Commerce Energy Group (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
FTGX,FiberNet Telecom Group Inc (Google  Yahoo  Earnings  Chart) 
GMO,Idaho General Mines Inc (Google  Yahoo  Earnings  Chart) 
HGO,Houston American Energy Corp (Google  Yahoo  Earnings  Chart) 
OFI,Overhill Farms Inc (Google  Yahoo  Earnings  Chart) 
PAE,Peace Arch Entmt Grp Inc (Google  Yahoo  Earnings  Chart) 
PRXI,Premier Exhibitions Inc (Google  Yahoo  Earnings  Chart) 
REFR,Research Frontiers Inc (Google  Yahoo  Earnings  Chart) 
RRI,Reliant Energy Inc (Google  Yahoo  Earnings  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
SNCI,Sonic Innovations Inc (Google  Yahoo  Earnings  Chart) 
SNDA,Shanda Interactive Ent Ltd (Google  Yahoo  Earnings  Chart) 
TSL,Trina Solar Ltd. (Google  Yahoo  Earnings  Chart) 
URZ,Uranerz Energy Corp (Google  Yahoo  Earnings  Chart) 
VII,Vicon Industries Inc (Google  Yahoo  Earnings  Chart) 
VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 

If you are short housing stocks be careful

The British rag,The Economist is by far the best contrary indicator.

How to find breakouts on stocks which are not overextended

After a day like yesterday, you always hear a chorus of bloggers and commentators saying, "oh but I can not find opportunities, all I see is overextended stuff". Now if you want to find stocks breaking out but are not overextended, you might find this post helpful.

The central premise behind looking for stocks breaking out but which are not overextended is that, while strength is good, you must time your entries at a consolidation zone , at the beginning of fresh swing move. So essentially you must look for weakness or consolidation in a strong or high relative strength stock. The technical patterns like long bases, cup with handle, W bottoms happen at such junctures.

Now this set of scans have been created using TC2000, but you can recreate the same in any other software once you understand the logic.

1 We are looking for long term strength. So the first scan will give you a way to rank stocks based on price change from 260 days low.
100 * ((C + .01) - ( MINC260 + .01)) / (MINC260 + .01) ( One year Growth)
We will take top 20% stock ranked by this scan. So in TC2000 you will take stocks ranked 80 or above on above scan.

2 We are looking for near term weakness. Near term I am defining as one quarter weakness. That is 1/4 th of 260, or 65 trading days.
(100 * (C1 - C65.1) / C65.1 <= 10)and C >= .90 * MAXC65 (quarter growth)
Which gives you stocks which have less than 10% price growth in last 65 days. Plus it is within 10% of its 65 day high price.
So this condition gives you a pause/ consolidation within a high relative strength stock.

3 Breakout condition. Now to above two scans we will add our breakout condition of 4% up move for today on high volume.
( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1 (breakout condition)

So now you have stocks which meet following conditions:
1 One year relative strength is 80% or more
2 One quarter price growth is less than 10%
3 Current price is within 10% of highest close in 65 days
4 Today's price gain is greater than 4%
5 Volume today > 100000
6 Volume today> volume yesterday.

Now see the stocks meeting this scan criteria. You will see stocks which are breaking out but not overextended. Now to further eliminate stocks in this list you can use IBD EPS rating of 80 plus. If you create the scan without the breakout condition, you can anticipate breakouts.

There are always opportunities in market for those who know how to find them. Enjoy your profits.........

Note:
If you are looking for shorter consolidation like the one IBD promotes of 35 days for most of its patterns, you can just change the 2 nd scan :
(100 * (C1 - C35.1) / C35.1 <= 10)and C >= .85 * MAXC260

This will give you stock with C&W or flat bases in last 35 days but within 15% of their 52 week high.

Panicky shorts cover in a hurry

An upside surprise for the shorts had them quickly heading for exit. Yesterday's action was a classic short squeeze. Once the market reacted positively to the FOMC statement, the mild buying pressure turned in to full fledged panicky covering. That lead to some interesting fireworks. The cash sitting on the sideline also jumped in to drive the rally forward. After many days we have a day where volume increased. The number of breakouts was 243, ideally I would have liked 300 plus.

Expecting the strength to last for sometime. Even if this bounce is fated to fail, the strength is likely to persist for some time. There might be pullback and shakeout but next 5=10 days might be good for longs. Now if you have a set system like 100% plus or IBD200, you should not be worried. As you already have candidates to look at on long side. The IBD Select list might offer better opportunities for those looking for stocks which are not overextended. Even the 100% plus list has many stocks which are not overextended.

Notice the 100% plus universe has quickly climbed to 341. The high number before the correction started was 400. Another 2-3 days of rally and you would have the number crossing 400 again. Panicky market action on short side always has a high probability of setting up a moon shot counter trend move. The only problem is few people believe that when the panic sets in. That is one of the reason why those who buy panics make money. Maintaining your perspective when the world seems to be falling apart is critical speculation skill.

Market Monitor
Total 4% plus bullish breakouts=243
Total 4% plus bearish breakouts=23
65 day bullish/bearish ratio= 749/336
Stocks up 50% or more in a month=3
Stocks up 25% or more in a month=36
Number of stocks with 100% plus move =341
Number of stocks up 200% or more = 65
4% plus signals for 100plus universe=38
4% plus signals for 200plus universe=8


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".

AMAG,Advanced Magnetics Inc (Google  Yahoo  Earnings  Chart) 
AMKR,Amkor Technology Inc (Google  Yahoo  Earnings  Chart) 
ANAD,Anadigics Inc (Google  Yahoo  Earnings  Chart) 
ANO,Anooraq Resources Corp (Google  Yahoo  Earnings  Chart) 
AUXL,Auxilium Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
AVRX,Avalon Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
BIDU,Baidu.com Inc (Google  Yahoo  Earnings  Chart) 
BPA,Biosante Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
CLRT,Clarient Inc (Google  Yahoo  Earnings  Chart) 
CSV,Carriage Services Inc (Google  Yahoo  Earnings  Chart) 
CTCH,Commtouch Software Ltd (Google  Yahoo  Earnings  Chart) 
CTIB,Cti Industries Corp (Google  Yahoo  Earnings  Chart) 
DRYS,Dryships (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
GLDN,Golden Telecom Inc (Google  Yahoo  Earnings  Chart) 
GSIC,Gsi Commerce Inc (Google  Yahoo  Earnings  Chart) 
HXM,Homex Development Corp (Google  Yahoo  Earnings  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
JAV,Javelin Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
LNOP,Lanoptics Ltd (Google  Yahoo  Earnings  Chart) 
LXU,Lsb Industries Inc (Google  Yahoo  Earnings  Chart) 
MBT,Mobile Telesys Ojsc Ads (Google  Yahoo  Earnings  Chart) 
MEH,Midwest Express Holding (Google  Yahoo  Earnings  Chart) 
MEND,Micrus Endovascular Corp (Google  Yahoo  Earnings  Chart) 
NUAN,Nuance Communications Inc (Google  Yahoo  Earnings  Chart) 
OMG,Om Group Inc (Google  Yahoo  Earnings  Chart) 
OMTR,Omniture Inc (Google  Yahoo  Earnings  Chart) 
ONXX,Onyx Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
PRGX,Prg-schultz Intl Inc (Google  Yahoo  Earnings  Chart) 
PRKR,Parkervision Inc (Google  Yahoo  Earnings  Chart) 
RYAAY,Ryanair Hldgs Plc Adr (Google  Yahoo  Earnings  Chart) 
SNCR,Synchronoss Technologies Inc (Google  Yahoo  Earnings  Chart) 
TNH,Terra Nitrogen Co L.P. (Google  Yahoo  Earnings  Chart) 
TSTC,Telestone Technologies Corp (Google  Yahoo  Earnings  Chart) 
VSEA,Varian Semiconductor Equipment Associates Inc (Google  Yahoo  Earnings  Chart) 
XING,Qiao Xing Univ Telephone (Google  Yahoo  Earnings  Chart) 
ZIXI,Zix Corporation (Google  Yahoo  Earnings  Chart) 

FOMC Statement

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.

2007 Monetary policy

Why you should not trade any of the ideas discussed here......

Every successful trader ultimately find a method which works for him or her. The day you stop trading like someone is when you become more successful. That is one of the reason why following a newsletter seldom makes money for most people. As I said yesterday, at a personal level, only self evident truth is truth.

Look at for example religion. Once you make a hypothesis that God exists, everything neatly falls in place and similarly if you make a hypothesis that God does not exist, you still have great clarity. Once you believe God exists, you are willing to do anything for it, as demonstrated by fanatics of all religion. Achieving Nirvana is easy once the central hypothesis is in place. Then various methods of achieving it work. Religion is the most skillfully marketed product in the world. It is all about changing followers mental model.

Your central beliefs determine whether you understand a concept and own it up and trade it successfully. Those set of beliefs pre date any methodology. That is why to merely look at the scans or entry, exit methods and risk management methods does not work.

It is also the reason why black box systems seldom work for their purchasers. When you buy a black box what conviction do you have in it. Now in marketing term black box makers try every trick in the book and I study with great interest marketing of several black boxes for stock trading and yet the marketers find high customer churn. Recently a marketer of black box trading system for traders asked my advise on how can they market it better, my advise was simple. Disclose what is in your black box to minutest detail. If people get convinced about the logic and if that truth is self evident to them, they will buy it.

The central point behind my argument boils down to

mental models

. Successful trading involves change in mental models, that step is more important than any other methodology. Once the mental models change, methods are easy. That is true of personal success also. Successful people have very different " Total World View" as opposed to those who struggle to be successful or those who get stuck in mediocrity.

Once the mental models change, same systems and methods work very efficiently.

