70 Plus EPS

As of 1 PM the following stocks were meeting the 4% plus breakout and 70 EPS plus ratings.
AEM,Agnico-Eagle Mines Ltd (Google  Yahoo  Earnings  Chart) 
AEY,Addvantage Tech Group (Google  Yahoo  Earnings  Chart) 
AGE,A.G. Edwards Inc (Google  Yahoo  Earnings  Chart) 
ARGN,Amerigon Inc (Google  Yahoo  Earnings  Chart) 
ASML,Asml Hldgs Nv Ny Reg Shs (Google  Yahoo  Earnings  Chart) 
BFAM,Bright Horizons Fam Solu (Google  Yahoo  Earnings  Chart) 
BHE,Benchmark Electronics (Google  Yahoo  Earnings  Chart) 
BKRS,Bakers Footwear Group Inc (Google  Yahoo  Earnings  Chart) 
BLK,Blackrock Incorporated (Google  Yahoo  Earnings  Chart) 
CIEN,Ciena Corporation (Google  Yahoo  Earnings  Chart) 
CNC,Centene Corp (Google  Yahoo  Earnings  Chart) 
FTK,Flotek Industries Inc (Google  Yahoo  Earnings  Chart) 
HEI,Heico Corp (Google  Yahoo  Earnings  Chart) 
HSOA,Home Solutions Of America (Google  Yahoo  Earnings  Chart) 
JCG,J Crew Group Inc (Google  Yahoo  Earnings  Chart) 
LAYN,Layne Christensen Co (Google  Yahoo  Earnings  Chart) 
LXU,Lsb Industries Inc (Google  Yahoo  Earnings  Chart) 
NVT,Navteq Corp (Google  Yahoo  Earnings  Chart) 
PJC,Piper Jaffray Companies (Google  Yahoo  Earnings  Chart) 
PNSN,Penson Worldwide Inc (Google  Yahoo  Earnings  Chart) 
RHT,Red Hat Inc (Google  Yahoo  Earnings  Chart) 
RJF,Raymond James Financial (Google  Yahoo  Earnings  Chart) 
RRST,RRsat Glo Comm Network Ltd Ord (Google  Yahoo  Earnings  Chart) 
RVBD,Riverbed Technologies Inc (Google  Yahoo  Earnings  Chart) 
SF,Stifel Financial Corp (Google  Yahoo  Earnings  Chart) 
SNP,China Petro & Chem Ads (Google  Yahoo  Earnings  Chart) 
SSRX,3Sbio Inc Ads (Google  Yahoo  Earnings  Chart) 
TKC,Turkcell Iletisim Hizmetleri ADS (Google  Yahoo  Earnings  Chart) 
TSRA,Tessera Technologies Inc (Google  Yahoo  Earnings  Chart) 


While many are having second or third breakouts , the one with low 65 days price growth are worth investing.

ARUN

ARUN, Aruba Networks Inc, with 4% breakouts marked.

Perma Bears and History

“in February 1948, the communist leader Klement Gottwald stepped out on the balcony of a Baroque palace in Prague to harangue hundreds of thousands of citizens massed in Old Town Square.
Gottwald was flanked by comrades with Clementis standing close to him. It was snowing and cold, and Gottwald was bareheaded. Bursting with solicitude, Clementis took off his fur hat and set it on Gottwald’s head.
The propaganda section made hundreds of thousands of copies of the photograph taken on the balcony where Gottwald, in a fur hat and surrounded by his comrades, spoke to the people. On that balcony the history of Communist Bohemia began. Every child knew that photograph, from seeing it on posters and in schoolbooks and museums.
Four years later Clementis was charged with treason and hanged. The propaganda section immediately made him vanish from history and , of course, from all photographs. Ever since, Gottwald has been alone on the balcony -. Where Clementis stood , there is only the bare palace wall. Nothing remains of Clementis but the fur hat on Gottswald head.”- The Book of Laughter and Forgetting by Milan Kundera

Since the 2002 bottom, the market has been rallying, interspersed with occasional corrections. One permanent feature of the advance has been the perma bears insisting on this 5 year rally being just a counter trend rally in larger bear market.Various hypothesis and arguments have been advanced by the bears at various stages of the move. All of them have proven wrong.

Now the great race to erase the history will start. Bears after bears will crawl out qualifying or subtly changing their past calls. Some will just air brush their past hypothesis and calls. Just watch the fun. After all at some stage after being wrong consistently for five years even the most ardent fans will start questioning the logic and threaten to quit.

Casting a wider net

Last night I talked about looking at the 4% plus universe to figure out market trends and sector trends. Now that the market open is out of the way lets look at it closely.

• There were 132 4% breakouts yesterday
• If you add the Episodic Pivots to it, it was a total of 139 stocks.

Now these 139 stocks are divided in to sub groups:

• Double Trouble
• Episodic Pivots
• Virgin
• IBD 200

So obviously the stocks in each of the above subgrouping have a well defined methodology to select stocks out of them. But looking at the list as a whole also gives you a deeper understanding of where money is flowing in the market.

To track that, everyday I segragate the list further in to two groups from the total 139 stocks:

1. Stocks with IBD 70 plus EPS
2. Rest of the stocks

Now if you look at last nights list following stocks had 70 plus EPS ratings.

AAON,Aaon Inc (Google  Yahoo  Earnings  Chart) 
AG,Agco Corp (Google  Yahoo  Earnings  Chart) 
AZZ,Azz Inc (Google  Yahoo  Earnings  Chart) 
BCSI,Blue Coat Systems Inc (Google  Yahoo  Earnings  Chart) 
BIIB,Biogen Idec Inc (Google  Yahoo  Earnings  Chart) 
CDWC,Cdw Corp (Google  Yahoo  Earnings  Chart) 
CF,CF Industries Holdings Inc (Google  Yahoo  Earnings  Chart) 
CMGI,CMGI Inc (Google  Yahoo  Earnings  Chart) 
CNH,Cnh Global Nv (Google  Yahoo  Earnings  Chart) 
COH,Coach Inc (Google  Yahoo  Earnings  Chart) 
CROX,Crocs Inc (Google  Yahoo  Earnings  Chart) 
CTCI,Ct Communications Inc (Google  Yahoo  Earnings  Chart) 
CTCM,CTC Media Inc (Google  Yahoo  Earnings  Chart) 
CWTR,Coldwater Creek Inc (Google  Yahoo  Earnings  Chart) 
DBRN,Dress Barn Inc (Google  Yahoo  Earnings  Chart) 
EON,E.On Ag Ads (Google  Yahoo  Earnings  Chart) 
ESEA,Euroseas Ltd (Google  Yahoo  Earnings  Chart) 
ESV,Ensco International Inc (Google  Yahoo  Earnings  Chart) 
FISV,Fiserv Inc (Google  Yahoo  Earnings  Chart) 
FSTR,L.B. Foster Co Cl A (Google  Yahoo  Earnings  Chart) 
GMKT,GMarket Inc (Google  Yahoo  Earnings  Chart) 
GOOG,Google (Google  Yahoo  Earnings  Chart) 
GRMN,Garmin Ltd (Google  Yahoo  Earnings  Chart) 
GTLS,Chart Industries Inc (Google  Yahoo  Earnings  Chart) 
HEI,Heico Corp (Google  Yahoo  Earnings  Chart) 
HP,Helmerich & Payne Inc (Google  Yahoo  Earnings  Chart) 
IMA,Inverness Medical Tchnlg (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
JOYG,Joy Global Inc (Google  Yahoo  Earnings  Chart) 
KOP,Koppers Holdings (Google  Yahoo  Earnings  Chart) 
LQDT,Liquidity Services (Google  Yahoo  Earnings  Chart) 
MALL,Pc Mall Inc (Google  Yahoo  Earnings  Chart) 
MEA,Metalico Inc (Google  Yahoo  Earnings  Chart) 
MKTX,Marketaxess Holdings (Google  Yahoo  Earnings  Chart) 
MOV,Movado Group Inc (Google  Yahoo  Earnings  Chart) 
NDAQ,Nasdaq Stock Market Inc (Google  Yahoo  Earnings  Chart) 
NILE,Blue Nile (Google  Yahoo  Earnings  Chart) 
NSIT,Insight Enterprises Inc (Google  Yahoo  Earnings  Chart) 
NVT,Navteq Corp (Google  Yahoo  Earnings  Chart) 
PDA,Perdigao Sa Ads (Google  Yahoo  Earnings  Chart) 
PLD,Prologis (Google  Yahoo  Earnings  Chart) 
POT,Potash Cp Saskatchewan (Google  Yahoo  Earnings  Chart) 
PRAA,Portfolio Recovery Assoc (Google  Yahoo  Earnings  Chart) 
PVH,Phillips-Van Heusen Corp (Google  Yahoo  Earnings  Chart) 
SUG,Southern Union Co (Google  Yahoo  Earnings  Chart) 
SWSI,Superior Well Services Inc (Google  Yahoo  Earnings  Chart) 
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart) 
URBN,Urban Outfitters Inc (Google  Yahoo  Earnings  Chart) 
VSNT,Versant Corporation (Google  Yahoo  Earnings  Chart) 
WFR,Memc Electronic Material (Google  Yahoo  Earnings  Chart) 


Now why should one look at this 70 EPS plus EPS list. EPS and all other things which are important in IBD CANSLIM methods like margin, recent quarter earnings or sales trends, ROE, etc. are all reported at three month interval. So for a quarter that rating is static. What changes is sector ratings and relative strength. Relative strength is a derivative of price. So any change in price growth gets reflected in relative strength. So Relative Strength is dynamic variable in a quarter. If you focus on breakouts, you know if this breakout is successful at what price stage the relative strength ratings will change. So you can buy earlier.

For example look at COH, GOOG,and PVH the three stocks highlighted by IBD under "Stocks in the News", they were all part of the IBD 70 plus EPS breakout list. While IBD insists on buying based on certain chart patterns, in reality few stocks have those ideal chart patterns. Most time the ideal buy able breakout on such stocks is a 4% move much earlier before the IBD idal pattern forms.

The same logic applies to the price cut offs used by IBD, many times the lowest risk buyable breakout on stocks with high EPS will happen 1 or 2 dollars below the cut off.

Now out of the 50 again I use an Relative Strength of 65 plus to shortlist candidates and look at them in greater details. I have found buying on a 4% breakout on 70% plus EPS with 65 days weakness is a better option than waiting for the relative strength to build up to 80 and buying. If there is a breakout and price moves in the direction of breakout, Relative Strength ratings climb very fast.

The other thing you will notice is this approach helps you spot sector moves very early. If you noticed all the retail/ fashion related stocks had breakout yesterday. This is a very common phenomenon, some months ago all the shipping and fertilizers stocks broke out in span of 2-3 days. Most sector moves start with the stocks with better EPS ratings breaking out first followed by the weaker ones. So doing this day in and day out will keep you on top of the sector trends. Everyday I do this and generate around 2 pages of notes based on my analysis. One of these days I might post a complete analysis of 4% plus breakout list.

After I am done with the IBD 70 plus EPS list, I go through rest of the list to see why these stocks are moving. Many times stocks move in anticipation of better earnings. Such stocks you will find in this list. In many sectors like Biotechnology, Retail, and Technology especially, the stocks make a move in anticipation of better earnings. So looking at rest of the list is useful. Sometime sector starts moving ahead of earnings seasons and then good earnings come in. Similarly I look at the 4% plus breakdowns to see sector and individual stock trends.

So in essence casting a wider net gets you in to good EPS candidates much earlier. This method is more suitable for those with much deeper understanding of how stocks with good earnings move. The IBD 200 is a lazy way to do same thing for beginners.
The wider net approach gets you in to trends on high EPS stocks at the beginning of a major move. That way your risk is lower and you can pyramid all along the move.

The bears and the dip buyers

• Market were down premarket Wednesday morning to news that the Shanghai Composite Index had shed 6.5%. The Chinese government is trying to avert a disaster. Weakness across Asia and Europe had the bears excited.
  
• But that action also excited dip buyers sending the market higher for the rest of the day.This was a classic bear squeeze. Month end also added a bit to that squeeze.
• A good thing about yesterday was number of stocks with good earnings lead the action higher.
• All the numbers , 65 days 25% plus, 100 and 200% plus and month 25 and 50% plus are in new high territories. So unless we see a major negative catalyst or 300 plus breakout on negative side, this rally has more time on its side.
• A new set of sectors have started a move up in last couple of days and that is getting reflected in the 4% breakout list clearly.
  

Double Trouble

468 stocks up 100% plus is a new record for this rally. The Double Trouble system keep churning out opportunities. Today there are over 39 stocks in the universe. To reduce them to more manageable level you can look at the integrated Telechart breakout scan.

65 Days Weakness Plus Breakout
(100 * (C1 - C66) / C66) < 10 AND ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

21 Days Weakness Plus Breakout
(100 * (C1 - C22) / C22) < 10 AND ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

The rally has got second wind but in last couple of days breakouts have not had major follow through, so caution and tight stop is still the name of the game.

Once you become expert at identifying opportunities from this list, you can look at the total 4% breakout list. Today it has 132 stocks. Tomorrow morning I will post my methodology to sift through the 132 stocks in the list. Throwing a wider net can give you better understanding of the market and sector trends.

