Everyone is expecting a correction !!!

• The story was more or less same on Friday.
• A holding pattern is developing.
• Everyone I talk to is expecting a correction.
• Which itself may be contrary indicator.
• If sell off develops I will quickly take evasive action and close many positions.
• # of stocks down>25% in a quarter tells you the story in this market.
• For a week it is in narrow range between 300 to 260.
• When it starts approaching 200 just enough selling happens to keep it in the range.
• When it goes above 300, just enough buying happens to keep it in range.
• The daily 4% breakouts have settled down below 300.
• There is a steady sideways churn going on.
• I am as of now just going by individual stock action and catalyst.
• As of now I am finding lot more bullish set ups than I can handle.
• But I am ready to trim positions aggressively if selling develops.
• Month end tend to be bullish, so let us see if real selling actually shows up. It will come in last two days or so.
• At this stage my primary focus is on three things:
  • Episodic Pivots on stocks with explosive earnings
  • Top 20 Sector stocks (for hit and run)
  • Modified Double Trouble (for hit and run)

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Market has had a very shallow correction.
Type	Indicator	Value	Comments
Daily	# of stocks up >4% on high volume	142	15 stocks with 100 million plus dollar volume.(M$V) The new leadership keeps emerging. If you keep a daily eye on the stocks with 100 million plus dollar volume having 4% plus b/o you can become good at spotting where money is flowing. Now if you look at the 15 stocks with 100 M$V on Friday you will clearly notice money flowing in to technology sector. intc mrvl mu amd qlgc isil are all technology stocks. Yesterday you had big companies like dell and stx attracting buy interest. The second sector theme that is clearly emerging in last one week is retail.
Daily	# of stocks down>4% on high volume	75	No major selling. The dollar volume 100 million plus b/o has one stock today GT. If market turns this is where you would notice 100 M$V stock dominating the action. As of now the large stocks are in sideways pattern.
Primary	# of stocks up >25% in a quarter	2003	I always look at the top 25 to 30 stocks in this list sorted by dollar volume. That tells you whether such large stocks are showing topping formation or continuation patterns. On weekends or on days when I have time I look at all 100 M$V stocks in this list. If you see this scan output today you will see that there are 132 stocks with 100 M$V When the market rolls over the big stock start rolling over. As of now you see few signs of that because there has been no serious selling in last few weeks.
Primary	# of stocks down>25% in a quarter	271	260 to 300 is the range on this for a week or so. There are only 5 M$V stocks in this scan CIT FSLR DRYS ATI S
Secondary	# of stocks up> 50% in a month	21	In this market this number at around 100 level has been when froth has shown up. So at 20 it is still comparatively benign for this market.
Secondary	# of stocks down>50% in a month	1
Secondary	# of stocks up>25% in a month	154
Secondary	# of stocks down>25% in a month	23	No edge on short side as of now, for those attempting it .
Primary fast	# of stocks up>13% in 34 days	2352
Primary fast	# of stocks down>13% in 34 days	570
MMA+	% of stocks in confirmed uptrend	69	This is gain range bound. In this scan also I look at top 30 to 100 stock by 100M$V
MMA-	% of stocks in confirmed downtrend	13	16 stocks in this scan have 100 M$V. When market rolls over or corrects such stocks can make good short candidates. Weak stocks become weaker.
10 day cumulative breadth ratio	#of stocks up> 4% in last 10 days/ #of stocks down>4% in last 10 days	1.48	A reading of below 0.5 on this will confirm bearish trend.

What drives my trade selection

Posted yesterday on Members Site explaining the reason behind buying RTI in the morning.

---------------------------------------

What drives my trade selection

Posted by: easyguru, on Thursday, August 27, 2009 13:36 EST

The only thing I am focused on in the morning is Episodic Pivots. Based on my past experience I know 4-5 good EP can make your year if you bet sufficiently big on them. So from early morning I have my IB scanner on. I might be doing other things but I have one eye on the scanner. Till 11 Am only thing I focus on is EP. I don't look at my emails, or work on other things but single minded focus on finding that good trade which can make a difference to your account. The stocks showing up on scanner, I keep immediately researching on Dailygraphs or Moneycentral or Google .

