Current positions and last 10 closed trade

This has been a good environment for trading. As of now market is overbought and late reversal today was not a good sign. But earnings related breakouts continue to work in this market.

The market did not get rattled by China drop

We are clearly at a extreme bullish breadth levels. Such high levels lead to corrections. Many such corrections can be sudden and vicious. But a overbought market can remain overbought fr long. In a long running bull market such overbought levels correct slowly and then the move resumes. At this stage we do not know how this move will play out. But you should be in a pullback/correction anticipation mood. Protecting profits made so far should be one of the prime objective. The market did not get rattled by China drop, which is a good sign.

• A series of 300 plus negative 4% days will be negative for market.
• The #of stocks up 25% in a quarter going below 200 would be bearish
• So far we have not seen these things.
• So breadth is showing you a good bull market currently.
• Which is getting reflected in our trading.

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Market in a rally mode. Earnings season currently on
Type	Indicator	Value	Comments
Daily	# of stocks up >4% on high volume	135	No heavy selling so far. But I have sold most vulnerable positions.
Daily	# of stocks down>4% on high volume	217
Primary	# of stocks up >25% in a quarter	2049
Primary	# of stocks down>25% in a quarter	355	Approaching 200 indicates extreme bullishness
Secondary	# of stocks up> 50% in a month	9	But this one is not in extreme zone.
Secondary	# of stocks down>50% in a month	3
Secondary	# of stocks up>25% in a month	191
Secondary	# of stocks down>25% in a month	14
Primary fast	# of stocks up>13% in 34 days	2574
Primary fast	# of stocks down>13% in 34 days	591
MMA+	% of stocks in confirmed uptrend	70	This is in bearish territory.
MMA-	% of stocks in confirmed downtrend	14
10 day cumulative breadth ratio	#of stocks up> 4% in last 10 days/ #of stocks down>4% in last 10 days	2.67

Current open positions

Symbol	Entry	Date
LCRD	6.20	7/28/09
KONG	11.92	7/28./09
UTA	11.80	7/28/09
CGA	8.87	7/24/09
GCI	4.48	7/16/09
HITK	12.53	7/14/09
OSK	18.32	7/2/09
LCC	2.30	7/2/09
STEC	24	7/1/09
STEC	13.52	5/13/09

What is market breadth telling us

We are clearly at a extreme bullish breadth levels. The T2108 is at 85.72. Such high levels lead to corrections. Many such corrections can be sudden and vicious. But a overbought market can remain overbought for long. In a long running bull market such overbought levels correct slowly and then the move resumes. At this stage we do not know how this move will play out. But you should be in a pullback/correction anticipation mood. Protecting profits made so far should be one of the prime objective.

• A series of 300 plus negative 4% days will be negative for market.
• The #of stocks up 25% in a quarter going below 200 would be bearish
• So far we have not seen these things.
• So breadth is showing you a good bull market currently.
• Which is getting reflected in our trading.

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Market in a rally mode. Earnings season currently on
Type	Indicator	Value	Comments
Daily	# of stocks up >4% on high volume	202
Daily	# of stocks down>4% on high volume	158
Primary	# of stocks up >25% in a quarter	2214
Primary	# of stocks down>25% in a quarter	314	Approaching 200 indicates extreme bullishness
Secondary	# of stocks up> 50% in a month	13	But this one is not in extreme zone.
Secondary	# of stocks down>50% in a month	3
Secondary	# of stocks up>25% in a month	193
Secondary	# of stocks down>25% in a month	19
Primary fast	# of stocks up>13% in 34 days	2717
Primary fast	# of stocks down>13% in 34 days	526
MMA+	% of stocks in confirmed uptrend	66
MMA-	% of stocks in confirmed downtrend	13
10 day cumulative breadth ratio		4.42

What is market breadth

Market breadth is one of the core concept you must understand if you want to succeeds in trading and investing in stock market . A comprehensive understanding of market breadth will help you trade confidently in any time frame. What should you know about market breadth.

1. What is market breadth
2. Why is market breadth called the grand daddy of all indicator
3. What information does market breadth tells you
4. How is market breadth calculated
5. What are the most commonly used market breadth indicators
6. How can you use market breadth for day trading
7. How can you use market breadth for swing trading
8. How can you use market breadth for long term investing
9. What are the famous market breadth "proprietary indicators" and how you can hack them
10. Which books explain market breadth the best

What is market breadth telling us

Daily View

Daily View

Daily View

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Market in a rally mode. Earnings season currently on
Type	Indicator	Value	Comments
Daily	# of stocks up >4% on high volume	175
Daily	# of stocks down>4% on high volume	67
Primary	# of stocks up >25% in a quarter	2293
Primary	# of stocks down>25% in a quarter	373	Approaching 200 indicates extreme bullishness
Secondary	# of stocks up> 50% in a month	21	This is bearish indicates likelihood of pullback.
Secondary	# of stocks down>50% in a month	3
Secondary	# of stocks up>25% in a month	224
Secondary	# of stocks down>25% in a month	16
Primary fast	# of stocks up>13% in 34 days	2742
Primary fast	# of stocks down>13% in 34 days	592
MMA+	% of stocks in confirmed uptrend	66
MMA-	% of stocks in confirmed downtrend	15
10 day cumulative breadth ratio	#of stocks up> 4% in last 10 days/ #of stocks down>4% in last 10 days	5.36

Why I am not worried about high frequency trading

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Everyone is getting hyper about this article in NYT today. But what is the solution:. trade a idea with big edge. Don't trade 25 cents edges. Before HFT, there was quarter spread, there were SOES bandits, there were market makers and before that there were pools and market corners.

These things have been around since market started. If you trade a 20% or 50% edge strategy, you should not spend too much time worying about such things.

They can use all the HFT strategy they want to use, but if you trade a strategy like Episodic Pivots and find stocks STEC, OSK, HITK, or GCI at the beginning of their big move , those stocks are going to go up.

My philosophy is control things which you can control. Do not worry about uncontrollable forces. Your Trading Mix is under your own control.

On the IBD 100 and 200 list use the scan:

( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1 AND ((100 * (C1 - C22) / C22) <= 10 AND (100 * (C1 - C11) / C11) <= 10)

Ths scan output is then further narrowed down.

Method	Scan output	Possible Buy	Verdict
IBD 100	ffiv vprt ttek din cern cri abvt	din cern cri abvt abvt is best out of the four	abvt open position
IBD 200	ffiv vprt mv cri abvt	mv cri abvt abvt is the best	abvt open position

IBD 100/200 and DT and MDT checklist

This checklist helps you narrow the scan output to the best options out of the stocks meeting scan conditions.

