Market Monitor

The story remains same with large caps dominating the action. Small caps have not participated so far. The IBD kind of stocks are underperforming.

Market Monitor

Total 4% plus bullish breakouts = 125

Total 4% plus bearish breakouts = 80

65 day bullish/bearish ratio = 973/269

Stocks up 50% or more in a month = 11

Stocks up 25% or more in a month = 95

Number of stocks with 100% plus move = 431

Number of stocks up 200% or more = 94

4% plus signals for 100plus universe = 29

4% plus signals for 200plus universe = 8

Double Trouble breakouts
AMIE,Ambassadors Internat Inc (Google  Yahoo  Earnings  Chart) 
CPY,Cpi Corp (Google  Yahoo  Earnings  Chart) 
GCOM,Globecomm Systems Inc (Google  Yahoo  Earnings  Chart) 
GRIL,Grill Concepts Inc (Google  Yahoo  Earnings  Chart) 
GSOL,Global Sources Ltd. (Google  Yahoo  Earnings  Chart) 
IDMI,IDM Pharma Inc (Google  Yahoo  Earnings  Chart) 
MA,MasterCard Inc (Google  Yahoo  Earnings  Chart) 
NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart) 
ONNN,On Semiconductor Corp (Google  Yahoo  Earnings  Chart) 
RPRX,Repros Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
SNCR,Synchronoss Technologies Inc (Google  Yahoo  Earnings  Chart) 

Mental models and orbital changes

I have got number of emails about my previous posts about mental models, asking for details.

Much of my interest in mental modeling started when I spent 6 years in advertising industry. Advertising industry is possibly the largest and the most shrewed user of every psychological technique known to mankind. All successful persuasion involves either reinforcing or challenging existing mental models.

One of the first research I was involved with was on cigarettes, for the launch of a new cigarette. Now cigarette as a product is conspicuous consumption product. What you smoke tells a lot about what you are as a person or what you want to project to the world. When we researched cigarette buyers, they had different mental models and their brand choices were determined by their mental models.

So in focus groups people would explain their brand choice by their life philosophy, beliefs, assumptions, images, etc. You could clearly see people with different mental models had different career choices, different earnings capabilities, different levels of success in life. All their choices and behavior flowed form those mental models. One of the very popular brand of cigarette in India at that time was Red and White. It was primarily targeted at lower middle class. It had a very popular advertisement running at that time in Hindi, "Red and White pine walo ki baat hi kuch alag hain"( There is something special about a Red and White smoker). People in focus groups or in interviews would sum up their life philosophy by using that line.

One of the task we were assigned was to identify different mental models and I spent considerable time going through various studies in mental modeling and coming out with hypothetical mental models and testing them with actual people. So I got deeply involved in to researching mental models. The central role of effective advertising is to change or reinforce consumers existing mental models through communication.

Subsequently I spent 6-7 years in service industry where again the quality of service at individual level is a function of front line workers mental models. So service industries create an idealized profile of excellent service worker and recruit people with similar mental models ( in USA this is bit tricky because this is called profiling). Internally service companies create a organizational culture which encourages and actively recruits people with certain mental models and punishes or do not hire people with different mental model. I did lot of work in creating such "profiles" of mental model when I worked in service industry, as that is the key to good service quality where personal interaction is involved.

While doing this I was teaching MBA courses as a guest lecturer. I did this for many years and interacted with lot of young people and started studying their mental models in order to shape and change them. I also spent some time formally researching and interviewing people who were successful in managerial roles in senior management roles or in other fields like journalism, sports, academics, etc. Much of my understanding of mental modeling has evolved out of those studies and experience.

Mental models are deeply held mental images, beliefs, and assumptions. The mental models play a very important role in dealing with world around us. We interpret the world according to our mental models. Two people with different mental models react and interpret same data and same situations differently. Mental models include what a person thinks is true but not necessarily what is actually true.

What I observed is that successful people had very different mental models. They did, not just few things differently, but they did 100 things differently. Their world view and assumption about world and people was very different from those who were not very successful. One of the central difference was in their self belief and self motivation. Which to large extent reflected in how they looked at same set of data and acted on it differently. Motivation and discipline were not the problem for most of them, while the others had these issues frequently.

From a more practical perspective based on my experience of long years of working with my students on trying to change mental models, I have found if you are looking for dramatic changes or "orbital changes" then you need to change your mental model significantly.

"Orbital changes" are changes which push you in to next level of orbit in terms of success or competency. These are very significant changes, requiring changing major set of beliefs and assumptions and freezing that new change and belief. I have seen such changes in many cases when the person was ready and motivated enough to make the change in mental models. I have seen some of the students changing their mental models dramatically , so much so that it surprised even their parents, people associated with them, their classmates and best friends. They just lifted themselves in to new orbit.

My home in India was a laboratory and I spent all my free time working with my students on mental modeling.I have been in touch with most of them over the years and seen how their life and career progressed since then. Changing mental models is easier for young people, as you get older you become more set in your belief and assumptions about world and life or your mental models get hard coded. Also once young people get convinced they can be very obedient. Mentoring relationships require certain degree of obedience for them to work. Hence commercial mentoring arrangements seldom work. It is not impossible, but more difficult process for older people plus culturally obedience is difficult thing to understand in American society. Sometime when people go through major life changes like death of close relative or friend, war, divorce, loss of job or any such event, such orbital changes in mental models happen.

Armies have structured programs to change mental models. Recently I was watching on Fit TV a program about elite Navy Seal training and it was all about changing mental models. While it was physically very challenging and rigorous, the overall emphasis was on mental modeling. The side interviews with those conducting the training again and again talked about the mental aspect of it. Those who completed it were interviewed in that program immediately after the training and after many months and they kept saying what that program did was to change their mind.

Cosmetic changes are easier and involve simple psychological intervention and much of the commonly used techniques like coaching, biofeedback, affirmation, counsellings,training etc. But dramatic changes require different approach.

It is my belief and observation after interacting with many different types of traders, that same mental modeling thing comes in to play in trading. Successful traders simply have different mental models. When you interact with them you become instantly aware of it. This week I interacted with a trader who sent an email based on what that person read here, now the moment I read the first email, I knew this person gets it, this person has a different mental model. Subsequently I had more interaction with the same person and it reaffirmed my earlier observation.

So if you are struggling with trading, you may need an orbital change in your mental model.

Indicator soup

Whenever I post chart, invariably I get questions on what indicator do you use. Now long time readers know, there are no conventional indicators I use. Now there are many traders who swear by their indicator. Lot of time they believe in the indicator rationally or irrationally and it works. Indicators are much like placebos in medicine.

I have studied and thought about indicator a lot. Basically indicators are of three types- lagging, leading, and hybrid. Lagging indicators lag the price move. Almost all lagging indicators are derived by averaging series of values. All such average contain lag. SMA, EMA, Adaptive Moving Averages, and various other methods of deriving averages ultimately have lag.

Leading indicators are basically variation of Rate of Change. Leading indicator show acceleration and hence are called momentum indicator ( stochastics and many dozen other variations with different names of it are all leading indicator) The central hypothesis in such indicator is that trend decelerate before it can reverse. So divergence is what you look for in such indicator. The problem is many time the trend decelerate and instead of reversing it accelerates.So they tend to work in range bound markets, but are mostly useless in trending market.

Hybrid indicators like MACD are basically used to overcome problem with both lagging and leading indicator.

Then there are "belief" indicators like Gann, Fibonacci and several mystical variations of them. If you believe in them they work. If you believe in voodoo doctor voodoo medicine works.

As against all these indicator, what I look for is rate of change from a pivot low. The pivot might be 260 days low, or 65 days low or one month low. The advantage is it gives you absolute value. You can compare stocks. A stock having gone up 1087% in 260 days (FRPT) is different from a stock that is up 20% from the 260 days low. The value allows you to rank your stock and select. So faced with a 4% breakout or Episodic Pivot you can select the one which is up 100% plus or the other which is up 20% over same period of time. It is very simple and allows you to separate strongly trending stocks from non trending stocks.

The other problem with the way indicators are used by most traders is, they have absolutely no idea about how they are calculated. 90% of the traders who use MACD have no idea how it is derived. So there is often temptation to add more indicator. Ultimate result is an indicator soup.

Episodic Pivots

Earning season and general market froth is leading to lot of candidates coming in Episodic Pivot list. When markets correct and start fresh moves, you have very few candidates to work with and when you enter them, they have high success rate. EP in later part of market moves often have pullbacks and offer better entries after few weeks.

Here are only selected stocks from over 40 plus EP candidates yesterday.

ARM,Arvinmeritor Inc (Google  Yahoo  Earnings  Chart) 
BXXX,Brooke Corp (Google  Yahoo  Earnings  Chart) 
DBTK,Double-Take Software Inc (Google  Yahoo  Earnings  Chart) 
EPAY,Bottomline Technologies (Google  Yahoo  Earnings  Chart) 
GEL,Genesis Energy (L.P.) (Google  Yahoo  Earnings  Chart) 
LOOP,LoopNet Inc (Google  Yahoo  Earnings  Chart) 
MTH,Meritage Homes Corp (Google  Yahoo  Earnings  Chart) 
PLXS,Plexus Corp (Google  Yahoo  Earnings  Chart) 
VICR,Vicor Corp (Google  Yahoo  Earnings  Chart) 
WCAA,Wca Waste Corp (Google  Yahoo  Earnings  Chart) 
WST,West Pharmaceutical Svcs (Google  Yahoo  Earnings  Chart) 

VDSI and MBLX

mrstrader said...

I would like to clarify how YOU handle gaps and I will use MBLX purely as an example. I bought on Monday at about 21. Lucky for me some guy on CNBC hawked it and it gapped up as high as 25.9 yesterday. Stopped out today using the 5% loss rule. Prior to coming to your sight I would have held because the chart still looks good to me but I figured I'd give your system a go. At what point would you reenter, a new high or a 2% move? Thanks
Apr 26, 2007 9:29:00 PM

Mrstrader please see my earlier post Why you should not trade any of the ideas discussed here

I do not know what stops you used and why. My stops are at 2 days low before entry day. So here is MBLX chart with entry and stops, as I see them and trade them. Current trailing stop is 22.43 as it made 20% plus move post entry.

JS said...

VDSI surged some 27% today. It is up 153% in 1 year. Would you consider today's surge (due to earnings) a EP, and trade the stock even though it has gone up considerably? Or would you wait for a pull back? Was this stock picked up on an earlier date by your scan and if so, would that scan have been a better entry point?
Apr 26, 2007 9:04:00 PM

VDSI is up 225% in 260 days. The yellow spikes show 4% plus signal. Green and Light Blue show Episodic Pivots. Earlier entry points were better. It was an earnings trade 3-4 quarters ago when it doubled its earning and has gone up since then.VDSI was on IBD 200 for long periods of time in last one year and offered entry points then. IBD 200 stocks have lower price growth than 100% plus universe. So some of the good earnings candidates come from it.

Earnings Breakout

Here is a list from IBD of selected stocks with 100% plus earnings or 100% plus sales. Now those which had earnings yesterday morning have already reacted, as you can see in stocks like ALGN, VDSI, RKT, TMO on upside and CCBL and BW on downside.