Today morning I saw BA early in the scan, so I immediately went and read the news on it. BA is a very big stock, it showing up with a gap up is big news. So my mind was working (like that example I highlighted yesterday of earthquake in Turkey, so buy all glass companies stock). So my first reaction was look for BA suppliers. I knew about PCP, BEAV (which is more secondary market because it does retrofitting once plane is bought), RTI. So my immediate reaction was to look at PCP and RTI as possible buy, I was looking at BA showing gains of 7 to 8% . So I knew supplier might make similar move. RTI has 22 million float, so will make bigger move. PCP has 138 million float so will not be big mover.

RTI was a stock which was EP some months ago and I had researched it then (besides that I knew it from previous research as it was one of the big mover in last bull market. It was highlighted in IBD many times). Last time when it EPed it was related to a large plane order by UAUA. I was thinking of buying the stock on pullback so I had written a note on the chart like this.

So I quickly started putting in order and bought it.

Did it meet a EP criteria that time , no. But the idea behind EP is to trade the EP concept (behind every big move there is a big catalyst) and not some Telechart scan. The telechart scan is a tool to trade EP. You don't need it to trade EP if you understand the concept. RTI might meet EP conditions by EOD. That is inconsequential.

The main idea behind EP is that new information starts new trends. Surprisingly new information, if it is not priced in stock currently, leads to big trends. If one can enter right at the beginning of such trend then one can make big money. If you understand and internalise this fact then you will be able to identify potential EP fast without running EP scan.

Market is churning at this level.

• Market is churning at this level.
• Breadth keeps on showing no major selling efforts so far.
• More and more lower quality stocks continue to breakout.
• That typically happens before a correction.
• We are poised for a correction but unless you see a 500 plus down day on 4% plus it will not show up.
• There has been no major buying push and breadth push as indicated by 10 day cumulative breadth ratio.
• So a weak rally has developed.
• So we are in a sideways pattern till something major pushes market in either direction.
• There is lot of sector rotation happening.
• In this earnings season, there have been no major growth stories.
• You can count on your finger the number of growth stories that have emerged from this earnings season.
• Stories like STEC, GMCR, PEGA, FIRE, LCRD, HITK are needed for big gains. Some of these are old stories.
• The stocks with best growth currently are the Chinese stocks, but the Chinese market is having nasty correction and many of the good growth stories have suffered damage .
• The Chinese stocks with potential and still holding on to their gains are PWRD , KONG, CYOU, HMIN, CHDX , CGA, TXIC, FUQI, BIDU, EJ, and VIT. These are the stocks to watch. Once Chinese market turns, these could breakout quickly.
• A stock like PWRD has potential to make a big move. As of now it is showing very good relative linearity, which tends to be a indicator of support from funds.
• From US stocks list a handful of stocks with good earnings and growth characters and with potential for big moves are: STEC, GMCR, NITE, AMSC, MED, VRX, SXCI, PEGA, SCLN, HITK, ARST, TLEO, FIRE, ANEN, LCRD, DDRX,

Pullbacks watchlist for Wednesday

Symbol	Trigger price	Stop
cvgi	5.04	4.60
catm	8.23	7.83
cenx	12	11.24
hzo	7.76	7.31
say	5.59	5.35
hmin	26.48	25.52
vit	14.29	13.74
cray	7.99	7.56
tibx	9.35	8.98
icon	17.85	17.25
tdc	26.83	26.01
tsra	25.99	25.18

Pre Market Movers

• COCO: Earnings breakout
• PLX: FDA fast track designation
• HGSI: Takeover chatter
• WCRX: follow through from yesterday
• BIG: earnings beats street views
• BKC: earnings beat street views
• SOL
• AU
• SAY