For the selected stock ABVT the checklist was:

Criteria		Where to get information	ABVT
Relative linearity		Telechart	good for previous move
Closeness to 6 month high %		Telechart	at high
Volume surge 50%+		Telechart	yes
Prior day narrow or negative		Telechart	yes
+4 b/o in prior 5 to 10 days		Telechart	no 4% b/o0
-4% b/o in prior 5 to 10 days		Telechart	no -ve4% b/o
Float in million		Telechart	8 million
IBD EPS ratings 95 plus		IBD	80
Recent EPS acceleration		IBD	no
Sector Top 25		IBD	7
Recent catalyst		Moneycentral or Finviz	nyse euronext service provider
Earnings due		IBD	7/28/09
Recent IPO		Telechart	shifted from BB recently
EPS growth 40 plus		IBD	693%
Sales growth 25% plus		IBD	20%
Margin		IBD	15.8%
ROE		IBD	16.7%
Verdict			Thinly traded.
			open position

Like ABVT all the stocks undetgo a cheklist to narrow to nly few oportunities. ABVT was identified as a buy intraday and was entered in afternoon.

Key posts explaining these methods

1	IBD 100 and 200
2	Momentum Trading
3	Double Trouble and Modified Double trouble
4	Exits
5	How to find good trades in IBD 100 and 200
6	Trading Tools I use
7	Stops
8	How much to risk per trade
9	Modified Double Trouble Scans
10	IBD 100 and 200 Scans
11	IBD 100 and 200 Chart Settings

The running of the bulls

	Market Monitor		Market resumes its rally after a pullback. Earnings season currently on. Focus is on Episodic Pivots
Type	Indicator	Value	Comments
Daily	# of Stocks Up >4% on high volume	895	Characteristic of bull market are that they are difficult to ride. This market is like that. Just 10 days ago the bears were salivating at the prospect of H&S. That was a trap. Since then market have gone up straight. If you dithered or listened to bears, you never had a opportunity to get in at low risk. This reminds me of 2003 all over again. In the short run we have unsustainable momentum so extremely high probability of dip in next 1 to 5 days. But remember overbought markets can remain overbought long time. And tops take long to form.
Daily	# of stocks down >4% on high volume	58	You should get worried if we see 2 or 3 days of 500 plus readings on this.
Primary	# of stocks up >25% in a quarter	2250	You should not become completely bearish on market till the primary ratio becomes negative. It never became negative during the correction in June. So we benefited by buying b/o during that period and selling those positions today Buy dips in bull market till they stop working.
Primary	# of stocks down >25% in a quarter	389
Secondary	#of stocks up >50% in a month	30	Over 20 indicating overbought level. A correction of 1-3 duration most probable course in next one week.
Secondary	#of stocks down >50% in a month	4
Secondary	#of stocks up >25% in a month	296	This number is not really high. So I think the pullback is a buy opportunity
Secondary	#of stocks down >25% in a month	16
Primary fast	MM 34/13 +	2666	Good breadth on this.
Primary Fast	MM 34/13 -	646

Top ten stock by Dollar Volume up 4% plus on high volume	f amzn pot rimm medx isrg ebay ems celg mon large stocks are being bought. Money is flowing in to the market.
Top ten stocks by Dollar Volume down 4% plus on high volume	mcd pnc sndk swy gr dhr bms esi hban flir

• Coming in to today I was 170% invested, the mantra today was to sell in to the strength.
• By afternoon I was 50% invested only.
• Current focus is Episodic Pivots (EP) and that too earnings EP only.
• Within that I am interested in 100% plus eps kind EP.
• I am not taking many of the turnaround kind EP.
• Because in next phase of bull market growth stock should dominate.
• I am not in hit and run mentality.
• I am trying to take larger positions and hold for 40 % plus kind of gains.

Shortage of growth stocks

Only 102 stocks meet the 40/25 eps/growth and 100k average volume parameter currently. (40% plus eps growth and 25% plus sales growth and average 50 day volume greater than 100k)

Diamonds are rare so they are in demand.

If diamonds were available abundantly, they would sell in dollar stores for 99 cents.

Only 23 stocks in top 40 sectors have 40/25 growth story. Out of those 23 the best ones I have positions in currently.

In a bull market I like to buy only 100/25 stories but in this market I am willing to buy 40/25 story

This is a list of stocks meeting 40 eps growth and 25 sales growth criteria using Momneycentral scanner as of yesterday.

Bold faced stocks are current open positions.

CHLN

ENI

DVR

CBST

RRC

HITK

TSRA

PCX

LINC

ZAGG

THOR

CRTX

RST

PDA

GLDD

MYGN

ARST

NRG

GXP

ALXN

ALLI

HTS

SQM

MIR

DLR

PCL

EQIX

FLY

RGR

ADY

FSLR

FEED

CHDX

LIHR

BBEP

HMPR

ASEI

PEGA

CINF

AAV

OFC

UTL

TCL

CML

SJM

AGO

LINE

ODSY

CAST

CGA

SXCI

LOPE

TNDM

UTA

EZCH

CYOU

GMCR

AFAM

EOC

CELG

SOHU

SYNA

CRXL

ISIS

HMIN

LHCG

BBBB

DCP

IPCM

DGW

MAXY

MIG

LFT

CSKI

RAH

MED

HMSY

CHU

BEAT

ILMN

NOVN

STEC

ANEN

ERII

AMED

HRBN

PETD

EBS

BMR

APEI

NMM

ORN

FUQI

MTZ

EDU

YZC

RSG

GCA

GMR

ORA

HDB

APOL

SSL

LRN

CPTS

EZPW

Building strategy around core concepts

Lot of time is spent by new traders in tactical details of the methods like scan or indicator without understanding the core concept. Understanding the core concept is the key to trading any method.

Once you understand the logic behind core concept you would be able to do your own scans and trade some of the methods discussed here profitably with conviction.

Core Concept	Application
Market Breadth can help you determine market direction	Market Monitor
Equity selection is "the key" to profitability	Using Momentum+growth+Event catalyst
Price Momentum from a yearly low Because trends start from a low point	Double Trouble
Price Momentum six month	Modified Double Trouble
Historic precedent analysis	Growth stock+IBD 100 and 200
Momentum Anomaly	IBD 100 + IBD 200
Post Earnings Announcement Drift PEADS The most robust anomaly found to date	Earnings Episodic Pivots
Post news announcement drift	Other Episodic Pivots
Momentum and mean reversion	Entry on weakness for swing trading in a momentum stock
Risk Management	Initial stop placement
Risk Management	Position Sizing Calculator
Risk Management	Fast exit on trades that do not work
Risk Management	Partial exits
Risk management	Exit in to euphoria
Risk management	Higher risk on conviction trades

If you feel these ideas can work for "you" and want to develop "expertise" at trading these ideas, you need to understand the core concepts in detail.

The more you become knowledgeable at the core concept you will find it easier to trade methods based on that. You will be able to improve on them.

These are not the only core concept which work. Most of the things that work in he market are well researched and are in public domain. If you base your methods on core concepts you have a structural edge.