AG,Agco Corp (Google  Yahoo  Earnings  Chart) 
AZZ,Azz Inc (Google  Yahoo  Earnings  Chart) 
BCSI,Blue Coat Systems Inc (Google  Yahoo  Earnings  Chart) 
CF,CF Industries Holdings Inc (Google  Yahoo  Earnings  Chart) 
CHTR,Charter Communications Inc (Google  Yahoo  Earnings  Chart) 
CLF,Cleveland-Cliffs Inc (Google  Yahoo  Earnings  Chart) 
CMGI,CMGI Inc (Google  Yahoo  Earnings  Chart) 
CNH,Cnh Global Nv (Google  Yahoo  Earnings  Chart) 
CRM,Salesforce.com Inc (Google  Yahoo  Earnings  Chart) 
CROX,Crocs Inc (Google  Yahoo  Earnings  Chart) 
CYTR,Cytrx Corporation (Google  Yahoo  Earnings  Chart) 
ESEA,Euroseas Ltd (Google  Yahoo  Earnings  Chart) 
EVOL,Evolving Systems Inc (Google  Yahoo  Earnings  Chart) 
FMT,Fremont General Corp (Google  Yahoo  Earnings  Chart) 
GTLS,Chart Industries Inc (Google  Yahoo  Earnings  Chart) 
GTXI,Gtx (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
KOSN,Kosan Biosciences Inc (Google  Yahoo  Earnings  Chart) 
LBIX,Leading Brands Inc (Google  Yahoo  Earnings  Chart) 
LBY,Libbey Inc (Google  Yahoo  Earnings  Chart) 
LNOP,Lanoptics Ltd (Google  Yahoo  Earnings  Chart) 
LQDT,Liquidity Services (Google  Yahoo  Earnings  Chart) 
MALL,Pc Mall Inc (Google  Yahoo  Earnings  Chart) 
MOS,Mosaic Company (Google  Yahoo  Earnings  Chart) 
MVIS,Microvision Inc (Google  Yahoo  Earnings  Chart) 
NFI,Novastar Financial Inc (Google  Yahoo  Earnings  Chart) 
NILE,Blue Nile (Google  Yahoo  Earnings  Chart) 
NOVC,Novacea Inc (Google  Yahoo  Earnings  Chart) 
NTL,Nortel Invesora Sa Ads (Google  Yahoo  Earnings  Chart) 
NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart) 
PDA,Perdigao Sa Ads (Google  Yahoo  Earnings  Chart) 
POT,Potash Cp Saskatchewan (Google  Yahoo  Earnings  Chart) 
RZ,Raser Technologies Inc (Google  Yahoo  Earnings  Chart) 
SDA,Sadia S.A. (Google  Yahoo  Earnings  Chart) 
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart) 
TTG,Tutogen Medical Inc (Google  Yahoo  Earnings  Chart) 
VSNT,Versant Corporation (Google  Yahoo  Earnings  Chart) 
VSR,Versar Inc (Google  Yahoo  Earnings  Chart) 
XNPT,XenoPort Inc (Google  Yahoo  Earnings  Chart) 

Market shrugs China

It is a very slow day. As of now only 66 stocks are up 4% plus and 27 down 4% or more. Market has formed small range in this area and it continues to churn. The dip buyers have been active pushing the tape around. As of now this looks still like a garden variety correction/consolidation with possible more upside.
Bloomberg had a big piece on how the short interest is at very high level. So squeeze may not be far off. Buying dips continues to work and it will take repeated failed attempts for the dip buyers to give up.

IBD 200 Breakout Scan

Some of you are confused by the two step process and some have valid question about what if the stock meets the 65 days less than 10% growth condition mid way through week.

To simplify all these kind of concerns you can run an integrated Telechart breakout scan.

65 Days Weakness Plus Breakout
(100 * (C1 - C66) / C66) < 10 AND ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

21 Days Weakness Plus Breakout
(100 * (C1 - C22) / C22) < 10 AND ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

Running either of the scan daily will give you list of breakouts, which one can then shortlist further.

The basic philosophy behind looking for weakness in high relative strength stock is line with the fact that when trading breakouts, one should look for higher per trade returns. Also such entries allow for pyramiding.

Similar logic applies to the Double Trouble universe.

Market Monitor

• Market character has changed with early strength being sold and dip buyers not in position to break above morning high.
• If you see the components of 4% plus breakouts, in last few days most are stocks at or near their 52 week lows. This often hints at trouble.
• The other possible sign of trouble is junk stocks below 5 are finding bids in large number in last couple of days.
• Month end effect should still keep a bid in market. But as pre mature bears learned today, shorting requires waiting for perfect spot. Lot of bears were excited when morning strength reversed but the dip buyers were active and the later half action looked like a bit of old fashioned panic covering by some shorts.
  
• Trading volume should start dropping as the weather becomes more tempting than the market.
  

Reducing the IBD 200 list

The IBD 200 list is essentially top 200 stocks ranked by IBD composite rating. If you look at the rating closely, it has higher weights to relative strength and sector relative strength. You will notice if a sector has high relative strength, even a 65 EPS rated stock will be in IBD 200.

The other thing to note is all the stocks on Thursday would be around 15% of their 52 week high or recent high in case of IPO. As a result in IBD 200 you get stocks which are in last stage of rally, some midway through and some stocks which are consolidating or correcting. The reduction method should find the third kinds.

65 Day price growth is one way to do that. It gives you a very few candidates to focus on. You can try 33 day price growth. It is more suitable to swing trading. Anything less than 20 days may not be very useful.

Also the patterns like cup with handle, pullback to 10 week MA line, double bottom at top of range, flat bases etc, which are popular patterns in IBD methodology, you will find them only in stocks with low 65 to 30 days price growth, not on overextended stock. Even if you find those patterns on overextended stock, chances of their failure is high on those stocks.

The number of opportunities you get is function of market phase. If you see the list after a 2-3 months market correction or more, you will get lots of opportunities. After 2to 6 months of rally , you will get few opportunities.If you consistently trade the IBD 200, then you would anyway would have bought the breakout on the overextended stocks on 65 days scan long time ago if at that time they were member of IBD200. Probability of that happening is high because you are constantly getting in IBD 200, top 4% stocks ranked by composite ratings.

Reducing the IBD 200 list to few opportunities

The IBD 200 list offers opportunities at various stages. Some opportunities are overextended and too late to get in. To identify the best and handful of opportunities with best potential, here is what I do.

• The total list has 200 stocks.
• Sorted it by 65 days growth with one day offset using Telechart scan : 100 * (C1 - C66) / C66
• Selected the stock which had less than 10 % growth in 65 days.
• That gives 27 stocks.

ACTU,Actuate Corporation (Google  Yahoo  Earnings  Chart) 
ANST,Ansoft Corporation (Google  Yahoo  Earnings  Chart) 
AOB,American Oriental Bioengineering Inc (Google  Yahoo  Earnings  Chart) 
ARD,Arena Resources Inc (Google  Yahoo  Earnings  Chart) 
BHP,BHP Billiton Ltd (Google  Yahoo  Earnings  Chart) 
BLUD,Immucor Inc (Google  Yahoo  Earnings  Chart) 
CENX,Century Aluminum Company (Google  Yahoo  Earnings  Chart) 
CNS,Cohen & Steers Inc (Google  Yahoo  Earnings  Chart) 
DSX,Diana Shipping Inc (Google  Yahoo  Earnings  Chart) 
EDU,New Oriental Edu And Tech Corp (Google  Yahoo  Earnings  Chart) 
ELP,Companhia Paranaense De (Google  Yahoo  Earnings  Chart) 
GGB,Gerdau Sa Ads (Google  Yahoo  Earnings  Chart) 
HURC,Hurco Companies Inc (Google  Yahoo  Earnings  Chart) 
ICE,Intercontinental Exchange Inc (Google  Yahoo  Earnings  Chart) 
ICLR,Icon Plc Ads (Google  Yahoo  Earnings  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
MICC,Millicom Intl Cellular Sa (Google  Yahoo  Earnings  Chart) 
MR,Mindray Medical Intl Ltd (Google  Yahoo  Earnings  Chart) 
OMCL,Omnicell Inc (Google  Yahoo  Earnings  Chart) 
OYOG,Oyo Geospace Corp (Google  Yahoo  Earnings  Chart) 
PCLN,Priceline.com Inc (Google  Yahoo  Earnings  Chart) 
SJR,Shaw Communications Cl B (Google  Yahoo  Earnings  Chart) 
SQM,Sociedad Quimica Chile (Google  Yahoo  Earnings  Chart) 
SSW,Seaspan Corp (Google  Yahoo  Earnings  Chart) 
TEX,Terex Corp (Google  Yahoo  Earnings  Chart) 
TKC,Turkcell Iletisim Hizmetleri ADS (Google  Yahoo  Earnings  Chart) 
TRMB,Trimble Navigation Ltd (Google  Yahoo  Earnings  Chart) 


Now this list can further be reduced based on sector action or whether the stock is in early breakout phase or late breakout phase.

Two stocks which offer the best opportunity probably are MICC and SSW, out of this reduced list of 27 stocks based on lack of breakout in last 60 days or so on both of them. MICC is a Luxembourg based cell phone operator famous for it Tigo brand service in emerging markets. While SSW is a shipping container chartering service. Both sectors are currently in favor. So I will be watching these two out of the 200 for a possible 4% plus breakout.

Sector Trends

I have added two sector trend lists in the sidebar. One of them is based on long term sector trend of a year, the shorter version is based on monthly trend. Telechart uses the Hemscott Industry Groups

Sector Long Term Trends
Top ten sectors.




Sectors Short Term Trends
Top ten sectors


Note: Embeded Spreadsheets , not visible in RSS readers.

Tradings Blogs of Interest - Part1

Five Percent Stocks
An interesting concept, to look for stock likely to make 5% move. Here is a well defined method and he keeps churning out winners.

A Dash of Insight
Much of the media debate about market is dominated by loud mouthed persistently wrong bears, who twist data to support their claims. This site debunks many of these kind of bears.

Afraid To Trade
A mix of swing trading strategies and investor education. Always has some though provoking things to say.

Alpha Trends
This blog has technical analysis presented in interesting video format on momentum stocks.

Aravind Suri
How do value investor find opportunities. Once in a while this writer gets excited about some stocks and then takes position.

BannRonn
A convenient aggregation of last few posts by some trading bloggers.

All time high

Howard Lindzon has popularized the idea of buying all time high in his video show. I have spent lot of time on all time high based system.It was one of the first concepts I toyed with five , six years ago. I traded it for couple of months also.

The logic behind all time high is that at all time high the stock has no resistance and only happy buyers. The trend followers also say a stock is definitely in trend when it is at all time high.

One of the problem with all time high based system is, the all time high in a stock is a function of market circumstances during its IPO. In red hot markets or in sectors sometimes stocks debut at a very high price. Any mishap in earnings after that can lead to stock being abandoned by everyone. In such cases the journey the stock makes from its low price to all time high can be very profitable, in many cases more profitable than buying post all time high.

Let us for example look at QPSA, which is up over 21% today. Now if you look at its all time high , it is 12.45, so if you wait for it to reach 12.45 to buy , you are giving up potentially a 100% plus return. Or for example take LNUX, which is around 4 currently, it has all time high of 270, now supposing this stock starts going up and if you wait till all time high, you are leaving so much money on table.

Let us look at GIGM, it is yet to take out its all time high of 81, but in the meanwhile in last 5 years stock is up 2222%. Or take AQNT, which has all time high of 72, it is currently at 63, in the meanwhile in 5 years it is up 2099%.

So this is an inherent problem with the all time high buy method. A stock selection method should for a given time frame give you best opportunity in market. The all time high stocks do not satisfy that conditions.I found a solution to this problem after thinking over this problem a lot.That is how the Virgin strategy evolved.

The other problem is if you buy after all time high, it may not be ideal buy point. So one of the things one can do is select stocks which are within 30% of all time high. Then the signal on those stock for buy becomes a 4% breakout. For example LOOP was a better buy on 4% breakout at around 18.93. At that time it was within 30% of the all time high.

Now if you take the universe of stocks which are within 30% of all time high you will get around 2500 stocks or so. If you carefully study those 2500 stocks further, you will find many have been trading in that 30% range for years. They vacillate between all time high and 30%. Now that can be very useful set of stocks for option players. Some time back, I had discussed this with one of the readers of this blog.

Now if you think about it, you can develop many strategies around the all time high concept. Some of the things I spent time looking at was all time low and looking at a multiple of all time low as signal. Because a stock which is below all time high also has another reference point of all time low. One can look at a buy signal when stock doubles from all time low or makes 30% plus move from all time low. Or look at mid point to all time high, so if all time high was 40, then when stock reaches 20 , it is buy signal. After playing around with this concept of all time high and all time low, I had developed more than dozen such concepts.

Overall choosing a stock based on is speed of move or relative strength is a better strategy than all time high. It beats buying all time high in all the testing I have done.

Market Monitor

• Dip buyers exhaust themselves. Yet another weak day was bid up early morning and then buyers exhausted themselves and market reversed. A textbook case of how momentum suddenly turns and risk of trading momentum. If you are not careful you can end up giving up lot of open profits.
  
• Is this start of something big or mere garden variety congestion in a rally which did not have a correction on the way. We will know if we find 4-5 days in next 10 days where the 4% bearish readings exceed 200. Most of the time down moves are characterized by back to back high readings on 4% bearish. Usually in a down move there is rush to get out.
  
• Good things about corrections is it produces ideal set ups in strong stocks. So after few weeks of weakness, the breakouts from IBD 200 and Double Trouble will have the characteristics one looks for a near term weakness in strong trend.
  
• Interesting thing to watch would be the reason offered by market commentators and press for the drop. Very few would say the market just needed some rest.
  

Later : Buying exhaustion and selling exhaustion... and a book on technical analysis which will make you think differently.......

Strugglers find creative ways to struggle

One of the side benefits of blogging is you get to understand different kinds of traders. Over the 18 months of blogging I have interacted with several traders, either through emails or telephone. There is an active set of traders who have developed many variation of some of the basic ideas here and added their own tweaks to it. Some have their own successful methodology and have shared many good ideas with me.

But there is one particular kinds of traders also whom have been in touch for long period. They just struggle to get a grip on trading. Some of them in last 18 months have been through various methods, various websites, newsletters and they continue to struggle. What is most interesting is that they put enormous amount of energy in their struggle. So they are unsuccessful inspite of their efforts.

I have been thinking a bit about this for sometime. Some people just cannot define a logical stepwise methods or lack in confidence. As against that the successful ones have very different approach. For example:

• There is a silicon valley based trader, he had run various backtests, changed and evolved rules and made his own system based on similar logic to Double Trouble. This inspite of having full time and very demanding job.
  
• Some time back I exchanged hundreds of emails with a trader who very methodologically defined and tried to understand the earnings trade and Virgin strategy.
  
• There is another trader who everyday does a thorough analysis of all earnings releases not only 100% plus and culls out 2-3 top ideas and trades them.
  
• There is successful trader whose specialty is IPO,throughout the day she keeps sending out email alerts on IPO trade and if I need some info on IPO's ,she is the first person I catch.
  
• There are 3 traders who everyday send me a copy of their analysis for every stock in Episodic Pivots and the logic for picking up trades.
  
• I also get analysis of likely additions to IBD 100 and shortlisting of best candidates from IBD 200 from many people.

In 18 months I have learned so many new things from some of these people.

As against that the struggler find more and more innovative ways to struggle. They just cannot somehow define a method and continue to flirt from one method to another. If a sector is hot, they get excited by it. If one call by Crammer is right, next 3 months they are after Crammer. Next they get excited by Elliott Wave or Fib or some concept and then put lot of effort in to it. It is interesting glimpse in to the psychology of some of the traders who fail to make it or continue to struggle.

Custom Date Sort in in Telechart

One of the questions asked is what happens during market weakness or bear market in the Double Trouble method. Leon has left a comment yesterday about it and Amit had asked the same question sometime back.