ACTG,Acacia Research Acacia Tech (Google  Yahoo  Earnings  Chart) 
ALGN,Align Tech Inc (Google  Yahoo  Earnings  Chart) 
ALSK,Alaska Communctns Systms (Google  Yahoo  Earnings  Chart) 
BPL,Buckeye Partners (L.P.) (Google  Yahoo  Earnings  Chart) 
BW,Brush Engineered (Google  Yahoo  Earnings  Chart) 
CCBL,C-Cor Incorporated (Google  Yahoo  Earnings  Chart) 
CCO,Clear Channel Outdoor Holdings Inc (Google  Yahoo  Earnings  Chart) 
CTV,Commscope Inc (Google  Yahoo  Earnings  Chart) 
CY,Cypress Semiconductor Cp (Google  Yahoo  Earnings  Chart) 
EICU,Visicu Inc (Google  Yahoo  Earnings  Chart) 
EQIX,Equinix Inc (Google  Yahoo  Earnings  Chart) 
FSS,Federal Signal Corp (Google  Yahoo  Earnings  Chart) 
FSTR,L.B. Foster Co Cl A (Google  Yahoo  Earnings  Chart) 
IGTE,Igate Corporaion (Google  Yahoo  Earnings  Chart) 
MEE,Massey Energy Company (Google  Yahoo  Earnings  Chart) 
MEH,Midwest Express Holding (Google  Yahoo  Earnings  Chart) 
OPLK,Oplink Communications (Google  Yahoo  Earnings  Chart) 
OSIP,Osi Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
RKT,Rock-Tenn Co Cl A (Google  Yahoo  Earnings  Chart) 
SPR,Spirit Aerosystems Holdings (Google  Yahoo  Earnings  Chart) 
SPWR,SunPower Corp (Google  Yahoo  Earnings  Chart) 
TMO,Thermo Fisher Scientific Inc (Google  Yahoo  Earnings  Chart) 
TNH,Terra Nitrogen Co L.P. (Google  Yahoo  Earnings  Chart) 
ULTI,Ultimate Software Gp Inc (Google  Yahoo  Earnings  Chart) 
VDSI,Vasco Data Security Intl (Google  Yahoo  Earnings  Chart) 
VSEA,Varian Semiconductor Equipment Associates Inc (Google  Yahoo  Earnings  Chart) 
WFR,Memc Electronic Material (Google  Yahoo  Earnings  Chart) 


Some are up 20% plus coming in to earnings and are overextended and likely to revert. But few out of these will probably rally.I have put some on watch list, also from after hours trading you know which one are likely to go up and which one down. So accordingly some trades will work out.
Some day you get absolute neglected stocks and those are ideal. Those tracking morning earnings can find moves like VDSI ALGN, RKT, TMO etc. But I now days only look at evening releases. I still find my 20-25 trades in an earning season in them. Rest anyway show up on Episodic Pivot.
If you see yesterday's 100% plus list CNS, DBTK, MLNX triggered on upside. While HLIT and TSCO on downside.
The first few weeks are dominated by large caps in earnings season, next week onwards the small caps and lesser known companies will start announcing earnings and that is when fun will start.
Also if you keep a database of 100% plus stocks , in few weeks you will notice some of those which had big moves on earnings forming cup with handle and some forming flat bases. Such stocks offer another entry point later.

You will also notice IBD will highlight either on its front page or in New America some of the stocks with triple digit plus earnings or those stocks which had high volume breakout on earnings day. The stocks highlighted in IBD opinion are the ones to focus on. Many of them make major move in a quarter or two. For example WFR, ROCM, TSL, BTJ, SPAR, were somee stock highlighted in IBD after last earnings and they went on to gain after that. If you keep a close watch you will find majority of New America candidates have triple digit plus earnings growth in recent quarters.

How are New America companies selected?
The editors of The New America screen for companies that show robust year-over-year increases in earnings and revenue. Their stocks must be outperforming the general market, and are usually priced above $10 a share. In some cases, the company has just recently turned profitable or is rebounding out of a business slump. New America story candidates usually have an innovative new product or service or are benefiting from a major new industry trend.

Market Monitor

• Apple (AAPL), Exxon Mobil (XOM) and 3M (MMM) earnings and positive sentiment withstanding the averages finished mixed. Breadth was again negative.
• 173 stocks were up but the number to watch is 105 down. The down movs have been increasing, indicating rotation.
• Rotation is also visible in 987/252 numbers which have stalled and not improved.
• Several gap ups on flimsy news early in the morning in many cases, indicating red hot momentum.
• The market is currently in full momentum mode
• Corrections have a nasty habit of appearing when trading becomes too easy and things you buy go up 20% plus in few days of your buying.
  
• My other Idiot/ Boast indicator is at red territory. Yesterday I got 3 emails telling how the Market Monitor is useless and how I am an idiot for my call on AMZN and imploring me to"just buy, just buy, just buy".
  

Market Monitor

Total 4% plus bullish breakouts = 173

Total 4% plus bearish breakouts = 105

65 day bullish/bearish ratio = 987/252

Stocks up 50% or more in a month = 8

Stocks up 25% or more in a month = 101

Number of stocks with 100% plus move = 440

Number of stocks up 200% or more = 96

4% plus signals for 100plus universe = 32

4% plus signals for 200plus universe = 7

You know market has changed in its nature and new group of stocks are taking momentum leadership when you are completely wrong in your judgment. AMZN is clear case of that. After I made a fool of myself by saying large caps seldom make 50% plus moves, guess what AMZN is in the proud member of the 50% plus in a month list. The revenge of the large caps after many years of sub par growth.

Double Trouble

There are total 32 4% plus movers in Double Trouble universe today. The 13 stocks below have weakness or consolidation in last few days before the breakout.

ARGN,Amerigon Inc (Google  Yahoo  Earnings  Chart) 
AVT,Avnet Inc (Google  Yahoo  Earnings  Chart) 
CNS,Cohen & Steers Inc (Google  Yahoo  Earnings  Chart) 
GEL,Genesis Energy (L.P.) (Google  Yahoo  Earnings  Chart) 
INOD,Innodata Isogen Inc (Google  Yahoo  Earnings  Chart) 
ISSC,Innovative Solutions (Google  Yahoo  Earnings  Chart) 
NTY,Nbty Inc (Google  Yahoo  Earnings  Chart) 
PHRM,Pharmion Corp (Google  Yahoo  Earnings  Chart) 
POZN,Pozen Incorporated (Google  Yahoo  Earnings  Chart) 
RKT,Rock-Tenn Co Cl A (Google  Yahoo  Earnings  Chart) 
SSYS,Stratasys Inc (Google  Yahoo  Earnings  Chart) 
SVVS,SAVVIS Inc (Google  Yahoo  Earnings  Chart) 
VDSI,Vasco Data Security Intl (Google  Yahoo  Earnings  Chart) 

Gap and trap

I am noticing so many gaps today. Some are on below normal volume. Yesterday's move created the euphoria and clearly even minor catalysts and not so good earnings are leading to gap ups.

Now when market starts moving in gaps and stocks start moving in gaps after a long run, can correction be far away.

We are in an abnormal market conditions currently.

Note: I am aware of the comment widget not working in sidebar. This happens when blogger updates some software at their end. Will try and fix the code later to night.

Breakdowns

The earning season also has its losers and sometime some of them go in to multi month down spiral. Earnings disappointments or earnings slowdown after strings of good quarters can lead to such action.
The earning season also leads to new leadership emerging. Clearly this earnings season the large caps are emerging as leaders.

The following stocks had negative Episodic Pivots.

AKAM,Akamai Technologies Inc (Google  Yahoo  Earnings  Chart) 
ANAD,Anadigics Inc (Google  Yahoo  Earnings  Chart) 
CTHR,Charles & Colvard Ltd (Google  Yahoo  Earnings  Chart) 
DTLK,Datalink Corporation (Google  Yahoo  Earnings  Chart) 
EML,Eastern Co (Google  Yahoo  Earnings  Chart) 
ENWV,Endwave Corporation (Google  Yahoo  Earnings  Chart) 
EXBD,Corporate Exec Board Co (Google  Yahoo  Earnings  Chart) 
HTCH,Hutchinson Technolgy Inc (Google  Yahoo  Earnings  Chart) 
SI,Siemens Aktien (Google  Yahoo  Earnings  Chart) 
SUNW,Sun Microsystems Inc (Google  Yahoo  Earnings  Chart) 
TAYC,Taylor Capital Group Inc (Google  Yahoo  Earnings  Chart) 
TZOO,Travelzoo Inc (Google  Yahoo  Earnings  Chart) 

Market Monitor

Market rallied with number of stocks making wild moves. But 4% plus breakout levels did not even cross 200. 4% plus breakdowns were 68. On real push ups the figures tend to extremely lopsided.

The action still continues to be dominated by large caps. Large caps gapping up on earnings is the trend in this season. But large caps do not just gap and go. They simply do not have the potential to make 50% kind of moves in a month unless takeovers are involved.

The small caps are the ones which offer best risk rewards and the Russell Index seems to have stalled, so if the overall move has more upside at some stage small caps should catch fire. Keep a close watch on Russell for clues.

Market Monitor

Total 4% plus bullish breakouts = 186

Total 4% plus bearish breakouts = 68

65 day bullish/bearish ratio = 995/240

Stocks up 50% or more in a month = 6

Stocks up 25% or more in a month = 83

Number of stocks with 100% plus move = 423

Number of stocks up 200% or more = 99

4% plus signals for 100plus universe = 44

4% plus signals for 200plus universe =9

Breakouts

AMZN,Amazon.Com Inc (Google  Yahoo  Earnings  Chart) 
ARRY,Array Biopharma Inc (Google  Yahoo  Earnings  Chart) 
BCSI,Blue Coat Systems Inc (Google  Yahoo  Earnings  Chart) 
BDSI,Biodelivery Sciences Intl Inc (Google  Yahoo  Earnings  Chart) 
BSQR,bSquare Corp (Google  Yahoo  Earnings  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings  Chart) 
BVX,Bovie Medical Systems (Google  Yahoo  Earnings  Chart) 
CHAP,Chaparral Steel Company (Google  Yahoo  Earnings  Chart) 
DXPE,Dxp Enterprises Inc (Google  Yahoo  Earnings  Chart) 
FEIC,Fei Company (Google  Yahoo  Earnings  Chart) 
GRIL,Grill Concepts Inc (Google  Yahoo  Earnings  Chart) 
GTI,Graftech Intl Ltd (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
IOC,Interoil Corporation (Google  Yahoo  Earnings  Chart) 
JAS,Jo-ann Stores Inc (Google  Yahoo  Earnings  Chart) 
LBY,Libbey Inc (Google  Yahoo  Earnings  Chart) 
LEA,Lear Corp (Google  Yahoo  Earnings  Chart) 
LNET,Lodgenet Entertainment (Google  Yahoo  Earnings  Chart) 
LQDT,Liquidity Services (Google  Yahoo  Earnings  Chart) 
MCF,Contango Oil & Gas (Google  Yahoo  Earnings  Chart) 
MEH,Midwest Express Holding (Google  Yahoo  Earnings  Chart) 
METH,Methode Electronics Cl A (Google  Yahoo  Earnings  Chart) 
NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
OMCL,Omnicell Inc (Google  Yahoo  Earnings  Chart) 
PARD,Poniard Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
PERY,Perry Ellis Int'l (Google  Yahoo  Earnings  Chart) 
ROCM,Rochester Medical Corp (Google  Yahoo  Earnings  Chart) 
RVBD,Riverbed Technologies Inc (Google  Yahoo  Earnings  Chart) 
SGG,Sgl Carbon Aktiengesells (Google  Yahoo  Earnings  Chart) 
SUF,SulphCo Inc (Google  Yahoo  Earnings  Chart) 
TSO,Tesoro Corp (Google  Yahoo  Earnings  Chart) 
TVL,Lin Tv Corp (Google  Yahoo  Earnings  Chart) 
VHI,Valhi Inc (Google  Yahoo  Earnings  Chart) 
VLCM,Volcom Inc (Google  Yahoo  Earnings  Chart) 
VOLV,Ab Volvo Adr (Google  Yahoo  Earnings  Chart) 
VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 
WNR,Western Refining Inc (Google  Yahoo  Earnings  Chart) 
XNPT,XenoPort Inc (Google  Yahoo  Earnings  Chart) 

Episodic Pivots

When programs kick in, they can create wild moves. Some of the action today clearly smelled of program buying at work.Some moves are old fashioned, red hot momentum on low float stocks.
There are couple of good moves in the list, where the moves are just beginning and the stocks have clear earnings catalyst. The blowout moves in some stocks at the top of the range are also worth getting in to with tight stop, strictly for short term trade.
Anyway in such a momentum blowout , tight stops is ideal, because if a stock can not make a move in such market conditions, there are better uses for your capital.