Focusing on core concept that work in market is key to building a profitable strategy.

Earnings remain in focus

	Market Monitor		Market resumes its rally after a pullback. Earnings season currently on. Focus is on Episodic Pivots
Type	Indicator	Value	Comments
Daily	# of Stocks Up >4% on high volume	150	Some sort of pullback after muti day gains was expected.
Daily	# of stocks down >4% on high volume	157	You should get worried if we see 2 or 3 days of 500 plus readings on this.
Primary	# of stocks up >25% in a quarter	2023
Primary	# of stocks down >25% in a quarter	484
Secondary	#of stocks up >50% in a month	17	Approaching 20 indicating overbought level.
Secondary	#of stocks down >50% in a month	3
Secondary	#of stocks up >25% in a month	202
Secondary	#of stocks down >25% in a month	16
Primary fast	MM 34/13 +	2181
Primary Fast	MM 34/13 -	892

Top ten stock by Dollar Volume up 4% plus on high volume	cat mon mrk fslr ntap jci nrg ip wfr stp
Top ten stocks by Dollar Volume down 4% plus on high volume	lmt aa btu mco rf aks sti lxk shw cno

• Current focus is EP and that too earnings EP only.

Leaders breaking out

	Market Monitor		Market resumes its rally after a pullback. Earnings season currently on. Focus is on Episodic Pivots
Type	Indicator	Value	Comments
Daily	# of Stocks Up >4% on high volume	409	A breadth thrust catches some off guard.
Daily	# of stocks down >4% on high volume	51	After multi day gains in index a pullback might be logical.
Primary	# of stocks up >25% in a quarter	2061	Stocks have held up well during correction. So many first phase leaders have started second leg of the move.
Primary	# of stocks down >25% in a quarter	570
Secondary	#of stocks up >50% in a month	10
Secondary	#of stocks down >50% in a month	4
Secondary	#of stocks up >25% in a month	96
Secondary	#of stocks down >25% in a month	21
Primary fast	MM 34/13 +	2226
Primary Fast	MM 34/13 -	1896

Top ten stock by Dollar Volume up 4% plus on high volume	hgsi bidu cat x lvs vale v tck hal etn
Top ten stocks by Dollar Volume down 4% plus on high volume	wft har tsn asbc safm infn asca orb ddss

• Current focus is Episodic Pivots EP and that too earnings EP only.
• Currently there are so many opportunities for 20% plus kind of swing trades.

Explosive moves for Monday

Symbol	sector rank	EPS %	Sales %	Float	Kirk p/s	Episodic Pivots	Comment
HGSI						Lupus drug trial better than anticipated.	no action
BIDU						Pre earnings rally	no action
CIT						AVOIDS BANKRUPTCY	no action
ETN						beats estimate. cost cuts
RTP						no catalyst
RHT						Will replace CIT in S&P	no action
ISRG	110	-36	0	37	93	analyst upgrade	no action
OREX						obesity drug mets trial goal	no action
CLWR	55	25	0	157	99	4G launch	no action
AFFX	110	-34	-54	69	57	analyst upgrade	no action
MHLD	184	19	205	51	48	no news	no action
VIT	28	25	47	11	91	China. Analyst upgrade. IBD highlight.	no action
PCBC						no news	no action
ZGEN						HGSI sympathy move
GMCR	4	120	60	27	85	pre earnings rally Top 20 sector catalyst	pre existing position
PWRD	32	53	44	23	95	China sector catalyst. Analyst upgrade. New product news.
FUQI	9	45	41	9	55	China sector catalyst
CHLN	161	500	192	25	91	China sector.	pre existing position
CISG	190	36	62	18	92	China sector
RINO	175	150	87	24	69	China . Extended.
						BELOW 5 MILLION USD VOLUME SELECTIVELY ANALYSED
XIN						China housing rally	no action
HNBC							na
TSTR							na
IMMU						HGSI sympathy move	na
IDIX							na
DRL							na
GRNB							na
IFON							na
SHZ							na
WPTE							na
CAMP							na
						IPO WITH LESS THAN 100 DAY TRADING HISTORY
CYOU	32	98	50	1	96	China	pre existing position
UTA	8	75	72	9	65	China	pre existing position

Recent posts explaining Episodic Pivots method

1	Episodic Pivots Trading Guide
2	If I have to trade only one method........
3	Episodic Pivots what to look for Part1
4	Episodic Pivots what to look for part2
5	Episodic Pivots what to look for part3
6	Explosive earnings lead to explosive moves
7	What is float and why it is important
8	10 most common Episodic Pivots
9	How to find stocks with last one month Episodic Pivots
10	Episodic Pivots Q&A
11	Episodic Pivot Daily Analysis Telechart Setup
12	How I do my Episodic Pivots Analysis part1
13	How I do my Episodic Pivots Analysis part2
14	The cockroach effect
15	One of the source of Earnings information
16	How to trade biotech EP

What creates explosive moves

As a trader we are interested in quick moves and when it comes to quick moves market tends to reward certain things.

• Earnings surprise: In the short run as well as in the long run a significant earnings surprise will lead to a rally, if the surprise is not priced in to current price. If you see the list of stocks up big in last one quarter you will see most of them had big earnings surprises.
• New contracts or orders: In industries where contracting is prime mechanism for selecting suppliers, a news of new contract or series of big contracts is a price mover. In such cases the contract tells you about future profitability. When looking at contract news one must look at size of the contract relative to companies current sales and how quickly the contract will get reflected in earnings. For example when a company with 50 million sales in last quarter wins a new 120 million contract for next quarter that s significant catalyst.
• Rapid Earnings Growth - Earnings growth is one of the most important driver of short term price action as well as long term price action. While sustaining earnings growth in the long run is difficult, in the short run a company with favorable earnings trend has higher probability of going up. The earnings outliers, companies that can grow earnings very rapidly, are obviously rewarded by investors. A rapid sales or revenue growth must also produce profit growth. That combination is ideal. Explosive growth produces , explosive price moves.

• Rapid Revenue Growth: Companies growing rapidly have products or services which are in demand by customers. As long as this kind of growth continues the company is rewarded by market. Companies which grow revenue year over year plus over last quarter are the one to look for. Market many times rewards high revenue growth , even if the company is not profitable.
• Rapid earnings or revenue potential in future: Because market acts as a discounting mechanism a company with future earnings or revenue potential is also rewarded. This is very common in biotechnology and technology sector. In these sector the companies trade based on future growth potential. In most cases , when the actual growth materializes, the stock may have topped.

For best results we must identify such companies in their early stages of such rapid earnings or revenue acceleration. The earnings season brings new growth to the attention of the market. A significant earnings acceleration , which is not on the radar of most investor results in out sized reaction. There is a structural edge in such breakouts.