Pullbacks watchlist for Tuesday

Symbol	Trigger Price	Stop
catm	8.24	7.80
seh	13.03	12.34
bzh	4.28	3.85
say	5.60	5.30
thc	4.76	4.50
vnda	13.92	13.27
plab	4.85	4.58
caas	8.82	8.37
hitk	14.21	13.28
chdx	14.36	13.60
abax	28.36	27.82
hgrd	5.09	4.90
cksw	7.37	7.03
cray	8.22	7.75
vit	14.40	14.00
tsl	27.10	26.07
mrge	3.89	3.67
tibx	9.33	8.93
jdas	20.51	19.54
cvlt	18.80	18.06
tsra	26.64	25.61
ulti	27.60	26.84
icon	17.73	17.12
shoo	32.12	31.62
tdc	26.73	25.92
mant	55.06	53.65
life	46.60	45.76
star	23.94	22.69

Not much selling pressure as of yesterday

Top 25 stock by Dollar Volume up 4% plus on high volume (100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1and c*v>=1000000	fnm fre stec wcrx chic lo amd hgsi bcrx mtl Only 10 stocks had 100 million plus dollar volume on 4% breakout day
Top 25 stocks by Dollar Volume down 4% plus on high volume ( 100 * (C - C1) / C1) <= ( - 4) AND V >= 1000 AND V > V1 and c*v>=1000000	f pnc bby hban tol gt 6 stocks had 100 million plus dollar volume. Many look like pullbacks

• This tells you where big money is flowing.
• If you do it daily, you will quickly notice overall market direction change.
• At the beginning of a move large stocks start breaking out.
• At the end of a move, you will see larger stocks breaking down.
• Large stock=100 million plus dollar volume
• Yesterday did not show much selling pressure as shown by this scan.

Related Post

What is dollar volume and why it is important

Early morning breakouts

• wcrx
• mela
• sbgi
• npd
• tleo
• amd
• sva
• cpf
• stec
• feed
• bz
• cal

Pullback watchlist

Symbol	Entry Trigger Price	Stop	Comments
nvax	4.92	4.68
jazz	6.57	6.20
bcrx	10.34	9.98
seh	13.05	12.33
acad	6.06	5.31
hitk	14.20	13.56
linc	22.75	22.08
ctfo	7.35	6.85
pets	18.16	17.55
vit	14.63	14.00
ssys	14.98	14.59
cnw	45.28	44.26
hnbc	6.15	5.93
hrc	19.77	19.46
mant	55.09	53.88
tho	26.59	26
wibc	9.35	9.02
sdth	6.15	5.89
gt	18.88	17.77

This is a list of pullbacks to watch for today.

AAII Stock Screens last 10 year returns

If you study the top performing screens on the AAII site you would see growth screens dominate.

AAII Stock Screens last 10 year returns

Style	Screen	10 year Returns	Comments
Value	Piotroski	1304%	This is the only value screen which approaches growth screen performance.
	Graham	630%
	Neff	625
Growth+value	O'Shaughnessy Tiny Titans	1905%	This is basically small companies growth screen. CANSLIM variation.
	Zweig	1325%	Growth at reasonable price This is CANSLIM on stocks with value characters.
	Magnet	839%	Growth+momentum+value This is very similar to Zweig CANSLIM will capture all these. The only difference from CANSLIM is that Magnet emphasises revenue growth instead of earnings growth.
Growth	CANSLIM	2767%	The best performing growth screen out of all the screens.
	Canslim R	613
Speciality	Earnings estimate up5% plus	1880%	This is Zacks Rank kind of growth investing approach.

• The AAII Stock Screens are based on AAII understanding of these methods.
• You can study the exact methodology on their site.
• Currently growth +value screens are doing well.

How to monitor and trade top sectors

To do this you need subscription to :

IBD Daily Graphs and

IBD Custom Screen Wizard

Here is how I do it:

Step 1

DailyGraphs Industry Groups

Take top 3 stocks from top 20 sectors.

EPS+RS (sorted by EPS)

I have shown first 3 sector stocks. Like that I get 20 sector top 3 stocks.