AACC,Asset Acceptance Capital Corp (Google  Yahoo  Earnings  Chart) 
AMZN,Amazon.Com Inc (Google  Yahoo  Earnings  Chart) 
ATAC,Aftermarket Tech Corp (Google  Yahoo  Earnings  Chart) 
BDSI,Biodelivery Sciences Intl Inc (Google  Yahoo  Earnings  Chart) 
BHI,Baker Hughes Inc (Google  Yahoo  Earnings  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings  Chart) 
CHAP,Chaparral Steel Company (Google  Yahoo  Earnings  Chart) 
CHRW,C.H. Robinson Worldwide (Google  Yahoo  Earnings  Chart) 
DCBK,Desert Community Bank (Google  Yahoo  Earnings  Chart) 
DXPE,Dxp Enterprises Inc (Google  Yahoo  Earnings  Chart) 
FONRD,Fonar Corp (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
KTO,K2 Inc (Google  Yahoo  Earnings  Chart) 
LQDT,Liquidity Services (Google  Yahoo  Earnings  Chart) 
MBLX,Metabolix Inc (Google  Yahoo  Earnings  Chart) 
MCF,Contango Oil & Gas (Google  Yahoo  Earnings  Chart) 
NCX,Nova Chemicals (Google  Yahoo  Earnings  Chart) 
OSG,Overseas Shipholding Grp (Google  Yahoo  Earnings  Chart) 
PRAA,Portfolio Recovery Assoc (Google  Yahoo  Earnings  Chart) 
QPSA,Quepasa Corporation (Google  Yahoo  Earnings  Chart) 
RVBD,Riverbed Technologies Inc (Google  Yahoo  Earnings  Chart) 
TDY,Teledyne Technologies (Google  Yahoo  Earnings  Chart) 
TFSM,24/7 Real Media Inc (Google  Yahoo  Earnings  Chart) 
TSO,Tesoro Corp (Google  Yahoo  Earnings  Chart) 
WIRE,Encore Wire Corp (Google  Yahoo  Earnings  Chart) 
XNPT,XenoPort Inc (Google  Yahoo  Earnings  Chart) 

To buy or not to buy breakouts

A reader asked why I prefer breakouts and why not buy retracements on 100% plus or IBD 200.

As I have said earlier the exact entry methods play small role in why the concept like 100% plus or IBD 200 works. The vehicle selection in both the cases increases probability of success irrespective of your entry. Those stocks for a specified period have high probability of going up.

But buying breakouts has higher probability of success on such stocks than retracements. There are number of ways to look at it. Prices move in spurts. So a 4% plus move leads to few weeks of move in intended direction. When a stock goes up it attracts more attention and more buyers. That is the visibility effect.

When you are buying breakouts , you are paying for confirmation. Your stops are wider as compared to retracement entry. The risk in breakout buying is , it will fail. The risk in retracement buying is also that it will fail to signal reversal and in fact might be a start of long down trend.

In both entries if it is successful, your trade is profitable. The advantage of retracement is you will quickly move in to profits if the trend resumes. Irrespective of method, you will get stopped out on your stop.

To design retracement based entries, you need to think a logical entry point. You need to use a leading indicator to signal this. Unfortunately there are no perfect indicator.

I have tried many retracement based methods on both the list. Some things which work are based on liquidity going down to signal entry. Especially if you are looking for very short duration trades on 100 % plus or IBD list, you can try entry a day after lowest volume on 20 days. (v=minv20)

I personaly find breakout easier to trade.

RVBD Riverbed Technologies

RVBD might possibly be good earnings trade. I took a small position pre market and will watch it to add to it.

RVBD had 340% EPS growth and 212% sales growth. Plus its earnings were 140% above estimate. The price coming in to earning was going nowhere.

Episodic Pivots

Earnings and earnings surprises lead to some Episodic Pivots. What determines the probability of stocks making an up more or down move such Episodic Pivots is a function of prior price action coming in to earnings, earnings acceleration or earnings surprise, forward guidance, valuation, fund holdings, and so on.

More important than that is where is the earnings in reference to the stocks earnings cycle. Is this a first major earnings acceleration/ surprise after many quarters of below par growth or is this a 8th or 12 th earnings acceleration. The second important consideration is where is the stock in its price appreciation cycle. Earnings acceleration/surprises early in a stocks price life cycle are good from trading perspective. It gets you in to a trade early in a long duration rally.

Earnings acceleration/surprise late in the cycle are slightly tricky to trade as they have both possibilities. It can lead to blowout runaway move or it can lead to reversal after one day gap up. Technicians call them island reversals.


ENR,Energizer Holdings (Google  Yahoo  Earnings  Chart) 
ESRX,Express Scripts Inc (Google  Yahoo  Earnings  Chart) 
HTI,Halozyme Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
LBY,Libbey Inc (Google  Yahoo  Earnings  Chart) 
MHS,Medco Health Solutions (Google  Yahoo  Earnings  Chart) 
PCAR,Paccar Inc (Google  Yahoo  Earnings  Chart) 
RE,Everest Re Group Ltd. (Google  Yahoo  Earnings  Chart) 
RGR,Sturm Ruger & Co Inc (Google  Yahoo  Earnings  Chart) 
SNA,Snap-On Inc (Google  Yahoo  Earnings  Chart) 
TO,Tech-Ops Sevcon Inc (Google  Yahoo  Earnings  Chart) 
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart) 
TRT,Trio-Tech Internat (Google  Yahoo  Earnings  Chart) 
WGOV,Woodward Governor Co (Google  Yahoo  Earnings  Chart) 
WHR,Whirlpool Corp (Google  Yahoo  Earnings  Chart) 

Market Monitor

Market is vulnerable to correction. Number of down breakouts have increased and there is sharp deterioration in stocks up 25% or more in month.

Market Monitor

Total 4% plus bullish breakouts = 114

Total 4% plus bearish breakouts = 76

65 day bullish/bearish ratio = 950/245

Stocks up 50% or more in a month = 4

Stocks up 25% or more in a month = 58

Number of stocks with 100% plus move = 421

Number of stocks up 200% or more = 91

4% plus signals for 100plus universe = 26

4% plus signals for 200plus universe = 9

4% plus breakouts on 100% plus universe
DLX,Deluxe Corp (Google  Yahoo  Earnings  Chart) 
FRPT,Force Protection Inc (Google  Yahoo  Earnings  Chart) 
HTI,Halozyme Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
INSW,Insweb Corp (Google  Yahoo  Earnings  Chart) 
JST,Jinpan Internat Ltd (Google  Yahoo  Earnings  Chart) 
LBY,Libbey Inc (Google  Yahoo  Earnings  Chart) 
LJPC,La Jolla Pharmaceutical (Google  Yahoo  Earnings  Chart) 
OMCL,Omnicell Inc (Google  Yahoo  Earnings  Chart) 
RGR,Sturm Ruger & Co Inc (Google  Yahoo  Earnings  Chart) 
SGEN,Seattle Genetic (Google  Yahoo  Earnings  Chart) 
SPAR,Spartan Motors Inc (Google  Yahoo  Earnings  Chart) 
SPEC,Spectrum Control Inc (Google  Yahoo  Earnings  Chart) 
SUF,SulphCo Inc (Google  Yahoo  Earnings  Chart) 
TBSI,TBS International Limited Class A (Google  Yahoo  Earnings  Chart) 
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart) 
TRT,Trio-Tech Internat (Google  Yahoo  Earnings  Chart) 
TWIN,Twin Disc Inc (Google  Yahoo  Earnings  Chart) 

Why no newsletter

I get lot of emails asking for a newsletter. I do not have any newsletter and no intention of starting one in near future. My intention has always been to make profit from trading. There are at least 2-3 newsletters for every trader currently.

Newsletter involves lots of work plus marketing. Marketing is 90% of the effort in newsletters. Besides that it requires lot of day to day administration. I can make more money in trading than running a newsletter.

Second most successful traders who start newsletter see their trading results go
down.As newsletter becomes more successful the writers trading returns deteriorate. The newsletter income creates a sense of assurance which leads to losing focus on trading. Possibly you lose the killer instinct to eke out living from trading.

Third when you get in to newsletter you start picking safer stocks, so as not to loose your face and your risk taking ability decreases. That is also one of the reason newsletter writers externalize the problem, blaming market conditions. So in essence they cover their ass.

Newsletter writing is the safer option, trading is the more riskier and more profitable option.

Later: Why coaching and mentoring does not work in trading .....

Market Monitor

Markets changed tone a bit with small caps experiencing number of breakouts. But momentum has deteriorated as indicated by both 50% plus in month and 25% plus in month. Many breakouts are not following through.

Market Monitor

Total 4% plus bullish breakouts = 105

Total 4% plus bearish breakouts = 42

65 day bullish/bearish ratio = 964/236

Stocks up 50% or more in a month = 5

Stocks up 25% or more in a month = 61

Number of stocks with 100% plus move = 445

Number of stocks up 200% or more = 91

4% plus signals for 100plus universe = 34

4% plus signals for 200plus universe = 5

4% plus moves on stocks up 100% plus
AKS,Ak Steel Holding Corp (Google  Yahoo  Earnings  Chart) 
ARQL,Arqule Inc (Google  Yahoo  Earnings  Chart) 
CITP,Comsys It Partners Inc (Google  Yahoo  Earnings  Chart) 
CNH,Cnh Global Nv (Google  Yahoo  Earnings  Chart) 
CYNO,Cynosure Inc (Google  Yahoo  Earnings  Chart) 
FRPT,Force Protection Inc (Google  Yahoo  Earnings  Chart) 
FTEK,Fuel Tech Inc (Google  Yahoo  Earnings  Chart) 
FTK,Flotek Industries Inc (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
IIG,Imergent Inc (Google  Yahoo  Earnings  Chart) 
INXI,INX Inc (Google  Yahoo  Earnings  Chart) 
ISTA,Ista Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
KRSL,Kreisler Manufacturing (Google  Yahoo  Earnings  Chart) 
LNX,Lenox Group Inc (Google  Yahoo  Earnings  Chart) 
MEDI,Medimmune Inc (Google  Yahoo  Earnings  Chart) 
MTOX,Medtox Scientific (Google  Yahoo  Earnings  Chart) 
NFI,Novastar Financial Inc (Google  Yahoo  Earnings  Chart) 
NGA,N Amer Galvanizing & Coatings (Google  Yahoo  Earnings  Chart) 
PRGX,Prg-schultz Intl Inc (Google  Yahoo  Earnings  Chart) 
PRKR,Parkervision Inc (Google  Yahoo  Earnings  Chart) 
RYI,Ryerson Inc (Google  Yahoo  Earnings  Chart) 
SGEN,Seattle Genetic (Google  Yahoo  Earnings  Chart) 
SLP,Simulations Plus Inc (Google  Yahoo  Earnings  Chart) 
TBSI,TBS International Limited Class A (Google  Yahoo  Earnings  Chart) 
USAP,Universal Stain & Alloy (Google  Yahoo  Earnings  Chart) 
VII,Vicon Industries Inc (Google  Yahoo  Earnings  Chart) 

Episodic Pivots

Major rallies start with a catalyst. Often major rallies start with high volume gain days. Some of these stocks have the catalyst to launch multi month move. Catalyst like recent earnings, earnings momentum, earnings/sales acceleration, new product introduction, sector rally, insider buying , regulatory approvals, etc. are capable of triggering long duration or high magnitude rallies. Crammer mention, Barron's mention, analyst upgrade, etc have poor chances of follow up.