If you want to see what happened in the past, one of the handy features Telechart has is called "Custom Date Sort". Using Custom Date Sort you can sort any list in Telechart for % growth for two specified dates. So you can go and see for yourself what stocks had 100% plus moves during the different bear market phases.

Here is a Custom Date Sort I ran for the period between 03/27/00 to 11/27/00, this was a steep drop in the market. Here is the result:



As you can see if you run the sort there were over 100 stocks which were up betwen 100 to 500% during that period. Now if you see how the Telechart does this sorting v/s the formula used by me in Double Trouble you will notice in actual Double Trouble scan there will be more stocks as I calculate growth from 260 days low.

Another thing to remember is hundreds of stocks which were trading in 2000 are today no more active because of mergers or delisting, so the data you get has this limitations. That is one of the limitations of most backtesting softwares .

Unless you buy data of past stock which contains merged and delisted stocks, you are not truly getting the real results. Buying that kind of data is expensive proposition. Some years back I had got that data for 40 years and used it to test.One place to get this kind of data free is to find someone working in some of the Universities which actively research the markets.

If you use the Custom Sort Feature and go through various periods during bear market you will see stocks making 100 to 1000% moves during that period also. If a stock is in its growing earning phase, it will go up even during bear market. Bear markets are caused by earnings decrease. But certain sectors or companies continue to have good earnings during such periods and they still go up. PNRA was one such company amongst many which had excellent earnings during the bear market and went up several hundred percent during that time frame.

To develop conviction in methods, you need to do such things on your own, because only self evident truth is truth for most people.

Stockfetcher version of IBD 200

Last week I made a follow up post on IBD 200.

If you do not have access to IBD 200, because you live outside of USA , you can use a similar logic for your country market and look at top 200 to 300 stocks selected based on relative strength alone and you will get similar kind of stocks.

To do that use the following scan and take top 5% stock in it:
0.4 * (C * 100 / C65) + 0.2 * (C * 100 / C130) + 0.2 * (C * 100 / C195) + 0.2 * (C * 100 / C260)
The scan mimics IBD relative strength rating. You will also need to filter for liquidity and price by using filter like:
AVGC20 * AVGV20 >= 5000 AND C >= 5

In response to that couple of users of Stockfetcher have written asking for how to do this in Stockfetcher. I am not a user of Stockfetcher but I believe there are couple of readers who are. So you can comment on this attempt at trying to code the above formula in it.

I tried to revise my stockfetcher scan to better match your
TC2007 scan. What do you think about it?

Show stocks where close is above 5
and close is above close 130 days ago
and close is above close 260 days ago
set{a, close / close 65 days ago}
set{b, close / close 130 days ago}
set{c, close / close 195 days ago}
set{d, close / close 260 days ago}
set{e, 40 * a}
set{f, 20 * b}
set{g, 20 * c}
set{h, 20 * d}
set{i, e + f}
set{j, g + h}
set{k, i + j}
and add column k
and sort column 5 descending
and add column a
and add column b


I also try to add following lines sometimes to bring liquidity
into the picture.


set{adval, INDPOSITION(accumulation distribution, 60) * 100 }
and adval has been above 50 during the last 1 month


And once again thank you for taking time to read my e-mails.
Regards,

Rhoniel

Market Monitor

• Momentum builds up slowly, then when momentum gets going, the market also at some stage becomes vulnerable to correction. The momentum build up started a couple of weeks ago. In last couple of days it was the best period for something which broke out 10 to 20 days ago. At some stage buyers exhaust themselves and market correct. Action like what we saw yesterday is a good lesson in how momentum at extreme level becomes vulnerable to small trigger.
  
• While many are blaming Greenspan for market reversal, in reality market was very vulnerable to correction, by 1 A.M., readings on50% plus were 20, that is when I made my my post on momentum cycle and started paring down positions. Such high level of momentum make fresh entries risky and open profits vulnerable to corrections.
  
• At the end of the day, even though the reversal looked ugly, the number of stocks down did not increase dramatically. So this move is likely to try and squeeze out more upside till month end. After all the best trade so far has been buying any weakness or pullback. So market participants will continue that behaviour unless proven wrong.
  
• Days like yesterday can be psychologically unnerving to many short term traders. Because the market was easy to trade for 4-5 days because of momentum, they become increasingly confident, probably put in bigger position and then the turn in momentum cycle catches them off guard, leading to losses and bewilderment. At least that used to be my reaction in beginning years of my trading. You can very much find out who is a rookie by reading when you see them blaming Greenspan for market reversal. The market would have corrected even if some Barry, Larry, or Gary made some comment. At some stage red hot momentum simply is not sustainable and leads to reversal.
  
• The other parlor sport in recent years has been for everyone to claim that they are smarter than Greenspan. Those who cannot even spell macro economics , conveniently offer their opinion on how Greenspan is wrong. Similarly market commentators and newsletter writers , whose personal record of market prognosis is worse than Greenspan waste no time in criticising him. All these are the kinds of games and traps one should stay away from if one wants to make money in market. These are all distractions, while the real profit opportunities are elsewhere.
  
• The other theme which has suddenly caught investors fancy is China and Chinese market. While that risk exists, ultimately on a day to day level, you still need methodology to profit from it.
  
• Mortgage sector was attracting buy interest yesterday and number of stocks which were just a few months ago were driven down by panic have had smart rallies. Some have more than doubled in few months from panic lows. That is why panics are good for market.
  
• Victor Niederhoffer often quotes Henry Clews when it comes to market panic, that advise is true of sector panics also:
  
  Henry Clews wrote in Twenty-Eight Years in Wall Street (1887):
  

  But few gain sufficient experience in Wall Street to command success until they reach that period of life in which they have one foot in the grave. When this time comes, these old veterans of the Street usually spend long intervals of repose at their comfortable homes, and in times of panic, which recur sometimes oftener than once a year, these old fellows will be seen in Wall Street, hobbling down on their canes to their brokers’ offices.
  
  Then they always buy good stocks to the extent of their bank balances, which they have been permitted to accumulate for just such an emergency. The panic usually rages until enough of these cash purchases of stock is made to afford a big “rake in.” When the panic has spent its force, these old fellows, who have been resting judiciously on their oars in expectation of the inevitable event, which usually returns with the regularity of the seasons, quickly realize, deposit their profits with their bankers, or the overplus thereof, after purchasing more real estate that is on the up grade, for permanent investment, and retire for another season to the quietude of their splendid homes and the bosoms of their happy families.

Momentum cycle

If the strength holds, we will be by end of day at around 19-20 on the 50% plus in a month reading. Such level of momentum often is unsustainable and leads to corrections.

Even though the indexes are showing strength on individual breakout levels we are currently running at a very low levels (51 on bullish and 18 on bearish 4% level)of breakouts. Stocks which broke out a week or so ago are witnessing a run , but there are few buyable breakouts.

Also, if you noticed, in the last couple of days beaten down sectors like housing and mortgages are finding buy interest. This looks like some of the bears throwing in towel. On sentiment side more and more bearish newsletter writers are throwing in the towel and actually embracing the rally now.All these factors provide for an ideal correction scenario lasting few days or weeks.

Market Monitor

• Market moves in thrusts. 3-4 days of buying will probably be followed by few day of weakness.
• Watch a nice trend developing in 50% plus in month. More than that see how many of the 50% plus in month had a Episodic Pivot in last 20 to 40 days which kicked off their rally.Most people's first reaction when a stock goes up 10% plus is to avoid it, well those are exactly the kind of stocks which make 50% move in a jiffy. What appears risky is most profitable, that is the reason few can trade the EP kind of methods. ENG, AMZN, CPY, WINN, GTI, VSR, TECUA, TBSI, JRCC, SIF, IDSA, AQNT, NGA, in total 13 out of 15 stocks in that list had Episodic Pivots in last one month or so.
  
• After the May 10 , 252 down date the market has quickly recovered and made new highs on 65 days plus 100% plus. This is the reason buying dips in strong rallies, still they stop working is always a smart strategy.
  
• Large caps seems to be now consolidating after a long run. Some large caps like LMT are actually showing rotation out of them. Small caps continue to show good action.
  
• Month end effect will make the rally going possibly for some more time. But in the near term weakness is most probable course of action.
  

Later: Strugglers find creative ways to struggle

Staying on top of the market

I am often asked, how do I keep on top of the market and sector trends. On a day to day basis lot of things change in market. New themes emerge. New sectors start rallying or end their rally. Within a sector only one stocks starts a rally. Some stocks top out and start their downtrend. In a complex market with over 7000 stocks , on a day to day basis, there is lot of noise and then there are opportunities.

If one can spot emerging themes quickly then one can exploit them. So end of day market analysis is an important tool to keep on top of the market. There are various things people do , I primarily use my 4% plus breakout universe and Episodic Pivot candidates to isolate emerging opportunities and problem areas. While I generate trade ideas from the Double Trouble or EP or IBD based methods, I look at all the stocks in the 4% plus list daily. Now this discipline helps me quickly spot trends which may not be apparent in the methods which I follow. I may or may not take trades from the analysis, but as a market understanding tool, it helps a lot. Such analysis gives you "feel" for market. It develops your "instinct"

So after market close there are couple of things I do to stay on top of market. Usually I spend an hour on all these.

• Slice and dice the members of 4% plus scan to look at sector and individual stock trends.
• Go through members of 50% plus and 25% plus in month list. Look at new members. Try and understand what was the catalyst.
• Go through new members to 100% plus and 200% plus list.
• Look at the sector trend in 65 days.
• Look at all 4% plus breakout with IBD ratings of 70 plus on EPS.
• Look at the top 25 trending stocks.

Doing this day in and day out helps you keep on top of the market and quickly identify emerging opportunities.

If you do this day in and day out, you will find so many opportunities both on long and short side, that you will wonder why so many traders complain about lack of opportunities.

Now for today there are total 162 stocks on bullish side. You can go through the list and see if you can find good opportunities in it.

Bullish

ACOR ADH AGIX AGP AHM AMRN ASEI ASFI ASPM AUXL AVNC AZPN AZZ BHIP BJGP BKUNA BTRX BXC BYD BZH CAL CALM CCRN CERN CMCO CMGI CNSL COMV CORS COSI CRB CREE CRNT CRTX CTLM CTXS CWST CYNO CYTC CYTO
========
DBTK DDE DEPO DHI DIO DRH DSL EDAP ELMG ENER ENG ENTU ERS EZPW FBR FED FMT FSLR GBE GBN GGL GHDX GOOG GPIC GTIV HEM HMB HNAB HOTJ HOV ICE IIJI IMB IMH ISLE ISTA JAV JBLU JRJC KERX
========
KND KOP LCC LCRD LEND LIV LPA LVLT LVS MALL MATK MCEL MED MEMY MFG MGM MHO MLM MNRO MNTA MTH MTU MVIS NAL NFI NIPNY NLST NNBR NTEC NWK NYNY OLN OMRI OPWV OREX ORH OVEN PANC PDA PETS
========
PLNR PLTE PNK PWER RDNT RIMM RJET ROCM RTK SBSA SGR SIF SIR SLFI SNUS SOLF SPF SPSN SPWR STEC STSI SWH SWSI TAGS TBSI TNE TNP TOL TRGL TRX TSS UAG UBNK UFS UVE VION VRAZ VSL WG WYNN
========
XNL ZOLT

Bearish

AEO BBBB BBOX CFHI CTC DYS EGHT EXK FORG GIGM GMTN GSOL HL HMIN HRAY HTLD IDMI KONG KOOL LMT LTON MERC MNST MOVI MTL NAK NEXM NTBK PERY PLM SGN SNHY SSL SWZ TECD UIL UNFI UVV WYY XFML
========
XTNT ZILA ZIXI

How to find stocks with smooth trends

Amanda has written:

Thanks for the suggestion to go through the charts of stocks in last 5 years up 100% plus. After going through them one by one, I now see what you are talking about clearly, but there are couple of things I noticed. Some stocks have very smooth trend, while some are very volatile. If you look at recent stocks like TBSI, SNHY, DRYS, SID, GTI, FWLT and many others, they had very smooth trend, while some are very volatile. I would like to trade the stocks with smooth trends. Is there a way to easily find such stocks early in their trend.

If you see stocks making big moves, some are very choppy and some have very smooth trend. Obviously from risk management terms, finding a smoother trend is better. It also allows one to pyramid and requires lower stop. Also it is better to enter smoother trend immediately while more volatile trends are best traded using anti trend entry.

One of the easiest way to find smooth trends is by using Kaufman's Efficiency Ratio or Fractal Efficiency Ratio. The Fractal Efficiency Ratio is described in detail in New Trading Systems and Methods by Perry Kaufman.

Fractal Efficiency ratio is derived by dividing the net change in price movement over n periods by the sum of all component moves, taken as positive numbers, over the same n periods. If the ratio approaches the value 1, then the movement is smooth, if the ratio approaches 0, then there is great inefficiency or chaos. So fractal efficiency basically is a measure of relative market speed to volatility, and can be used as a trading filter to avoid choppy or flat stocks.

To understand this better lets look at a stock price move for 60 days. Stock A makes 60 point move in 60 days. Each of the day the stock moves up exactly by 1 dollar. This would give an efficiency ratio of 1. Now say for stock B, it also moved 60 points in 60 days, but with higher volatility, some days up 3 points, some days down 2 points. The efficiency ration would be lower as the denominator in the ratio will be large.
Now if you want to calculate the efficiency ratio in Telechart, you can try this modified scan for 60 days.

60 Day Efficiency Ratio

(C - C60) / (ABS(C - C1) + ABS(C1 - C2) + ABS(C2 - C3) + ABS(C3 - C4) + ABS(C4 - C5) + ABS(C5 - C6) + ABS(C6 - C7) + ABS(C7 - C8) + ABS(C8 - C9) + ABS(C9 - C10) + ABS(C10 - C11) + ABS(C11 - C12) + ABS(C12 - C13) + ABS(C13 - C14) + ABS(C14 - C15) + ABS(C15 - C16) + ABS(C16 - C17) + ABS(C17 - C18) + ABS(C18 - C19) + ABS(C19 - C20) + ABS(C20 - C21) + ABS(C21 - C22) + ABS(C22 - C23) + ABS(C23 - C24) + ABS(C24 - C25) + ABS(C25 - C26) + ABS(C26 - C27) + ABS(C27 - C28) + ABS(C28 - C29) + ABS(C29 - C30) + ABS(C30 - C31) + ABS(C31 - C32) + ABS(C32 - C33) + ABS(C33 - C34) + ABS(C34 - C35) + ABS(C35 - C36) + ABS(C36 - C37) + ABS(C37 - C38) + ABS(C38 - C39) + ABS(C39 - C40) + ABS(C40 - C41) + ABS(C41 - C42) + ABS(C42 - C43) + ABS(C43 - C44) + ABS(C44 - C45) + ABS(C45 - C46) + ABS(C46 - C47) + ABS(C47 - C48) + ABS(C48 - C49) + ABS(C49 - C50) + ABS(C50 - C51) + ABS(C51 - C52) + ABS(C52 - C53) + ABS(C53 - C54) + ABS(C54 - C55) + ABS(C55 - C56) + ABS(C56 - C57) + ABS(C57 - C58) + ABS(C58 - C59) + ABS(C59 - C60) + 0.001)

Stocks do not have a perfect efficiency reading of 1. Even a small anti trend move lowers the efficiency reading. The above formula scan will give you values between 1 to -1. If you sort by this scan, the higher ratio stocks will have smoother trends, while reading between 30 to 0 will show very volatile stocks. Generally
Efficiency Ratio readings above +.30 are very favorable to define persistent uptrends while readings under -.30 often denote steady downtrends.