Down move may be just around the corner

Another low volume up day for market. Moves like this on low volume have high probability of failure. Those becoming comfortable with long side might find a nasty surprise in a day or two.
The 50% plus in a month reading is currently at 3. The indicator has been around this reading for sometime and a down move here might washout pre mature bulls and set up for sustainable bounce. Individual stocks are worth examining for buys here. The fresh breakouts are from new sectors and unlikely to be affected by a shakeout.

Market Monitor
Total 4% plus bullish breakouts=134
Total 4% plus bearish breakouts=33
65 day bullish/bearish ratio= 643/382
Stocks up 50% or more in a month=3
Stocks up 25% or more in a month=29
Number of stocks with 100% plus move =310
Number of stocks up 200% or more = 64
4% plus signals for 100plus universe=35
4% plus signals for 200plus universe=7

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".

ANO,Anooraq Resources Corp (Google  Yahoo  Earnings  Chart) 
AUXL,Auxilium Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
BRKR,Bruker Biosciences Corp (Google  Yahoo  Earnings  Chart) 
BW,Brush Engineered (Google  Yahoo  Earnings  Chart) 
CIMT,Cimatron Ltd (Google  Yahoo  Earnings  Chart) 
CKSW,Clicksoftware Technlgies (Google  Yahoo  Earnings  Chart) 
CRY,Cryolife Inc (Google  Yahoo  Earnings  Chart) 
CYTR,Cytrx Corporation (Google  Yahoo  Earnings  Chart) 
DSTI,Daystar Technologies Inc (Google  Yahoo  Earnings  Chart) 
ESCH,Eschelon Telecom Inc (Google  Yahoo  Earnings  Chart) 
EXM,Excel Maritime Carriers (Google  Yahoo  Earnings  Chart) 
GIGM,Gigamedia Limited (Google  Yahoo  Earnings  Chart) 
GNVC,Genvec Inc (Google  Yahoo  Earnings  Chart) 
HNSN,Hansen Medical Inc (Google  Yahoo  Earnings  Chart) 
HRSH,Hirsch International Corp Class A (Google  Yahoo  Earnings  Chart) 
IGTE,Igate Corporaion (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
LEND,Accredited Home Lenders (Google  Yahoo  Earnings  Chart) 
MEND,Micrus Endovascular Corp (Google  Yahoo  Earnings  Chart) 
MGM,MGM MIRAGE Inc (Google  Yahoo  Earnings  Chart) 
ONT,On2.Com Inc (Google  Yahoo  Earnings  Chart) 
PERY,Perry Ellis Int'l (Google  Yahoo  Earnings  Chart) 
PRKR,Parkervision Inc (Google  Yahoo  Earnings  Chart) 
PRW,Pro-pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
RBY,Rubicon Minerals Corporation (Google  Yahoo  Earnings  Chart) 
RGR,Sturm Ruger & Co Inc (Google  Yahoo  Earnings  Chart) 
RMBS,Rambus Inc (Google  Yahoo  Earnings  Chart) 
SGEN,Seattle Genetic (Google  Yahoo  Earnings  Chart) 
SILC,Silicom Ltd (Google  Yahoo  Earnings  Chart) 
SIMO,Silicon Motion Technology Corp (Google  Yahoo  Earnings  Chart) 
VC,Visteon Corporation (Google  Yahoo  Earnings  Chart) 
VDSI,Vasco Data Security Intl (Google  Yahoo  Earnings  Chart) 
VTO,Vitro Sociedad Anonima (Google  Yahoo  Earnings  Chart) 
WFR,Memc Electronic Material (Google  Yahoo  Earnings  Chart) 
XIDE,Exide Tech (Google  Yahoo  Earnings  Chart) 

Edge and aha

The real voyage of discovery consists not in seeking new landscapes, but in having new eyes.
Marcel Proust

Market edge is based on unique insight in to market structure or market behaviour. One can go about very methodically to find such insights or sometime they are accidental discoveries. But the key is insights are about the "Aha!" moments – those moments of clarity when the solution to a vexing problem falls into place with a sudden insight and you see connections that previously eluded you. They are essentially moments where you say to yourself " I never thought of it like that before" or "Now I get it".

Many of the market insights are in the public domain. So why do some traders get it and some do not. If you think about it, probably it has something to do with perspective or your readiness level. Some insight come after experience. So a same set of insight might be quickly grasped by a experienced trader while a new person never understands the significance of it. That is one of the reason why new traders flirt from one idea to another or get easily influenced by others ideas. While that stage is essential in development of insight, if it becomes too long a process, it is not much of use. Also if you lose your money by the time you gain insight, again it is of no use.


One of the other reason , why certain traders are quick to get the insight and others are not is because of mind training. Most of the education process is structured towards methodical solution finding while insights are about flash events. You can train your mind to think in more insight hunt mode.

To give you an idea about edge and aha, lets take the book " How Charts Can Help You in the Stock Market by William L. Jiler". While reading the book for the first time I read the paragraph:

Line and saucer form the chart reader's dream patterns. They're easy to recognise, they're reliable, they usually portend an extensive price move and- best of all- they give the chartists plenty of time to assume a market position close to the bottom or top of ensuing swing. They have only one major drawback: they're rare among popular, actively traded stocks.

To me that was very valuable insight and aha moment. I promptly picked up on the concept of neglected stock in it and defined neglect or less popular stock mathematically based on their prior many years move. That lead to my virgin/neglected strategy, which gives rare but very profitable signals. Now the information on which it is based is completely in public domain. Same way the earnings lead breakout insight is in public domain and that also for many years.

Or take Episodic Pivots, it is completely an adoption of a public domain idea. Again in this case while flipping through Swing Trading:Power Strategies to Cut Risk and Boost Profits by Jon D.Markman book, I picked up just that one paragraph from the book and built a system around it.

" Basically it comes down to finding stocks with greatest short term momentum that will turn in to long term momentum."

After the insight comes a simpler process of making the idea work. There are two components to it " why " and " how". 'Why' should this idea work or 'why'it works. 'How' it works or 'how' can I make it work. If the insight was crystal clear the "why" and " how" are easy.

So if you are searching for edge, unless you get the aha moment, you will not find it. In life only self evident truth matters, because only self evident truth creates conviction. That is one of the reason why you seldom get results by following someone 's method.

Later: Why you should not trade any of the ideas discussed here......

Episodic pivots

Out of all the methods I use, the most effective and highly profitable one is episodic pivots. As it usually happens, methods evolve over a period of time. Earnings lead breakout was my most profitable method for many years. Focusing on it exclusively had me missing out on some non earnings lead ideas. The episodic pivots method eliminates that problem as it looks at all stocks reacting to new piece of information.

If you look at the 289 stocks in the 100% plus in 260 days list, you will notice 268 out of them had one or more episodic pivots at the beginning of their move. Similarly if you analyse the IBD 200 list, 173 out of the list had an episodic pivots in first one third of their move.

One of the advantage of the method is extremely low number of stocks one needs to focus on , on a daily basis. It is extremely easy to research 10 to 20 stocks on a daily basis. Also out of those stocks I only focus on those which had Episodic Pivots for the first time in last six months. I also focus on stocks where the Episodic Pivot is at beginning of the move.

Typically some stocks come on the scan early morning and one can research them and enter immediately and then fresh set of them come in later. The stocks in this scan also are good for later entries and pyramiding.

Low volume bounce

Select stocks witnessed buy interest today. But overall volume was low. Some stocks like ROCM, TZOO, SYX, JOSB, VIP, PERY, FRPT, OFI, SNDA, PSYS, BWLD, CMG, NCMI, and GES had high volume breakouts. Some of these have more gains ahead. Some of them had recent good earnings and were not dented by the correction.

After a correction stocks which were not affected by it spring back in to action. Some of these stocks are early in their price and earnings appreciation cycle and they will keep going up, or get in to consolidation if down move in overall market continues.

Another set of stocks which will start breaking out in few weeks would be, stocks likely to have good earnings. They will run in anticipation of good earnings. Like post earnings announcement drift PEAD, there is pre earnings drift. To play it you need to track analysts earning estimates. If analyst start taking earnings estimates up, the stock is likely to go up.

It is still too early to expect a sustained tradable counter trend rally.

Market Monitor
Total 4% plus bullish breakouts=112
Total 4% plus bearish breakouts=35
65 day bullish/bearish ratio= 613/386
Stocks up 50% or more in a month=4
Stocks up 25% or more in a month=35
Number of stocks with 100% plus move =289
Number of stocks up 200% or more = 66
4% plus signals for 100plus universe=30
4% plus signals for 200plus universe=13


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".
Out of the list below many have flat bases or cup with handles.