BOL,Bausch & Lomb Inc (Google  Yahoo  Earnings  Chart) 
CMI,Cummins Inc (Google  Yahoo  Earnings  Chart) 
CYPB,Cypress Bioscience Inc (Google  Yahoo  Earnings  Chart) 
DNDN,Dendreon Corporation (Google  Yahoo  Earnings  Chart) 
EROC,Enroc Inds Inc (Google  Yahoo  Earnings  Chart) 
FLOW,Flow International Corp (Google  Yahoo  Earnings  Chart) 
GNTX,Gentex Corp (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
IPX,Interpool Inc (Google  Yahoo  Earnings  Chart) 
KRSL,Kreisler Manufacturing (Google  Yahoo  Earnings  Chart) 
LNX,Lenox Group Inc (Google  Yahoo  Earnings  Chart) 
MBLX,Metabolix Inc (Google  Yahoo  Earnings  Chart) 
MEA,Metalico Inc (Google  Yahoo  Earnings  Chart) 
MTOX,Medtox Scientific (Google  Yahoo  Earnings  Chart) 
NGA,N Amer Galvanizing & Coatings (Google  Yahoo  Earnings  Chart) 
SYNL,Synalloy Corp (Google  Yahoo  Earnings  Chart) 
VGZ,Vista Gold Corp (Google  Yahoo  Earnings  Chart) 
WSCI,Wsi Industries Inc (Google  Yahoo  Earnings  Chart) 

Market Monitor

Divergence between Nasdaq and Small Caps and rest of market continues. The large cap earnings and guidance have been good and that is getting reflected in the price moves in them, But large caps do not make the aggressive moves I look for unless they are rallying from multi year weakness.

Market Monitor

Total 4% plus bullish breakouts = 138

Total 4% plus bearish breakouts = 34

65 day bullish/bearish ratio = 971/223

Stocks up 50% or more in a month = 5

Stocks up 25% or more in a month = 62

Number of stocks with 100% plus move = 442

Number of stocks up 200% or more = 89

4% plus signals for 100plus universe = 30

4% plus signals for 200plus universe = 4

4% plus Breakouts

ALGN,Align Tech Inc (Google  Yahoo  Earnings  Chart) 
CHB,Champion Enterprises Inc (Google  Yahoo  Earnings  Chart) 
DXPE,Dxp Enterprises Inc (Google  Yahoo  Earnings  Chart) 
EXM,Excel Maritime Carriers (Google  Yahoo  Earnings  Chart) 
GES,Guess? Incorporated (Google  Yahoo  Earnings  Chart) 
GLDN,Golden Telecom Inc (Google  Yahoo  Earnings  Chart) 
GPK,Graphic Packaging Intl (Google  Yahoo  Earnings  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
IIG,Imergent Inc (Google  Yahoo  Earnings  Chart) 
ITMN,Intermune Inc (Google  Yahoo  Earnings  Chart) 
JAS,Jo-ann Stores Inc (Google  Yahoo  Earnings  Chart) 
KALU,Kaiser Aluminum Corp (Google  Yahoo  Earnings  Chart) 
MEA,Metalico Inc (Google  Yahoo  Earnings  Chart) 
NVR,Nvr Inc (Google  Yahoo  Earnings  Chart) 
NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
OMCL,Omnicell Inc (Google  Yahoo  Earnings  Chart) 
POZN,Pozen Incorporated (Google  Yahoo  Earnings  Chart) 
PTI,Patni Computer Systems Ltd ADR (Google  Yahoo  Earnings  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings  Chart) 
REGN,Regeneron Pharm Inc (Google  Yahoo  Earnings  Chart) 
RZ,Raser Technologies Inc (Google  Yahoo  Earnings  Chart) 
SYNL,Synalloy Corp (Google  Yahoo  Earnings  Chart) 
ULTR,Ultrapetrol Ltd (Google  Yahoo  Earnings  Chart) 


Possible long trades
ALGN,Align Tech Inc (Google  Yahoo  Earnings  Chart) 
GES,Guess? Incorporated (Google  Yahoo  Earnings  Chart) 
GLDN,Golden Telecom Inc (Google  Yahoo  Earnings  Chart) 
NVR,Nvr Inc (Google  Yahoo  Earnings  Chart) 


Episodic Pivots
ARWR,Arrowhead Research Corp (Google  Yahoo  Earnings  Chart) 
CTIB,Cti Industries Corp (Google  Yahoo  Earnings  Chart) 
DFR,Deerfield Triarc Capital Corp (Google  Yahoo  Earnings  Chart) 
FCPO,Factory Card & Party Outlet (Google  Yahoo  Earnings  Chart) 
GCO,Genesco Inc (Google  Yahoo  Earnings  Chart) 
GOOG,Google (Google  Yahoo  Earnings  Chart) 
HUBG,Hub Group Inc (Google  Yahoo  Earnings  Chart) 
ISRG,Intuitive Surgical Inc (Google  Yahoo  Earnings  Chart) 
MEA,Metalico Inc (Google  Yahoo  Earnings  Chart) 
MLM,Martin Marietta Material (Google  Yahoo  Earnings  Chart) 
NSTK,Nastech Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
NVR,Nvr Inc (Google  Yahoo  Earnings  Chart) 
OLED,Cambridge Display Tech (Google  Yahoo  Earnings  Chart) 
OO,Oakley Inc (Google  Yahoo  Earnings  Chart) 
SAIA,Saia Inc (Google  Yahoo  Earnings  Chart) 
TGE,TGC Industries Inc (Google  Yahoo  Earnings  Chart) 

Double Trouble update

There are just 69 stocks up over 4% on high volume at this stage. A narrower set off stock are leading the advance.
Out of 100% plus earnings list OO is up around 12%. I did not take the trade as it had rallied a bit in to earnings. It might have more upside after a pullback. GES from IBD 200 list is up 4% on high volume and has lowest 65 days price growth. I took that trade.


ALGN,Align Tech Inc (Google  Yahoo  Earnings  Chart) 
GPK,Graphic Packaging Intl (Google  Yahoo  Earnings  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
OMCL,Omnicell Inc (Google  Yahoo  Earnings  Chart) 
POZN,Pozen Incorporated (Google  Yahoo  Earnings  Chart) 
REGN,Regeneron Pharm Inc (Google  Yahoo  Earnings  Chart) 
SYNL,Synalloy Corp (Google  Yahoo  Earnings  Chart) 

Double Trouble update

Index moves are not reflecting in individual stocks. Currently just 45 stocks are up 4% or more on higher volume.

Out of the list below, IGLD appeared in scans few days ago and was better buy candidate that day. OMCL and POZN are next based on number of 65 day weakness. OMCL is also a member of IBD 200 for sometime.


IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
OMCL,Omnicell Inc (Google  Yahoo  Earnings  Chart) 
POZN,Pozen Incorporated (Google  Yahoo  Earnings  Chart) 
SYNL,Synalloy Corp (Google  Yahoo  Earnings  Chart) 

Three concepts

Studies after studies have shown some concepts in the stock market have an edge over the random walk hypothesis. Out of the many anomalies I have studied and tested, I have based my trading on few key concepts with statistically proven edge.
All my trading is based on three core concepts.

1. Earnings
2. Momentum
3. Neglect

Earnings

Earnings based strategies can have many flavors. At the heart of earnings strategies are concept like PEAD Post Earning Announcement Drift, earning momentum, and earnings overreactions. PEAD or Post Earnings Announcement drift is a phenomenon in which stocks showing surprisingly good earnings or bad earnings show drift in either direction post earnings and this last after the one day earning effect. The Earnings Breakout and Earning Surprise strategies I trade are based on this phenomenon.

Earnings momentum based strategies look for momentum. history of rising earnings growth over several quarters. Such stocks with earnings momentum have propensity to rally for long duration till their earnings momentum lasts. Long term winners (3-5 year time frame) always show earning momentum. The IBD EPS rating is basically a Earning Momentum based rating. It uses a weighted average of EPS growth for 3-5 years plus recent years and quarters to rank stocks. Stocks rated high on EPS ratings have a track record of good earnings growth. You will often see price persistence in such stocks. The IBD 200 strategy is based on Earnings Momentum. It also has price momentum built in to it as it selects top 200 stocks with Earnings plus Price Momentum.

Earnings overreactions lead to long term trends. When stocks establish a long term track record of earnings growth or below par earning growth, investors tend to overreact, assuming such trend will continue. At some stage prices move ahead of the earnings trend and that leads to price reversal. That is why shorting a stocks after it had a long history of earning growth and when it misses for first time often is very profitable strategy. Similarly most contrarian strategies are based on buying stocks when earnings are bad in the hope that they will mean revert. Value investors often use this as one of their strategies.

Momentum

Stocks that have outperformed over the past 3-18 months continue to outperform over the next 3-18 months, and same for underperformance. There are various explanations for this phenomenon and one of the explanation is momentum effect is linked to liquidity. With momentum persisting on previously illiquid stocks more than on liquid stocks. But it is just one of the explanation for the phenomenon and even liquid stocks show momentum.

The 100% plus "Double Trouble" strategy is basically based on this concept. The unique twist is in determining the point for calculating the 100% move. It also eliminates from the trading universe non trending stocks and considerably narrows down the trading universe to only stock with strong momentum. Breakout strategies work on such stocks, they may not work on other stocks. Hence buying a 4% plus breakout.

The momentum effect also shows that in the short time frame of 2-3 weeks there is strong tendency to mean revert. Hence one selects trades based on a 65 day weakness or some prior weakness before a breakout. If you are primarily a short term swing trader a 2 week weakness and a max holding period of two weeks on 100% plus wil significantly improve profits. Also anticipatory or anti trend entries using price channels or Bollinger Bands or other short cycle identification methods can help improve your returns on 100% plus if you are trading primarily the 5 to 10 days horizon.

The 100% plus strategy also has other unique twist of using absolute value rather than relative value for momentum . with an absolute cut off of 100, when no stock matches the criteria, there are no opportunities. While in relative method, you will take say the top 10% even in weak markets. So in bear market like in 2001 or 2002, the 100% plus universe was often below 100 levels.

Now if you want to use same momentum concept on large cap stocks or high liquidity stocks you can set your cut offs at 20 to 50%. So if you want to trade Dow Jones component, you can use entry after 20% plus move. If you want to limit your trading universe to S&P, you can use 50% plus cut off.

The Episodic Pivot method is also based on momentum effect. The primary hypothesis in it is that short term above average momentum often leads to start of a long term momentum cycle. By entering at such juncture, you get to enter at beginning of big move. Now if you add a catalyst study to it then returns improve.


Neglect

Studies of the best and worst performers over the preceding five and three year periods shows that the best performers over the previous 3-5 years period subsequently underperformed, while the poor performers from the prior 3-5 period produced significantly greater returns than the index. So there is long term mean reversion.

There are many possible strategies one can design based on this observation. Value investing is primarily based on such effect. The "Virgin" and "Neglect" strategy I trade is based on this concept. In " Virgin" one is looking for an ultimate in neglect, where a stock has never had a significant rally post its IPO. In my neglect strategy I look for prior 2-5 year growth (it should be negative or sideways), to select stocks and enter once they rally 30 % plus from 260 days low and meet liquidity criteria.

All the three concepts basically allow you to select a vehicle with high probability of going up. By entering them at beginning of major moves, you are likely to find a good amount of stocks early in their price appreciation cycle.

This conceptual understanding and background is essential to trade any of these methods. That is why theories like MACD, price channels , support resistance, etc, should be based on specific behavior of such stocks. A indicator which does not work on specific set of stocks works on certain set off stocks if the selection methodology was different. The overall conceptual understanding also helps to narrow trades when faced with several breakout. Why chose stocks with lowest float in IBD 200 or Episodic Pivot or Earnings breakout is because they are indicator of neglect. My past studies also show that low priced and low float stocks in IBD 200 outperform the high priced and high float by almost 3:1.