You can try various time periods on this ratio. Generally you should use lower time frames of 20 days or so.
20 Day Efficiency ratio
(C - C20) / (ABS(C - C1) + ABS(C1 - C2) + ABS(C2 - C3) + ABS(C3 - C4) + ABS(C4 - C5) + ABS(C5 - C6) + ABS(C6 - C7) + ABS(C7 - C8) + ABS(C8 - C9) + ABS(C9 - C10) + ABS(C10 - C11) + ABS(C11 - C12) + ABS(C12 - C13) + ABS(C13 - C14) + ABS(C14 - C15) + ABS(C15 - C16) + ABS(C16 - C17) + ABS(C17 - C18) + ABS(C18 - C19) + ABS(C19 - C20))

So when choosing stocks from 100% list or IBD list, if you use the Efficiency Ratio as filter you can find more smoother trends. Or for any given stock the Efficiency ratio quickly tells you how smooth the trend is. Generally it is observed that smother trends continue to be smooth and volatile trends continue to be volatile. That is the reason it is called Fractal Efficiency Ratio.

If you are interested in more details about this Efficiency Ratio, I suggest you read New Trading Systems and Methods by Perry Kaufman.The Efficiency Ratio is used in KAMA, Kaufman's Adaptive Moving Average , as one of the smoothing constant to determine trend smoothness and speed. You can use KAMA and this ratio in variety of ways to design trading systems.

Market Monitor

• If the sector rotation in to mid and small cap continues, this rally might have a long road ahead of it.
• Also encouraging was the flow in to technology sector. But the 800 pound gorilla in tech sector, GOOG is stuck for many quarters. Might be worth keeping an eye on it. It is the "bell cow " in that sector.
  
• At 200 plus breakout, it was still a mild buy pressure. It has been ages since we have not seen 300 plus 4% breakout.
• Many times when sector rotation is happening, focusing on low relative strength with high earning helps. Such good earnings stocks typically breakout first in the sector.
  
• One day does not make a trend, but if the trend in 65 days , 100% plus and 50% plus continues, we are in for a very profitable period in markets.
  

Later: How to find stocks with smooth trends

New high on many readings

To see past data visit:
Market Monitor

Market Monitor

• It is Dow and large cap show. But after a long time small caps were up on Friday. Let us see if this rotation in to small cap continues.
• Large cap technology has been a laggard so is large cap biotechs.
• Monday will be tricky with option expiration behind. The Friday strength might not last.
• 176 breakout day was good but not good enough. So the congestion continues.
• Individual stocks are making big moves as the 50% plus in month number keeps increasing.
• McClellan Summation Index is indicating trouble for rally currently.
  

Anticipating and trading IBD 100 additions

If you understand the maths behind the IBD ranking, you can anticipate which stocks will be added and game the additions.
Here is an email I got on Friday 18th at 10:27 A.M., from someone who knows how this works.
--------------------------------------------------------------------

date May 18, 2007 10:27 AM
subject TBSI (Nasdaq) will debut on the IBD100 list tonight at around #20 (float is 9.4 mil)

I hope that you had a good week of trading.


The last time I wrote you was exactly one week ago about TWIN and its expected inclusion into the Investor’s Business Daily “IBD100” later that day. At the time of my email, it was trading at $66. It went as high as $74 on Monday. That was a potential two-day profit of $8.


In any case, today I am writing to you about TBSI (Nasdaq). It’s going to make it onto the IBD100 list for the very first also due to the strong earnings, which were released on May 14. In my opinion, it should debut around #20.


A little more about TBSI: TBS International Limited, an ocean transportation services company, offers shipping solutions through liner, parcel, bulk, and vessel chartering services. Its liner, parcel, and bulk services primarily carry steel products, salt, sugar, grain, fertilizers, chemicals, metal concentrates, aggregates, and general cargo. The company also provides short and long-term time charters that offer its customer an alternative means to contract for ocean transportation of cargoes and make the carrying capacity of entire vessels available to its customers. In addition, it provides frequent regularly scheduled voyages in its network, as well as cargo scheduling, loading, and discharge for its customers. Further, TBS International’s parcel service originates in Peru, Ecuador, or Chile; and carries metal concentrates, beet pulp pellets, and fertilizers to East Asia.


The chart on TBSI is extremely bullish:


http://stockcharts.com/charts/gallery.html?tbsi <- The Point & Figure chart gives it an overall $52.50 target. The short-term chart is also very bullish: http://stockcharts.com/h-sc/ui?c=tbsi,uu[h,a]dhclyymy[pb10!b30!b50!d20,2][vc60][iub14!la12,26,9!lp14,3,3!lf!lc20]



There is no insider selling, they have an extremely low P/E and their comments on the CC call were very positive (Rates to stay strong thru the rest of the year, the value of the fleet is worth at least 25% more than what is on the books. They continue to see a strong market).


What is helping TBSI is also the fact that it’s in a very hot sector. Jefferies (which has been the only analyst) has been raising the target on the stock during the last few weeks:


April 30, 2007 TBSI dry bulk charter rates should stay strong through 2008-Buy@JEFF - Jefferies believes dry bulk shipping fundamentals should stay strong through 2008 and raised TBSI shares to $18 from $14

May 16, 2007 TBS International-TBSI still attractive despite appreciation-Buy@JEFF - Despite the move higher, Jefferies believes TBSI shares are attractively valued given the strengthening dry bulk supply/demand fundamentals and the company's strong balance sheet. Target raised to $25 from $18.


Although I hate listening to analysts, I do think that TBSI has a good shot of reaching the $24-$26 level sometime in the near-term. Looks to me like a lot of money is coming into this stock/sector, and they are definitely not disappointing with their earnings. Getting onto the IBD100 list will not hurt them, and bring further exposure.

I have initiated a position in TBSI and suggest that you do your own due diligence before buying it or any other stock that I talk about.

Best of luck!
-------------------------------------------------------------
TBSI was ranked number 9 in IBD 100 list.

Related: How to beat the market for $1.25 per week

Trading the biotechnology stocks

In recent market rally, the biotechs have seen some major moves. Many of the drugs and biotechs related stocks have seen 100% plus moves in compressed time frame. This has attracted lot of investors to focus on them. The biotechs have a unique trading pattern. Understanding how a specific industry trades can provide you with an edge. These stocks have no sales, no earnings and when the sector is in favor they make 100 plus moves in jiffy.

Biotechs is pure speculative game. One can make lot of money in it if one manages risk properly. Some of the things I have found over the years by trading biotechs
are:

• Episodic Pivots are best to time entries in biotechs. Most biotech moves are precipitated by some news events.
• The sector gets in favor and out of favor. Mostly these things are also linked to decision cycle by FDA. When sector is in favor the more speculative ones pop one after another.
• One must buy the first breakout and on first day. It is pointless to buy second breakout. One must put full position at beginning itself. The rallies in these names are so compressed that in few days or week they make bulk of their move. So either you are in or you are a spectator.
• None of the traditional patterns work. In most cases there is one intense 10 to 30 days burst followed by long sideways move, which invariably fails. It looks very attractive like a flat base and often has upside breakout which fails. I normally liquidate my position in 20 to 22 days in such plays.
• Insider buying on biotechs is very good indicator.
• I personally never risk more than 2% of portfolio in actual investment terms on biotech single position ( on non revenue and non earnings play).I have had stock gap 20 dollars on my position once in a biotech position. Since then I only risk 2% so that if it drop 50% or more still I would not lose much.
• Playing biotech is like playing lottery. There is very high risk.

If you want to really understand the sector and what happens behind the scene in biotech, I highly recommend the book :From Alchemy to IPO by Cynthia Robbins- Roth

From Alchemy to IPO

This book is by a former Genetech scientist. It will give you an excellent perspective on the entire biotech industry. It covers both the inner working of biotechs and the business side of it. Personally I found it very useful in understanding the sector thoroughly.

If you are looking for a blog resource on biotech investing, in my opinion the "Biohealth Investor" is very good resource. It covers the latest events in the biotech and health care industry. And it does an excellent job of it as it is more focused in investors and traders.

One-way Pockets

While going through all my books this week, I stumbled across this delightful small book: One-way Pockets: The Book of Books on Wall Street Speculation

This book will take you 15 minutes to read at best. The edition which I have is pocketbook edition, so the book just slipped inside some book and I found it while spring cleaning.

The book is written by someone who worked for a brokerage house in 1917. He analysed the trading accounts of retail customers at the brokerage house and based on the mistakes they make he wrote this book under a pseudonym.

The author details his results in One Way Pockets. He found that 95% of them lost money overall and displayed the same trading pattern. They would enter a trade, it would show a small profit, and they would sell too early. Then seeing the stock leave them behind, buy back in at higher prices. They would hold on too long after the stock peaked. Ride it all the way back down to the bottom. Then finally they would capitulate and sell. That is most cases would become the perfect entry point for the next cycle up

The book offers a simple advise on how to speculate in the market successfully. There are 14 chapters and the first half deals with his analysis of customers account from 1915-1917, the second part offers a plan for ""Coppering" the Public "

The main point to bear in mind is that the public's speculative play is wrong. If an opposite plan of operations can be adhered to, or , in gambling parlance, if the public can be "coppered," there would seem to be a reasonable chance to beat the Wall Street game.

The book offers a plan for long term traders on how to trade by determining how trend starts, how one must identify the "bell cow" or the leading stocks, how to be deaf to news and rumors,how to correctly use stops, how to see the first reaction through, when to sell, when and what to short, and when to cover shorts.

The 64 page book has a complete method to successfully speculate in the market. Nothing changes on the street, including the advise to chart readers and technical analyst:

On the other hand, the operating plan is not akin to any of the arbitrary systems of chart play which have been in vogue during recent years. There was a time in Wall Street when chart students could and frequently did make money by playing their various systems, but that was before the Street was surfeited with literature treating of market technique. Now the followers of charts are legions; two out of every three active traders keep either a written or a mental record of tops, bottoms and accumulating and distributing areas, and consequently are fooled persistently by the large operators, who "work" the chart readers and their following at every available opportunity.

Guess what is the last chapter title" The Method and the man" and it outlines the importance of following a method.

What I learned from a $799 book

The Hardcover edition of Being Right or Making Money by Ned Davis retails for $799 on Amazon. The paperback edition retails for $249.

Ned Davis is one of the most respected analyst on the street commanding huge following amongst institutional clients. Many years ago his firm published the above book and it was updated in 2000, just prior to 2000 market top. There is a reason the book is so much in demand. It details the methodology used by the firm to do top down analysis. It details various macro economics, sentiment, technical, financial, and inter market indicators used by his firm to arrive at timing model. If you want to become real "Big Picture" macro analyst, this book is a must read.

Now more important than the excellent macro indicators and their interpretation is their equity selection model. "Price Momentum Based Equity Selection (The General Theory of Relativity)", that is the title of the chapter which details the equity selection method.

The equity selection method uses one year relative strength. Buys the top ranked 5% stock with strongest momentum and holds them until they fall below the top 10% in momentum rank.

Momentum based systems work in most market environment that is why an IBD 200 kind of triple momentum based (price, sector, and earnings), works.

I have one copy for sale for $749 plus free express shipping, if anyone is interested.

MTOX

One of the readers has asked me about MTOX and whether it is a buy here. I have a position in it from many weeks ago when it came in 100% plus (Double Trouble) scan, subsequently it was also part of the IBD 200 breakout list. Now this stock has good earnings and was one of the candidate in the scan the reader ran.



The question is whether MTOX is good company to buy for long term. As far as I am concerned a company is good as long as it fits in to any of my methods. But you not only have to find right stock but you should buy at right time. As you can see , there were several better buy opportunities on this stock earlier. Now stock is up 36 % in a month and up 130% in last 65 days. Unless it sets itself up again with at least 20 to 65 days of weakness and breaks out on 4% plus, I would not buy at this level. And if you have position in it , moving the stop up to protect as much of the profit as possible is the key at this stage.

Doing your analysis as quickly as possible and entering a stock when it appears on 4% scan is the key to getting in to good stocks at beginning of the move. If you delay or shop around for second opinion the opportunity is gone or the entry becomes more risky.

That is one of the reason to do all your thinking before starting to trade a method.

Market Monitor

• It is a stalemate. Neither the bulls nor the bears have upper hand.
• The number of bullish and bearish breakouts put together was around 140 . Indicating no major buying or selling.
• Such low numbers are invariably followed by break in either direction. Lack of urgent selling indicates probably the break will be to upside. Typically market makes several attempts at breakouts before the breakout fails. That is why tops are a process. At this stage my working hypothesis is this is just garden variety correction. There is a strong probability that next leg will be up leg.
  
• Individual stock continue to show mixed action and it is now truly a stock pickers market.
  
• Number of stocks with good fundamentals continue to find buy interest . As against this in a top there is complete dry up of bids. So looks like the muddled action will continue for some time till a more clearly defined earnings trend for next quarter becomes clear.
• One of the things I study on weekly basis is the list of stocks making 50% plus move in a month and list of stocks making 25% plus move. The 25% plus list is very good place to quickly spot new emerging stocks likely to make big moves. My studies show stock which make big moves start out their moves with big moves. The other thing you can use the list for is to spot emerging industry or sector trends.
  
• Every week on Friday I will publish this list so you can study it over the weekend.
• Coming later " What I learned from a $799 book" ..........
  