ACAD,Acadia Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
ACOR,Acorda Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
BVX,Bovie Medical Systems (Google  Yahoo  Earnings  Chart) 
CECE,Ceco Environmental Corp (Google  Yahoo  Earnings  Chart) 
CHL,China Mobile Ltd (Google  Yahoo  Earnings  Chart) 
CYNO,Cynosure Inc (Google  Yahoo  Earnings  Chart) 
CYTR,Cytrx Corporation (Google  Yahoo  Earnings  Chart) 
GES,Guess? Incorporated (Google  Yahoo  Earnings  Chart) 
GIGM,Gigamedia Limited (Google  Yahoo  Earnings  Chart) 
GLBC,Global Crossing Ltd (Google  Yahoo  Earnings  Chart) 
GT,Goodyear Tire&Rubber Co (Google  Yahoo  Earnings  Chart) 
JSDA,Jones Soda Co (Google  Yahoo  Earnings  Chart) 
LFC,China Life Insurance Company (Google  Yahoo  Earnings  Chart) 
LTS,Ladenburg Thalmann Finl (Google  Yahoo  Earnings  Chart) 
NEXC,Nexcen Brands Inc (Google  Yahoo  Earnings  Chart) 
NWK,Network Equipment Tech (Google  Yahoo  Earnings  Chart) 
OFI,Overhill Farms Inc (Google  Yahoo  Earnings  Chart) 
ONT,On2.Com Inc (Google  Yahoo  Earnings  Chart) 
PERY,Perry Ellis Int'l (Google  Yahoo  Earnings  Chart) 
REFR,Research Frontiers Inc (Google  Yahoo  Earnings  Chart) 
ROCM,Rochester Medical Corp (Google  Yahoo  Earnings  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
SIGM,Sigma Designs Inc (Google  Yahoo  Earnings  Chart) 
SILC,Silicom Ltd (Google  Yahoo  Earnings  Chart) 
SYX,Systemax Inc (Google  Yahoo  Earnings  Chart) 
TTWO,Take-Two Intera Software (Google  Yahoo  Earnings  Chart) 
TWW,Terremark Worldwide Inc (Google  Yahoo  Earnings  Chart) 
TZOO,Travelzoo Inc (Google  Yahoo  Earnings  Chart) 
VIP,Vimpel Communication Ads (Google  Yahoo  Earnings  Chart) 
WCG,Wellcare Health Plans Inc (Google  Yahoo  Earnings  Chart) 

Not reading too much in to strength

Market has been up from pre market and some individual stocks are showing decent breakouts. However, across the board strength is lacking. As of now I see only 55 stocks up 4% or more in my universe. For a really meaningful turn the figures would be upwards of 300.

Excessive pessimism and high short interest often fuels counter trend rallies. Weak action last week created a good set up for the kind of squeeze action we are witnessing currently. By the end day if the market catches bid and the number of breakouts exceed 300, then it might be time for putting more capital to work. Currently I continue to believe better action and better profit opportunities will present in the upcoming earning season.

When in doubt, stay out

While the intense selling phase has subsided, markets are not in a position to mount a counter trend rally. In fact markets might witness more weakness in near future. The better opportunities will present once next earning season starts.

Market Monitor
Total 4% plus bullish breakouts=76
Total 4% plus bearish breakouts=69
65 day bullish/bearish ratio= 564/422
Stocks up 50% or more in a month=3
Stocks up 25% or more in a month=32
Number of stocks with 100% plus move =268
Number of stocks up 200% or more = 55
4% plus signals for 100plus universe=13
4% plus signals for 200plus universe=2


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".

ANO,Anooraq Resources Corp (Google  Yahoo  Earnings  Chart) 
CCOI,Cogent Communications Group Inc (Google  Yahoo  Earnings  Chart) 
CLRT,Clarient Inc (Google  Yahoo  Earnings  Chart) 
EGR,Commerce Energy Group (Google  Yahoo  Earnings  Chart) 
GLDN,Golden Telecom Inc (Google  Yahoo  Earnings  Chart) 
HAYZ,Hayes Lemmerz International Inc (Google  Yahoo  Earnings  Chart) 
HMSY,Hms Holdings Corp (Google  Yahoo  Earnings  Chart) 
HTI,Halozyme Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
ITWO,i2 Technologies Inc (Google  Yahoo  Earnings  Chart) 
IW,Imageware Systems Inc. (Google  Yahoo  Earnings  Chart) 
ORCH,Orchid Cellmark Inc (Google  Yahoo  Earnings  Chart) 
SRSL,Srs Labs Inc (Google  Yahoo  Earnings  Chart) 
SWRG,Smith & Wollensky Rest Grp Inc (Google  Yahoo  Earnings  Chart) 

Stocks to watch

While market continue to be in correction mode and near term prospect for tradable rally, look remote, there is no harm in tracking stocks likely to bounce back vigorously post the correction. Once the selling clouds lift many stocks which has weathered the correction, spring back with force. Anticipating such move can give you good profit. Even a tradable counter trend rally will have some of these stocks making a big move.

All the stock in this list had an Episodic Pivot in last six months.

Select stocks likely to bounce post correction:

ALGN,Align Tech Inc (Google Yahoo Earnings Chart)
AMAG,Advanced Magnetics Inc (Google Yahoo Earnings Chart)
ANAD,Anadigics Inc (Google Yahoo Earnings Chart)
ASTI,Ascent Solar Technologies Inc (Google Yahoo Earnings Chart)
ATI,Allegheny Technologies (Google Yahoo Earnings Chart)
AVZA,Aviza Technology Inc (Google Yahoo Earnings Chart)
BOT,CBOT Holdings Inc (Google Yahoo Earnings Chart)
BRLC,Syntax-Brillian Corp (Google Yahoo Earnings Chart)
DE,Deere & Co (Google Yahoo Earnings Chart)
DRAX,Draxis Health Inc (Google Yahoo Earnings Chart)
EL,Estee Lauder Companies Inc (Google Yahoo Earnings Chart)
ESI,Itt Educational Services (Google Yahoo Earnings Chart)
FSLR,First Solar Inc (Google Yahoo Earnings Chart)
GES,Guess? Incorporated (Google Yahoo Earnings Chart)
HOLX,Hologic Inc (Google Yahoo Earnings Chart)
HTI,Halozyme Therapeutics Inc (Google Yahoo Earnings Chart)
ICE,Intercontinental Exchange Inc (Google Yahoo Earnings Chart)
INPC,Inphonic (Google Yahoo Earnings Chart)
IOC,Interoil Corporation (Google Yahoo Earnings Chart)
ISRG,Intuitive Surgical Inc (Google Yahoo Earnings Chart)
JBX,Jack In The Box Inc (Google Yahoo Earnings Chart)
JSDA,Jones Soda Co (Google Yahoo Earnings Chart)
LEA,Lear Corp (Google Yahoo Earnings Chart)
LJPC,La Jolla Pharmaceutical (Google Yahoo Earnings Chart)
MA,MasterCard Inc (Google Yahoo Earnings Chart)
MEH,Midwest Express Holding (Google Yahoo Earnings Chart)
MGM,MGM MIRAGE Inc (Google Yahoo Earnings Chart)
MHS,Medco Health Solutions (Google Yahoo Earnings Chart)
MICC,Millicom Intl Cellular Sa (Google Yahoo Earnings Chart)
NMX,Nymex Holdings Inc (Google Yahoo Earnings Chart)
NXTM,NxStage Medical Inc (Google Yahoo Earnings Chart)
OFI,Overhill Farms Inc (Google Yahoo Earnings Chart)
PCLN,Priceline.com Inc (Google Yahoo Earnings Chart)
PNCL,Pinnacle Airlines (Google Yahoo Earnings Chart)
POT,Potash Cp Saskatchewan (Google Yahoo Earnings Chart)
RIMM,Research In Motion Ltd (Google Yahoo Earnings Chart)
RTI,Rti Internat Metal Inc (Google Yahoo Earnings Chart)
SHLD,Sears Holding Corp (Google Yahoo Earnings Chart)
SILC,Silicom Ltd (Google Yahoo Earnings Chart)
SPAR,Spartan Motors Inc (Google Yahoo Earnings Chart)
SRVY,Greenfield Online Inc (Google Yahoo Earnings Chart)
TRCR,Transcend Services Inc (Google Yahoo Earnings Chart)
VDSI,Vasco Data Security Intl (Google Yahoo Earnings Chart)
VIP,Vimpel Communication Ads (Google Yahoo Earnings Chart)
VPRT,VistaPrint Ltd (Google Yahoo Earnings Chart)
VRGY,Verigy Ltd (Google Yahoo Earnings Chart)
VSNT,Versant Corporation (Google Yahoo Earnings Chart)
WFR,Memc Electronic Material (Google Yahoo Earnings Chart)
ZOLL,Zoll Medical Corporation (Google Yahoo Earnings Chart)

How the rules of investing changed

Dr. Marc Faber, the editor of The Gloom, Boom and Doom Report and author of Tomorrow's Gold, is a very shrewed observer of events and market trends. His latest article has some very interesting insights.

The game’s changed says Marc Faber. It used to be when one asset class went up others were ignored. Today they all go up together though the leaders in each boom change...
The feature most common to previous investment booms was that a bull market in one asset class was accompanied by a bear market in another important asset class. Precious metals soared in the 1970s, but bonds collapsed. Equities and bonds rose in the 1980s, but commodities tumbled.

In the 1990s, we had rolling bubbles in the emerging markets, but Japanese and Taiwanese equities were in bear markets while commodities continued to perform poorly. Finally, the last phase of the global high-tech mania
(1995-2000) was accompanied by a collapse of the Asian stock markets and Russia, as well as a continuation of the Japanese and commodities bear markets. By the late 1990s, most emerging markets (certainly in Asia) were far lower than they had been between 1990 and 1994. In the 1990s, emerging markets grossly underperformed the US stock market.

Currently, looking at the five most important asset classes - real estate, equities, bonds, commodities, and art (including collectibles) - I am not aware of any asset class that has declined in value since 2002!

Asymmetric market

The market has been correcting for sometime and there is a great deal of gloating by shorts. Chronic bears have found new followers. But if you look at the markets objectively,one of the first thing you will notice is asymmetric nature of market moves. Given the recent weakness, you would expect great number of stocks down majorly. However if you run a scan of stocks down 50% or more in a month ( priced higher than 5 a month ago) as of now, only 3 stocks are on that list.

Given the amount of ink which flows from chronic bears, you would expect sound logic and methods. But most of what is offered as bearish strategy is same general opinionated gibberish and extreme scenarios. Most of them do not have a clearly defined methodology. They have strong opinions but few valid methods. As an individual speculator one must take in to consideration the simple fact that in majority of time even a poorly designed long strategy will beat a well designed short strategy. You can seat on the sidelines during corrections or bearish phase and still, over the long run, beat the pants of those who short or follow a combination of long short strategy.