The reason to trade a mix of such methods is to ensure you get stocks at different stages in their life cycle. The Episodic Pivot, Earnings Breakout and Virgin/ Neglect strategies get you stocks in early stage of price appreciation cycle. The IBD 200 and Double Trouble primarily gets you in to the "sweet part" of the trend, once momentum in either earnings or price is well established.

If conceptual foundation is strong, you have more confidence in your method and tactical adjustments like entry, exit, risk management become easier. Concept is key. Rest is detail.

Related Post
Concept is key not tools

Weak action continues

The market recovered from the morning Shanghai market inspired drop, but there were no major gains. Dip buyers have been active in this market for sometime and yesterday the China inspired weakness was readily bought.

The action is currently dominated by a narrow group of mega-cap names. The bullish breakout levels has dropped below 100 for few days and stayed in that territory . Month 50% plus had a sharp drop to 4. Nasdaq shows weak action. Most Index corrections in recent years have been lead by Nasdaq diverging from other index.

Overall the market monitor has done a good job of identifying the risk area and I have large cash position. If this proves to be just a correction and once the 50% plus in month level starts accelerating, it will signal aggressiveness.

Market Monitor

Total 4% plus bullish breakouts = 79

Total 4% plus bearish breakouts = 77

65 day bullish/bearish ratio = 865/239

Stocks up 50% or more in a month = 4

Stocks up 25% or more in a month = 65

Number of stocks with 100% plus move = 413

Number of stocks up 200% or more = 87

4% plus signals for 100plus universe = 9

4% plus signals for 200plus universe = 4

Selected Stocks from 100% plus universe with 4% breakout
FARO,Faro Technologies Inc (Google  Yahoo  Earnings  Chart) 
VC,Visteon Corporation (Google  Yahoo  Earnings  Chart) 


Both the stock also have low 65 days growth.

Episodic Pivot
IFLO,I-Flow Corp (Google  Yahoo  Earnings  Chart) 
LRW,Labor Ready Inc (Google  Yahoo  Earnings  Chart) 
PYX,Playtex Products Inc (Google  Yahoo  Earnings  Chart) 
RS,Reliance Steel & Alum Co (Google  Yahoo  Earnings  Chart) 
VMI,Valmont Industries Inc (Google  Yahoo  Earnings  Chart) 

Trading Earnings Surprises

The Earning lead breakout looks for extreme earnings growth to identify candidates, however on companies with analyst coverage, you can find good results by focusing on companies beating analyst forecast by 100%. The Earning Surprise data appears in the Wall Street Journal daily and you can find it here. Here again I select only companies whose earnings is above 5 cents and which beat analyst forecast by 100% or more.

There is considerable academic research focused on effect of earnings. A research published in 2005 shows that companies that report large positive earnings surprises continue to outperform the market and beat analysts' expectations up to three years later.Firms that report a large positive earnings surprise do much better than expected. The researchers found that in subsequent years, firms with extremely good earnings tend to have persistent earnings surprises in the same direction, strong growth in cash flows and earnings. A portfolio of such stocks outperforms the market.

The Extreme Future Stock Returns Following Extreme Earnings Surprises

We investigate the stock returns subsequent to quarterly earnings surprises, where the benchmark for an earnings surprise is the consensus analyst forecast. By defining the surprise relative to an analyst forecast rather than a time-series model of expected earnings, we document returns subsequent to earnings announcements that are much larger, persist for much longer, and are more heavily concentrated in the long portion of the hedge portfolio than shown in previous studies. We show that our results hold after controlling for risk and previously documented anomalies, and are positive for every quarter between 1988 and 2000. Finally, we explore the financial results and information environment of firms with extreme earnings surprises and find that they tend to be "neglected" stocks with relatively high book-to-market ratios, low analyst coverage, and high analyst forecast dispersion. In the three subsequent years, firms with extreme positive earnings surprises tend to have persistent earnings surprises in the same direction, strong growth in cash flows and earnings, and large increases in analyst coverage, relative to firms with extreme negative earnings surprises. We also show that the returns to the earnings surprise strategy are highest in the quartile of firms where transaction costs are highest and institutional investor interest is lowest, consistent with the idea that market inefficiencies are more prevalent when frictions make it difficult for large, sophisticated investors to exploit the inefficiencies.

There are many ways to trade earnings and over the long run the price of stock depends on earnings growth.

Related posts :
How to trade earnings
How to trade earnings Part2
How to trade earnings Part3
Oh, the Thinks You Can Think
Improving the odds in earnings breakout
Earnings and Bulkowski


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

Large cap dominate

Large caps is where the action was yesterday. Nasdaq had a high volume churn. The number of breakouts is below 100 , indicating lack of buying. Number of recent breakouts from 100% plus list have failed after 2 or 3 days, which is a troubling sign.

Market Monitor

Total 4% plus bullish breakouts = 87

Total 4% plus bearish breakouts = 53

65 day bullish/bearish ratio = 942/230

Stocks up 50% or more in a month = 9

Stocks up 25% or more in a month = 91

Number of stocks with 100% plus move = 427

Number of stocks up 200% or more = 91

4% plus signals for 100plus universe = 17

4% plus signals for 200plus universe = 4

4% plus moves on 100%plus movers.

ALAN,Alanco Technologies (Google Yahoo Earnings Chart)
AVNR,Avanir Pharmaceuticals (Google Yahoo Earnings Chart)
AVRX,Avalon Pharmaceuticals Inc (Google Yahoo Earnings Chart)
CBRX,Columbia Laboratories (Google Yahoo Earnings Chart)
CHB,Champion Enterprises Inc (Google Yahoo Earnings Chart)
CLN,Celsion Corp (Google Yahoo Earnings Chart)
CNH,Cnh Global Nv (Google Yahoo Earnings Chart)
COR,Cortex Pharmaceuticals Inc (Google Yahoo Earnings Chart)
DNE,Dune Energy Inc (Google Yahoo Earnings Chart)
IDMI,IDM Pharma Inc (Google Yahoo Earnings Chart)
JADE,Lj Internat Inc (Google Yahoo Earnings Chart)
LTS,Ladenburg Thalmann Finl (Google Yahoo Earnings Chart)
OMG,Om Group Inc (Google Yahoo Earnings Chart)
PAE,Peace Arch Entmt Grp Inc (Google Yahoo Earnings Chart)
RNIN,Wireless Ronin Technologies Inc (Google Yahoo Earnings Chart)
RZ,Raser Technologies Inc (Google Yahoo Earnings Chart)
XOMA,Xoma Ltd (Google Yahoo Earnings Chart)


Possible longs:

News play like AVNR are best bought as early as possible because bulk of their move happens on the day of the news. Plus it has 38 million float. The Biotechs have done well recently, so now every news in the industry is being bid up.

AVNR,Avanir Pharmaceuticals (Google Yahoo Earnings Chart)
CNH,Cnh Global Nv (Google Yahoo Earnings Chart)


Episodic Pivots:

AVNR,Avanir Pharmaceuticals (Google Yahoo Earnings Chart)
BBND,Bigband Networks Inc (Google Yahoo Earnings Chart)
JADE,Lj Internat Inc (Google Yahoo Earnings Chart)
LMIA,Lmi Aerospace Inc (Google Yahoo Earnings Chart)
NFLD,Northfield Laboratories (Google Yahoo Earnings Chart)
OSG,Overseas Shipholding Grp (Google Yahoo Earnings Chart)
TRMS,Trimeris Inc (Google Yahoo Earnings Chart)

The market action is showing lot of divergence and it is not clear at this stage whether this is a pullback or possible reversal on Nasdaq and technology stocks. So I have reduced exposure, but earnings lead opportunities will work irrespective of market conditions. Any serious deterioration in market is most likely to be post earning or mid way through earnings, once earnings trend become more clear.

Double Trouble update

Market is crawling in to earning season. There were only two stocks showing up on the scan. Out of this JADE was one of the selected trade candidates for Friday end of day scan. It was a better buy on Friday or Monday.

INSW has continued its march up in volatile manner. It has already traded 1.7 million shares. It has a float of just 1.8 million. In two days the float has been turned around 3 times.

CLN,Celsion Corp (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 

All eyes focused on earnings

With several big cap companies announcing earnings this week, the market focus is on earnings. The market is in standstill territory. Number of breakouts dropped sharply to 82. The number of stocks up 50% or more quickly retreated to 9. The rally from the February sell off has been characterized by this kind of lukewarm momentum. No readings are yet at extreme levels, but the rally has lost vigor.

The Investors Business Daily Big Picture column has all along been lukewarm about this rally. Several time it has pointed out that this rally is not really driving the leading stocks up and has been advising caution. The Big Picture market analysis is consistently good and I factor that in my Market Monitor analysis.

Another Indicator I track is the McClellan Summation Index.



Currently the readings are at 2300. The Summation Index is a long-term breadth indicator which oscillates in relation to a Zero Line. The normal range of movement is between Zero and +2000. Movement below the Zero Line is considered bearish, while movement above +2000 is considered bullish. Historical extremes are approximately +4000 and -2000. Generally at 2000 plus level the number of stocks up 50% or more is in 20 plus territory. So this rally has number of divergences. Rally should accelerate according to many readings at this level but it just keeps stalling and moving in slow crawl.

Some of these things are behind my reducing exposure and tightening stops.

Market Monitor

Total 4% plus bullish breakouts = 82

Total 4% plus bearish breakouts = 53

65 day bullish/bearish ratio = 957/231

Stocks up 50% or more in a month = 9

Stocks up 25% or more in a month = 110

Number of stocks with 100% plus move = 427

Number of stocks up 200% or more = 88

4% plus signals for 100plus universe = 18

4% plus signals for 200plus universe =7

Stocks up 4% or more from 100% plus universe:
CTCH,Commtouch Software Ltd (Google  Yahoo  Earnings  Chart) 
DRYS,Dryships (Google  Yahoo  Earnings  Chart) 
GIII,G-III Apparel Group Ltd (Google  Yahoo  Earnings  Chart) 
GSOL,Global Sources Ltd. (Google  Yahoo  Earnings  Chart) 
INSW,Insweb Corp (Google  Yahoo  Earnings  Chart) 
IOC,Interoil Corporation (Google  Yahoo  Earnings  Chart) 
MIVA,MIVA Inc (Google  Yahoo  Earnings  Chart) 
ONSM,Onstream Media (Google  Yahoo  Earnings  Chart) 
PRGX,Prg-schultz Intl Inc (Google  Yahoo  Earnings  Chart) 
PTSX,Point .360 (Google  Yahoo  Earnings  Chart) 
SCLD,Steelcloud Inc (Google  Yahoo  Earnings  Chart) 
SMSI,Smith Micro Software Inc (Google  Yahoo  Earnings  Chart) 
SYNL,Synalloy Corp (Google  Yahoo  Earnings  Chart) 
TRT,Trio-Tech Internat (Google  Yahoo  Earnings  Chart) 
TZOO,Travelzoo Inc (Google  Yahoo  Earnings  Chart) 
UCTT,Ultra Clean Holdings (Google  Yahoo  Earnings  Chart) 
XING,Qiao Xing Univ Telephone (Google  Yahoo  Earnings  Chart) 
ZIXI,Zix Corporation (Google  Yahoo  Earnings  Chart) 


Trade Selection based on previous price action. (Consolidation or weakness prior to breakout)
INSW,Insweb Corp (Google  Yahoo  Earnings  Chart) 
TRT,Trio-Tech Internat (Google  Yahoo  Earnings  Chart) 
TZOO,Travelzoo Inc (Google  Yahoo  Earnings  Chart) 
XING,Qiao Xing Univ Telephone (Google  Yahoo  Earnings  Chart) 


Now you know how to find stocks which make 100% plus move before they make it to 100% plus move. Just look at INSW. INSW was just a trailer, the main movie is yet to start. If you keep your eyes open you will find many such moves during "the risky", "to be avoided" earning season.