Rank	IBD Industry Group	Stock rank1	Stock rank2	Stock rank3
1	Paper and paper products	kppc	clw	rkt
2	Auto Truck Original Equip	TXIC	WATG	caas
3	Media Radio TV	salm	ctcm	sga
4
5
.
.
20

This goes to Top 20 Sector Watchlist in Telechart

Step2

DailyGraphs Custom Screen Wizard

Sector rank= 1 to 20

Composite Rating>96

Screen Name: top 20 sectors 96 composite

To Top 20 Sector Watchlist in Telechart

Step 3

DailyGraphs Custom Screen Wizard

Sector Rank= 1 to 40

EPS% >40

sales%>25

50 day avg volume>100000

(These criteria are 100% EPS and 25% sales during bull market)

Screen Name: Top40 sectors 40eps+25sales

This is a separate Top 40 sector 40/25 watchlist in Telechart.

---

These are the stocks I focus on. Together the three things give you only around 75 stocks to monitor. From that list anticipating breakouts or trading breakouts is easier. If you focus on the top 20 sectors it is unlikely you would miss big moves.

The other advantage of sector based strategy is it allows you to anticipate breakout and enter in anticipation. RKT and GYMB two breakouts bought recently came from such monitoring.

Many factors at play...

• When the second phase of the rally started around mid July, we had stocks with earnings power like STEC, NTES, PWRD, UTA, CISG, BIDU, FUQI, GMCR, FIRE and other Chinese stocks leading the rally.
• Rallies need stock with earnings power to propel them forward.
• In last few weeks all these rally leaders have come under severe pressure. When stocks with good fundamentals run in to trouble, it is usually a hint of impending correction.
• When leaders come under pressure, lower quality stocks take on leadership for few days or weeks but such moves cannot last long.
• The second factor which acted as a catalyst for the rally was the earnings season, where earnings were better than expected.
• Now bulk of the earnings are out of the way. So there is no catalyst till around mid October.
• Another thing, if you have noticed so far in this earnings season is that, there have been very very small number of stocks with blowout earnings compared to last earnings season.
• FIRE and HITK are the only stock I remember from this earnings season which had good earnings and then they had follow through.
• Can the rally continue on the back of just turnaround stocks and near bankruptcy companies rallying? Anything is possible in the market, but I have my doubts.
• The emerging markets were on steroids for last 5 months or so, many of them almost doubling from the low. But most of them have run in to trouble.
• The Chinese market has had series of distribution days.
• If you see the number and kind of breakouts happening in top 25 stocks by Dollar Volume in last few weeks, you would see not much action in good stock.
• Rallies have higher participation by 100 million plus Dollar Volume stocks.
• So in addition to the Market Monitor signal there are factors at play here which are likely to act as a drag on the market.
• So does it mean start of a bear market. No. Till Primary indicator is bearish or 10 Day Cumulative Breadth Ratio goes below 0.5, I will treat this as a correction in primary trend.
• It has been the nature of this bull market so far , where bulk of the gains have happened in two intense burst of few weeks.
• If you did not catch those bursts you had very slim pickings.
• A correction is a good time to put your affairs in order to catch the next big burst which is likely after this correction plays out.
• At this stage my primary focus is on three things:
  • Episodic Pivots on stocks with explosive earnings
  • Top 20 Sector stocks (for hit and run)
  • Modified Double Trouble (fr hit and run)

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Market in correction. Earnings season currently on
Type	Indicator	Value	Comments
Daily	# of stocks up >4% on high volume	203	Dip buyers were active early. But the 203 numbers show that they were not very aggressive. Any change of trend would be signaled by a 500 plus day on this indicator.
Daily	# of stocks down>4% on high volume	34
Primary	# of stocks up >25% in a quarter	1817
Primary	# of stocks down>25% in a quarter	354	If more selling does not happen or if market does not go sideways and attempts a rally, within days this readings will again start approaching 200. That will result in lot of volatile moves.
Secondary	# of stocks up> 50% in a month	30	These readings have dropped significantly in few days. Few days ago it was at 172. So extreme breadth readings are coming down, but need to see below 20 readings for becoming bullish.
Secondary	# of stocks down>50% in a month	2	You want to see this climb to 20 for a real correction. That will be bullish.
Secondary	# of stocks up>25% in a month	232
Secondary	# of stocks down>25% in a month	15	No edge on short side as of now, for those attempting it .
Primary fast	# of stocks up>13% in 34 days	2424
Primary fast	# of stocks down>13% in 34 days	750
MMA+	% of stocks in confirmed uptrend	61
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	1.01	A reading of below 0.5 on this will confirm bearish trend.
			Several things pointed to corection