Once the price trend gets established in such stocks, it attracts the momentum based traders. This drives the price trend further till at some stage the buying exhausts itself. A combination of earnings based and momentum based strategies is one of the ways to exploit this recurring market phenomenon.

Top momentum stocks

Stocks ranked top 2% by momentum and that are within 8% of recent high:

AM

BCRX

BIOS

CAR

CHLN: existing position

COT

CRAY

DTG

FIT

FUQI

HITK: existing position

KIRK

LAD

LZB

MLNK

OSK:existing position

PARD

PLAB

RINO

SAH

SEH

SMP

SMRT

STEC: existing position

SVNT

TC

TCK

TEN

TNL

TRGT

TRW

TWB

VCI

VNDA

WATG:existing position

XRTX

These are the leading stocks currently.

Market Monitor

	Market Monitor		Market resumes its rally after a pullback. Earnings season currently on. Focus is on Episodic Pivots
Type	Indicator	Value	Comments
Daily	# of Stocks Up >4% on high volume	121	A mild negative breadth day.
Daily	# of stocks down >4% on high volume	142	After multi day gains in index a pullback might be logical.
Primary	# of stocks up >25% in a quarter	1892	Stocks have held up well during correction. So many first phase leaders will likely have second leg of the move.
Primary	# of stocks down >25% in a quarter	538
Secondary	#of stocks up >50% in a month	9
Secondary	#of stocks down >50% in a month	4
Secondary	#of stocks up >25% in a month	85
Secondary	#of stocks down >25% in a month	23
Primary fast	MM 34/13 +	1909
Primary Fast	MM 34/13 -	1053

Top ten stock by Dollar Volume up 4% plus on high volume	ibm yhoo aig cit mat hnt kbh bcrx tpx aos
Top ten stocks by Dollar Volume down 4% plus on high volume	ge bbt reg fitb fhn kim rf eqr hban mi Regional banks is the theme here

• Many stocks have held up well during the correction , some of them had breakout in last couple of days.
• The Chinese stocks like PWRD, CYOU, NTES, BIDU, ASIA, SOHU, etc. were the first phase leaders , some of them had sharp reversals, but many look still holding on to bulk of their gains and are likely to see breakouts soon.

STEC: surprises make a chart

Look for a structural edge

World stock markets	36 Trillion
Overall US Stock market	18 Trillion
Mutual funds US	13 Trillion
Pension funds US	15 Trillion
Hedge funds US	1-2 Trillion

The strategies of the big players influence the market. Understanding what strategies they use and why is the key to finding a structural edge in the market for small speculators like us.

What strategies hedge funds use:

• Dedicated Short Bias
  
• Emerging Markets
  
• Equity Market Neutral
  
• Event Driven
  
• Distressed
  
• Arbitrage
  
• Global Macro
  
• Long/Short Equity
  
• Managed Futures
• High Frequency Trading

What strategies mutual funds use

1. Value
2. Growth

More money is allocated to value than growth. If you study mutual fund industry, most start out as growth funds but once size of assets increases they become value funds.

What Strategies pension funds use:

• value
• growth
• fixed income
• commodities

One should look for a structural edge in the market and not ephemeral edge. There are many traders who spend considerable time developing ephemeral edge. Structural edges are enduring and rooted in the behavior of the market and large players in the market.

Why do conspiracy theories work

Why did the market go up yesterday?

Oh it was the PPT at work

Why you should not trust the employment figure or inflation figure?

Oh the govt manipulates them

What causes bubbles in market?

Goldman Sachs

Why are gold prices down?

Oh the govt manipulates the gold prices.

If you look around in the market , you will see such conspiracy theories all over the place. We have become a nation of conspiracy theorists. Everything is a conspiracy according to some people.

Where do such conspiracy theories come from and why do they work? Understanding them can make you a better trader.

• There are leaders and followers
• There are good leaders and there are bad leaders
• Every leader has a agenda.
• Some leaders have positive agenda some have negative agenda.
• Leadership is about :
  • ability to "attract" followers
  • make followers "believe" in certain things
  • prevent other leaders from "poaching" followers
  • take followers from point A to B "willingly"
• Mental model manipulation is at the heart of successful leadership
• Autocratic leaders control,followers by use of force. But that is coercive leadership model where the followers are not "willingly" following "the great leader".
• Leaders manipulate followers mind using communication.
• Positive leaders change followers mind using rational and positive messages.
• Negative leaders change followers mind using conspiracies and irrational arguments.
• Behind every conspiracy theory are leaders who are trying to get "willing" followers.
• Most people are followers.
• There are very few leaders in the world, but there are vast number of followers.
• Big and consequential changes happen in the world, or in a company, or in your life if you come across good leaders.
• If you study history, you would see that every big change in the world was bought about by a good leader.
• There are many failed leaders in the world. In the absence of good leaders they attract followers using mental manipulation.
• Conspiracy theories are very good way to attract followers.
• Conspiracy theories can explain in simple terms things to followers.
• Powerless followers love conspiracy theory because it allows them to rationalise their failure and externalise the problem. They create a complex web of conspiracy theories to explain away everything. If you try and expose their logic with rational thinking and arguments, they will throw more nuanced conspiracy theories.
• The conspiracy theory proponents have their own rules of economics not proven by any existing economic theories. They are pseudo economists.
• Religions, cults, political parties, labor leaders, media commentators and so many other people with access to media use conspiracy theories very skillfully to "attract" and "retain " followers. Scratch deeper when you hear somebody propogating a conspiracy theory and you will find a leader trying to influence you. That person has some motive for it.
• If you want to understand how to manipulate minds study either religion or advertising.
• Both the disciplines use simple communication tricks to " influence" and "change" your mind. They do it with velvet gloves and leave no finger prints behind.
• If you do not control your mind, there are several outsiders waiting to influence it.

Why is understanding how conspiracy theories work is important to trading, because you trade what you believe. People trade their beliefs, not necessarily what will make them most money. Classic example of that are gold bugs and perma bears.

Look for linear trends when swing trading

When swing trading look for linear trends. Buying pullbacks in linear trends is low risk trade. One of the easy way to find linear trends is to use a Fractal efficiency scan in Telechart.

(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))

What exactly does this scan does. It is a efficiency ratio.

It divided net price movement (C - C20) (or in other words how much a stock moved in points term in 20 days) by the total price movement in 20 days. (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))

Let us say a stock is trading at 10 and in 20 days it goes to 30. So it had 20 points move. Now this 20 point move is highly efficient if this stock goes up exactly by 1 dollar every day. In other words it will have very smooth trend.

Now supposing this same stock makes the 20 point move with lot of volatility. It goes up 1 dollar one day, goes down 2 dollar next day goes up 50 cents next, goes up 3 dollar next and so on. Then what will happen in the denominator part of equation (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))

you will get values higher than 20. Greater the value on denominator more volatile is the stocks move.