Stocks up 50% plus in a month
Corrected list.
ATRO,Astronics Corp (Google  Yahoo  Earnings  Chart) 
BPHX,Bluephoenix Solutions Ltd (Google  Yahoo  Earnings  Chart) 
CPY,Cpi Corp (Google  Yahoo  Earnings  Chart) 
ENG,Englobal Corp (Google  Yahoo  Earnings  Chart) 
GTI,Graftech Intl Ltd (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
NGA,N Amer Galvanizing & Coatings (Google  Yahoo  Earnings  Chart) 
SIF,Sifco Industries Inc (Google  Yahoo  Earnings  Chart) 
TBSI,TBS International Limited Class A (Google  Yahoo  Earnings  Chart) 
TECUA,Tecumseh Products Cl A (Google  Yahoo  Earnings  Chart) 
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart) 


Stocks up 25% or more in a month

Keep an eye on stocks which have just started out their rallies in this list. Several of these stocks will have more upside in near future.
ACXM,Acxiom Corp (Google  Yahoo  Earnings  Chart) 
ADPI,American Dental Partners (Google  Yahoo  Earnings  Chart) 
AIRM,Air Methods Corp (Google  Yahoo  Earnings  Chart) 
AL,Alcan Inc. (Google  Yahoo  Earnings  Chart) 
ALGN,Align Tech Inc (Google  Yahoo  Earnings  Chart) 
AMAC,American Medical Alert (Google  Yahoo  Earnings  Chart) 
AMRI,Albany Molecular Rsrch (Google  Yahoo  Earnings  Chart) 
AMZN,Amazon.Com Inc (Google  Yahoo  Earnings  Chart) 
APFC,American Pacific Corp (Google  Yahoo  Earnings  Chart) 
ARII,American Railroad Industries Inc (Google  Yahoo  Earnings  Chart) 
ARWR,Arrowhead Research Corp (Google  Yahoo  Earnings  Chart) 
ATRO,Astronics Corp (Google  Yahoo  Earnings  Chart) 
B,Barnes Group Inc (Google  Yahoo  Earnings  Chart) 
BBBB,Blackboard (Google  Yahoo  Earnings  Chart) 
BIDU,Baidu.com Inc (Google  Yahoo  Earnings  Chart) 
BKR,Michael Baker Corp (Google  Yahoo  Earnings  Chart) 
BPHX,Bluephoenix Solutions Ltd (Google  Yahoo  Earnings  Chart) 
CEA,China Eastern Airlines (Google  Yahoo  Earnings  Chart) 
CMTY,Community Banks Mlrbg Pa (Google  Yahoo  Earnings  Chart) 
CPL,Cpfl Energia Sa (Google  Yahoo  Earnings  Chart) 
CPY,Cpi Corp (Google  Yahoo  Earnings  Chart) 
CRNT,Ceragon Networks Ltd (Google  Yahoo  Earnings  Chart) 
CROX,Crocs Inc (Google  Yahoo  Earnings  Chart) 
CRY,Cryolife Inc (Google  Yahoo  Earnings  Chart) 
CTB,Cooper Tire & Rubber Co (Google  Yahoo  Earnings  Chart) 
CTIB,Cti Industries Corp (Google  Yahoo  Earnings  Chart) 
CVNS,Covansys Corp (Google  Yahoo  Earnings  Chart) 
CVTX,Cv Therapeutics Inc (Google  Yahoo  Earnings  Chart) 
DJ,Dow Jones & Co Inc (Google  Yahoo  Earnings  Chart) 
DRYS,Dryships (Google  Yahoo  Earnings  Chart) 
DYS,Distribucion Y Serv D&S (Google  Yahoo  Earnings  Chart) 
ENG,Englobal Corp (Google  Yahoo  Earnings  Chart) 
ESI,Itt Educational Services (Google  Yahoo  Earnings  Chart) 
EXM,Excel Maritime Carriers (Google  Yahoo  Earnings  Chart) 
FCPO,Factory Card & Party Outlet (Google  Yahoo  Earnings  Chart) 
FRPT,Force Protection Inc (Google  Yahoo  Earnings  Chart) 
FTK,Flotek Industries Inc (Google  Yahoo  Earnings  Chart) 
FWLT,Foster Wheeler Ltd (Google  Yahoo  Earnings  Chart) 
GEL,Genesis Energy (L.P.) (Google  Yahoo  Earnings  Chart) 
GERN,Geron Corporation (Google  Yahoo  Earnings  Chart) 
GNA,Gerdau Ameristeel (Google  Yahoo  Earnings  Chart) 
GSH,Guangshen Railway Co (Google  Yahoo  Earnings  Chart) 
GTI,Graftech Intl Ltd (Google  Yahoo  Earnings  Chart) 
HAN,Hanson P (Google  Yahoo  Earnings  Chart) 
HDNG,Hardinge Inc (Google  Yahoo  Earnings  Chart) 
HHGP,Hudson Highland Grp Inc W/i (Google  Yahoo  Earnings  Chart) 
HOS,Hornbeck Offshore Services Inc (Google  Yahoo  Earnings  Chart) 
ICOP,ICOP Digital Inc (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
IPAR,Inter Parfums Inc (Google  Yahoo  Earnings  Chart) 
IPII,Imperial Industries Inc (Google  Yahoo  Earnings  Chart) 
ISE,International Securities Excha (Google  Yahoo  Earnings  Chart) 
JRCC,James River Coal Company (Google  Yahoo  Earnings  Chart) 
KMGB,Kmg Chemicals Inc. (Google  Yahoo  Earnings  Chart) 
KTII,K-Tron Internat Inc (Google  Yahoo  Earnings  Chart) 
LPHI,Life Partners Inc (Google  Yahoo  Earnings  Chart) 
MAFB,Maf Bancorp Inc (Google  Yahoo  Earnings  Chart) 
MBLX,Metabolix Inc (Google  Yahoo  Earnings  Chart) 
MCF,Contango Oil & Gas (Google  Yahoo  Earnings  Chart) 
MDR,Mcdermott Internat Inc (Google  Yahoo  Earnings  Chart) 
MLNX,Mallanoc Technologies Ltd Ord (Google  Yahoo  Earnings  Chart) 
MPWR,Monolithic Power Systems (Google  Yahoo  Earnings  Chart) 
MRGE,Merge Technologies Inc (Google  Yahoo  Earnings  Chart) 
MTOX,Medtox Scientific (Google  Yahoo  Earnings  Chart) 
NGA,N Amer Galvanizing & Coatings (Google  Yahoo  Earnings  Chart) 
NPTH,Enpath Medical Inc (Google  Yahoo  Earnings  Chart) 
NTL,Nortel Invesora Sa Ads (Google  Yahoo  Earnings  Chart) 
NVTL,Novatel Wireless Inc (Google  Yahoo  Earnings  Chart) 
OCAS,Ohio Casualty Corp (Google  Yahoo  Earnings  Chart) 
OMPI,Obagi Medical Products Inc (Google  Yahoo  Earnings  Chart) 
PAL,North American Palladium (Google  Yahoo  Earnings  Chart) 
PCS,Metropcs Communications Inc (Google  Yahoo  Earnings  Chart) 
PMFG,Peerless Manufacturing (Google  Yahoo  Earnings  Chart) 
RCKY,Rocky Brands Inc (Google  Yahoo  Earnings  Chart) 
RIV,Riviera Holdings Corp (Google  Yahoo  Earnings  Chart) 
RTIX,Regeneration Technologis (Google  Yahoo  Earnings  Chart) 
RTRSY,Reuters Group Plc Adr (Google  Yahoo  Earnings  Chart) 
RVBD,Riverbed Technologies Inc (Google  Yahoo  Earnings  Chart) 
SIF,Sifco Industries Inc (Google  Yahoo  Earnings  Chart) 
SIL,Apex Silver Mines Ltd (Google  Yahoo  Earnings  Chart) 
SNHY,Sun Hydraulics Corp (Google  Yahoo  Earnings  Chart) 
SPAN,Span-Amer Medical Systs (Google  Yahoo  Earnings  Chart) 
SPAR,Spartan Motors Inc (Google  Yahoo  Earnings  Chart) 
TBSI,TBS International Limited Class A (Google  Yahoo  Earnings  Chart) 
TECUA,Tecumseh Products Cl A (Google  Yahoo  Earnings  Chart) 
TFSM,24/7 Real Media Inc (Google  Yahoo  Earnings  Chart) 
TNH,Terra Nitrogen Co L.P. (Google  Yahoo  Earnings  Chart) 
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart) 
TWIN,Twin Disc Inc (Google  Yahoo  Earnings  Chart) 
UG,United Guardian Inc (Google  Yahoo  Earnings  Chart) 
VAS,Viasys Healthcare Inc (Google  Yahoo  Earnings  Chart) 
VSCN,Visual Sciences Inc (Google  Yahoo  Earnings  Chart) 
WGOV,Woodward Governor Co (Google  Yahoo  Earnings  Chart) 
WHQ,W-h Energy Services Inc (Google  Yahoo  Earnings  Chart) 
WHR,Whirlpool Corp (Google  Yahoo  Earnings  Chart) 
WINN,Winn-Dixie Stores Inc (Google  Yahoo  Earnings  Chart) 
WVCM,Wavecom Sa Adr (Google  Yahoo  Earnings  Chart) 
XNPT,XenoPort Inc (Google  Yahoo  Earnings  Chart) 


A ongoing study of stocks in these two list can provide a valuable lesson in behavior of stocks that make big moves in compressed time frame. There are couple of readers who have developed a short term trading system based on trading a basket of stocks from the 25% plus list and found very good success with it.

IBD 200

Why IBD 200 is the question often asked by many. There are also many traders who do not completely understand the logic and maths behind the way IBD calculates the various ratings. I often see traders mystified by the process or attributing motives to IBD. That is clear sign of lack of understanding of the method behind the ranking. The IBD 100, IBD 200, 85-85, CANSLIM Select, etc are just pure mathematical algorithms which pick stocks which meet certain criteria.

If you have access to earnings data, you can replicate exactly same things. There are several clones of CANSLIM in the market. Some of them have improved upon the IBD ranking methods. If you run a search with CANSLIM, you will see several of them selling a subscription to variation of the same thing. Some use forward earnings to calculate the EPS ranking. Some derive one composite ranking by using a combination of EPS, Relative strength and industry sector ranking. Some have devised different rules for entry based on MACD or ADX, some have pattern based anticipation. Some years ago I studied in microscopic details all of them. Ultimately all of them enter on high volume breakout.

The reason to focus on the IBD 200 is at a broader level it picks stocks based on 3 main criteria EPS momentum, price momentum, and sector momentum. So these are stocks are on the move in the market for that particular time frame. That is where money is flowing.

At any given time, when you look at the list, you will get 4 types of stocks.

Over extended stocks
Stocks which are way extended in terms of their price and earnings cycle and may be risky to enter at this stage. Buying extended stocks is asking for trouble. That is one of the reason the IBD 100 tends to show poor results compared to IBD 200, as it has more extended stocks.

Mid Way through Rally
In these stocks the rallies started some time ago and better entries were available then. Such stocks still offer entries for swing traders.

Basing Stocks
These are stocks which have between 20 to 65 days of basing action, where price growth is below 10 % or so yet price is within 15 to 25% of recent high. These are the kind of stocks which offer the best opportunities. This is the universe to concentrate on.

Reverting Stock
Some of the stocks are in reversal after their rally phase being over.

Now if you can identify these stocks from the list you can improve your results . Lot of frustration for lot of people is due to the fact that they enter a overextended stock and it quickly dives.

The reason to use a list like IBD 200 is to narrow down your trading universe to handful of stocks. The stocks selected should be the one with highest probability of going up. Which is what the IBD 200 list offers in a convenient format for those who do not want to get in to too many details.

For those who understand the logic behind any method, there are better ways to trade or ways to improve on it by looking at a wider selection of stocks from IBD EPS ranking universe. IBD 200 is lazy way to beat the market. You can plan and anticipate entries, you know what sectors are working, you know what the market currently is favoring.

If you do not have access to IBD 200, because you live outside of USA , you can use a similar logic for your country market and look at top 200 to 300 stocks selected based on relative strength alone and you will get similar kind of stocks.

To do that use the following scan and take top 5% stock in it:
0.4 * (C * 100 / C65) + 0.2 * (C65 * 100 / C130) + 0.2 * (C130 * 100 / C195) + 0.2 * (C195 * 100 / C260)

...or since relative values are the only thing that matter, a more simple version:

2 * (C / C65) + (C65 / C130) + (C130 / C195) + (C195 / C260)

The scan mimics IBD relative strength rating. You will also need to filter for liquidity and price by using filter like:
AVGC20 * AVGV20 >= 5000 AND C >= 5

One limitation of this will be you will not get stocks which have traded for less than one year.

Now for those who keep harping on will it work in bear market. Here are couple of exercises:
1 Locate copy of IBD 200 during bear market. Put it in your data software and go through the candidates one by one.
2 Create a scan for top 200 stocks ranked by above formula for 2000, 2201 and 2002 and see what stock it gives you.
3 Study and understand what really happens to stocks with superior earnings during bear market.

And report your findings........

Only self evident truth is truth for most people.

Books for sale

More books from my collection for sale. More books on technical analysis might be on sale next week.

Fractals and Scaling In Finance
To read and understand this book you need a strong foundation in maths and statistics.

Contributes to the understanding of how speculative prices vary in time. Presents and tests three successful rules of variation, tackling fast change and long distribution tails, then long dependence in time and finally both features simultaneously.

Price: $28. Free Media Mail shipping

Profits in volume
Volume based charting is the central idea behind this book. Dick Arms is well known for his pioneering work on TRIN.

The land mark book on Equivolume Charting that described the methodology and its application for the first time-is available again. Presented in its original form, this is the classic that tied volume and price together, allowing investors to analyze not only the way in which a stock is moving, but the underlying pressures involved in that movement. And uniting volume and price into a single entry provides the investor with a unique view, unrealized in a traditional bar chart. This innovative technique was the outgrowth of Dick Arms' development of the widely known Arms Index, often referred to as the short term trading index(TRIN).. The Arms Index work led him to the realization of the importance of volume as an analysis tool. And this index is so important to investors that it is recapped daily in The Wall Street Journal, and weekly in Barrons's. It is also recalculated and displayed every minute on the CNBC ticker tape. Whether you're just learning about Equivolume Charting, hoping to get a more in depth look into Arm's famous technical tools, or searching for ways to profit from the driving forces of the market-Profits in Volume is a 'must have'book.

Price: $16. Free Media Mail shipping SOLD

A course in trading
A classic book. Technical analysis practitioners will find this book offering a great perspective on the early thinking in this field. This work was originally published in 1934 as a yearlong course in analysis and was a confidential document available only to subscribers and clients of the Wetsel Market Bureau.