How and why I use Investor's Business Daily

• Many unsuccessful and frustrated traders do not have market perspective. So they flirt from ideas to ideas and claim, this does not work, that does not work.
• If anyone spends enough time to understand the market, ultimately they will understand that there are three basic major approaches to making money in the market: growth investing, value investing, and momentum investing.
• If you base your strategy on any one of these basic approaches you will make money.
• Once you select a basic approach like say growth investing or value investing then to make it work you might use variety of tactics like entering on a chart pattern , or using a indicator like MACD, or stochastic.
• But most people start their trading at the tactical end. They start trading using MACD or chart pattern, or 50 day moving average, or 2 periods RSI without having a basic strategy.
• The sooner you get your basic strategy right, sooner you will be successful. Because once you decide a approach you can focus all your learnings on that narrowed approach.
• Growth investing and momentum investing is more suitable for smaller investor as it allows you to make above average returns in shorter period of time. Value investing might be safer but value stocks seldom make big moves.
• When told this many traders ask but how did Buffett a value investor became the richest person using value investing. There are two reason why Buffett earned his billions: first he got access to significant leverage when he bought a insurance company very early in his career (he basically invests the float generated by his insurance business which gives him tremendous leverage), and second is by avoiding to pay taxes by holding stocks for long term. Taxes are drag on returns. By avoiding taxes money compounds faster.
• I have studied all three approaches in detail and in fact in the beginning I was very tempted by value investing and spent a year perfecting a value strategy before realizing this will not beat growth or momentum investing. One of the things about value investing is that it is intellectually very satisfying, while not much brain is involved in growth or momentum investing. The value investors are the intellectaul snobs of investing world.
• Once I decided to focus on growth investing, I have done a systematic study of growth investing and momentum investing. I have studied almost every published books and research on growth investing and lot of unpulished and proprietary raesearch on growth investing, interacted with several growth investors, talked to some well known growth investors with outstanding track records, studied approaches of major growth managers.
• Out of all the books on growth investing the two best are :
  