So the fractal efficiency ratio is ratio of price direction to volatility. From risk management perspective we want a stock with high fractal efficiency as it will likely move smoothly without stopping us out.

What causes the fractal efficiency to be higher is aggressive buyers. If buyers are aggressive in a stock, it seldom has big pullbacks. Such stocks are being aggressively accumulated by buyers and hence are better. That is the basic hypothesis for using it.

The Fractal Efficiency Ratio is described in detail inNew 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 downtrend.

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 IBD 100 or 200 to swing trade, 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 smoother trends continue to be smooth and volatile trends continue to be volatile.

How I use Investor's Business Daily to find profitable ideas

Investors Business Daily is a newspaper dedicated to growth and momentum investing. Everyday I prepare 1 page note from IBD. 99% of my big winners have come from my IBD notes.

Besides IBD newspaper subscription I have a subscription to their other services:

• Dailygraphs
• Industry Groups
• Screen Center

Here is what I look at everyday.

• In screen center there is a scan called Sector Leaders. I daily put those stocks in a watchlist in Telechart. These are stocks with same characters as past 500 best movers in the market. IBD follows a historical precedent analysis as their basic methodology. They have studied 500 stocks which have made best move in a market and found characteristics of them. The theory is to scan for such stocks in current market.
• 60 top stocks from 20 groups. Everyday I create a list of top 3 stocks ranked by composite rating in top 20 groups and put it in Telechart watchlist. Sector is very important in stock selection. Biggest winners tend to be from top 20 to 25 sectors. Sector moves persist for long time. Especially growth sectors stay in top 20-30 for months in the 2003 to 2007 bull market. Steel, Energy, Fertilizer, Metal, Casino, shipping sectors were in top 40 sector for years during the last bull market. Most big winners in that market came from those sectors.
• Big Picture: This is must read. It is one of the best analysis of overall market action and growth stocks and sectors. I always look at Leaders up and Down which is in a box in Big Picture column.
• Stocks featured on first page. Pay close attention to them. The real big winners , the kind which make 400 to 1000% move will be featured often on these pages. Many times months before they make big move. For example both ARO and BKE have appeared on front page for many months . They are two of the best retail stocks currently from growth perspective. Both retailers have had good growth in recession. These are real growth stock which have something that customers like currently.
• A2 . This page is where you will find EP ideas. It highlights major earnings and other news and stocks with catalyst. This is where you will find "After the Close" where last night earnings are highlighted.
• Leaders and Success: mostly motivational stuff.
• Internet and Technology. IBD studies show big winers come from drugs and medical, computer, communication, software, specialty retail, and leisure and entertainment. So this page covers those industries.
• Your Weekly review: This appears every Friday. It looks at stock with 85 plus EPS and RS rating and which are within 15% of 52 week high. Each stock box if you read carefully has IBD calculated buy point. That is why you will see a sudden pop in prices once those by points are crossed. Black bordered stock are at buy point according to ID buying criteria. I do not use IBD buying criteria. I only look at stocks with 100 plus EPS in this list.
• IBD 100 list appears on Monday. It has vast following so a breakout on such stocks can be good short term trades. In recent 3-4 months this list has not performed well. It has been under performing the market. Otherwise it beats market by wide margin. There are wild theories about how IBD adds stock to it and why stock drop after they make this list. As long as people believe in that it s good. The list is simply a algorithm which picks stocks which match certain historic winners profile. There is also mini industry of people who game addition to the list by predicting which stock will make it to the list. All these games are for small gain. What you have to understand is the list is computer generated list , it is not a "timing " list. stocks on the list match characteristic of past winners but they may not be at buyable levels. Again I mostly look at 95 plus EPS stock in this or those with 100% plus EPS. I have done a big piece on how at the end of the day which stock will make it to the list is based on price momentum and so one can just use a MDT method and not waste time on these if you are looking for 20% profit trade.
• IBD 200 list appears on Thursday. It takes top 200 stocks ranked by composite rating. It does not use price cut off like IBD 100 does. Again this is momentum based list. You can use MDT scan and get similar results. See my article "why you should not trade ibd 100 and 200" for detail about the reason.
• The New America: see the small box on top of this page. It will highlight " leading new Issues" The 10 IPO's featured on this page during a bull market tend to be the cream of the IPO universe. I have found several 50% plus opportunities in this list. Again I maintain a watchlist of these. In recent months there wee very few IPO's. But IPO's are easiest to trade and you can make 20 to 25% in IPO's very easily if you keep a eye on them. The companies featured on this page are growth companies mostly. They are either large cap growth or small cap growth. A company will appear here if it has recent earnings acceleration. or sector has moved higher, or funds increase position. Stock which appear here tend to make big move not necessarily immediately but make moves 5-6 month after their appearance. What I do is focus on interesting stories from these. I look for stocks with 40% plus earnings only out of these. Once I read the article, if I think the stock is good story, I put a note on the Telchart chart saying New America. So that when the stock appears in scan I know about it. Similarly I pt eps figures on stock with 100 plus earnings and sales. Out of this page stories only few are worth following and I track only those stocks.
• Mutual Funds Page: I always research the Top New Buys. Again I am interested only in stock with 40% plus EPS growth or 50% plus sales growth. I also look at their top 10 holding for stock with 40 plus EPS.
• Largest positions of funds in value and growth index: in this 20 stock list I look for growth stock with 40% plus earnings and 100% plus preferably. These are the kind of stocks where I don't mind putting 10% on EP.
• Investors Corner: Always a good read.
• IBD industry ranking. I have subscription to Industry Group product, so I do not use this page.
• IBD Industry Themes will give you insight in to why certain sector is going up and whether it is sustainable move.
• 2500 leading stocks. Pay attention to stocks at top of each sector. GMCR, QSII, VPRT, HMSY, TNDM are currently highlighted stocks.
• NYSE and Nasadq stocks in the news. These are stock forming bases and approaching IBD buy point. I always look at this for , you guessed it right, 40 plus EPS stock.
• Base Reader and International leaders is good source of some ideas.
• IBD's 20 rules for investment success. I know eah of them , word for word. I can tel them even in my sleep. Best set of rules for growth investors.
• Stock Do's and Don't. Most people get in to trouble on IBD stock because they do not understand where to buy these stocks. Simple rule well explained:
  • do not buy a stock up 5% or more from sound base
  • buy in proper buy area
  • buy when stocks first time hits 10 day ma
  • cut losses at 8%
  • learn when to take 20% or100% profit
  • investigate before you buy
• Company Earnings Report: I look for stocks with 100% eps growth.
• Total time required to do this everyday around 30 to 40 minutes.
• End result everyday a one page summary. Which I do at night and look at again in the morning.
• Objective: To find stock likely to make 50 to 20% move in a quarter or less time frame.