Structural odds in the markets are against the chronic bears. There are very few periods when bearish strategy works. Markets across the world have a documented positive bias over long run. If the chronic bears are so intelligent, why they do not understand it is a great mystery.

But it is paradox that in markets as well as in general life negativity sells substantially more than positivity in the short run. Newspapers and magazines survive on negativity. Death, destruction, misfortune, scandal, doomsday scenarios, and extreme projections is what attracts most people.

But the story of mankind is written by those who bet against such negativity. History is about optimism and those who bet against negativity and panic. Chronic bears and pessimist do not even make it to the footnotes in history.

Reader Questions

Markatkar had left a long comment with questions on previous post.


a. In your opinion, how much weight should one put on the sector and then the individual stock. Is it subjective or based on the stock's momentum, EPs, held in a mutual fund, recent sprint because of the earnings surprise or what else? All of the above?

The sector thing gives you more an indication of where opportunities are. For example take the solar energy sector once 1 stock in it had a Episodic breakout, I knew the story and reason why and had high conviction about the sector based on EPS trends and regulatory trends , plus the fact that it is new industry so mutual funds ownership will be low. So I put all solar energy stocks on watch. One by one they popped after that.
Or take the example of funeral services, while going through sectors trend in 4% break in July, August and the episodic pivot list I saw two stocks in that sector breaking out ( SCI, STEI)and having couple of 4% plus moves in quick succession. I researched the sector and knew this was more a value story, where after many years of neglect the sector had cleaned up its balance sheet from previous merger/buyout binge, plus people are not going to stop dying. So I put it on watch and in next couple of months several of them offered better entries.

The most important factors in terms of importance for my personal stock selections are EPS growth, momentum and neglect/virginity. Earnings breakout or acceleration on neglected/ virgin stocks, or momentum breakout on neglected/virgin stocks is what I primary look for. Other things are more background thing in decision making, they play minor role.

b.How do you handle the information contained in the stock checkup. Because, by the time a stock reaches IBD's A+ rating, OFTEN, its best gains are behind.

I don't use that tool. While I use the IBD concept of earnings and price momentum, I do not follow their prescribed methodology. I have studied CANSLIM and other similar methods like those on Mark Boucher, Dan Zanger, Mark Minervini,and others who had very high returns at some stage in their career, but has designed my own method which works for me.

c. The importance of buying at 52 week high is stressed as if it is a religion. That may work during the initial phase of the stock's rise. Or is to frustrate the shorts who may be waiting eagerly to shake out weak hands. What is your experience.

52 weeks high works on certain set of stocks with high EPS if you buy early in their price appreciation and earnings acceleration cycle.

d.You had mentioned that you have a assembly line of ideas that you generate. Are they mainly from IBD?
Or are they from other market aberrations? Or from your databases based on momentum.

I have researched several ideas and know of many that work but I trade only few concepts. There are little subtleties in terms of what works under what circumstances.
Currently I trade following strategies:
1 Episodic Pivots
This includes the earnings lead breakout strategy.The earnings lead breakout is seasonal variation of this strategy, because it works only in earnings season. Many stocks in the 100% plus universe and IBD 200 or the mutual fund list appear under this strategy. More and more of my ideas in recent months and years I find using this approach. While deciding on stocks in this scan to invest in, things like sector, mutual fund ownership etc., come in to play.Primarily to eliminate some of them.
I risk 5 to 10% per trade on such ideas.

2 Neglect/Virginity breakout. This is another strategy where I may risk 5 to 10%

3 EPS/ momentum breakout: This consists of the IBD 200/ IBD Select/ Mutual fund list/Sector Themes/100 Plus universe. This is primarily for finding trades when I don't find anything in first two strategies to buy. I mostly risk 1% on these ideas.

4 Short on former EPS/ momentum leaders with high float.


All these scans are well set and I run them during day and end of day. Most of the discretion is involved in the Episodic Pivots strategy. Others are 98% mechanical.

e. How do you integrate all the information. There is so much information generated by IBD, Worden data, 100% gainers, 200% gainers etc. Agreed it takes an hour or more daily, to filter this information. How do you handle this information overload and filter out various types of useless data/information to arrive at a logically sound and strong stock pick.

It takes me 5 minutes to run intra day scan and 20 minutes to run end of day scan. If I add higher powered computer to my set up I might be able to do it in less time, but that is not a necessity. I spend around 1-2 hours researching the Episodic Pivot list everyday. Lot of that happens during the trading day.

It takes me around 30 to 45 minutes to go through IBD in morning in detail and make my notes. By the end of the day I would have read my notes many times and researched some of it, so most of the time it goes in to my long term memory.

I have a God given gift to remember completely obscure details and facts and for many years used it to win several quizzes. Because of my quizzing background I know of some memory techniques to remember and recall things. In fact due to quizzing, I learned to read newspapers or any piece of information in microscopic details and to store it in memory.Winning quizzes is not about intellect but mostly about ability to remember and recall some perfectly useless knowledge.

Rest of the time I spend on other activities and R&D. At any given time I have around 2-3 new concepts under research. I research lot of things but do not change my trading unless I find something which will significantly improve my returns.

Markets unlikely to start rallying immediately

End of intense selling phase does not mean markets will start rallying vigorously. Most of the time they will spend time going sideways and offer mix of long and short strategies. Market go down or up, thicken and then intended move reasserts. On short side moves down are more jerky and volatile.

Market Monitor
Total 4% plus bullish breakouts=121
Total 4% plus bearish breakouts=33
65 day bullish/bearish ratio= 579/400
Stocks up 50% or more in a month=2
Stocks up 25% or more in a month=34
Number of stocks with 100% plus move =275
Number of stocks up 200% or more = 55
4% plus signals for 100plus universe=16
4% plus signals for 200plus universe=3


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".

Three stocks worth researching further in this list are FFH, FTEK, and BOT.


AIXG,Aixtron Aktiengesellschaft Ads (Google  Yahoo  Earnings  Chart) 
AVCI,Avici Systems (Google  Yahoo  Earnings  Chart) 
BOT,CBOT Holdings Inc (Google  Yahoo  Earnings  Chart) 
FFH,Fairfax Financial Holdings (Google  Yahoo  Earnings  Chart) 
FTEK,Fuel Tech Inc (Google  Yahoo  Earnings  Chart) 
HDNG,Hardinge Inc (Google  Yahoo  Earnings  Chart) 
HGRD,Health Grades Inc (Google  Yahoo  Earnings  Chart) 
ICAD,Icad Inc (Google  Yahoo  Earnings  Chart) 
JAV,Javelin Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
KRSL,Kreisler Manufacturing (Google  Yahoo  Earnings  Chart) 
LEND,Accredited Home Lenders (Google  Yahoo  Earnings  Chart) 
NEXC,Nexcen Brands Inc (Google  Yahoo  Earnings  Chart) 
OFI,Overhill Farms Inc (Google  Yahoo  Earnings  Chart) 
ONT,On2.Com Inc (Google  Yahoo  Earnings  Chart) 
VII,Vicon Industries Inc (Google  Yahoo  Earnings  Chart) 
VOLC,Volcano Corp (Google  Yahoo  Earnings  Chart) 

Playing Sectors

When you study sectors moves over a period of time, you find some interesting things which again can help you design a better trading system. While most people have generalised knowledge about sector, if you can find sector specific behaviour then you have an edge.

There are always problem with sector based strategies as many new stocks are lumped in to some existing sectors and sector behavior evolves over a period of time. For example many sector grouping services lump the exchanges under business services sector, while they are a category by themselves. So when looking at young stocks I always look at its sector skeptically.

Now having studied earnings and momentum based strategies on sectors, there are couple of unique behaviours you will find which one can factor in to your decision making. Some of these findings are in public domain, but if you do your own studies you would find some sector specific exploitable anomalies. I have found few such anomalies which are not in public domain.

While I do not want to talk about them, some reasonably common knowledge ones are worth studying also. For example the retail sector has a very unique behaviour and your earnings and momentum models need to factor that in. I am perfectly happy to buy a relatively low relative strength retail play as my studies show buying at such juncture is more profitable than buying at high relative strength. Shorting retail sector also is profitable because retail trends generally tend to persist because of the nature of sector where if you get your strategy wrong, it takes lot of time to reverse that. Retail sector also shows predictable calender tendencies.

The technology sector is best for momentum trading. I am perfectly happy to buy a technology play with low earnings , if it has high relative strength. Again this has to do with unique nature of the sector. Biotechs are best bought on catalyst. Most of them will have an intense burst of price activity driven by news. If you chase momentum without catalyst in this sector , many times you end up buying the top as the burst in price is primarily driven by future expectations. Also you seldom find a biotech with good earnings. The biotechs which make 100% plus kind of moves in few months in one single intense burst have no revenue and no earnings.Some sectors are best played using value based strategies.


Some sector anomalies have persistence, while others stop working as more people figure out the same things. . So if you focus on finding sector anomalies, you get a unique perspective which most people randomly chasing chart patterns or indicators or quantitative techniques lack. If you can isolate a sector behaviour, you have an exploitable edge.

Read newspaper and make money

James Cramer has a popular book called Mad Money: Watch TV, Get Rich. Some people claim to make occasional money watching him. But if you want to make big money and systematicaly find growth stocks that make dramatic moves of 100% plus in a year, you may find Investor Business Daily a better bet.

Like in religion, once you get convinced and adopt a trading philosophy, you can find many ways of achieving your trading nirvana. In trading my primary religion is growth. Growth in price or growth in earnings. Now one of the publication which exclusively focuses on growth stocks is Investors Business Daily. It is not really a newspaper, it is more like an evangelical publication aimed at followers of growth religion.