Warning! This book contains material on Technical Analysis that is creative, a bit novel, and might open up new avenues of appreciation that there is a great deal more to the rigors of analysis than just some technical descriptions. Here I make special reference to what I would call "hidden knowledge," but which is not so hidden if one is alert to the possibility of it being there. Often this consists of technical applications hidden in the text that just escape the attention of many practitioners of Technical Analysis as they come to grips with what might be termed its scientific methodical approach. As it is so easy to be unaware of this fact, it is pointed out here that some of the great market masters had a method of presentation that was not uncommon in the technical literature provided by them during the time I call the "Golden Age of Market Literature, 1922 to 1957." It is apparent that these market writers felt it was quite in order for them to start by pointing the reader in the direction of the line of analytical thought or the technical tool they were presenting. This gave them the chance to explore the solid foundations of a particular technical methodology as a basis for what they had in mind. Then they were more than comfortable to leave it to the reader to use that basis to evolve analytical techniques and thinking. Certainly, the answers seldom come easily, and chart analysis is anything but easy; but sharp thinking plus unbridled creativity are an absolute must in advancing this technical area of endeavor. This Course by the Wetsel Market Bureau is a splendid example of that manner of presentation as it teaches individual techniques which, in turn, point the reader to the wider applications of the material presented. This material is typical of what has been referred to earlier - it is rich in ideas and techniques for the serious market student to take up, to experiment with, and to develop as good fortune dictates.

Price: $49. Free Media Mail shipping SOLD

EARLIER BOOKS
In order to make way for new books and as part of spring cleaning, I am getting rid off lots of books on trading. If anyone is interested the first lot has 5 books. All these are in good conditions and I have read them once. You can see the prices on Amazon (which I have indicated in bracket). So if you are interested do let me know. I will have around 50 more books for sale over the course of this week.

How I Trade for a Living by Gary Smith ($14)Free media mail shipping. SOLD
A good book about one traders journey from losses to consistent profit.

Techniques of Tape Reading By Vadym Graifer , Christopher Schumacher ($20)Free media mail shipping.
Primarily beneficial to day traders and short term traders.

The New Finance: Overreaction, Complexity and Uniqueness by Robert A. Haugen ($37)Free media mail shipping.
A demolition job of the efficient market hypothesis. Reading this book will give you many ideas to develop profitable concept. Not for average traders.

Trend Trading: Timing Market Tides by Kedrick Brown ($28) SOLD
Primarily focused on trend trading. Goes in to microscopic details on entries, exits and position managements. Excellent ideas on entries and exits.

The Investor's Edge by Gary Kaltbaum ($20)Free media mail shipping.
A modified CANSLIM trading approach. Primarily uses high volume breakouts to enter positions.

CPA and the 4% breakout

As I have said earlier the stocks in the Market Monitor might be a buy or add signal. I got lot of questions on CPA yesterday with lot of technical analyst saying it is overextended. Well to each his own. All stocks in 100% plus list are overextended. So if you are technical traders you should stay away from all of them.

Here is CPA in the 4% plus 100% plus scheme of things. Stock is up 221 % for the year from 260 days low.It also had Episodic Pivot yesterday. Will it go up , who knows. But buying such stocks is one of the ways to make profit in market.

Market Monitor

• The expected short squeeze arrived.
• Looks like barring DJ all other index are forming a small range here and action will be choppy.
• The volume and number of breakouts was low for the move to be meaningful. A 250 plus breakout would signal a week or two of strength.
• The stocks down 25% or more in 65 days is climbing and at 371, indicating deterioration in strength.
• The Dow Jones and large cap stocks continue to attract buyers.
• The "Value Gang" is on buying spree, so obviously they feel the market is not overvalued, while the perma bears continue to insist that it is. Who is smarter?
  

Some books for sale

In order to make way for new books and as part of spring cleaning, I am getting rid off lots of books on trading. If anyone is interested the first lot has 5 books. All these are in good conditions and I have read them once. You can see the prices on Amazon (which I have indicated in bracket). So if you are interested do let me know. I will have around 50 more books for sale over the course of this week.

How I Trade for a Living by Gary Smith ($14)Free media mail shipping.
A good book about one traders journey from losses to consistent profit.

Techniques of Tape Reading By Vadym Graifer , Christopher Schumacher ($20)Free media mail shipping.
Primarily beneficial to day traders and short term traders.

The New Finance: Overreaction, Complexity and Uniqueness by Robert A. Haugen ($37)Free media mail shipping.
A demolition job of the efficient market hypothesis. Reading this book will give you many ideas to develop profitable concept. Not for average traders.

Trend Trading: Timing Market Tides by Kedrick Brown ($28) SOLD
Primarily focused on trend trading. Goes in to microscopic details on entries, exits and position managements. Excellent ideas on entries and exits.

The Investor's Edge by Gary Kaltbaum ($20)Free media mail shipping.
A modified CANSLIM trading approach. Primarily uses high volume breakouts to enter positions.

How to beat the market for $1.25 per week revisited- Part1

Around 5 months back I made the post about IBD 200. It is time to revisit some of it and look at it in details. Over the course of last 5 months, many people have tried it and some have perfected some modifications to it.I have exchanged 100's of email with some people who have perfected it and studied their success. Obviously I am not going to give away their secrets. Without giving away the exact details of what those modifications are and their exact scans, I will talk about general concepts with their permission in a series of posts.

The idea behind the post is to again get back to the theme of how methods are important and if you apply methodical thinking you can take a core idea and improve on it. Plus to show simple things work, if you put efforts to make them work, rather than flirting from one idea to another.

To start with lets look at IBD 200 from a period of 120 to 90 days ago when the original post was made.

Here are the top 20 by % change.




Here are the bottom 20 by % change.



And here are the top 3 performers with 4% breakout marked in yellow. Red pentagon marker indicates date of entry in IBD 200.





And the bottom 2. (The GEF-B is not really indicative of drop as it has to do with dividends.)



Remember the IBD list in above is only sample for around a 4 weeks. In the meanwhile there have been many more lists and many stocks out of them have gone on to make 50% plus moves after entering the list.

Market Monitor

• Sellers in control, bounce quickly faded.
• Selling is concentrated in NASDAQ, S&P and Dow Jones still not witnessing major selling.
• Drip, drip selling with only 145 stocks down 4%. Real sell offs have three to five 300 plus days in the beginning.
• After few days some sectors should work. At such turns it is critical to focus on sector action. Corrections lead to sector rotations. Sectors which are not dented by correction like Metals, Energy, Chemicals, Aerospace and Defense, Automobiles, Transport, Health Care, etc. will be my focus once market stabilizes.
  
• Current readings on Market Monitor show this as more an intermediate correction with possible more long side move ahead. There does not seem to be too much of a hurry in selling. Shorts might be walking in to a short squeeze trap.
  
• A few weeks of weakness like this might be good as both IBD 200 and Double Trouble have best performance after few weeks of correction. That is when you get many breakouts on stocks which are not overextended.
  

Yet another double digit earnings season

As the earnings season winds down, some trends are clear. Yet another double digit quarter. Next quarter earnings expectations are rising. Large caps and mid caps have stellar earnings compared to small caps. Technology sector is laggard and Health Care and Materials sectors lead in surpassing earnings.

We are about 90% done with earnings season and earnings continue to surprise to the upside. As things stand now, it�s about an even money bet that the median S&P firm will post double-digit year-over-year earnings growth. That would make it the 19th straight quarter. Looking forward to the second quarter, the median expectation is for 8.9% growth, which easily puts it within range of double-digits given anything like a normal surprise performance. So it is not unreasonable to think this streak may continue to 20 quarters. While the 10.1% growth is still lower than previous quarters it is much better than expected. The surprise ratio now stands at 3.0:1, down from 3.5:1 a week ago, and 3.8:1 two weeks ago but still very strong. Positive surprises have been widespread, with every sector showing more positive surprises than disappointments with the exception of Utilities, and the Utilities are tied.

Market Monitor

• Market made a feeble attempt at bounce late in the day.
• The large caps were again outperforming small caps.
• Metals and gold lead the down move.
• Number of high flying stocks have a reversal today after long rallies.
  
• But selling was well contained with just 98 stocks down 4% or more.
• NASDAQ looks to be most in trouble.
  
• DAR and PRGX were add to existing positions. Both had better entries earlier.
• REDF has earnings due on 16 th.
• Earning season is winding down and there is no clear catalyst to power the move upwards.

You can access the Market Monitor spreadsheet here.

Failed bounce is not a good sign

The dip buying was just one day phenomenon and we are witnessing bounce failure and intra day reversal today. Typically selling is clustered and this action indicates trouble for market in near terms.

The selling and profit taking is happening after a strong multi week move, the move hardly had a correction. Now stocks are finding it difficult to get a move going after breakouts and this weakness might be good if it lasts for few weeks.

Market monitor

• The cash waiting on the sideline quickly grasped the one day dip.
• The list of breakouts shows number of new set of stocks from China, oil and energy and metal sector breaking out.
• There is a slow and stealthy sector rotation going on.
  
• The China stocks suddenly finding such large volume smelled of some sort of asset allocation trade.
• For years everyone including the New York Times, has painted a bleak scenario about budget deficit and trade gap. So today the front page story "Rising export putting dent in trade gap" shows how most of the time getting macro themes is so difficult.
  
• GSF, SPN, and MR are three stocks worth keeping an eye on from the "Stocks in Focus" list. SPN was much better buy at around 32, when it had Episodic Pivot. So it is add on to existing positions. MR has earnings coming out today and if it surprises, it can make a big move in either direction.
  
• The "Market Monitor" is in sidebar.
  

Later:

• Revisiting IBD 200
• IBD 200 without IBD
  
• Way of the Turtle
• George Soros: An Illustrated Biography of the World's Most Powerful Investor (A comic book on Soros)
  

What is stocks in focus

Some of you have noticed the Stocks in Focus feature in sidebar and asked what it is. Stocks in focus in intra day list of opportunities. The stocks are from the 4% plus breakout scan.


The stocks essentially satisfy the Telechart condition of:
( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1
For non Telechart users, it means they are up 4% plus today, have volume greater than 100000 and volume today is greater than yesterday's volume.

Now the scan produces many candidates, but the stocks in focus are the one which I am investigating for taking a position sometime during the day or looking to add to existing position or they show some sector theme developing in market. For example clearly visible theme on Friday was China. Some out of them will eventually go in to the final end of day "Stocks in focus". The list will get updated through out the day and some stocks might get dropped as they might have reversal intra day. First update will be around 11 AM.

Typically I run the scan every hour and research selected stocks from it and if they meet my criteria of earnings or sales momentum, plus previous price action, I buy some of them during the day and add to the position during the day or next day.

The 4% scan mentioned above is a wonderful source of swing trading ideas and offers many clues on market. Sorting the candidates in it by sector tells you clearly the sector trends. Sorting it by 1 year growth in Telechart and looking at those without any values shows you IPO's with less than one year trading history that are attracting buying interest. Similarly the negative version of it shows you which stocks are experiencing selling pressure.

Stocks in focus is conceptually like IBD's "Stocks on the move".

Market Monitor

I have updated the spreadsheet with past data from April and part of March.

Revisiting float

6 out of 10 emails I get are about float. There seems to be enormous amount of confusion about float.


The above screen shot shows stocks up 50% or more in a month sorted by float in Telechart. DRYS does not have float data in Telechart, but it has a float of 5.37 million. Barring DJ all the stocks have below 25 million float. Which you will find to be true for 70% of the stocks in this list over a long period of time.

Now why is float important, essentially there are four types of stocks which make sharp moves in short time frames.

1. Stock with high earnings or sales
2. Volatile or high beta stocks like biotechnology and technology stocks
3. Neglected and beaten down stocks
4. Low float stocks

After analyzing the 50% and 100% list for years, I have found these are the four main characteristics which increase probability of a stock making big move in short time frames. In all the 3 factors mentioned above if there is low float, there is further move accentuation.

In 1998, when AMZN, IPOed, it had a float of 3 million. Part of the reason it moved so rapidly was small float. By 1999, it still had float below 25 million. It soon had number of stock splits and today has a float of 304 million . YHOO float in 1998 ranged between 12 to 18 million. That after a 3 for 2 split in 1997. Currently it has a float of 1.22 billion. In both the cases, there spectacular price growth happened when they were in their low float stages plus they had growing earnings or sales. The formula more or less remains constant, low float plus earnings or sales growth is equal to rapid runaway trends. You can go back and see float data for 98, 99, 2000 and you will see same story repeated again and again.

So here is a recap of float based on questions I answer on email.

What is float
Float is the number of shares actually available for trading in the open market. To understand float you need to understand authorized shares, treasury shares, outstanding shares and restricted shares.

Authorized shares are total number of shares authorized by shareholders. Companies do not issue all authorized shares and retain some in treasury. Which are called treasury shares. The issued shares constitutes outstanding shares. The shares issued to insiders, favored parties, employees are typical the restricted shares, which have certain restriction in terms of ownership and when and how they can be sold. Float is the number of shares after restricted shares are removed from the outstanding shares.

e.g
Let up take a hypothetical company Trader Mike Inc. which derives its income from trading, advertising, sponsorships and strategic investments in start ups.
Authorized shares= 25 million
Treasury shares= 5 million
Outstanding shares= 20 million
Restricted shares= 10 million
Float= 10 million

What is important to you is the float figure, that indicates actual stock under market circulation. To explain float I got in to discussion of authorized shares, treasury shares , outstanding shares etc, but those are not the figures I look for, unless it is an IPO. In IPO's float increases after the lock up expires.

Where to find float figures
Almost every financial site and software has float information. Float information is dynamic and figure change often and different sites follow different update schedule, so you might find different figures for float. You can find float on stocks on following sites/software:
1 Telechart
2 Moneycentral
3 Yahoo Finance
4 Reuters
5 CNN Money
On some days IBD in their "NYSE/NASDAQ Stocks on the move" has float information also. If you look at these section today, you will notice it. Earlier this used to be a regular column.

Do low float stocks have low trading volume
This is where biggest confusion is. No. A stock with low float can still have very high daily volume. At times stocks have daily volume larger than their floats. Recent example of stocks with low float like BTJ, NVEC, GROW, IDSA,DXPE,SYNL, NGA,MTOX, BWLD, etc will show you days when the stock trades almost half its float or more in a day. Float turnover change is one of the criteria which can be used to identify stocks which are undergoing such rapid float turnover. Those are hot momentum stocks. IBD publishes this list on Thursday.

So given a choice of breakouts to buy, one of the ways to narrow the list is by using float, that is if you are looking for stock likely to make major moves. If you are looking for slow mover, choose the high float one. I prefer stock which can move much higher so I choose those with low float plus ample liquidity.


Float and IBD's Top Supply/ Demand Companies

Earlier I have posted about float in IBD way of thinking.Every Thursday Investors Business Daily prints a IBDs Top Supply/ Demand Companies list in the B section.It has 10 stocks in it every week. It is essentially a comparison of trading volume to the stocks float. Now some of these stocks have been on this list for many weeks and have gone up many fold. If you regularly follow that list you will find many profitable ideas in it.