Here is a summary for today and yesterday:



Section	Key Points	Action
The Big Picture	Bank Stocks lead stocks higher Volume was higher All indexes up 2% plus on higher volume. IBD100 lagged leaders up: nflx ll dcp stec snx sqm rnow vit leaders down: ady din cprt
To the point	ININ: 22-26 against 14 guidance. 12 million float. 94 eps rating. Sector rank 26. 38 to 40 funds increase. tleo ebix rnow in same sector.	watch
Screen of the day	EPS beater by wide margin cce din cri safm tisco eqix eclp vrx mpwr tdc tecd ej cpa im pfcb ammd irm sjm mvl	telechart
Leading New Issues	cyou bpi open rst mjn dgw lope swi
The New America	BWY: Packaging company lifts earnings by cutting cost Not a growth story
IBD Big Cap 20	negative action helps some stocks form base I look for 100% plus EPS stocks in this. None in this list.
Largest Positions of funds in growth index	wind swn msft jpm ilmn brcm slab ibm pm fslr axys pcp aapl epd wfc lkqx esrx wmt rsg cpts CPTS is new in the list Female contraceptive company 72 eps rating 64 to 83 funds increase in a year In a bull market this list tends to have mostly growth stocks. Defensive growth is dominating currently. If WMT is growth stock then I am Brad Pitt !	watcvh cpts
The investor's corner	Most buy points occur below new high Buy near high. Within 15% of high. Volume should be up at least 40% compared to average volume (50 days in IBD case) buy near 50 day ma on pullback. second buy point.
IBD's 20 rules	Study in detail.
2500 leading stocks	look at highlighted stocks at top fuqi gmcr lft hmsy vprt bidu syna tndm list will be similar to Sector Leaders list in Screen Center These stocks according to IBD match previous big winners profile.	telechart
The Base Reader	WMS forming first base.



For yesterday (monday Paper)

Section	Key Notes	Action
The Big Picture	Low volume day Market under pressure
To the point	ECRI sees US economy recovering.
Internet and Technology	2010 Shanghai World Fair Will attract 70 million visitors Will benefit hotel industry CTRP LONG HMIN
Leading New Issues	cyou bpi rst open dgw mjn swi lope	Telechart
The New America	MDAS : Med Assets Software and consulting to hospital Purchasing to hospital Lowers cost for hospitals 99 composite rating 27 million float 0/34 eps/sales growth 53 to 98 fund growth in a year. had a ep in june Not something I would get very excited about. At best a decent growth story. Sector and funds buying tend to drive IBD selection of The New America companies to profile. Not all profiled companies are worth getting excited about
Managing for Success	CEO ranking system predicts future market moves The IBD 100 tracks % of stock owned by management.
Industry Snapshot	Semi see new sign of hope Sector ranked no 5 We currently hold no1 ranked stock in the sector for months: STEC (it is up more than 100% from entry) Other sector stocks: TSRA ARMH	TSRA
Largest Positions of funds in growth Index	WIND SLAB MSFT PM FSLR BRCM ESRX IBM JPM CBST AXYS SWN AAPL EPD ILMN LKQX PCP WMT RSG WFC	Telechart
IBD 100	Black Bordered Stock GMCR TLEO CMG MFE CTRN: Black focused retailer. 50/1. 30% plus eps growth for retailers is very good. If you see the performance of IBD 100 to S&P from 5/2/03 to yesterday S&P -5.3% IBD100 57.3 A method like EP allows you to get in to some of the big movers out of IBD100 right at beginning of their big move. 5 to 10 stock out of IBD100 tend to dictate the index performance They mostly tend to be one with 100% plus EPS growth and high margin and roe If you search the Worden and IBD forum you will see someone has developed a method to further reduce the IBD100 to just 4-5 stocks and then hold a portfolio of them.	watch gmcr teleo ctrn cmg
IBD Industry Themes	AMGN: a potential blockbuster denosumab 7 billion potential 1 billion float. I find it hard to get excited about such huge float companies.
2500 leading stocks	FUQI GMCR LFT HMSY VPRT BIDU SYNA
Sector Leaders Screen	gmcr lft pwrd fuqi snda bidu cyou asia athn alxn China is the theme	Telechart
Industry Sectors	Top 3 stocks from top 20 sectors	Telechart
Custom Screen Wizard Paid Service	100EPS+100Sales Scan 96composite+40eps+25 sales scan Long term EPS winners Scan Top 20 sector 96+ composite scan Top 40 sector 40 EPS+25sales Scan	telechart

• It takes me 30 to 40 minutes to do this .
• Earlier it used to take 15 to 20 mintes.
• If you do this daily you are on top of every growth stock opportunity in the market.

How to use Guppy MMA to gauge market strength

Daryl Guppy uses a set of two EMA's to guage a trend and strength of trend. MMA stands for Multiple Moving Averages.

Short Term EMA

3 5 8 10 12 15

Long Term EMA

30 35 40 45 50 60

Using that you can create two scans to find stocks in confirmed uptrend or downtrend

Guppy MMA uptrend scan

XAVGC3 > XAVGC30 AND XAVGC5 > XAVGC30 AND XAVGC7 > XAVGC30 AND XAVGC10 > XAVGC30 AND XAVGC12 > XAVGC30 AND XAVGC15 > XAVGC30 AND XAVGC3 > XAVGC35 AND XAVGC5 > XAVGC35 AND XAVGC7 > XAVGC35 AND XAVGC10 > XAVGC35 AND XAVGC12 > XAVGC35 AND XAVGC15 > XAVGC35 AND XAVGC3 > XAVGC40 AND XAVGC5 > XAVGC40 AND XAVGC7 > XAVGC40 AND XAVGC10 > XAVGC40 AND XAVGC12 > XAVGC40 AND XAVGC15 > XAVGC40 AND XAVGC3 > XAVGC45 AND XAVGC5 > XAVGC45 AND XAVGC7 > XAVGC45 AND XAVGC10 > XAVGC45 AND XAVGC12 > XAVGC45 AND XAVGC15 > XAVGC45 AND XAVGC3 > XAVGC50 AND XAVGC5 > XAVGC50 AND XAVGC7 > XAVGC50 AND XAVGC10 > XAVGC50 AND XAVGC12 > XAVGC50 AND XAVGC15 > XAVGC50 AND XAVGC3 > XAVGC60 AND XAVGC5 > XAVGC60 AND XAVGC7 > XAVGC60 AND XAVGC10 > XAVGC60 AND XAVGC12 > XAVGC60 AND XAVGC15 > XAVGC60

Guppy MMA Downtrend Scan

You can create a similar scan for downtrend.

How can you use these scans to find market health? Look at % of stocks in uptrend and % of stocks in downtrend.

As of yesterday 30.35% of stocks in Worden universe were in uptrend.

As of yesterday 34.37% of stocks were in downtrend.