All most all my big ideas where I risk 5% to 10% on single idea or pyramid aggressively in to , I find using systematic study of IBD. There is a method to madness in everything in IBD. It exclusively focuses on high growth stocks. It very clearly highlights certain growth stock which in their judgement they feel are likely to make major moves. It constantly changes focus based on sector moves and market moves. If it feels a trend or stock or sector has big potential it will do a saturation coverage of the stock.

Now I am sure there are many IBD subscribers and they read it regularly. In my experience many of the subscribers do not really get in to depth or look for the big ideas in it. Many don't know how the EPS , RPS ratings, the accumulation distribution and other ratings are calculated. I attended a IBD meetup couple of times where 99% of the talk was about cup with handle, flat bases and chart patterns.

Everyday I read IBD in detail and then research few key ideas in greater detail using other sources, from these in a year I find a dozen ideas or so where I have conviction to put lot of capital to work and really pyramid in to them or press my bets on them.

Here are couple of things I look for in IBD:

1 Page 1 story. When IBD puts a company on page 1, I always dig deep. The page 1 main focus stories have generated lot of big ideas for me.

2 The big picture: Everyday I make a list of stocks under the Leaders up in volume and Leaders down in volume. If you study the list carefully, IBD only highlights certain stocks in it. Often the commentary on that page gives you a hint about sector change or impending stock top or estimates coming down.

3 New America. This one is obvious place to look for ideas. Similarly the company in the news feature is very helpful for understanding certain upcoming trends.

4 Funds top new buys: I always look at unknown companies in this list or those with high Comp ratings. Most of the time you will find some of these stocks breakout in month or two if they appear in this list for several funds.

5 Largest positions of funds in Big cap index and Largest positions of funds in value index. This is an excellent list of around 20 stocks each. Last year I found Las Vegas Sands and Mastercards , two big plays for me , in this list. I always focus on new addition to the list and young companies which have recently IPOed. If they make it to this list, the rally usually has legs. Now in recent month I noticed two new stocks Saks and CBG in it. Both worth keeping an eye on.
The other good use of this list is for short selling , when stocks get dropped from it or something goes wrong on stocks in this list, tey make good shorts.

6 Stocks on the move and Timesaver table. This is obvious one.

7 IBD's top supply demand companies. This is again very good source of big ideas. The stocks in this list are selected based on recent stock turnover as % of its float. All major winners like GROW, NVEC, AXR and so on were in this list and they rallied 100% plus post appearing in the list. This list is one of the best source of ideas I have found for stock likely to make significant move.

8 Industry Group: My today's earlier post gives details of this

9 IBD top 200 composite stocks. If you trade only these 200 stocks, you can beat the market.
10 NYSE stocks in the news and NASDAQ stocks in the news: This is one of the best place for short term and long term trades. The first 2 stocks in the list invariably pop due to IBD effect. The first 2 stocks which will normally have a commentary on the side, are the ones according to IBD patterns philosophy near buy points(C&W, Flat bases, double bottom at top of range etc. ). So these stocks are highlighted before they breakout.

Now besides that the weekend 85- 85 and IBD 100 list is useful. Within that the black bordered stocks usually pop next week due to IBD effect.

Due to the nature of newspaper, most of the time one forgets what you read in it a week ago. So everyday I create a page or two summary and file it and keep referring back to it again and again. I scratch out ideas which do not work or have events which change fundamental assumption. The surviving ideas have legs. Plus the notes help in developing market and sector understanding over a period of time. All this takes me 45 minutes in the morning. But it has made lot of money for me. For example recently IBD highlighted the solar energy stocks after Germany changed it utilities law and after several solar companies announced earnings. Since then one after another solar companies like TSL, FSLR, ASTI, WFR etc popped. Some of them made 100% plus moves in few months. Similarly the medical device makers like HRT, CYNO, ROCM, have had saturation coverage for many months. Recently after the correction started IBD changed focus on fresh set of sectors. Now all this information is available ahead of time before most of these stocks breakout. What more do you want. Plus you know William O'Neil is very successful trader, so you are essentially getting a perspective on market from successful growth trader along with news and views.

Obviously this involves some effort, but few big ideas in a year is all you need to make a resoundingly profitable year. If you are motivated to make big money, reading a newspaper in microscopic details may not be a bad idea......

Leadership change

The most important thing which happens in a market correction is sector and individual stock leadership change. If you can spot such changes systematically, you have an edge on the long side in the next up move.

The problems with corrections is they can cloud your judgement. The bearish story looks appetising. You start believing the chronic bears are geniuses. You start perfecting your short strategy. More than that the experience of painful and sudden losses for unprepared trader or those trying to chase sudden and vicious moves, can often lead to confusion and lack of focus on things that matter.

Corrections focus attention of traders on sectors or stocks which have problems. In some cases those problems are real, some cases perceived. In many cases the panic leads to irrational claims and warnings of dire scenarios. But what happens after the sell offs like we witness recently is more important for opportunistic speculators. The opportunity for money making after correction is in new emerging sectors.

Corrections lead to dramatic change in leadership. If you have seen in last few days sectors which were in rally mode just a few weeks ago have lost their leadership. The financials and brokers are the obvious ones. Other sectors like airlines which were on tear have also lost leadership. Now if you are value investor or vulture investor or special situation kind of investor obviously you should focus on the wreckage, but if you are a momentum/growth investor you should walk away from the wreckage and smell the new emerging opportunities.

The nature of market is such that when every one focuses their attention on mortgage sector, home builders, and financiers, a new set of sectors and stocks silently start their march upward. While the crowd is busy watching the wreckage and too scared, new opportunities spring in new sectors.

Energy, health care and technology, select technology, aerospace/defense and some niche sectors like funeral services have quietly started gaining leadership in last couple of weeks. The future opportunities are in those sectors.

Monitoring actionable trends in sectors is key to quickly grabbing next set of long opportunities. There are many ways to monitor sector. The key is to find the shifts in leadership early enough so that you can benefit from the move.

Some of the ways in which I monitor sector trends are:

1. By everyday sorting the 4% plus breakout list by sectors and ranking sectors by number of stocks. By looking at trends in this over a week you get heads up on new sector moves. All sector moves start with number of stocks in them having a high volume 4% plus breakout.
   
2. The other thing I monitor daily is in the IBD 52-Week Highs and Lows page, on that page there is a list of "Groups with highest % of stocks making new highs". If you monitor that list daily you again get a heads up on new emerging sectors. If you go back and see the list for last few weeks, you can spot where new leadership is emerging.
3. IBD's 197 Industry Group Rankings. Here I focus on the first two rows. You have to constantly look for sectors climbing up. In the IBD forum every weekend someone posts a file of the sector with several weeks data. The file is visually presented in green, yellw and red colorrs. It makes spotting trends in sector very easy. The trick is not to look at top sectors but the one which in next 4-5 months will rise to top.
   
4. By sorting the 100% plus list by sector.
5. By sorting the 65 days 25% plus movers list by sectors.
   

Another very good way to monitor sector leadership is by tracking IBD sector focus. There is lot of method to the stocks and sectors highlighted in IBD under their sector focus . When IBD identifies a sector with potential future leadership it goes all out and does saturation coverage of that sector for weeks or months.

If you have noticed IBD did saturation coverage of airline sector during its entire move. It started its saturation coverage in June, July, and August when the group was showing early signs of leadership with several stocks breaking out with 4% move. Those stocks in last 7-8 months made 100 to 300% moves since IBD started focusing on them. Same way the health acre sector and stocks like HRT, CYNO, ROCM and many others have risen 100% plus since IBD started focusing on the sector many months ago. Sometime later I will have a post on how you can make lots of money by studying IBD in microscopic details.

Earnings period and corrections are two times when a change of leadership in sectors happen. If you can systematically track and identify such sector moves early in their price appreciation cycle, you can benefit by the pop corn effect. When a sector gets going a stock after stock in it starts popping up.

If you are looking for money making opportunity just follow the new emerging sector leaders.....

Intense selling phase over for sometime

Panicky markets stabilised and possibly indicate intense selling phase may be over for time being. Shorts had to cover in hurry as selling pressure subsided. Most of the sectors leading the downside look washed out and so bargain hunters were active in them.
100% plus in 260 days, earnings breakouts, episodic pivots and neglect based strategies will start working again on long side.

Market Monitor
Total 4% plus bullish breakouts=79
Total 4% plus bearish breakouts=64
65 day bullish/bearish ratio= 547/421
Stocks up 50% or more in a month=4
Stocks up 25% or more in a month=38
Number of stocks with 100% plus move =260
Number of stocks up 200% or more = 53
4% plus signals for 100plus universe=8
4% plus signals for 200plus universe=1

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.

AIRN,Airspan Networks Inc (Google  Yahoo  Earnings  Chart) 
ANO,Anooraq Resources Corp (Google  Yahoo  Earnings  Chart) 
ASTI,Ascent Solar Technologies Inc (Google  Yahoo  Earnings  Chart) 
BIG,Big Lots Inc (Google  Yahoo  Earnings  Chart) 
CLRT,Clarient Inc (Google  Yahoo  Earnings  Chart) 
DSTI,Daystar Technologies Inc (Google  Yahoo  Earnings  Chart) 
EVOL,Evolving Systems Inc (Google  Yahoo  Earnings  Chart) 
JAV,Javelin Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 

Panicky markets can turn on a dime

There is a hint of panic setting in and that is good. Panicky markets turn on a dime. Short sellers often find that their profits are ephemeral, unless they cover quickly. The big speculators are where they are because they buy during panics.