If you read the fine print, IBD says it is a gauge of institutional supply and demand. Higher rating on Supply/ Demand rating indicates heavy demand from mutual funds and institutional investors. It is one of the factor they have found to be essential in their model of stock market's biggest winners over the years.

The Supply/Demand Rating gauges investor demand in a stock by comparing its volume to its float. Stocks trading heavy volume with low floats tend to carry higher Supply/Demand ratings. Use the Supply Demand Rating within the context of other IBD Ratings as well as a stock's chart. A stock that has peaked and is heading lower could still maintain a high Supply/Demand Rating.

Now this rating is very similar to Norman Fosback's Volume Turover Ratio. Norman Fosbackin his classic book Stock Market Logic provides a Volume Turnover Ratio to select stocks in portfolio.
Volume Turover Ratio is calculated by dividing total trading volume in a stock over last six months by the total number of shares outstanding. The result is multiplied by 2 to convert it to yearly. Norman Fosback book offers number of detailed studies on effect of stocks floats and supply in general on stock returns.

In the First few editions of How to Make Money in Stocks William O'Neil specified stocks with less than 25 million float as ideal CANSLIM candidates. Subsequently the post dot com era editions have dropped that requirements.
"If you desire clear cut factual evidence, the 40 year study of the greatest stock market winners indicated more than 95% of the companies had fewer than 25 million shares in their capitalisation when they had their greatest period of earnings improvements and stock market performance. "
How to Make Money in Stocks


Dan Zanger on float and earnings

Dan Zanger the super trader who has consistently made triple digit returns for some years now has been focuses on importance of float consistently in all his writings or in interviews . If you study his method in detail his winning formula was small float and 100% plus EPS growth. Now that he is trading a significantly bigger account he is looking at larger float stocks. In his recent interviews he has indicated less than 100 million float as ideal.

Small float is not the Holy Gail in trading , large float stocks do make triple digit moves in a year if they have very good earnings but given a choice of many stocks with superior earnings or breakouts in a day selecting low float candidates can increase the probability of higher profits.


Dan Zanger on Float:

Over the last fifteen years, I've spent over 10,000 hours studying every type of chart pattern formation imaginable. From Cup and Handle patterns to Falling Wedges, Ascending Triangles, Bull and Bear Flags and too many others to list here now. And lucky for us these patterns repeat over and over and over again!

I combine these patterns with stocks that have unusually higher rates of growth and low number of shares that float. For the average stock I list, growth rates must be up at least 40% for both earnings and revenues growth for their most recent quarters and most stocks that I list have growth rates up 80, 90, 100 and sometimes up 200% and more. It's these high growth rates combined with stocks that have low number of shares that float that make them so explosive.

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Incorporating float in to your trading criteria can help improve your results. Float below 25 million is what I try and look for on good earnings candidates.

Much anticipated correction

Rallies which start with a major shakeouts moves like this one after the February dip, tend to shoot up without corrections. Now after 2 months of rally, this might be a correction. While the action looked scary the numbers show much subdued selling. The 4% down numbers remained below 300.

The market again found trouble breaking beyond 450 levels on number of stocks up 100% or more. For a year, since July 2006, the market rallies have had a ceiling of 400 to 450.Which largely indicate narrower set of stocks making major moves. The numbers in good long duration rallies reach high of 1000 plus and on 200 plus as high as 400.

Money seems to be rotating in to some new groups and energy related stocks, metals and mining, funeral services, waste management, insurance, etc are having lot of young rallies. Those stocks might take on leadership.

Market Monitor

• Rally is broadening with more sectors joining the action.
• Weakness in morning and strength in evening is a good sign
• The 100% plus list has new high today with 443 stocks.
• As market is in frothy state, tighter stops is the key.
• Any correction would be sudden and protecting profits is key.
• The market monitor is now in sidebar and hence I would not be updating it in main posts tomorrow onwards.
  

"I am hiring Goldman Sachs to consider strategic options."

"Strategic Options" are the golden words currently. Put them in your press release and watch your company share pop 10% plus. As soon as the press release hits the wire, there is frenzied buying.

I think lot of management is just playing the strategic options game. It is quick way to get your stock price up. I will be surprised if any of these companies exploring strategic options will actually end up being bought out. But currently like the .com mania phase, adding strategic options to your PR enhances your share price.

The rumors of strategic options are another good weapons to drive prices up. So someone builds a large position in stock and then spreads the rumor and bingo price go up. In last one month I have seen at least 100 companies issuing press release with strategic options as headline. These stocks gap up, but many just cling to that gain or give it up.

Market Monitor

• Market recovered from morning weakness.
• Market continues to be in correction mode.
• Fed interest rate decision will drive today's action.
  
• Individual breakouts continue to perform poorly post breakout.
  

Earnings acceleration

When looking for earnings acceleration what to look for is a common question I am asked. Following examples of earnings or sales trends in Reuters are what to look for.
Obviously these are ideal examples and you will only find 20 -25 stocks like this in an earnings season.

Lets look at an ideal example NTRI
Now if you see the 2004 to 2005 comparison of earnings, that is acceleration
Now that is clear earnings acceleration.

Or lets look at RVBD for sales/earnings acceleration

Look at FRPT as ideal example of 100% plus sales acceleration
Sales went up from 10 to 50, now see what happened to price.

The reason to understand it well is if you get it right, per trade profitability can be very high. In the NTRI example the stock was trading at around 1 dollar at the time of first earnings acceleration. It went to 30 in a year after that first earnings acceleration. Similarly FRPT was in single digit when the first sales acceleration happened. When you find NTRI or FRPT kind of earnings acceleration then you get multi week move.

Why 100% plus

On of the persistent question I get on email is why 100% plus, why not capture the first 100% plus itself. The simple answer is to reduce the trading universe and select the highest probability trade. More jazzy,stylish, and sounding like a black box, answer is, "Because I want to trade the long tail".

So here is how distribution of returns from 260 days looks like. Only for stocks with trading history of 260 days or more.

Market Monitor

UPDATE: Running a bit late today as there was a big accident on approach road to our house, shutting down traffic. I do not see any compelling earnings play barring WYNN, OSIS, TLEO. They are also not very exciting as some of them have rallied in to earnings.

• Market is in holding pattern.
• Volume is decreasing on advance, which is not a good sign
• McClelan Oscillator has 3 declining peaks, indicating correction is close by or in works.
• The 50% plus indicator is stuck below 10, indicating lack of individual stock level momentum.
• Barring the large caps, rest of the stuff is not moving post breakout.
• Current outlook, expect a few days of correction
  

How to find IPO's

A reader has emailed asking how do I find recent IPO's, after my recent post on young turks and earnings.William O'neil emphasizes the importance of looking at young entrepreneurial companies with good earnings. Such companies tend to do well on earnings acceleration.

Now if you have TC2007 , it is very easy to find IPO's for your chosen time frames.
Supposing you want to find all IPO's that happened in last 5 years just follow the following steps:

1. Go to "All Stocks"
2. Sort by price growth rate 5 years
3. All the stocks at the end which have no values associated with them are IPO's
4. Flag them and put in new Watch list
   
5. Use "Sublist" to remove "Exchange Traded Funds"

Similarly you can choose 1 month, 3 month, 6 month or 1 year sort to further subdivide this list.

Market Monitor

Market continue to show momentum. However multi week rally is making it difficult to find good stocks to buy as most stocks showing on scan also have high 65 days or 33 days growth. Buying such breakout is risky.

Plus the overheated market is making many earnings play gap up too far and then reverse. Stock which normally would gap 1 dollar post good earnings is gapping up 3 dollar and then reversing.

Ultimately at some stage this market will have a few weeks correction, that is the way markets generally operate. That correction time is near. We are midway through the earnings season, so much of catalyst is not behind and mergers and acquisitions have a limited capacity to lead to broad based buying.



Note: If you are reading this in RSS feed format, in most readers the embedded spreadsheet in this post does not show up.

Excellent Industry Analysis

If you are a member of Investors Business Daily, then you will find this very useful. In the IBD forums, there is a user by the handle "rds1955". He or she posts a weekly Industry Group spreadsheet in zip file format under the "Industry Group Moment" discussion topic.

It contains group moments and how it has evolved over a period of year. It is color coded ( which the Google Spreadsheet does not show), so at one glance you get a view of the sector trends.

After couple of members requested for IBD 200, recently it has also been included in the file. So if you want to avoid typing in the list, you can take it from here. It is delayed as this spreadsheet file is posted on Saturday, but that should not make much difference.

SPREADSHEET COURTESY ROBERTS.

You can see the spreadsheet on Google Docs here.

Note: If you are reading this in RSS feed format, in most readers the embedded spreadsheet does not show up.

Earnings trends

Zacks is the best resource for keeping tab on overall earnings trend. As per their database we are headed for another double digit quarter. Also the earnings trend for large caps is better than small caps, that is why small caps are lagging. That weakness might persist till next earnings season. Small caps are more reactive to earnings, while in large caps earnings are anticipated.

Almost 60% of the results are in, and earnings continue to surprise to the upside. As things stand now, the median S&P firm will post double-digit year-over-year earnings growth for the 19th straight quarter. While the 10.5% growth is still lower than previous quarters it is much better than expected. The surprise ratio now stands at 3.8:1, down from almost 5:1 a week ago, but still very strong. Positive surprises have been widespread, with every sector showing more positive surprises than disappointments with the exception of Telecom, which has only seen two firms report, and Utilities.

Health Care appears to be the real standout so far this quarter, posting 15.4% year-over-year growth with 26 positive surprises against only four disappointments. The median surprise is a very strong 5.5%. The Materials sector is also having a very robust quarter, with 14.6% year-over-year growth and positive surprises outnumbering disappointments by more than 5:1. Tech appears to be the laggard this quarter, with median earnings of only 1.35%. However even here, positive surprises are far exceeding disappointments by more than 3:1, including large positive surprises by many high profile firms. Telecom is actually showing negative growth, but with only two reports in, it is to early to draw any conclusions about that sector.

It is worth noting that the results so far have been much stronger for the S&P 500 (large-caps) than the S&P 400 (mid-caps) and the S&P 600 (small-caps). Large caps have been much more active in shrinking their share bases through stock buybacks than have their little brothers, and they also tend to have more foreign exposure and thus benefit from the very weak dollar.

$200bn acquisition frenzy

Corporate boardroom tables were groaning under the weight of about $200 billion (£100.3 billion) of bids — a figure roughly equivalent to the South African economy — last night in the single biggest day for mergers and acquisitions across the globe.

Three media bids — in the UK and the US — accounted for at least $80 billion worth of the takeover activity with Microsoft, the world’s biggest software company, seeking a potential $55 billion deal with Yahoo!, the search engine; Thomson Financial offering about $16 billion for Reuters, the news agency; and private equity tabling three separate $6 billion offers for EMI, the troubled music group that is home to Robbie Williams and Coldplay.

So lets watch and see how many more deals will be announced on Monday. Last time there were so many mega deals and merger, in few months the market was down.

Strength and weakness

It is a very deceptive market currently. Stocks are breaking out, but not moving much after breaking out. This is getting reflected in the stocks up 50 % plus in a month and also in stocks up 25% or more in a month. There are few wild runaway moves, if you see the individual stocks in those list.

Stocks up 50% or more in a month
AMZN,Amazon.Com Inc (Google  Yahoo  Earnings  Chart) 
DJ,Dow Jones & Co Inc (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
MEDI,Medimmune Inc (Google  Yahoo  Earnings  Chart) 
NGA,N Amer Galvanizing & Coatings (Google  Yahoo  Earnings  Chart) 
RCCC,Rural Cellular Corp (Google  Yahoo  Earnings  Chart) 
SPAN,Span-Amer Medical Systs (Google  Yahoo  Earnings  Chart) 
TO,Tech-Ops Sevcon Inc (Google  Yahoo  Earnings  Chart) 