On 12 the June 71.33% of stocks were in uptrend and only 10.84% in downtrend. In last one month there has been a sharp correction which is eflected in those breadth numbers.

What do I monitor on daily basis

	Daily Monitor
1	In Play
2	10 best and worst industries
3	Barchart Sectors
4	China Analyst
5	Highshortinterest
6	Tickerspy
7	Earningswhisper
8	Realclearmarkets
9	Finviz News

How to find stocks with earnings breakout in last one month

When companies surprise the market with good earnings, there is a instant reaction and most of these stocks will have a big move on earnings day. Many of these stocks pullback after such big move and offer a pullback buy opportunity.

If you want to find such stocks in Telechart, you can use the scan below:

(( 100 * (C1 - C2) / C2) >= 8 AND V1 > 3000 AND (100 * V1 / AVGV100.1) >= 300) OR (( 100 * (C2 - C3) / C3) >= 8 AND V2 > 3000 AND (100 * V2 / AVGV100.2) >= 300) OR (( 100 * (C3 - C4) / C4) >= 8 AND V3 > 3000 AND (100 * V3 / AVGV100.3) >= 300) OR (( 100 * (C4 - C5) / C5) >= 8 AND V4 > 3000 AND (100 * V4 / AVGV100.4) >= 300) OR (( 100 * (C5 - C6) / C6) >= 8 AND V5 > 3000 AND (100 * V5 / AVGV100.5) >= 300) OR (( 100 * (C6 - C7) / C7) >= 8 AND V6 > 3000 AND (100 * V6 / AVGV100.6) >= 300) OR (( 100 * (C7 - C8) / C8) >= 8 AND V7 > 3000 AND (100 * V7 / AVGV100.7) >= 300) OR (( 100 * (C8 - C9) / C9) >= 8 AND V8 > 3000 AND (100 * V8 / AVGV100.8) >= 300) OR (( 100 * (C9 - C10) / C10) >= 8 AND V9 > 3000 AND (100 * V9 / AVGV100.9) >= 300) OR (( 100 * (C10 - C11) / C11) >= 8 AND V10 > 3000 AND (100 * V10 / AVGV100.10) >= 300) OR (( 100 * (C11 - C12) / C12) >= 8 AND V11 > 3000 AND (100 * V11 / AVGV100.11) >= 300) OR (( 100 * (C12 - C13) / C13) >= 8 AND V12 > 3000 AND (100 * V12 / AVGV100.12) >= 300) OR (( 100 * (C13 - C14) / C14) >= 8 AND V13 > 3000 AND (100 * V13 / AVGV100.13) >= 300) OR (( 100 * (C14 - C15) / C15) >= 8 AND V14 > 3000 AND (100 * V14 / AVGV100.14) >= 300) OR (( 100 * (C15 - C16) / C16) >= 8 AND V15 > 3000 AND (100 * V15 / AVGV100.15) >= 300) OR (( 100 * (C16 - C17) / C17) >= 8 AND V16 > 3000 AND (100 * V16 / AVGV100.16) >= 300) OR (( 100 * (C17 - C18) / C18) >= 8 AND V17 > 3000 AND (100 * V17 / AVGV100.17) >= 300) OR (( 100 * (C18 - C19) / C19) >= 8 AND V18 > 3000 AND (100 * V18 / AVGV100.18) >= 300) OR (( 100 * (C19 - C20) / C20) >= 8 AND V19 > 3000 AND (100 * V19 / AVGV100.19) >= 300) OR (( 100 * (C20 - C21) / C21) >= 8 AND V20 > 3000 AND (100 * V20 / AVGV100.20) >= 300) OR (( 100 * (C21 - C22) / C22) >= 8 AND V21 > 3000 AND (100 * V21 / AVGV100.21) >= 300) OR (( 100 * (C22 - C23) / C23) >= 8 AND V22 > 3000 AND (100 * V22 / AVGV100.22) >= 300) OR (( 100 * (C23 - C24) / C24) >= 8 AND V23 > 3000 AND (100 * V23 / AVGV100.23) >= 300) OR (( 100 * (C24 - C25) / C25) >= 8 AND V24 > 3000 AND (100 * V24 / AVGV100.24) >= 300) OR (( 100 * (C25 - C26) / C26) >= 8 AND V25 > 3000 AND (100 * V25 / AVGV100.25) >= 300) OR (( 100 * (C26 - C27) / C27) >= 8 AND V26 > 3000 AND (100 * V26 / AVGV100.26) >= 300) OR (( 100 * (C27 - C28) / C28) >= 8 AND V27 > 3000 AND (100 * V27 / AVGV100.27) >= 300) OR (( 100 * (C28 - C29) / C29) >= 8 AND V28 > 3000 AND (100 * V28 / AVGV100.28) >= 300) OR (( 100 * (C29 - C30) / C30) >= 8 AND V29 > 3000 AND (100 * V29 / AVGV100.29) >= 300) OR (( 100 * (C30 - C31) / C31) >= 8 AND V30 > 3000 AND (100 * V30 / AVGV100.30) >= 300)

To narrow down the number of stocks in the scan further you can use a System Criteria like Volume Dollars 1 day and set it above 5 million or more.

Earnings season is when new growth stocks come to the attention of the market

• Everyone is watching head and shoulder formation (even though classic definition of head and shoulder has volume component to it) and so people are expecting more downside.
• There is steady increase in bearish news and the usual suspects who declare market is going to fall 50% plus every year are all over the place peddling doomsday scenarios.
• That is one way to look at the market. There is another way to look at the market also.
• The rally from March 10th to June was a very swift move and now is undergoing a correction.
• The first phase of the rally was lead by junk and oversold stocks. The primary driver of the rally was the realisation that things were not as bad as the market was pricing in.
• The panic phase of the market had driven many companies to implied "bankruptcy level price" , that fear was largely contained by coordinated worldwide stimulus package.
• After a big bounce market is having a pullback. The pullback can last for months.
• Second phase of the market will have growth stocks leading the market. That is typically the historical pattern.
• Bull markets are about growth stocks. Earnings season is when new growth stocks come to the attention of the market. So in this earnings season we will again have some completely new, ignored, neglected, unheard of stocks coming out with surprisingly good earnings and market will react to them if there is real surprise. That is the way structurally market behaves and has behaved for 100 year.

How to profit from earnings season

Ball and Brown in 1968 first documented the PEAD anomaly. As its name suggests, the PEAD is the tendency of stocks that beat earnings expectations to continue to drift upwards for about two months after the announcement, or likewise for stocks that miss earnings to continue to drift downwards. The market does not immediately fully incorporate the information contained in the earnings announcement in to the stock price.

Earnings are the most important criteria affecting stock prices both in short term as well as in the long term. Investors want to invest in companies that are growing their earnings or are likely to grow their earnings in future. Wall Street is obsessed with earnings and rightfully so. So any earnings related news has a potential to move stocks in either direction. Studies after studies have shown that trading strategies based on post earnings announcement drift (PEAD) has consistently generated abnormal returns.