If you study the markets 5% plus weakness over its history you will see on the bearish side, the markets have a propensity to turn on dime. Many moonshot rallies start from panicky weakness. I have studied every single weakness in Index for last many years. When forming a top market take long time but on short side many times the market shrugs of weakness and just rallies vigorously. It might retest those levels later but it might happen months after the weakness.

Playing short requires lot of tactical planning unless you find a short on individual stock with a enduring catalyst. Structurally in the market there are more buyers than sellers, plus behaviour of market players is different on long as against short.

One of the big mistakes one can make in the speculation game is to remain pessimistic about the market too long. Many chronic bears are still stuck on 2002 bear market, similarly they will paint scary scenarios, that is their role, but market seldom behaves as per the chronic bears expectations. The bearish hypothesis always paints extreme scenario.

Selloff was not a surprise

Sell offs like what we are witnessing consists of clustered days with extreme weakness. So there might be few more ugly days. Then the market will stabilise again. The sellers exhaust themselves at some stage.

Panicky sell offs like the current ones have higher probability of rebound moves. Slow methodical sell offs are different in their behaviour.

Market Monitor
Total 4% plus bullish breakouts=34
Total 4% plus bearish breakouts=439
65 day bullish/bearish ratio= 535/424
Stocks up 50% or more in a month=6
Stocks up 25% or more in a month=39
Number of stocks with 100% plus move =275
Number of stocks up 200% or more = 55
4% plus signals for 100plus universe=9
4% plus signals for 200plus universe=1

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.

ADST,Adstar Inc (Google  Yahoo  Earnings  Chart) 
BDSI,Biodelivery Sciences Intl Inc (Google  Yahoo  Earnings  Chart) 
DSTI,Daystar Technologies Inc (Google  Yahoo  Earnings  Chart) 
JAS,Jo-ann Stores Inc (Google  Yahoo  Earnings  Chart) 
JAV,Javelin Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
PRGX,Prg-schultz Intl Inc (Google  Yahoo  Earnings  Chart) 
RGR,Sturm Ruger & Co Inc (Google  Yahoo  Earnings  Chart) 
SWHC,Smith & Wesson Hldg Corp (Google  Yahoo  Earnings  Chart) 
WAVX,Wave Systems Corp Cl A (Google  Yahoo  Earnings  Chart) 

It takes time and low expectations to kickstart a rally

Corrections in market take time to play themselves out. After a 8 month rally with no major correction, the market is witnessing major correction. While it is tempting to attribute the sell offs to things like sub prime trouble and China, none of those factors matters in the long run (the sub prime anyway is in panic mode, so survivors will be bargains). The market is correcting because it went up a lot.

The things to keep a close eye on is earnings trend. As of now the trend of estimate revision for 2007 is up. While earnings are expected to slow down, the slowdown is not dramatic. That sets the stage again for sometime in future for earnings lead rally.

A few months of weakness or sideways move can set up the market again for a rally. That is how rallies progress over a long run. It is always tempting to be too bullish or too bearish at such stages, but individual stocks action is primarily driven by earnings and earnings expectations. If you were following earnings lead breakout strategy, you would have found several stocks breaking out post earnings and making 10 to 30% moves in few days, even after the correction. Those are the kind of stocks which will again get rallying once the correction plays itself out.

Low volume bounce

Market moved up on extremely low volume. Such moves are vulnerable to downside break. The recent earnings based breakouts like TSL and FSLR continue to act well. Solar energy plays and fertiliser stocks are witnessing some good action. But overall low volume makes the market vulnerable to sell of at some stage.

Market Monitor
Total 4% plus bullish breakouts=130
Total 4% plus bearish breakouts=39
65 day bullish/bearish ratio= 650/353
Stocks up 50% or more in a month=8
Stocks up 25% or more in a month=52
Number of stocks with 100% plus move =305
Number of stocks up 200% or more = 63
4% plus signals for 100plus universe=31
4% plus signals for 200plus universe=6

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.

AKAM,Akamai Technologies Inc (Google  Yahoo  Earnings  Chart) 
ASTI,Ascent Solar Technologies Inc (Google  Yahoo  Earnings  Chart) 
AVT,Avnet Inc (Google  Yahoo  Earnings  Chart) 
BBI.B,Blockbuster Inc Class B (Google  Yahoo  Earnings  Chart) 
BDSI,Biodelivery Sciences Intl Inc (Google  Yahoo  Earnings  Chart) 
BDY,Bradley Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings  Chart) 
CIMT,Cimatron Ltd (Google  Yahoo  Earnings  Chart) 
COR,Cortex Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
CPA,Copa Holdings S.A. (Google  Yahoo  Earnings  Chart) 
CTIB,Cti Industries Corp (Google  Yahoo  Earnings  Chart) 
CYNO,Cynosure Inc (Google  Yahoo  Earnings  Chart) 
DLX,Deluxe Corp (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
GIGM,Gigamedia Limited (Google  Yahoo  Earnings  Chart) 
HLIT,Harmonic Inc (Google  Yahoo  Earnings  Chart) 
LJPC,La Jolla Pharmaceutical (Google  Yahoo  Earnings  Chart) 
MDV,Medivation Inc (Google  Yahoo  Earnings  Chart) 
NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
ORCH,Orchid Cellmark Inc (Google  Yahoo  Earnings  Chart) 
PRGX,Prg-schultz Intl Inc (Google  Yahoo  Earnings  Chart) 
RNO,Rio Narcea Gold Mines Ltd (Google  Yahoo  Earnings  Chart) 
ROCM,Rochester Medical Corp (Google  Yahoo  Earnings  Chart) 
SBGI,Sinclair Broadcast Gp A (Google  Yahoo  Earnings  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
TAG,Tag-It Pacific Inc (Google  Yahoo  Earnings  Chart) 
TBSI,TBS International Limited Class A (Google  Yahoo  Earnings  Chart) 
TSL,Trina Solar Ltd. (Google  Yahoo  Earnings  Chart) 
UCTT,Ultra Clean Holdings (Google  Yahoo  Earnings  Chart) 
USAP,Universal Stain & Alloy (Google  Yahoo  Earnings  Chart) 
XIDE,Exide Tech (Google  Yahoo  Earnings  Chart) 

Down move likely to resume

Downside moves in market are punctuated by counter trend moves. Last week was good example of it. The perma bears as well as perma bulls turned bearish ,only to get stopped out in most cases. When playing the short side just selling short weakness may not be the best strategy. Anticipatory entries work best on short set ups.

While I am always willing to buy a breakout on long side, I am extremely reluctant to sell downside break of same magnitude. The odds of it continuing are low. You have to wait for the immediate bounce back to play itself out before finding a low risk entry. That is what is happened to lot of traders who excitedly sold short after market weakness.

Similarly on individual stocks lot of time I see people shorting top relative strength stocks. While you may get 5-10% fade move, in most cases on stocks V reversals are rare. A stock with high relative strength will in majority of cases go sideways for considerable period of time (up to 6 months to 2 years), before offering a long term short opportunity. At least that is what my study of momentum stocks shows.

The probable reason for such behaviour is that earnings trends persist. That is why to find good shorts you need to find again sudden shifts in earnings or in earnings expectations. Analyst taking down their earnings estimate is one good way to identify short sells candidates. When you see a series of analysts pulling down their earnings estimates on a top performing stocks you have to be careful.

PSPT was one such stock recently, which had this analyst behavior. The Zacks and Starmine methodologies use that approach. Even IBD in its commentary on specific stocks in IBD 100 or in stocks on move will mention such red flags. Those reading IBD carefully would have noted the same thing being mentioned by IBD about PSPT couple of times in recent month.

So ideal short set ups are around on stocks which had good relative strength or were members of 100% plus universe 2 years to 6 months ago. Many of those stocks will have accelerated moves down in corrections. Many of them have been stuck within 20 to 25% of their high in sideways move for long. They are the ones which generally have smooth moves down in corrections.


Market Monitor
Total 4% plus bullish breakouts=79
Total 4% plus bearish breakouts=55
65 day bullish/bearish ratio= 613/314
Stocks up 50% or more in a month=8
Stocks up 25% or more in a month=46
Number of stocks with 100% plus move =293
Number of stocks up 200% or more = 60
4% plus signals for 100plus universe=18
4% plus signals for 200plus universe=3

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.
ALAN,Alanco Technologies (Google  Yahoo  Earnings  Chart) 
ARGN,Amerigon Inc (Google  Yahoo  Earnings  Chart) 
BCSI,Blue Coat Systems Inc (Google  Yahoo  Earnings  Chart) 
BIG,Big Lots Inc (Google  Yahoo  Earnings  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings  Chart) 
CVNS,Covansys Corp (Google  Yahoo  Earnings  Chart) 
FSYS,Fuel Systems Solutions Inc (Google  Yahoo  Earnings  Chart) 
JSDA,Jones Soda Co (Google  Yahoo  Earnings  Chart) 
LJPC,La Jolla Pharmaceutical (Google  Yahoo  Earnings  Chart) 
MVIS,Microvision Inc (Google  Yahoo  Earnings  Chart) 
NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart) 
OMRI,Omrix Biopharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
ORCH,Orchid Cellmark Inc (Google  Yahoo  Earnings  Chart) 
SNCR,Synchronoss Technologies Inc (Google  Yahoo  Earnings  Chart) 
SVNT,Savient Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
SYNL,Synalloy Corp (Google  Yahoo  Earnings  Chart) 
TAG,Tag-It Pacific Inc (Google  Yahoo  Earnings  Chart) 
TSL,Trina Solar Ltd. (Google  Yahoo  Earnings  Chart) 

CAN SLIM Select

Yesterday I mentioned as part of the R&D effort, I have been investigating a list for many months. Now if you see the Investor's Business Daily web site, you will see one list under the heading Canslim Select. There are details about how those stocks are selected.