INSW also shows vividly how liquidity flows in in minutes when there is a catalyst. INSW traded 0, shares on one of the days this month (4/3/2007). It traded 3 million shares today. Studying liquidity of a stock over its lifetime can tell you a lot. The most important thing you will learn is how not to set volume filters. Catalyst brings liquidity. Often if the catalyst has long term impact the liquidity will persist for days or months or years after the one day move. That is the way market works.

All most all the leading stocks for 2007, which people would rave about and marvel at how did this stock make 1500% plus move, start with earnings acceleration. Some Episode in the life of a stock has enough fuel to propel it in to next orbit or send it flying for a 1500% plus move. The most common and easily identifiable one out of them is earnings and sales acceleration.

Study of Episodic Pivot can lead to many profitable trades.

Later: How I trade earnings on stocks with analyst

Concepts is key not the tools

Success in trading is about consistently pulling profits out of market with controlled risk. To do that successfully, you need a concept based on some structural understanding of markets. The understanding might be one 1 minute time frame or several years time frame. It might be understanding about how markets or stocks react to an event. It might be a understanding about various elements like earnings, sales, debt, valuation, margin, etc. It might be understanding about momentum, price volume relations, long term price behavior. Whatever may be the concept it is the ability to interpret price activity,which determines our ability to extract money out of market.

Scans, softwares, websites, data sources, multiple monitors, power of computers are not the most critical element for success. If you have successful concept the tools help to speed up the trade identification process or manage it. As a rule of thumb one must spend 80 % of the time mastering the concept and once that is in place put the tools together.

Many of you have emailed asking which software to use or what specific scans or data sources. Almost all the concept I have discussed can be traded or a variation of the same by using free information. Go to Barchart or Yahoo finance, you will get everyday list of breakouts. You will get list of Episodic Pivot candidates by going here Same way you can find momentum candidate list by various time frame here
You can use the list here as substitute for 100% plus universe or you can use this list here at Barchart. You do not need TC2007 to trade "the concept"

If you do not understand the concept, no scan or software is going to make you profitable.

Related Post
Three Concepts

Double Trouble update

As of 11 A.M there are 4 stocks showing up on scan. Now I took one trade out of this early morning when it appeared on 2% scan, XING. The stop is 16.52, which is the low from two days ago. It was also showing on Episodic Pivot scan, so I chose it instead of choosing one from IBD 200 list. It also had few weeks of weakness.

Out of the 4, 2 were existing positions as both had Episodic Pivots few days ago.At the same time I closed my FRPT positions of few weeks ago as it gapped up, I moved my stops to lock in profit and got stopped out.Also FRPT was showing churn on high volume from yesterday, so I was anyway going to close it. So I put that money to use and bought XING.Now this is not a full position as I am holding cash reserve for earnings trade.

So even though there are number of breakouts from the list in reality unless there is cash in account, I will not buy a fresh position. So rest of the time it is just doing nothing. Actual trading in a week is at best 40-60 minutes of work all put together. Most of it is mundane thing like running scan and adjusting stop or opening and closing stops.Sometime there are weeks with no new trades. That is the time I spend writing posts on blog or answering emails or R&D new things.

ACAD,Acadia Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
DGIT,Dg Fastchannel Inc (Google  Yahoo  Earnings  Chart) 
SMSI,Smith Micro Software Inc (Google  Yahoo  Earnings  Chart) 
XING,Qiao Xing Univ Telephone (Google  Yahoo  Earnings  Chart) 


From the earnings track, INSW which had earnings last night fired and is up 71%.

100% plus moves in S&P500 and Nasdaq 100

These ten stocks are from the S&P500 list and NASDAQ 100 list. All of them are up 100% plus from their 260 days low.

ATI,Allegheny Technologies (Google  Yahoo  Earnings  Chart) 
BIG,Big Lots Inc (Google  Yahoo  Earnings  Chart) 
COH,Coach Inc (Google  Yahoo  Earnings  Chart) 
DYN,Dynegy Inc (Google  Yahoo  Earnings  Chart) 
GT,Goodyear Tire&Rubber Co (Google  Yahoo  Earnings  Chart) 
MICC,Millicom Intl Cellular Sa (Google  Yahoo  Earnings  Chart) 
RIMM,Research In Motion Ltd (Google  Yahoo  Earnings  Chart) 
RL,Polo Ralph Lauren Corp (Google  Yahoo  Earnings  Chart) 
RSH,Radioshack Corp (Google  Yahoo  Earnings  Chart) 
RYAAY,Ryanair Hldgs Plc Adr (Google  Yahoo  Earnings  Chart) 


Out of that list GT is up 242% , MICC is up 154%, BIG is up 146%. Now these stocks have no liquidity problem.
All three also had Episodic Pivots kicking of their big move. Also in all three cases the move as precipitated during earning season. MICC was a trade from 100% plus earnings list. Something to think about.






Most of the debate about liquidity is just a distraction. Those who do not want to trade a method, find hundreds of arguments to not to trade profitable methods. That essentially boils down to the fact that some understand an idea some do not.

Typical action in later part of rally

Momentum returned with 200 plus breakout. However, it was not red hot momentum. Good momentum days have 350 plus breakouts. Stocks which have broken out 4-6 weeks ago are now in runway mode and hence the 50% plus list is climbing to 14.

11 of the 14, 50% plus in a month movers are up 100% plus.All 11 were up 100% plus before starting their 50% plus in a month move. Typically fast moves of that magnitudes happen late in a move.

I was a bit tied up today and looks like this week is going to be very busy at home front, so blogging will be light.

Market Monitor

Total 4% plus bullish breakouts = 207

Total 4% plus bearish breakouts = 40

65 day bullish/bearish ratio = 1029/236

Stocks up 50% or more in a month = 14

Stocks up 25% or more in a month = 152

Number of stocks with 100% plus move = 450

Number of stocks up 200% or more = 89

4% plus signals for 100plus universe = 47

4% plus signals for 200plus universe = 16

Selected Breakouts

Breakouts a galore on 100% plus list, but as the move progresses, it becomes slightly more risky to enter breakouts for longer term holding. The ideal period to buy is when momentum cycle is just beginning.

AIXG,Aixtron Aktiengesellschaft Ads (Google  Yahoo  Earnings  Chart) 
AKS,Ak Steel Holding Corp (Google  Yahoo  Earnings  Chart) 
AMSC,American Superconductor (Google  Yahoo  Earnings  Chart) 
BMTI,BioMimetic Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
BPA,Biosante Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings  Chart) 
CITP,Comsys It Partners Inc (Google  Yahoo  Earnings  Chart) 
CYNO,Cynosure Inc (Google  Yahoo  Earnings  Chart) 
DFZ,R.G. Barry Corp (Google  Yahoo  Earnings  Chart) 
DSTI,Daystar Technologies Inc (Google  Yahoo  Earnings  Chart) 
EDU,New Oriental Edu And Tech Corp (Google  Yahoo  Earnings  Chart) 
EVEP,EV Energy Partners LP (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
GMO,Idaho General Mines Inc (Google  Yahoo  Earnings  Chart) 
GNK,Genco Shipping & Trading Ltd (Google  Yahoo  Earnings  Chart) 
GPK,Graphic Packaging Intl (Google  Yahoo  Earnings  Chart) 
GSOL,Global Sources Ltd. (Google  Yahoo  Earnings  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
INXI,INX Inc (Google  Yahoo  Earnings  Chart) 
IOC,Interoil Corporation (Google  Yahoo  Earnings  Chart) 
JSDA,Jones Soda Co (Google  Yahoo  Earnings  Chart) 
LEND,Accredited Home Lenders (Google  Yahoo  Earnings  Chart) 
MTOX,Medtox Scientific (Google  Yahoo  Earnings  Chart) 
NAK,Northern Dynasty Minerals Ltd (Google  Yahoo  Earnings  Chart) 
NYNY,Empire Resorts Inc (Google  Yahoo  Earnings  Chart) 
PNSN,Penson Worldwide Inc (Google  Yahoo  Earnings  Chart) 
RCCC,Rural Cellular Corp (Google  Yahoo  Earnings  Chart) 
REFR,Research Frontiers Inc (Google  Yahoo  Earnings  Chart) 
SIGM,Sigma Designs Inc (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) 
VOLC,Volcano Corp (Google  Yahoo  Earnings  Chart) 


Possible Long candidates
BMTI,BioMimetic Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
CITP,Comsys It Partners Inc (Google  Yahoo  Earnings  Chart) 
EDU,New Oriental Edu And Tech Corp (Google  Yahoo  Earnings  Chart) 
GNK,Genco Shipping & Trading Ltd (Google  Yahoo  Earnings  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
INXI,INX Inc (Google  Yahoo  Earnings  Chart) 
SIGM,Sigma Designs Inc (Google  Yahoo  Earnings  Chart) 

Earnings will dominate the action

The 100 plus universe has climbed to 400 plus. The memories of February swoon have disappeared. Market has shown remarkable recovery after the major one day down move.
Now the attention will shift to earnings. This week will herald real flood of earnings, as more companies are slated to announce earnings this week.


Market Monitor

Total 4% plus bullish breakouts=163
Total 4% plus bearish breakouts= 23
65 day bullish/bearish ratio= 955/260
Stocks up 50% or more in a month=11
Stocks up 25% or more in a month=117
Number of stocks with 100% plus move = 408
Number of stocks up 200% or more = 89
4% plus signals for 100plus universe=39
4% plus signals for 200plus universe=13

Selected breakouts
AIXG,Aixtron Aktiengesellschaft Ads (Google  Yahoo  Earnings  Chart) 
ASTI,Ascent Solar Technologies Inc (Google  Yahoo  Earnings  Chart) 
AVRX,Avalon Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
BW,Brush Engineered (Google  Yahoo  Earnings  Chart) 
CBLI,Cleveland BioLabs Inc (Google  Yahoo  Earnings  Chart) 
CHDX,Chindex International Inc (Google  Yahoo  Earnings  Chart) 
DYAX,Dyax Corporation (Google  Yahoo  Earnings  Chart) 
EMS,Emergency Medical Services L.P. (Google  Yahoo  Earnings  Chart) 
FTK,Flotek Industries Inc (Google  Yahoo  Earnings  Chart) 
HL,Hecla Mining Co (Google  Yahoo  Earnings  Chart) 
ITWO,i2 Technologies Inc (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
JAV,Javelin Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
JSDA,Jones Soda Co (Google  Yahoo  Earnings  Chart) 
LNET,Lodgenet Entertainment (Google  Yahoo  Earnings  Chart) 
MRB,Metallica Resources Group (Google  Yahoo  Earnings  Chart) 
MTOX,Medtox Scientific (Google  Yahoo  Earnings  Chart) 
NAK,Northern Dynasty Minerals Ltd (Google  Yahoo  Earnings  Chart) 
RCCC,Rural Cellular Corp (Google  Yahoo  Earnings  Chart) 
REFR,Research Frontiers Inc (Google  Yahoo  Earnings  Chart) 
SA,Seabridge Gold Inc (Google  Yahoo  Earnings  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
SNCI,Sonic Innovations Inc (Google  Yahoo  Earnings  Chart) 
SUPG,Supergen Inc (Google  Yahoo  Earnings  Chart) 
SVNT,Savient Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
SYNT,Syntel Inc (Google  Yahoo  Earnings  Chart) 
TGX,Theragenics Corp (Google  Yahoo  Earnings  Chart) 
TSL,Trina Solar Ltd. (Google  Yahoo  Earnings  Chart) 
URZ,Uranerz Energy Corp (Google  Yahoo  Earnings  Chart) 


Possible long candidates:

DYAX,Dyax Corporation (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
SVNT,Savient Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
SYNT,Syntel Inc (Google  Yahoo  Earnings  Chart) 

In such illiquid stocks, how do you get out if it trades against you?