  • Superperformance stocks: An investment strategy for the individual investor based on the 4-year political cycle by Richard Love
  • How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition by William O'Neil
• From a conceptual point of view the Richard Love book is best, from actual implementation of growth investing point of view the O'Neil book is better.
• Investor's Business Daily is a paper dedicated to growth and momentum investing.
• It provides tools, data, and methodology necessary to profit from growth investing approach.
• IBD offers investors a step by step approach to identifying and trading growth stocks.
• The basic idea behind IBD approach is "historical precedent analysis". What IBD has done is looked at the top 1000 biggest winners in the market beginning from where the market data is available. Then they analysed the factors which were common in these 1000 stocks. The idea is to find a stock with similar characteristics in current market. If you did the study yourself, you would also find the same thing as IBD found. In every bull market growth stocks make some of the biggest moves.
• IBD basically marries fundamentals+momentum+technical analysis to arrive at buy and sell decisions on growth stocks.
• It ranks stocks using earnings momentum (the EPS ratings). EPS rating is weighted average of last two quarters earnings and last 3 to 5 years earnings with recent quarters getting higher weight. The earnings ranking is based on actual EPS not on future potential.
• To further narrow the growth stock universe it uses a "quality of growth" indicator called SMR rating. SMR rating looks at Sales, Margin and ROE and ranks stock in 5 groups from A to E.
• The Relative Strength Rating is a price momentum rating. It is again a weighted ROC (rate of change) where recent quarter price growth is given higher weights. ( The RS line shown on IBD chart is another price momentum indicator, it is calculated by dividing stock price by S&P price, so it gives relative strength vs. S&P).
• The IBD Accumulation/Distribution Rating weighs the amount of buying volume vs. selling volume in a stock over a 13-week period. (The calculation uses a moving average of price and volume data.). It is scaled from A to E.
• The IBD sponsorship rating looks at stocks being bought by funds and also quality of funds buying a stock. It is again scaled from A to E.
• All the above criteria used together can help you select the best growth stocks for a given time period.
• The IBD Composite Rating combines all 5 ratings described above into one easy-to-use rating (EPS+RS+SMR+Acc/Dis+sponsorship+% from 52 week high). EPS and RS Rating have higher weight, and the stock's percent off its 52-week high is also included in the formula. Results are then compared to all other companies, and each company is assigned a rating from 1-99 with 99 being the best.
• The IBD 200 list published every Thursday is basically a list of Top 200 stocks ranked by Composite Ratings (96 plus composite rated stocks). So it represents the 200 best growth stocks in current market environment. When you focus on these stocks, you are unlikely to miss any major growth stock in the market. It is very efficient way to quickly select best growth stock opportunities in the market.
• Once I studied the IBD approach and rankings in details, it was obvious the best and easiest approach to trading growth stock was to use the IBD 200.
• When you are swing trading, you want to select stocks with highest probability of outperforming the market for your chosen time frame. IBD 200 allows you to do that very easily and conveniently.
• 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 IBD in the market. Some of them have improved upon the IBD ranking methods. If you run a search with CANSLIM in Google, 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. I have studied in microscopic details all of them. Ultimately all of them enter on high volume breakout. So the IBD 200 breakout scan incorporates those learning's.
• 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. If you cannot make money from the top 200 growth stocks then anyway it is unlikely you will make money from growth investing.
• 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.
  • 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. The IBD breakout scan we use tries to capture such stocks. Study carefully the conditions in that scan and you will understand that it only highlights breakout on stocks with 20 to 30 days consolidation/ pullback or correction. It avoids overextended stocks.
  • Reverting Stock:Some of the stocks are in reversal after their rally phase being over.
• The IBD 100 is a much recent addition to IBD tools. It was launched in May 2003. According to IBD the companies are ranked based on superior earnings, strong price performance, and leadership within their respective industries. The exact algorithm has not been disclosed by IBD.
• The IBD 85-85 list is published in Friday edition. It is a list of stocks with 85 plus EPS ratings and 85 RS ratings that are within 15% of 52 week high. This is the list that IBD investors are supposed to focus on and identify IBD chart patterns on and enter on breakout. This list is supplemented by the daily NYSE Stocks in the News and NASDAQ Stocks in the News screen. If you truly want to invest like IBD then you are supposed to focus on these three list stocks, identify good bases out of them, calculate breakout points and then enter 10 cents above breakout points on high volume breakout. That is how retail investors are supposed to ideally use the IBD.
• The IBD method lays lot of stress on anticipating the breakout, because it is trying to capture the second part of a move.
• If you study the IBD approach in detail, you will find that the IBD method focuses on second part of a move after earnings momentum and price momentum is established. It does not mind missing the first part of the move which happens when a stock breaks out on earnings day. That first part of the move is what Episodic Pivots tries to capture.
• Many IBD kind stocks only have first part of the move and they fail on second part move breakouts. Also because IBD uses a price cut off of 12 for Nasdaq and 15 for NYSE, it often misses a big part of the move. Especially the small cap stocks can be very low priced due to neglect and when earnings growth starts showing up on such names they can make 300 to 500% move before they reach IBD cut off of 15.
• IBD essentially looks for two types of opportunities:
  