What is CAN SLIM Select?
The IBD CAN SLIM Select stock list tracks market-leading stocks that in general show strong earnings growth, positive institutional sponsorship, excellent industry strength, and solid sales growth, profit margins and return on equity. Stocks must also meet minimum price and volume levels. The list takes the market's direction into consideration and adds stocks only in healthy market environments. In healthy market conditions, the CAN SLIM Select list will include 100 stocks. In down-trending or poor markets, the list will shrink as stocks will not meet hurdles for inclusion in the list. For example, if the list contains 75 stocks, this indicates that the list is 75% active in the market.

Now this list has been a comparatively recent addition to the web site and it started after IBD tied up with Duncan-Hurst Capital Management to offer CANSLIM Select Growth Fund. The list has between 50 to 100 stocks depending on market circumstances. It is updated daily. It has slightly different set of stocks compared to IBD 100. Many of the stocks added are added prior to their breakout.

Having tested the list over many months, it offers good daily list of stocks for CANSLIM kind of investors. The advantage of the list is you can research and anticipate entries on some of these stocks.

Risk management is everything ?

I often hear in trading risk management is everything. Many times the trading gurus, book writers, newsletter sellers, black box sellers are the one proclaiming the diktat that 'risk management is everything'. When you hear such absolute statement there is always second side to it. In most cases it is and " we will tell you how to manage it in our seminar, automated software, newsletter...."

Most of the times such emphasis on a single element is misguided. Sometime back there was an anonymous commentator on this blog claiming entries do not matter, exit is important. As I have said earlier all four element of trading market selection, entries, exits, and risk management are important.

If you look at the risk management elements, today most professional traders follow good principals of risk management. So how come some outperform and others under perform. Or take the mutual funds, they follow very sound risk management principles, they have strict well defined limits on size of position, they frequently ( sometime on daily basis) adjust their risk to maintain their individual and sector risk under control. So how come the vast majority of them under perform the market.

Position sizing as holy grail of trading success is being offered in expensive courses and is being parroted by everyone around. So what explains performance gap of traders following them.

If you take a more holistic approach to risk management you will think very differently and strategies differently. Market selection can reduce your risk. Your entry criteria can reduce your risk. Your exit strategy can reduce your risk. Your frequency of trading can reduce your risk. Avoiding and favoring certain market periods can reduce your risk.Weighing your ideas differently can reduce your risk. There is much more to risk management than position sizing and R multiples.

Market Monitor

Stocks scored gains Thursday, though indexes witnessed late fade and volume was low. Individual stocks continue to show momentum and earnings lead breakout. The technical analysts, perma bears and conspiracy theorists were quick to jump on the correction and convince this one is for real. The market has acted contrary to that.

Current conventional wisdom being that this is just a weak bounce and will fail. The market does not seem to be following that script. With fickle short providing the fuel, a few more days of positive action or a major push by the big speculators will send the bears scurrying. The risk of upside move currently is higher, because everyone is looking for down move. The cash on sideline can help a lot if rally gets going. So watch out for a possible surprise.

It never hurts to keep your buy list ready.

Market Monitor
Total 4% plus bullish breakouts=135
Total 4% plus bearish breakouts=35
65 day bullish/bearish ratio= 597/354
Stocks up 50% or more in a month=8
Stocks up 25% or more in a month=51
Number of stocks with 100% plus move =295
Number of stocks up 200% or more = 59
4% plus signals for 100plus universe=24
4% plus signals for 200plus universe=10

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.

BDC,Belden Inc (Google  Yahoo  Earnings  Chart) 
BONT,Bon-Ton Stores Inc (Google  Yahoo  Earnings  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings  Chart) 
CBLI,Cleveland BioLabs Inc (Google  Yahoo  Earnings  Chart) 
DRYS,Dryships (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
HAXS,Healthaxis Inc (Google  Yahoo  Earnings  Chart) 
HLIT,Harmonic Inc (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
MAG,Magnetek Inc (Google  Yahoo  Earnings  Chart) 
MDV,Medivation Inc (Google  Yahoo  Earnings  Chart) 
MSI,Movie Star Inc (Google  Yahoo  Earnings  Chart) 
NEXM,Nexmed Inc (Google  Yahoo  Earnings  Chart) 
OMNI,Omni Energy Services Cp (Google  Yahoo  Earnings  Chart) 
PRXI,Premier Exhibitions Inc (Google  Yahoo  Earnings  Chart) 
PSMT,Pricesmart Inc (Google  Yahoo  Earnings  Chart) 
PSPT,Peoplesupport Inc (Google  Yahoo  Earnings  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings  Chart) 
SGEN,Seattle Genetic (Google  Yahoo  Earnings  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
TNH,Terra Nitrogen Co L.P. (Google  Yahoo  Earnings  Chart) 
VII,Vicon Industries Inc (Google  Yahoo  Earnings  Chart) 
XIDE,Exide Tech (Google  Yahoo  Earnings  Chart) 
ZIXI,Zix Corporation (Google  Yahoo  Earnings  Chart) 

Using corrections for R&D

The correction offers good respite for long term traders. At some stage the correction will play itself out. None of the things I track like Month 50% plus movers, 65 day bullish/bearish stocks are signaling end of correction.

I am sure lot of people have lost as much money on premature shorting and expecting the downside momentum to continue as they lost in the major down move. The high volatility during correction can cause significant damage to your account if you try and invent strategies during the move.

I am using the time to do R&D on some new stuff and lot of pending research on some promising ideas. There are some traders who tweak things or flirt from one strategy to another depending on how the wind is blowing. Most of the time it is better to do all your research and thinking and put all elements of your system together in one go and then trade the system till it breaks.The other thing is learning happens if you have a constant approach. Most of the things I trade barring the episodic pivot is more than 6 years old as a result I understand earnings, momentum, and neglect much better.

One of the things which I found in my recent research is another list from IBD which does very well. This was one of my long time pending project and I was tracking the list and its results for over 6 months on it. The correction has given time to flesh it out. I will sometime later share this simple stock selection method for those looking for lazy ways to beat the markets.....

Market Monitor

27 stocks out of 100% plus universe were up 4% yesterday. While it is tempting to assume simplistic theories about what happens in a bearish correction phase, in reality things are more complex. Stocks with price momentum depending on how much they have moved and how far they are in their momentum cycle , determines whether they will correct or withstand correction. Simplistic theories like everything is going to go down, short every bounce, and everything is going to crash, kinds indicate a lack of understanding about how markets work.

I will later talk about what my studies show about high momentum and high earnings momentum stocks during corrections like we are currently witnessing.

Market Monitor

Total 4% plus bullish breakouts=112
Total 4% plus bearish breakouts=56
65 day bullish/bearish ratio= 585/369
Stocks up 50% or more in a month=7
Stocks up 25% or more in a month=44
Number of stocks with 100% plus move =275
Number of stocks up 200% or more = 55
4% plus signals for 100plus universe=27
4% plus signals for 200plus universe=5

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.
ALAN,Alanco Technologies (Google  Yahoo  Earnings  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings  Chart) 
EGI,Entree Gold Inc (Google  Yahoo  Earnings  Chart) 
FARO,Faro Technologies Inc (Google  Yahoo  Earnings  Chart) 
HLIT,Harmonic Inc (Google  Yahoo  Earnings  Chart) 
ICAD,Icad Inc (Google  Yahoo  Earnings  Chart) 
IGTE,Igate Corporaion (Google  Yahoo  Earnings  Chart) 
IVN,Ivanhoe Mines Ltd (Google  Yahoo  Earnings  Chart) 
MEND,Micrus Endovascular Corp (Google  Yahoo  Earnings  Chart) 
MOVI,Movie Gallery Inc (Google  Yahoo  Earnings  Chart) 
NEXM,Nexmed Inc (Google  Yahoo  Earnings  Chart) 
NM,Navios Maritime Holdings Inc (Google  Yahoo  Earnings  Chart) 
ONT,On2.Com Inc (Google  Yahoo  Earnings  Chart) 
ORCH,Orchid Cellmark Inc (Google  Yahoo  Earnings  Chart) 
PED,Smartpros Ltd (Google  Yahoo  Earnings  Chart) 
POT,Potash Cp Saskatchewan (Google  Yahoo  Earnings  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings  Chart) 
RICK,Rick's Caberet Intl (Google  Yahoo  Earnings  Chart) 
RNO,Rio Narcea Gold Mines Ltd (Google  Yahoo  Earnings  Chart) 
SMSI,Smith Micro Software Inc (Google  Yahoo  Earnings  Chart) 
SPAR,Spartan Motors Inc (Google  Yahoo  Earnings  Chart) 
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart) 
TTWO,Take-Two Intera Software (Google  Yahoo  Earnings  Chart) 
UCTT,Ultra Clean Holdings (Google  Yahoo  Earnings  Chart) 
URZ,Uranerz Energy Corp (Google  Yahoo  Earnings  Chart) 
USAP,Universal Stain & Alloy (Google  Yahoo  Earnings  Chart) 
WNR,Western Refining Inc (Google  Yahoo  Earnings  Chart) 

Upside momentum may last for few days

There were only 21 downside movers yesterday. The overall bounce was good but lacked volume. Eager shorts are anticipating more downside, but it is likely that the bounce will have more upside.
There are number of stocks with good earnings bouncing back and they may offer good opportunities in few days.

Market Monitor

Total 4% plus bullish breakouts=262
Total 4% plus bearish breakouts=21
65 day bullish/bearish ratio= 567/361
Stocks up 50% or more in a month=6
Stocks up 25% or more in a month=47
Number of stocks with 100% plus move =269
Number of stocks up 200% or more = 53
4% plus signals for 100plus universe=23
4% plus signals for 200plus universe=13

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.