Pleadership asked
"You did not really answer the question? In such illiquid stocks, how do you get out if it trades against you? This is at best a 50-50 business so you must have a rule to ensure your position size does get too big relative average volume. Or not? Maybe 10% of 30 day average volume? In general, I do not think you are trading much money, because otherwise you would have such a risk parameter."

As I have said I do not trade Goldman size portfolio but a decent sized account.
My max positions in number of shares in last year have been in 5000-7000 shares range. My strategies are designed for aggressive growth in my current account. I do not worry too much about its size, I worry about growing it aggressively, while prudently managing risk.

After a initial year brush with major draw down in one thinly traded stock where I lost 30% within matter of minutes, I am extremely cognizant of risk.

How do I exit such stocks:

• I exit on trailing stops. Trailing stops move more aggressively as profit in my position increases.The moment I have more than 50% plus profit in a position, I move stops aggressively to try and protect profit as much as possible.
• I exit if I see volume increase but price is not making corresponding move up indicating churn. This is very common in stocks after they made major moves.
• I exit if stock goes in to a climax run.
• I reduce my risk by timing entry after a 65 day weakness in strong trending stocks.
• I use a liquidity filter on all trades except the earnings trade, where the nature of trade s such that the earning acts as a catalyst on such stocks. Here again I am buying after an event, which reduces risk.
• I buy stocks after they have already moved 100% plus from 260 days lows. The first 100% move is where the liquidity comes in on neglected stocks. Anyone who makes an effort to go though all the stocks in 100% plus universe will understand that by the time a stock makes 100% move, the liquidity has increased in majority of cases.
• In Episodic Pivot, which is the main method which contributes to my profitability currently, anyway the minimum volume requirements for a stock to come on scan itself are significantly high. That automatically weeds out low liquidity stocks.
  
• Above all I use a market filter to identify less risky and more risky periods. It is my observation that the stocks I trade and some of which are thinly traded, have big adverse moves only during certain periods. By trying to avoid such periods the risk is lowered. When 50% plus movers in month are above 20, I have least amount of money at risk and willing to go in to cash at any moment.

I am very conscious of risk in everything I do and try and control as much as possible by controlling what I can control.

I have also given lot of thought to how I will play this once my size account size increases. At a bigger account size in few years, I will trade this with anywhere between 50 to 100 positions in portfolio with each individual position ranging from .5 to 4% of account size based on liquidity.

Besides that I think I have an inventive mind and confidence that I can design strategies even if I have to trade billions. Besides the strategies which I have talked about publicly, I have in my arsenal many strategies suitable for trading higher liquidity stocks or the large caps or the Index. So I will trade the big account differently.

When I last checked the list of successful traders and studied their biographies, at least in my studies it shows that most of them started with small accounts and built them up.

IBD 85-85 and earnings

Every Friday the Investors Business Daily publishes 85-85 list. Which basically is a list of stocks with RPS rating of 85 and EPS rating of 85 and which are within certain percentage of 52 weeks high. Some of the stocks have black border and that indicates their chart pattern as per IBD philosophy is ideal for entry.

Now if you are motivated enough to understand the role played by the earnings in these stocks, what you can do is, go back and plot the past earnings dates on these set of stocks. Many charting programs allow you to do this. Bigcharts is one free program which has this feature. However I have observed that sometime Bigcharts dates are 2-3 days late.

If you plot the earnings data on charts, what you will find is many of the chart patterns are predated or post dated by few days of earnings. So chart patterns which happen few days or before earnings or few days after earnings are more successful. In essence a cup and handle which forms pre earnings will often breakout on earnings day.

Earlier I use to do this plotting regularly every week. Now I do not do this. But if you are technical analysis and chart pattern junkie and if you study this in detail, you can significantly improve your chances of success by picking chart patterns only during certain time. You will also find patterns like a stock reacting to earnings one quarter, not reacting next corner and then breaking out just before or after third earnings.

Market monitor is also about nature and size of opportunity

Market Monitor

Total 4% plus bullish breakouts=164
Total 4% plus bearish breakouts= 41
65 day bullish/bearish ratio= 938/269
Stocks up 50% or more in a month=12
Stocks up 25% or more in a month=115
Number of stocks with 100% plus move = 385
Number of stocks up 200% or more = 87
4% plus signals for 100plus universe=42
4% plus signals for 200plus universe=10

To many these are just numbers. But if you think about it, these numbers clearly tell you about the nature of opportunity in the market place for a given time frame.

You can look at the same set of numbers as:

• There were 385 opportunities in stocks that doubled in a 260 day time frame.
• Even if you missed the first 100% , there were 87 opportunities in stocks which went on to gain anywhere from 200 to 977% in last 260 days.
• On a quarterly time frame there were 938 opportunities in stocks with 25% plus gain. In the same 65 days 46 stocks had between 100 to 392% gain.
• If shorting is what fascinates you , then there were 254 opportunities which made between 25% to 79% on short side.
• If you are primarily a few days swing trader then you might want to see the extent of opportunity on the one month time frame.
• 96 Stocks offered 25% plus opportunity in just 20 trading days. 10 of them offered 50% plus opportunity.

Once one understands the opportunity, one can look further to find, how can I identify and trade this opportunity. You can continuously study this opportunity to figure out questions like:

• What triggers a 100% plus move in 260 days?
• What was the price action on this stock before the 100% move?
• Do stocks at top of range make 100% move or do stock at bottom of their 3 year range make 100% move?
• Are there some episodes which trigger this move?
• Does it make sense to buy breakout or weakness on such stocks?
• What was the liquidity on such stock before breakout?
• How does liquidity move over the progression of the move?
• How do these move end?
• Should you listen to perma bears
  

If you do this over a period of time or over an extended period of time, you become an expert in stocks which make 100% plus move in 260 days or less. That can be a very good edge to have in a market where people struggle to make 10%.

If we know the nature and extent of opportunity in market, we can better design strategies to exploit it. Better prioritize our efforts. And above all play in a different segment of the market. A segment of market where stocks make dramatic moves and on which most people are not consciously focused.

Market hunches

When in tune with market, many times I get hunches about possible moves in a stock or in overall market. Many times they do not come true and sometime they come true. There is no rational or logical explanation for it. Part of it is just pattern recognition by subconscious mind. Part of it is related to getting immersed in the market, you feel you see things ahead of time.

The hunches has become more a regular phenomenon as I gained experience in market and perfected methodologies and started looking at same things day in and day out. Now the thing about hunches is that if you do not act on them, they create a tension between your thinking and action. So to resolve this problem I act on my hunches and regroup after some days.

Currently my hunch is market risk is increasing. So even though I put on some capital to work in market yesterday, there was conflict between hunch and actual action. So today morning I am going to reduce risk to bare minimum.

There are couple of friends and associates and investors who get my market analysis emailed to them at regular frequency and they are well aware of this thing. More often that not I have found the hunches proving correct. So when you are completely in tune with the market, the market talks to you.

Later
Market monitor is also about nature and size of opportunity
IBD 85-85 and earnings

Pending for weekend
Pleadership question on exit and risk management and my small account size in his opinion

Fear of loss and trading or fear and trader ( I don't remember who asked this)

Bounce lacked volume

After days of inaction the 50% plus in a month indicator jumped to 12. Periods between 10 to 20 are high momentum zone, great for profitability. So discipline means putting back more positions.
There was no shortage of opportunities today. There were over 42 breakout in Double Trouble universe with many stocks breaking out of ranges.

Market Monitor

Total 4% plus bullish breakouts=164
Total 4% plus bearish breakouts= 41
65 day bullish/bearish ratio= 938/269
Stocks up 50% or more in a month=12
Stocks up 25% or more in a month=115
Number of stocks with 100% plus move = 385
Number of stocks up 200% or more = 87
4% plus signals for 100plus universe=42
4% plus signals for 200plus universe=10

Selected breakouts

ACOR,Acorda Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
AKRX,Akorn Inc (Google  Yahoo  Earnings  Chart) 
AMAG,Advanced Magnetics Inc (Google  Yahoo  Earnings  Chart) 
ARRY,Array Biopharma Inc (Google  Yahoo  Earnings  Chart) 
BSQR,bSquare Corp (Google  Yahoo  Earnings  Chart) 
CBEY,CBeyond Communications Inc (Google  Yahoo  Earnings  Chart) 
CCOI,Cogent Communications Group Inc (Google  Yahoo  Earnings  Chart) 
CPA,Copa Holdings S.A. (Google  Yahoo  Earnings  Chart) 
EXM,Excel Maritime Carriers (Google  Yahoo  Earnings  Chart) 
FTK,Flotek Industries Inc (Google  Yahoo  Earnings  Chart) 
GTXI,Gtx (Google  Yahoo  Earnings  Chart) 
IIG,Imergent Inc (Google  Yahoo  Earnings  Chart) 
INCY,Incyte Corp (Google  Yahoo  Earnings  Chart) 
JAV,Javelin Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
JSDA,Jones Soda Co (Google  Yahoo  Earnings  Chart) 
LFC,China Life Insurance Company (Google  Yahoo  Earnings  Chart) 
LXU,Lsb Industries Inc (Google  Yahoo  Earnings  Chart) 
NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
ONXX,Onyx Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
PERY,Perry Ellis Int'l (Google  Yahoo  Earnings  Chart) 
RNIN,Wireless Ronin Technologies Inc (Google  Yahoo  Earnings  Chart) 
RZ,Raser Technologies Inc (Google  Yahoo  Earnings  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
SPIL,Siliconware Precision Industries Company Ltd ADS (Google  Yahoo  Earnings  Chart) 
SPPI,Spectrum Pharm Inc (Google  Yahoo  Earnings  Chart) 
SWHC,Smith & Wesson Hldg Corp (Google  Yahoo  Earnings  Chart) 
TLEO,Taleo Corp (Google  Yahoo  Earnings  Chart) 
VHI,Valhi Inc (Google  Yahoo  Earnings  Chart) 
VOLC,Volcano Corp (Google  Yahoo  Earnings  Chart) 
VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 


Possible long candidates based on 65 days price growth or being in top 20 in terms of overall 260 days growth or recently crossing 100% plus mark are ACOR, CCOI, GTXI, CPA, and TLEO.

ACOR is up 965% from its 260 days low. Stock like ACOR shows the value of buying the top 25, even if you get stopped out. This is my 5 th trade in this stock, one of it was not profitable. The stocks in the top 20 or 25 list just have super hot momentum, at some stage they will reverse, but till then buying breakouts with tight stop is most profitable. Provided you can psychologically do it. Not an easy task for most. Plus if you start believing in things like resistance and support, you are unlikely to buy breakouts on such stocks.

Trading a methodology like Double Trouble requires fortitude. You can lose 1% each on 10 consecutive trades and 11 th trade will give you 30 or 40% in few weeks. For many traders to trade something like that can be very unsettling.

The other critical thing is not to get emotionally involved on any of the stock. If you start looking at other variables like earnings or something else to make decision on this list, you might not get best results.The whole idea behind trading something like this is pure momentum and runaway trends. That is the reason I use momentum criteria like one year growth or 65 days growth to shortlist candidates in this list and not float or earnings.

Momentum trading works for bulk of the time, the trick is to avoid some dangerous periods.

Double Trouble update

As of 3 pm there are around 15 stocks showing up on scan. There are possibly number of candidates to choose from today. Based on 65 day growth and one year growth being lowest TLEO qualifies. Based on top 25 by yearly growth ACOR qualifies. ACOR is up 948% from 260 days low.

ACOR,Acorda Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
AKRX,Akorn Inc (Google  Yahoo  Earnings  Chart) 
AMAG,Advanced Magnetics Inc (Google  Yahoo  Earnings  Chart) 
BUF,Minrad International Inc (Google  Yahoo  Earnings  Chart) 
CCOI,Cogent Communications Group Inc (Google  Yahoo  Earnings  Chart) 
CPA,Copa Holdings S.A. (Google  Yahoo  Earnings  Chart) 
EXM,Excel Maritime Carriers (Google  Yahoo  Earnings  Chart) 
IIG,Imergent Inc (Google  Yahoo  Earnings  Chart) 
NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
ONXX,Onyx Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
PERY,Perry Ellis Int'l (Google  Yahoo  Earnings  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
TLEO,Taleo Corp (Google  Yahoo  Earnings  Chart) 
VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 

Double Trouble

Four stocks are currently showing up on the scan.