  • the 20% move
  • the big, multi month move in what IBD terms a big leader or big stock
• The 20% moves are common. The "big stocks" are rare.
• The "big stocks" are what Mark Boucher calls fixed stars. these are growth stocks which continue to maintain their above average growth for several quarters or years. Such big growth stocks create new industries or new segments. For example Cisco was a big stock which created the networking industry. Similarly Home Depot created the Home Improvement category and dominated it for years. Costco created the warehouse retailing category and continues to dominate it. Apple created the digital mobile music category and continues to dominate it. Intuitive Surgical created the category of non invasive surgery and continues to dominate it. Probably currently Green Mountain Coffee is creating a entirely new category of mini brewing in coffee industry.
• The approach to the :big stock: should be different from the 20% kind trading stocks. In such big stocks one should take a position and hold it till it ultimately tops out. These are the kind of stocks where one can risk big amounts. Such stocks are rare and many times it is difficult to judge whether a stock will become a category killer. So identifying such growth stocks is higher order skill.
• In order to fully understand the IBD approach to growth investing, you have to get in to microscopic details of each and every steps involved in it. If you deconstruct the approach systematically, you will understand the nuances involved in it.
• There are hundreds of nuances involved in executing and trading IBD approach or for that matter any approach. Those nuances are important.
• Very few people get in to those kind of details. They expect to make money without much effort , that too they expect to make it quickly. That is what leads to frustration.
• So you have people going around saying, oh this does not work, that does not work and then they go chasing after the new , new thing. They spend flirting from one idea to another idea till their trading account gets wiped out.
• Dan Zanger in one of his interviews said he has read William O'Neil book more than 100 times and he still re reads it every now and then.
• If you decide on a approach like growth, value or momentum, then it is easy to narrow down your focus.
• In any field or skill area when we start out, we have lot of ignorance. There are layers and layers of ignorance.
• To become skilled one must peel all those layers of ignorance. When you see a new trader or talk to new trader he has layers and layers of ignorance and unless he or she works on overcoming those layers of ignorance a progress in trading is very difficult.
• This same thing applies to trading tools. So many users of Telechart have very cursory understanding of how to use it. If you overcome your ignorance about your trading tools , you will find many ways to use them effectively.
• Lot of psychological issues in trading have nothing to do with psychology but more to do with ignorance.
• As I have said before there are three most common problems when it comes to trading profitably. They are:
  
  • Ignorance
  • Inhibitors
  • Inertia
• 
  
  Ignorance problems can be solved by acquiring knowledge. These are comparatively easiest problems to fix. Provided you know what you are ignorant off.If I don't understand something, I need a strategy to overcome my ignorance. It might be reading, attending courses/training program, researching .If you overcome your ignorance problem, you might encounter next set of problems. Many people cannot overcome their ignorance problem. Because they are not aware of their own knowledge and skill gaps. In such cases you are susceptible to believing anything or can be easily manipulated. The ignorance gap is big in trading because there are no structured training programs or books which will allow you to quickly overcome your ignorance gap. In fact there are more books, courses and services which actually pray on investors ignorance and lead them in to wrong direction. So overcoming ignorance is not a easy task in trading. Significant time effort and monetary investment is required if you want to overcome your ignorance gap. The first step involved in it is to identify your own knowledge gaps and then design a strategy to fill those gaps.
• I have spent significant time understanding the IBD approach in microscopic detail and internalised the philosophy, the concept, the method, the step involved , as well as the nuances involved. I have read the entire Investors site in detail, read all the foot prints, read every edition of William O'Neil book, interacted with some very successful IBD style investors, studied all the clones of IBD. And after understanding that developed my own approach to achieve similar results. That is what gives me confidence and conviction in my approach and trading.
• I set out to be the most knowledgeable trader I can be in growth and momentum investing , everyday I work on furthering that goal further by a inch or two . It is a never ending process.
• Everyday I prepare 1 page note from IBD. 99% of my big winners have come from my IBD notes. That is why religiously I prepare a summary like this from IBD.
• Many times the information is not immediately actionable but comes in handy later when the stock breaks out.
• Once you know what to focus on it takes you just 20 to 30 minutes to do this.
• Besides IBD newspaper subscription I have a subscription to their other services:
  
  • Dailygraphs
  • Industry Groups
  • Screen Center
  Note: 100/25 f 25 funds 20 to 40. If you see something like this in my notes it indicates a stock had 100% eps growth and 25% sales growth in latest quarter and float was 25 million and its fund ownership has gone up from 20 to 40 in last 4 quarters.