ACY,Aerocentury Corp (Google  Yahoo  Earnings  Chart) 
AOI,Alliance One International Inc (Google  Yahoo  Earnings  Chart) 
ARGN,Amerigon Inc (Google  Yahoo  Earnings  Chart) 
BIDU,Baidu.com Inc (Google  Yahoo  Earnings  Chart) 
BONT,Bon-Ton Stores Inc (Google  Yahoo  Earnings  Chart) 
BRKR,Bruker Biosciences Corp (Google  Yahoo  Earnings  Chart) 
CCOI,Cogent Communications Group Inc (Google  Yahoo  Earnings  Chart) 
CLAY,Clayton Holdings Inc (Google  Yahoo  Earnings  Chart) 
CLRT,Clarient Inc (Google  Yahoo  Earnings  Chart) 
FTEK,Fuel Tech Inc (Google  Yahoo  Earnings  Chart) 
GIII,G-III Apparel Group Ltd (Google  Yahoo  Earnings  Chart) 
HOTJ,House of Taylor Jewelry Inc (Google  Yahoo  Earnings  Chart) 
HURC,Hurco Companies Inc (Google  Yahoo  Earnings  Chart) 
IOSP,Innospec Inc (Google  Yahoo  Earnings  Chart) 
JAV,Javelin Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
JSDA,Jones Soda Co (Google  Yahoo  Earnings  Chart) 
MFB,Maidenform Inc (Google  Yahoo  Earnings  Chart) 
POZN,Pozen Incorporated (Google  Yahoo  Earnings  Chart) 
PRXI,Premier Exhibitions Inc (Google  Yahoo  Earnings  Chart) 
RICK,Rick's Caberet Intl (Google  Yahoo  Earnings  Chart) 
ROCM,Rochester Medical Corp (Google  Yahoo  Earnings  Chart) 
SIGM,Sigma Designs Inc (Google  Yahoo  Earnings  Chart) 
TNH,Terra Nitrogen Co L.P. (Google  Yahoo  Earnings  Chart) 
TRA,Terra Industries Inc (Google  Yahoo  Earnings  Chart) 
TWW,Terremark Worldwide Inc (Google  Yahoo  Earnings  Chart) 
VDSI,Vasco Data Security Intl (Google  Yahoo  Earnings  Chart) 
VII,Vicon Industries Inc (Google  Yahoo  Earnings  Chart) 
VTO,Vitro Sociedad Anonima (Google  Yahoo  Earnings  Chart) 

Conditions ripe for a bounce

Monday was another bad day for indices. Yesterday there were 426 stocks down 4% or more in my universe. Levels like that after a few days weakness have historically shown a tendency for a bounce. Several Jame Altucher kind of short term trading systems are signalling buy for a day trade based on yesterday's action. Downside moves have above average propensity for counter trend rallies.

Because the markets have fallen hard and fast, pressing any shorts here is unlikely to work. I covered my short yesterday. When playing shorts, short holding periods, work best in my experience so far. Currently there is pathetic buying but these things can often change on a dime. All it takes is some large speculator kicking off a programme buy and others will come out of woodwork.

Trading such bounce requires some nimbleness and forward planning, I have 3-4 stocks on my watch list for such bounce (GOOG, MA, UNH, AIG,ICE, COP, IBM, etc.) The thing to remember, however, is to not get too aggressive chasing such names. Large institutional players typically like buying on such weakness, they will move back in, some stocks will attract buy interest.

Other stocks which will attract buy interest are stocks which recently had good earnings and due to market conditions have dived back in to range. Playing such bounce is risky, the other alternative is to wait in cash for good opportunities later. All the methods IBD200, 100% plus, earnings based breakouts, and episodic pivots show best results after a few months of weakness, so in my scheme of things this correction is more than welcome.

Market Monitor

Market is likely to bounce here. Some of the technology stocks are showing some signs of stabilisation. Because most would treat attempt at bounce with skepticism, the bounce might have some legs.


Market Monitor

Total 4% plus bullish breakouts=26
Total 4% plus bearish breakouts=426
65 day bullish/bearish ratio= 493/449
Stocks up 50% or more in a month=7
Stocks up 25% or more in a month=41
Number of stocks with 100% plus move =233
Number of stocks up 200% or more = 42
4% plus signals for 100plus universe=4
4% plus signals for 200plus universe=2

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.

AMIE,Ambassadors Internat Inc (Google  Yahoo  Earnings  Chart) 
CNST,Constar Internatl (Google  Yahoo  Earnings  Chart) 
CRYO,CryoCor Inc (Google  Yahoo  Earnings  Chart) 
EGHT,8x8 Inc (Google  Yahoo  Earnings  Chart) 

Trading runaway markets

One of the things which Boucher emphasises in his book The Hedge Fund Edge is trading in runaway markets. The idea is to identify stocks with runaway characteristics based on earnings, momentum, chart patterns and enter in them. Such markets often continue moving much longer than you originally thought. Getting into these markets and then staying positioned in strong trends until you get stopped out is the essence of his strategy.

The most important lesson of the book is that there are two types of stocks, Meteors and Fixed Stars

Meteor is the stock that blasts off; reaches extreme overvaluation; and falls back into obscurity. Meteors are the `fad' stocks that explode up 300% or more in a 1 to 3 year period, then collapse. These stocks are good for short term traders.

Fixed Star: Starts the same way as a meteor but does not become extremely overvalued. These stocks sustain steady price growth for years, some more than a decade. These stocks are good for investors.

Boucher methodology tries to find such stocks during their initial moves.He offers a detailed step by step methodology for this using earnings and momentum. At the crux of it is looking at characteristics of the first one third of a move and based on that predict the next 2/3 rd move. He has found stocks exhibiting certain kinds of volume and momentum patterns in first 21 days of their move have very high probability of making the meteoric move. The book offers complete trading system with risk management, entry and exit strategies for this.

Now if you are TC2000 user your task is simple. Go to Yahoo Telechart200 users group (the old one) and look at messages 4502-4510. You will find complete set of scans for trading Mark Boucher system. Those series of scans can help you put it together very easily. You should also find a file explaining the system once you sign up with the group. Run a search in the group with "tbblbg" as search term. "tbblbg" is the short form for Mark Boucher system and it stands for thrust breakout, breakout lap, and breakaway gap.

Note: You can also find same scans here.

Market Monitor

Downside breakouts continue to exceed upside breakouts by wide margins. The 100% plus list and stock up 50% or more is rapidly dwindling but has not yet reached extreme zones. So market continues to be bearish and short strategies continue to work.

Watch the IBD largest holding of growth and value fund list carefully. AIG and UNH are attracting buyers. The two sectors might be worth keeping an eye on for flight to safety trade.

Market Monitor

Total 4% plus bullish breakouts=42
Total 4% plus bearish breakouts=186
65 day bullish/bearish ratio= 583/355
Stocks up 50% or more in a month=7
Stocks up 25% or more in a month=46
Number of stocks with 100% plus move =261
Number of stocks up 200% or more = 54
4% plus signals for 100plus universe=7
4% plus signals for 200plus universe=2

Stampede

After a long run the markets are experiencing corrections. Some corrections are violent some are more orderly. The stampede to get out leads to such events. Short sellers have a marginal role in it. Bearish funds and bearish analyst always try to exaggerate their importance but as a percentage of total investors , they are minuscule.

The stampede effect probably is more due to liquidity drying up. Absence of buyers and bids lead eager seller wishing to reduce their exposure to bid further down, leading to cascading effect." Get me out at any cost" becomes the mantra. With most of the professional money managers and traders following risk management strategies, as market start going down more selling comes in to keep risk in control.Capital preservation becomes the mantra. So absence of willing buyers leads to more panic.

At some stage the stampede runs its course, the stocks reach compelling valuation zones and a set of buyers step in and the market stabilises.These set of buyers are usually the big speculators. Either it takes time or lot of selling in short time frame for the buyers to step in. If you study market turns over several years, most rallies after stampede selling start on a dime and offer some of the best buying opportunities. The question to ask is what happens after a crash. Markets rebound ferociously.

The Kirkreport and Trader Mike effect

What happens when a below radar blog gets a mention on The Kirkreport and Trader Mike blog. It is like Digg effect. The top dogs in blogging really control the agenda. They have same influence as mass media.

In two days in which they linked here 189 email enquiries were generated. The largest number of non spam emails I ever got in my life. After that there have been steady stream of 15 to 20 emails everyday.

What the market is telling us

Business Week has a optimistic take on the market. One thing is for sure there will be one big rally in the market in later part of this year. The earning picture is still very healthy.

In the parlance of Thomas Friedman, the world never looked flatter than it did this week. A 9% stock market sell-off in China on Feb. 27 prompted sharp drops almost everywhere else around the globe. Suddenly, money managers and traders, lulled into a trance by seven months of steadily rising share prices, felt like they'd been hit over the head with a best-selling hardcover. With one big thwack, they were reminded that stocks are risky and that emerging markets are riskier.

In hindsight, no one should have been surprised. China surged an amazing 130% last year and 13% in the week ahead of the plunge, as millions of newbie day traders punched in buy orders on rumors about shares they'd never heard of. Stocks zoomed in other overseas markets for half a year; U.S. shares, which have lagged the rest of the world since 2000, rose steadily and with little volatility. Something had to give.

The question is what happens next. This latest episode of jitters could be the opening shock-and-awe campaign of something more lasting. The U.S. economy is suddenly looking weaker than it has in a long time. Fears are mounting that troubles in the mortgage market could spread to