ACOR,Acorda Therapeutics Inc (Google Yahoo Earnings Chart)
AMAG,Advanced Magnetics Inc (Google Yahoo Earnings Chart)
HTI,Halozyme Therapeutics Inc (Google Yahoo Earnings Chart)
ONXX,Onyx Pharmaceuticals Inc (Google Yahoo Earnings Chart)

Oh, the Thinks You Can Think!

Think left and think right
and think low and think high.
Oh, the thinks you can think up if only you try!

You can think about earnings
About before tax earnings
or after tax earnings
or think about acceleration


If you can think about earnings acceleration
You can think about deacceleration
And earnings consensus
and earnings guidance
You can even think about earnings expectations

Oh, the THINKS
you can think up
if only you try!

If you can think about expectations
You can think about beating expectations
and you can think about missing expectations
Oh, missing expectations
You should never miss,
always exceed expectations

Oh, the THINKS
you can think up
if only you try!

And when you think of earnings miss
Think of pretty miss
Pretty miss and models
You can think about models
Think about role of earnings in Fed model
You can think about Victoria's Secret model
and the hedge fund manager with pretty earnings model
Think of the pretty Victoria's Secret model
Who prefers to date hedge fund manger with earnings model
Oh the thinks you can think
Oh, the THINKS
you can think up
if only you try!

You can think about ways to trade earnings
You can think about entries weeks before earnings
You can think of entries after earnings
You can think of entries weeks after earnings
You can think of trading analysts earnings
you can think about trading actual earnings
You can even think about trading future earnings
You can think of trading Projected earnings
You can think of trading momentum in earnings
You can think of hundred ways to trade earnings

Oh the thinks you can think
Oh, the THINKS
you can think up
if only you try!

When you think about trading earnings
You can think about bulls and bears
You can even think about Barry the bear and Larry the bull
Think why Barry always says
earnings are going down, down, down
Think why Larry always says
earnings are going up, up, up
You can think up
You can think down
up down
up down
Or you can think trends

Oh the thinks you can think
Oh, the THINKS
you can think up
if only you try!

You can think about overall earnings trends
Think about S&P earnings trends
Think about sector earnings trends
You can even thinks about caps and their earnings trends
caps caps caps
small cap earning trends
large cap earning trends
mid cap earnings trends

Oh the thinks you can think
Oh, the THINKS
you can think up
if only you try!

You can even think of earning manipulation
When you think of manipulation
Think about Herb Greenberg
He hunts for earnings manipulation
Think about trading earnings manipulation
When you think of manipulation
Think of Dennis Kozlowski
When you think of Kozlowski
Think of Bulkowski

Oh the thinks you can think
Oh, the THINKS
you can think up
if only you try!

Think of Bulkowski's chart patterns
You can even think of trading chart patterns
Think of pre earnings chart patterns
Think of post earnings chart patterns
You can even think of Bulkowski event patterns
You can think of bull flag patterns
Or the cup and handle pattern

There are so many THINKS
that a Thinker can think!
Think left and think right
and think low and think high.

Oh, the THINKS you can think up if only you try!

If you can not think of five ways to trade earnings, may be you should think of visiting a think doctor.

Thinking behind market monitor

If you run in to a wall, don't give up. Figure out how to climb it, go through it or work around it,
Michael Jordan

One of the key to successful trading is understanding overall market direction and the impact it will have on your strategies. While there are many opinions on market direction, few have a rigorous methodology to anticipate possible correction zones or change in market direction. The Investors Business Daily uses number of distribution days to do it. Some use breadth numbers. Dan Zanger is a great fan of Mcclellan Oscillator to anticipate market turns.

Market monitor is my way of anticipating possible good and bad trading periods. The background to this market monitor thinking was based on volatility of my returns in early years. As you can see all the methods I use give stocks with high probability of going up. So many times I would build my account up by 30 or 40% or more in 3-4 months and then would be caught in one of the market corrections, ending up giving up 20 to 25% in few days.

So I developed market monitor method as an overall filter to avoid certain periods and reduce risk by getting out before a market correction. It has helped significantly. It is not perfect but it is conceptually a early warning signal system.

Momentum is cyclical. Momentum phases last for some period and then there is correction. Downside momentum reaches extreme and again there is reversal. Life would be very easy if we knew this cycle was say 3 months or four months. But in reality it does not work that precisely in timing terms. So one uses a proxy of breadth. Now the 65 days bull bear indicator is just a very crude breadth proxy. It tells us number of stocks making a certain 25% plus move in 65 days.

Momentum cycles will start with readings on bullish 65 days side being lower than bearish. At some stage the bullishness reaches extreme indicated by both 65 days number being high as in you will get 10:1 ratio or something. So in essence at momentum extreme few stocks are down 25% or more.

Now there is no exact number, but what I have seen and discovered through testing is when the number crosses below 200 or bearish or bullish side we have a probability of correction. So I start locking in profit, moving stops, reducing exposure, not taking fresh signals. Same way when bullish numbers reach below 200, most selling has happened, so I am very bullish, anticipating a turn. Rallies which start after number reaching below 200 are very ferocious and safe for putting large positions.

Now if we catch the turn zone then viola what happens is our positions start moving up, they reach extreme by the time the bearish number reach 200, so you have lots of profit. So why be greedy lock it in in anticipation of likely correction.

That in essence is how I use this thing.

The 50% plus in month supplements this indicator in the sense I have observed readings above 20 indicate red hot momentum and it is usually climax followed by correction.

Now these two things most of time move in tandem in the sense when bearish readings go below 200 on 65 the 50% plus readings are in 20 s. Now in current market I see an aberration where the 65 number has gone down on bearish side and approaching 200 almost but 50 number is stuck at 8-10 indicating churn.

Now none of this is perfect or scientific. It helps identify risky periods. It helps identify good periods for momentum strategies. Above all it helps make money..

So before blindly trading IBD200 or Double Trouble you must understand the market monitor. If you start trading a method at wrong time, you can very quickly get discouraged. Currently the market monitor is anticipating correction.

Later: Oh the thinks you can think...
Or why trading failure is failure of imagination...

Selling lacked the punch

As expected the market corrected after many days of vertical move. The selling lacked vigor and at the end of day only 61 stocks were down 4% plus in my universe. A genuine down move will have 200 plus downside movers.

So possible move for market is muddled move during the earning season followed by possible up move.


Market Monitor

Total 4% plus bullish breakouts=72
Total 4% plus bearish breakouts= 61
65 day bullish/bearish ratio= 868/274
Stocks up 50% or more in a month=9
Stocks up 25% or more in a month=98
Number of stocks with 100% plus move = 372
Number of stocks up 200% or more = 82
4% plus signals for 100plus universe=11
4% plus signals for 200plus universe=7

Selected stocks up 100% or more with a breakout today are:
ARQL,Arqule Inc (Google  Yahoo  Earnings  Chart) 
IIG,Imergent Inc (Google  Yahoo  Earnings  Chart) 
IMMU,Immunomedics Inc (Google  Yahoo  Earnings  Chart) 
NEXC,Nexcen Brands Inc (Google  Yahoo  Earnings  Chart) 
ORCH,Orchid Cellmark Inc (Google  Yahoo  Earnings  Chart) 
PRGX,Prg-schultz Intl Inc (Google  Yahoo  Earnings  Chart) 
VOLC,Volcano Corp (Google  Yahoo  Earnings  Chart) 


Possible long candidates based on 65 days price growth or being in top 20 in terms of overall 260 days growth or recently crossing 100% plus mark is VOLC

Double Trouble

Here is what is appearing currently on the "Double Trouble" scans. Out of the list VOLC has lowest 65 days growth. As you would have noticed the others like ASTI and NEXC has appeared on the scan before and provided better entries earlier.

ASTI,Ascent Solar Technologies Inc (Google  Yahoo  Earnings  Chart) 
DSTI,Daystar Technologies Inc (Google  Yahoo  Earnings  Chart) 
MDII,Midi Inc (Google  Yahoo  Earnings  Chart) 
NEXC,Nexcen Brands Inc (Google  Yahoo  Earnings  Chart) 
VOLC,Volcano Corp (Google  Yahoo  Earnings  Chart) 



If you set up your scans properly, you can get this list throughout day and enter based on morning action. Obviously there is no guarantee.Some of them might reverse after your entry but it works both ways, sometime you benefit from the move up during the day.

Tracking earnings

Many of you have emailed asking more questions about the earnings breakout. I have written extensively on it previously for last 18 months or so. There are no major secrets to it. It is just plain vanilla step by step process.

Lets look at today. I went through the IBD earnings list on page A11. Noted two stocks meeting the earnings criteria of 100% plus growth AZZ and SLP. Looked at their 65 days growth. Both had rallied in to earnings. AZZ has less of a rally. AZZ was anyway in my list of stocks which have reacted positively to earnings in previous one year.It had earning acceleration some quarters back. So I see no opportunities for today.


The earning season is just staring so opportunities will present themselves in next 4-6 weeks. I do not listen to earnings call, or any other thing, I look at just the earnings, previous price action and put selected stocks on watch for next day. If they have high volume breakout in first few hours, I buy.

Lacking red hot momentum

Market Monitor

Total 4% plus bullish breakouts=111
Total 4% plus bearish breakouts= 48
65 day bullish/bearish ratio= 964/187
Stocks up 50% or more in a month=19
Stocks up 25% or more in a month=154
Number of stocks with 100% plus move = 397
Number of stocks up 200% or more = 89
4% plus signals for 100plus universe=21
4% plus signals for 200plus universe=4

This was the market few days before the major one day dip in February. Notice the 50% plus was at 19 and 25% plus in month was at 154. That was red hot momentum. The 65 day indicator was below 200 indicating possible turn around.
Since then the market has gone up but on individual stocks the momentum has been lukewarm as you can see in below market monitor figures.

Market Monitor

Total 4% plus bullish breakouts=134
Total 4% plus bearish breakouts= 43
65 day bullish/bearish ratio= 920/264
Stocks up 50% or more in a month=8
Stocks up 25% or more in a month=72
Number of stocks with 100% plus move = 378
Number of stocks up 200% or more = 80
4% plus signals for 100plus universe=21
4% plus signals for 200plus universe=7

This lack of momentum is making the moves on individual stocks smaller and few of the 100% plus stocks have really gone up the way they normally do. You get best results for strategy like 100% plus after a market correction of 10 days plus.

Selected stocks breaking out from 100% plus universe:

AIXG,Aixtron Aktiengesellschaft Ads (Google  Yahoo  Earnings  Chart) 
AMSC,American Superconductor (Google  Yahoo  Earnings  Chart) 
ASTI,Ascent Solar Technologies Inc (Google  Yahoo  Earnings  Chart) 
BPA,Biosante Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
CVNS,Covansys Corp (Google  Yahoo  Earnings  Chart) 
CYTR,Cytrx Corporation (Google  Yahoo  Earnings  Chart) 
EMS,Emergency Medical Services L.P. (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
GMO,Idaho General Mines Inc (Google  Yahoo  Earnings  Chart) 
GTI,Graftech Intl Ltd (Google  Yahoo  Earnings  Chart) 
INCY,Incyte Corp (Google  Yahoo  Earnings  Chart) 
NYNY,Empire Resorts Inc (Google  Yahoo  Earnings  Chart) 
ROCM,Rochester Medical Corp (Google  Yahoo  Earnings  Chart) 
SLP,Simulations Plus Inc (Google  Yahoo  Earnings