So when a company announces earnings and it is "surprisingly" good or bad it leads to a rally lasting 2 to 3 months. Earnings EP are easiest to understand and act on. The market reaction tells you whether this earnings was :surprise" and "significant". The stock will immediately go up post such announcement and the move will be supported by high volume. You can create a scan captures such breakout. It should basically looks for a out-sized price move on high volume post earnings. One of the simple way to create a scan like this in Telechart is:

((C - C1) >= 5 AND V > 10000 AND C >= 62.50 AND V > V1) OR ((( 100 * (C - C1) / C1) >= 8 AND V > 3000 AND (100 * V / AVGV100) >= 300) AND C > 1)

So a stock appearing in such a scan has a volume surge and the price surge. We then investigate what caused this price and volume surge or what was "the surprise" that caused such a big move and what is "the nature" of such surprise. Is this information likely to lead to big move. For that we look at :

• Context of the earnings. Is this a first major earnings acceleration.
• What caused this acceleration. Is it one time or likely to persist.
• Does this earnings trend represent a structural change in the industry or the position of this company.
• Is this surprise reflected in current price level.

Market reaction tells you a lot about the likelihood of future prospect of that stock. If volume is very high, you can assume move has legs. You will see that most earnings breakouts which go on to make really big
(like say 100% plus kind of) moves in next 1 to2 months post an earnings will have huge volume surge, typically of 10 times or more compared to average volume. The volume on earnings day might be the highest volume in the history of the stock or multi year high volume.

In earnings breakouts there are two kinds of situations:

1. Stock with no analyst coverage
2. Stock with analyst coverage

Stocks with no analyst coverage are typically smaller companies or companies which are out of favor. On such stocks a significant earnings acceleration compared to last year same quarter as well as quarter over quarter is what to look for. I like to look for companies which had earnings acceleration of 100% plus in such cases. Many of the current market leaders at some stage in their price life cycle such companies. They were neglected small companies which market noticed when they announced big earnings acceleration.

Stocks with analyst earnings coverage are widely followed stocks on the street. Such companies in most cases are well established companies. They have predictable earnings most of the time and analyst keep a very close eye on such companies and constantly adjust their earnings target. But once in a while such companies manage to significantly surprise the market and that results in a earnings breakout. Earnings breakout on companies with significant analyst coverage do not do as well as the first kinds. Genuine analyst surprises are rare and in many cases company pre announce and manage earnings expectations to avoid significant surprise. Established companies also often time secondaries and other capital raising events to time with such surprises and so often you find the EP on such stocks tend to have a pullback.

Earnings Breakouts and low float

This is an ideal combination. In such situation you can have really explosive move. Float below 25 million is ideal for this. The best moves happen on float below 10 million. Earnings breakouts on companies with 100 million plus float tend to have pullbacks. Earnings breakout on stock with 500 million plus float is something which I not really very enthusiastic about unless they are trading near their historic lows or are in single digits.

Guideline for finding good earnings breakouts:

• 100% plus EPS+100% plus sales+ first or second earnings acceleration+float below 25 million+prior neglect+no analyst coverage. Best combination
• 40% plus EPS+ IPO of less than a year. Second best combination.
• 100% plus earnings surprise+below 100 million float+ one month price growth below 5%+first earnings surprise. Third best combination.
• Retailer+price within 25% of 52 week low+earnings surprise of 25% plus+float below 100 million. Fourth best combination.

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The earnings season starts

This week will officially kick off the earnings season. Around 18 companies are confirmed to release earnings this week. Alcoa , a component of S&P 500 will be the company in focus as it kicks off earnings season on Wednesday.

Other companies expected to release earnings this week are:

ISCA KED SHLM AA FDO NUHC PBG RODM RT WDFC COMS CAMP FCSX LWSN SGR TTO CREL INFY ZEP.

So far there have not been many earnings warnings. Which indicates there will be lot of earnings surprises. Earnings season offers number of profit opportunities as market reacts to earnings news and in many cases new stocks get noticed during the earnings season due to their earnings.

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Light volume day likely

Market has been unable to make much progress in weeks now.
It is trading in a narrow range. While IBD kind stocks are having b/0, the follow through is poor. We will likely have very low volume day today . So it is better to start holiday early.

The culture of conspiracy

There is always a bull market in conspiracies.Some of the popular investment blogs are active peddlers of conspiracy theories. In fact if you want to quickly become popular in trading blogosphere you should peddle conspiracies.

The conspiracy theories are well known:

• Govt manipulates data
• Govt creates bubble
• Goldman Sachs rules the market
• Plunge Protection Team manipulates the market
• Gold is artificially kept down

If you are one of the conspiracy theorist, your objective anyway is not to trade profitably. You are in the market for getting great satisfaction out of peddling a good conspiracy theories. The emotional satisfaction you get out of that and the nutcase followers you gain is a reward in itself and your primary motivation.

But if you are not interested in conspiracy theory and in profiting from the market then you should understand the dynamics behind conspiracy culture. The Spiked has a interesting article on this culture of conspiracy.

Conspiratorial culture communicates the idea that nothing just happens by accident: somebody is at fault. Fantasies about international terrorist networks, paedophile rings, corporate conspiracies to fool people about an impending environmental disaster and neo-conservative cabals compete with one another to gain public attention. Virtually every misdeed, it seems, is the outcome of a carefully worked-out plot. Conspiratorial culture helps fuel suspicion and mistrust towards public life. It displaces critical engagement with society in favour of a destructive search for the hidden agenda. It distracts from any clarification of genuine differences and helps turn public life into a continuous crusade to unmask the perpetrators of malevolent deeds. The media fuel this attitude by frequently arguing that what is important is not what public figures say but what theirreal agenda is. The media incite the public to look for hidden motives; that normalisation of suspicion and mistrust is the key accomplishment of today’s conspiratorial culture.

The rise of conspiratorial thinking expresses the loss of causality and meaning in the contemporary world. History demonstrates that nothing is more frightening than when a community lacks a system of meaning through which it can understand the problems it confronts. In such circumstances, people feel powerless and confused and are sometimes drawn towards a simplistic version of events where everything is black and white or good and evil. What is truly disturbing about the contemporary era is that it is not only the frightened and dispossessed who have internalised this cultural narrative, but also significant sections of mainstream society. Who needs The Protocols or other elaborate conspiracy theories when contemporary culture continually incites people to fear invisible forces? What is needed is not so much the debunking of these fantasies, but the elaboration of positive, future-oriented ideals that help people to understand things and take control of their lives. It is all too easy to condemn the simplistic meanderings of marginalised sects; it is far more difficult to question mainstream prejudices about hidden agendas and to overcome our own predilection to gain meaning through blaming.

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