Tuesday

Section	Key Points	Action
The Big Picture	Leaders suffer losses as market falls in to correction. All Indexes lost 2% plus. Changes outlook to market in correction. Winning groups were mostly medical. Relief rally as Obama health care plan stumbles. Look at IBD big picture analysis over last 10 to 12 days. You would see IBD uses lot of subjectivity. In spite of distribution days, it was not bearish till Monday. It kept qualifying the days with explanation. This is one of the issue with the distribution day method. Compare that with Market Monitor signals. Market Monitor gives you clear signals. IBD market direction system is often late in calling correction. Further if you think through, IBD distribution day is like a 300 plus negative 4% breakout day on our Market Monitor. So in other words it says if you see 4-5 300 plus days to downside in 2-3 weeks you should be careful is what IBD says.
Leading New Issues	cyou bpi dgw mjn open swi cys mdso There are very few IPO's coming to market and there are hardly any compelling IPO. In a normal bull market there are many good IPO's. When market started rallying in 2003, in first six month number of IPO's came in and many of them were very big winers. Currently only LOPE and BPI look attractive.	lope
The New America	UTHR: Two new treatments driving growth Adcirca for pulmonary arterial hypertension (PAH: Also will launch Tyvaso for PAH by year end 2.5 billion worldwide potential market (this is currently 300 million company) Drug has 300 million potential Takeover chatter
Largest Position of funds in growth index	brcm pcp msft jpm cim slan ibm pm gs tpx ma aapl epd nuan csco aoc wfg lkqc swn agn no compelling growth stock in this list.
IBD Big Cap 20	none of this interests me. I look for 100/25 stocks in this list. Currently there are no 40/25 stocks also in this.
Investor's Corner	Use RS line to study breakouts/fault I explained what is this RS in my weekend IBD post. If a stock has neglect of multi month it will often have RS line going sideways. So understanding these things is critical instead of blindly following what IBD says. In a good EP this line going sideways might be better. It context that is important.
IBD 197 Group Ranking	Monitor: Top 3 stocks from top 20 sectors+ 96 plus composite rated stocks from top 20 sectors+ 40/25 stocks from top 40 sectors
2500 leading stocks	fuqi gmcr lft cpla (51/26 f= 13 funds= 91 to 136) bidu cpla not explosive earnings, but sector seems to be experiencing some rotation. BPI (extended) and LOPE have explosive earnings.	cpla

Monday

Section	Key Points	Watch
The Big Picture	Distribution day on NYSE Nasdaq avoids it. The market uptrend is still intact. Another distribution day will be required for IBD to be cautious on market direction. The leading stocks have held up well so far in this correction. Chinese stocks are the leaders.
To the point	VIT: 56/42 Sees strong growth in China.
The New America	SWI: Solar winds. 40/25 f= 5 million funds=27 Network Management Software. Low cost provider of such software. Sells product online. Growth has actually slowed in recent 3-4 quarters.	swi
Industry Snapshot	HGSI: 35/131 f-=151 funds= 105 to 64 Lupus drug potential 2.9 billion (currently this is approx 50 million sales company mostly from milestone payments) Hepatitis C drug in pipeline= 2 billion potential Could become next big biotech leaders.
Largest positions of funds in growth index	brcm slab msft jpm cim pcp ibm pm gs ma aapl epd tpx nuan csco aoc wfg lkqx swn agn
IBD 100	Black bordered stocks VIT nflx Some leaders get rattled. Some get ready for battle. ARST HRBN
IBD 197 Industry Sub Groups	Monitor: Top 3 stocks in top 20 sectors+ 96 composite rated stocks in top 20 sector+ 40/25 stocks in top 40 sectors
2500 leading stocks	Rectangle stocks fuqi gmcr lft bidu

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