Stocks up 25% or more in a month
ADES,Ada-es Inc (Google  Yahoo  Earnings  Chart) 
AIMC,Altra Industrial Motion Inc. (Google  Yahoo  Earnings  Chart) 
AKS,Ak Steel Holding Corp (Google  Yahoo  Earnings  Chart) 
ALGN,Align Tech Inc (Google  Yahoo  Earnings  Chart) 
AMZN,Amazon.Com Inc (Google  Yahoo  Earnings  Chart) 
ARNA,Arena Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
BIDU,Baidu.com Inc (Google  Yahoo  Earnings  Chart) 
BTUI,Btu International Inc (Google  Yahoo  Earnings  Chart) 
BXXX,Brooke Corp (Google  Yahoo  Earnings  Chart) 
CBUK,Cutter & Buck Inc (Google  Yahoo  Earnings  Chart) 
CMTY,Community Banks Mlrbg Pa (Google  Yahoo  Earnings  Chart) 
CNS,Cohen & Steers Inc (Google  Yahoo  Earnings  Chart) 
CPX,Complete Production Services Inc (Google  Yahoo  Earnings  Chart) 
CPY,Cpi Corp (Google  Yahoo  Earnings  Chart) 
CRNT,Ceragon Networks Ltd (Google  Yahoo  Earnings  Chart) 
CROX,Crocs Inc (Google  Yahoo  Earnings  Chart) 
CVNS,Covansys Corp (Google  Yahoo  Earnings  Chart) 
DJ,Dow Jones & Co Inc (Google  Yahoo  Earnings  Chart) 
DRYS,Dryships (Google  Yahoo  Earnings  Chart) 
FCPO,Factory Card & Party Outlet (Google  Yahoo  Earnings  Chart) 
FCSX,FCStone Group` Inc. (Google  Yahoo  Earnings  Chart) 
FMT,Fremont General Corp (Google  Yahoo  Earnings  Chart) 
FTK,Flotek Industries Inc (Google  Yahoo  Earnings  Chart) 
GCOM,Globecomm Systems Inc (Google  Yahoo  Earnings  Chart) 
GEL,Genesis Energy (L.P.) (Google  Yahoo  Earnings  Chart) 
GLUU,Glu Mobile Inc (Google  Yahoo  Earnings  Chart) 
GTI,Graftech Intl Ltd (Google  Yahoo  Earnings  Chart) 
HAN,Hanson P (Google  Yahoo  Earnings  Chart) 
HHGP,Hudson Highland Grp Inc W/i (Google  Yahoo  Earnings  Chart) 
HLYS,Heelys Inc (Google  Yahoo  Earnings  Chart) 
IDMI,IDM Pharma Inc (Google  Yahoo  Earnings  Chart) 
IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings  Chart) 
ISE,International Securities Excha (Google  Yahoo  Earnings  Chart) 
JASO,Ja Solar Hldgs Co Ads (Google  Yahoo  Earnings  Chart) 
KRSL,Kreisler Manufacturing (Google  Yahoo  Earnings  Chart) 
LBY,Libbey Inc (Google  Yahoo  Earnings  Chart) 
LPHI,Life Partners Inc (Google  Yahoo  Earnings  Chart) 
MAFB,Maf Bancorp Inc (Google  Yahoo  Earnings  Chart) 
MBLX,Metabolix Inc (Google  Yahoo  Earnings  Chart) 
MEA,Metalico Inc (Google  Yahoo  Earnings  Chart) 
MEDI,Medimmune Inc (Google  Yahoo  Earnings  Chart) 
MOBI,Mobius Management Systms (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) 
NPTH,Enpath Medical Inc (Google  Yahoo  Earnings  Chart) 
NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart) 
OMG,Om Group Inc (Google  Yahoo  Earnings  Chart) 
ONAV,Omega Navigation Enterprises Inc Class A (Google  Yahoo  Earnings  Chart) 
PDGI,Pharmanet Dev Group Inc (Google  Yahoo  Earnings  Chart) 
PTEC,Phoenix Technologies Ltd (Google  Yahoo  Earnings  Chart) 
PTEK,PokerTek Inc (Google  Yahoo  Earnings  Chart) 
RCCC,Rural Cellular Corp (Google  Yahoo  Earnings  Chart) 
RTRSY,Reuters Group Plc Adr (Google  Yahoo  Earnings  Chart) 
SCHN,Schnitzer Steel Indust (Google  Yahoo  Earnings  Chart) 
SGP,Schering-Plough Corp (Google  Yahoo  Earnings  Chart) 
SLM,Slm Corp (Google  Yahoo  Earnings  Chart) 
SMDI,Sirenza Microdevices (Google  Yahoo  Earnings  Chart) 
SNCR,Synchronoss Technologies Inc (Google  Yahoo  Earnings  Chart) 
SOMX,Somaxon Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
SPAN,Span-Amer Medical Systs (Google  Yahoo  Earnings  Chart) 
STGN,Stratagene Corp (Google  Yahoo  Earnings  Chart) 
TBSI,TBS International Limited Class A (Google  Yahoo  Earnings  Chart) 
TFSM,24/7 Real Media Inc (Google  Yahoo  Earnings  Chart) 
TO,Tech-Ops Sevcon Inc (Google  Yahoo  Earnings  Chart) 
TRBR,Trailer Bridge Inc (Google  Yahoo  Earnings  Chart) 
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart) 
TTES,T-3 Energy Services Inc (Google  Yahoo  Earnings  Chart) 
TWIN,Twin Disc Inc (Google  Yahoo  Earnings  Chart) 
ULTR,Ultrapetrol Ltd (Google  Yahoo  Earnings  Chart) 
VSEC,Vse Corp (Google  Yahoo  Earnings  Chart) 
WGOV,Woodward Governor Co (Google  Yahoo  Earnings  Chart) 
WHR,Whirlpool Corp (Google  Yahoo  Earnings  Chart) 
WVCM,Wavecom Sa Adr (Google  Yahoo  Earnings  Chart) 
XNPT,XenoPort Inc (Google  Yahoo  Earnings  Chart) 


After 10 months of rally, if you calculate it from July, only 400 stocks are up 100% plus. This figure is around 1000 by 7 th or 8 th month of a typical rally. Every time the figure has crossed 400 in last 8-9 months, there has been correction.

If you look at stocks down 4% or more in a day, you will notice number of stocks are breaking down. This trend has accelerated in last few days and weeks. The market is not making any substantial headway.

Mental Models and blindness

Some of the questions I have answered again and again through comments and post or on email about earnings, float, how to find earnings or float, or yearly growth of stock,etc., illustrate very well how mental models affect our behavior and leads to blindness.

Your mental models create blindness to obvious things. Beliefs and assumptions, which do not fit in to your mental models fail to register with you, you are blind to them. When I tell people who have been proudly using TC2007 for years how to find float or earnings or revenue growth in it. The first reaction is of surprise. " Shit, I looked for float all over the web?", "Holy Cow, I have used this software for 5 years, and I never knew there is earnings data in it", "I have been using Yahoo Finance/ Moneycentral/Aol Finance etc for years and I never ever looked at earnings." And so goes the reaction. The information is everywhere, you are just blind to it. All screener allow you to do this.So many sites have float and earnings information.

If your prior mental model was about technical analysis, you interpret the world using your "reality" of technical analysis rules. If your mental model is driven by indicator, you are blind to rest of the things. If you never believed earnings was important in driving price behavior, you would never look at earnings closely. For a given trader , he or she has his or her own "reality" about how markets operate and how his or her own behavior is correct behavior.

Mental models are coping mechanism for the complexity around us. You develop mental models over your life time for different set of facets of your life.As you move and act, as you live your life,and as you learn and master new knowledge and skills you create your own understanding of the world. That is your own interpretation of how the world operates or should operate.Most of the time you are not consciously aware of the assumptions, the beliefs which go in to your mental models.

The primary benefit of developing mental models is that your mental models help you get things done faster. Your behavior and reaction to world around you stems from such simplified, your own "reality" view of the world. Life becomes easier if you can follow the same process. Strongly formed habits lead to a decreased cognitive
load, which frees you up for things that matter more. There in lies a problem. People walk the same road for years, but are bind to many things on it.

Loss of orientation is a natural reaction when faced with a new way of looking at things. In fact in successful commercial communication or art like novel or movie, a skillful plot is used to manipulate peoples mental model, so that thy think in one way and then the surprise is sprung on you.

I find it amusing when people claim they are not influenced by advertising or leaders. Or claim no one can change their behavior. Day in and day out advertisers and marketers change your behavior successfully using just communication. That gets reflected in sales and profit for companies. How do they do it, by skillfully providing you new information which makes you reevaluate your choice of brands. They do it vividly, so that it gets noticed, they do it repeatedly, so that you contemplate on it, they do it in entertaining manner , so that you do not see it as annoyance. All that they use is an argument to change your existing assumptions and beliefs. The result, you buy one product over another or shop at a particular shop. That is behavior, not just attitude change.

Leaders do the same thing. What do leaders do, they change followers mental models. They do it through communication, symbols and arguments. Arguments is the currency of leaders. Using skillful arguments , a leader garners followers, maintains them, and make them do things which he wants them to do. Leaders create alternative reality, the followers strongly believe in it.

If you think about this and look closely, you will see people change their behavior significantly once they start following a leader.They donate to them , they buy their books, they vote for them , they even kill for them. Remember you change your behavior willingly , when you follow a leader.Leader is successful only if he can change followers behavior. Barack Obama will be successful leader, if he gets you to vote for him.

If you want to learn about changing your own behavior, look at how others change your behavior successfully. They do it day in and day out, you are not aware of it. What process do they use. Advertisers , marketers, and leaders change your behavior day in and day out. They do it by manipulating your mental models. If you understand the process, you can change your own mental models using same process.

To trade in a new way requires behavior change. Part of the challenge is, it is self directed behavior change. If it is a directed behavior change, the process is a bit simpler. But a directed behavior change still requires first a submission to the outsider directing the behavior change. That is the reason, you will see in Japanese or Chinese themed movies, the Zen Master first breaking down the disciple by giving menial jobs or impossible tasks.You will see this again and again in movies. Once the disciple surrenders, then the behavior change happens quickly. The Eastern philosophy believes in first emptying the mind and then putting new things in to it.

Young turks do well on earnings

Recent IPO's can be good earnings candidates. Today there are a lot of them. There is nothing sacrosanct about 100% cut off, if you like you can take 50% plus. The number of stocks in your list will increase. The primary objective is to find the long term player.

BBND,Bigband Networks Inc (Google  Yahoo  Earnings  Chart) 
CBEY,CBeyond Communications Inc (Google  Yahoo  Earnings  Chart) 
EHTH,Ehealth Inc (Google  Yahoo  Earnings  Chart) 
FNET,FortuNet (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
GMST,Gemstar-tv Guide Intl (Google  Yahoo  Earnings  Chart) 
KTEC,Key Technology Inc (Google  Yahoo  Earnings  Chart) 
NEWS,Newstar Financial Inc (Google  Yahoo  Earnings  Chart) 
NPLA,InPlay Technologies Inc (Google  Yahoo  Earnings  Chart) 
RDEN,Elizabeth Arden Inc (Google  Yahoo  Earnings  Chart) 
SUAI,Specialty Underwriters Allianc (Google  Yahoo  Earnings  Chart) 
WNR,Western Refining Inc (Google  Yahoo  Earnings  Chart) 

Market Monitor

The market crawled higher on low volume. Small cap did not build on last few days momentum. The lukewarm market action continues as strength in Index is not reflecting in to broadening of candidates in 100% plus or 65 days plus universe. The 50% plus number continues to hover around 10. Market is churning at this stage.

The interest rates futures and dollar index are indicating possible reversal move. So current market outlook is for a strong possibility of correction.





ICE,Intercontinental Exchange Inc (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
OFI,Overhill Farms Inc (Google  Yahoo  Earnings  Chart) 

Detours can be costly

When researching a method or deciding on profitable strategy, there are many temptations. For beginners it is especially very tempting to get caught in a wrong concept and spend lot of time on it. One of the problems is in most cases immediate reality can influence your decision making.

For example in recent 3-4 months, biotechs have done well. Some of them have gone up several hundred percents and stocks like DNDN has caught investors fancy. For many beginners that looks very tempting and they can spend months figuring out such sector. But such sector specific strategies have high risk, because sectors go out of style for years. China, India, Solar Energy, Ethanol, Energy, were some recent themes, but they will not be around in another year.

Similar things apply to things like NR7 and many volatility based systems. Unless you are going to trade short time frames, it can be huge distraction. Plus many people do not realize that the author of that book trades millions and wants a very low risk steady return strategy. I had a long email back and forth with a new trader, who is besotted with such short duration things while he wants to primarily trade longer term things.

The other trap is trying to trade like macro traders. Unfortunately most of what you hear in mass media and in popular finance blogosphere is macro stuff, which seldom has day to day bearings on stock markets. There are more macro newsletter writers than traders. They earn their money from subscription and not from trading. When you hear things like dollar going down and Dow is actually down in comparison to other currencies, you should quickly check to see what is that guy selling. Trading like that with your small account is recipe for disaster.

The funny thing is , even if you tell beginner trader this, he or she does not have the perspective to understand these things. So many spend several months taking detours.

What does good earning trade look like

While many earnings trade will give a one day or few weeks pop, once in a while you get a stock which will give you a major hit. Such stocks have some characteristics:
1 Neglect. They are neglected for many years, 2 plus years ideal.No analyst coverage. Last major rally was several years ago. Or had no major rally in life of the stock.
2 There is dramatic increase is earnings or sales. It is first or second acceleration.
3 Ideal situation, low float.

Now to give you idea of what does the price action look like, lets have a look at one of the stock which is showing up on the Earnings list today VPHM.
VPHM Daily 2005


VPHM Monthly 2005



Here is what happened to VPHM in 2005 earnings season.



Now VPHM is not an isolated example if you look at stocks like NTRI, HANS, BOOM, TASR, GROW and many others during there frenzied rally stage , you will see the same thing. Or more recently FRPT, which is up several hundred % this year, look at its earnings/sales, earnings season kicked of that rally.

One has to wait, wait, and wait for such gems during earnings season. In the meanwhile there are the 10 to 20% few days pop kind of free money opportunities.

Lot of you who are emailing saying oh but this stock was up triple digit but it tanked, are simply not understanding the concept. A 4 th or 5 th or 6 th or 8 th triple digit earnings after a stock already has a run, it can at times launch a blowout move, but that probability is low. What launches a real long duration rally like VPHM is neglect and major surprise.

Market Monitor

The small caps finally witnessed rotation. But it is still a large cap dominated market. The 2 day correction has been aggressively bought. If more rotation in to small cap happens, it will be good for the rally.



Episodic Pivots

SELECTED BUY SIGNALS
HURN,Huron Consulting Group Inc (Google  Yahoo  Earnings  Chart) 
JAV,Javelin Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
TTWO,Take-Two Intera Software (Google  Yahoo  Earnings  Chart) 
VPHM,Viropharma Inc (Google  Yahoo  Earnings  Chart) 

I've been tagged by Chris Perruna. So here are things in the the meme.

a) My Five Obsessions?

1. Literature. I like reading both classical as well as modern literature. I have read books by 35 authors out of the 103 Noble Prize Winners for literature. I intend to finish rest in my lifetime.
   
2. Trends. Analyzing, studying, and writing about trends in consumer behavior, culture, social norms , business practices, etc. with specific focus on India.
   
3. Personal success, personal growth, mental models, personal transformation, personal motivation, and everything to do with personal effectiveness.
   
4. Leadership. Art, science, and practice of leadership. Study of leadership and what makes leaders successful. Training leaders.
   
5. Trading and investing
   

b)Five Reasons why I Blog?

1. To kill time when waiting for trade entry signal.
2. To keep the gray cells busy
3. To practice daily writing
4. To keep record
5. To network with successful traders

c) I’ll tag a few people if Interested:

1. Alpha Trends
2. Counter Trend
3. Trading Goddess
4. The Perplexed Investor
5. Bill Rempel
   

Earnings candidates

Just to illustrate how I do this, here is what I did in the morning. From the Investors Business Daily Earnings tables, I identified stocks with 100% plus EPS, 5% plus sales, 5 cents plus EPS and stocks which had 100% plus sales. Now here is the selected list after removing REITS

ARAY,Accuray Incorporated (Google  Yahoo  Earnings  Chart) 
BNT,Bentley Pharmaceutical (Google  Yahoo  Earnings  Chart) 
CRY,Cryolife Inc (Google  Yahoo  Earnings  Chart) 
CYNO,Cynosure Inc (Google  Yahoo  Earnings  Chart) 
EFJI,Efj Inc (Google  Yahoo  Earnings  Chart) 
GMRK,Gulfmark Offshore Inc (Google  Yahoo  Earnings  Chart) 
HC,Hanover Compressor Hldgs (Google  Yahoo  Earnings  Chart) 
JLL,Jones Lang Lasalle Inc (Google  Yahoo  Earnings  Chart) 
MALL,Pc Mall Inc (Google  Yahoo  Earnings  Chart) 
MTW,Manitowoc Co Inc (Google  Yahoo  Earnings  Chart) 
NVTL,Novatel Wireless Inc (Google  Yahoo  Earnings  Chart) 
SNTS,Santarus Inc