stockbee: September 2009

9/30/2009

A swine flu play

APT: Alpha Pro Tech Ltd

APT has been rallying for sometime on both swine flu news and post a earnings breakout. Today it is up big again on CNBC highlighting the company.The volume on breakout is multi year high.

This was a 22% profit trade for me on last breakout.

High volume breakdowns do not necessarily follow through

ICON: Iconix Brand Group

Today as of now ICON is down 20% on huge volume. It is highest volume in years. So does this make this stock a good short. No . Most of the time such drops do not follow through to downside. In fact many stocks spent months going sideways or rally up from such high volume drops. Lot of traders look at such drops as over reaction and play for the immediate bounce.

Know individual stock behavior

AMSC: American Superconductor

AMSC is up over 8% today in pre market based on a news of a new 100 million contract for supplying core electrical component to Chinese wind turbine manufacturer. For the kind of turnover AMSC has currently, it is a fairly big order. The order will be shipped over a year or so.

This stock was earlier in July up big on similar kind of news. This stock has a history of big moves which result in pullbacks. So you have to play it accordingly. Or at least that is what we did last time.The trade gave 14% profit in a day.

Entry= 30.23

Exit1 33.90

Exit2 33.90

Exit3 35.12

Exit4 35

Average profit= 14.05%

Days held 1

AMSC

30.23

29.50

7/30/09

29.50

33.90

7/30/09

12.14%

33.90

7/30/09

12.14%

35.12

7/30/09

16.17%

7/30/09

15.77%

14.05

The swine flu stocks have been big movers

SVA: Sinovac Biotech Inc

Sinova Biotech is a Chinese swing flu vaccine maker. It is up pre market on news of a fresh order from the Chinese govt. The swine flu stocks have been some of the big movers. Most of these moves are precipitated by news. This stock can make big moves on such news.

Last time it made a big move was in August. This is how we played it that time:

Symbol:
Entry price:
Entry date:
Initial stop:
Current stop:
exit1
exit1 Date
exit2
exit2 Date
exit3
exit3 Date
exit4
exit4 Date

The average profit on the trade was 81.50%.

9/29/2009

How to find weak stocks

SYNA: Synaptics Inc.

While the market has been rallying, some stocks are not actively participating in this rally. If the market takes a bearish turn such weak stock might attract more sellers.
To find weak stocks in Telechart is easy. There are many ways to do this. One of the ways to do this is by using a Multiple Moving Average bearish scan
MMA Scan

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

This will give you stocks trading below their Multiple Moving Averages. To reduce the number of stocks from the scan you can use Dollar Volume above 25 million.
This will give you mostly large stocks which are not participating in this rally as of now.
The stocks showing up in this scan today are:
AAP
ACM
AGCO
AN
ATK
AUO
AZO
BCO
BG
BKC
BWA
CHL
CVH
DF
DGX
DNB
DNR
DSX
ENER
FCN
FDO
FPL
GLW
GNK
HCBK
INTU
IRM
KFT
KR
LH
MCO
MGA
MHP
MIR
MON
MYGN
NAV
OCR
ORLY
PBCT
PEG
POT
QCOM
RAH
RGC
SAH
SAI
SRCL
STP
SYNA
TTEK
UNH
URS
VZ
WMT
XOM
YUM

When a sector starts moving

LEE: Lee Enterprises Inc

Many sectors were priced for disaster or bankruptcy during this bear market. Newspaper and media companies were on of this sector. The sector has been going down since 2007. Many newspapers have closed down. Most have cut cost and have struggled to survive. But in last few months such stocks have made big moves from their beaten down levels.

Many were priced below a buck or around a buck. So 500% plus moves are common in this sector.

This sector started rallying in July. GCI earnings was the catalyst for the move. Today the news of GCI pre announcement has this sector finding a second wind.

Do round number pivots work

CMG: Chipotle Mexican Grill

Jesse Livermore believed in trading stocks near their psychological pivots. One such pivot he liked to trade was stock crossing 100 or 200 or 300.

"Many years ago I began to profit from the simplest of type of Pivot Points trades. Frequently I had observed that when a stock sold at 50, 100, 200 and even 300. a fast and straight movement almost invariably occurred after such points were passed. "

How to trade in stocks: Jesse Livermore

CMG is approaching 100, so let us see if this round number pivot works in this stock.

How to exit a swing trade

A reader of the blog emailed to ask how did the CBAK trade go.

CBAK: China Bak Battery Inc

When swing trading, I operate on profit targets and exit a position in 4 parts.

So here is how this trade went :

Symbol:
Entry price:
Entry date:


exit1
exit1 Date
exit2
exit2 Date
exit3
exit3 Date
exit4
exit4 Date

The first exit was at 8% profit. Second exit was at approximately 14% profit. Third exit was at approximately 15% profit and fourth exit was at approximately 22% profit. Overall the trade gave 14.75% profit for 3 day hold.

How to find stock using technical analysis !

How to trade top sector stocks

Sector momentum is as powerful a driver of stock prices in short term as earnings or valuation. If a sector is in top 20 sector by momentum then stocks in that sector can have big moves.

One of the ways to trade the sector momentum is by using IBD sector ranking and by using the IBD Custom Screen Wizard and IBD Industry group service.

Everyday I prepare a list of stocks as follow:

Top3 stocks ranked by EPS+RS rating from top 20 sector +
96 plus composite rated stocks from top 20 sectors+
98 plus Relative strength rated stock from top 20 sector+
Stocks with 40% plus eps growth and 25 % plus sales growth from top 40 sector.

This together gives me around 70 stocks or so. These are the stocks on which I look for pullbacks or breakouts.

In current market the top 20 sectors have produced some very big moves. The auto rental companies, auto parts suppliers and media companies have been some of the biggest winners in this market. A sector based strategy ensures that one is always trading such stocks.

BLC : Belco corporation is one of the media stocks. It had a nice pullback of 6-7 days and had a high volume breakout yesterday. It is from a sector that is rated no 3 currently.

BLC: Belco Corp

9/28/2009

A high volume breakout after a pullback

RODM: Rodman and Renshaw Capital Group Inc.

A very common pattern in high momentum stocks is a high volume breakout after a pullback. It is easy to scan for such stocks in Telechart. Essentially you need to build two conditions:

a pullback condition and
a high volume breakout condition

Member Feedback

Pradeep,

What attracted me most was your take on trading - "most important starting point for successful trading is methodology and methodology trumps markets". I have learned a lot and greatly benefited in all aspects of trading since joining the member's only site - specifically:

1. Market breadth (market monitor) : Your market monitor method to identify when to enter the market for trading and when to sit in the sidelines. Along with market monitor, your explanation on other important market breadth indicators has helped me not only in trading, but also take wise decisions in other investment accounts (eg. IRA funds).

2. Equity selection (momentum / growth / event catalyst) : Your input on how to select equities based on momentum / growth /event catalyst has helped me to identify key stocks that are breaking out. Also valuable was your input on identifying low risk areas for entry into such stocks.

3. Risk management (position sizing / initial stop / exit) : Risk management is a key part of successful trading. Here again your input on position sizing, initial stop and exit strategies was extremely valuable.

I also liked the following about your member's only service:
a.) Shortened learning time about market with your daily description about Market using Market Monitor (daily explanation of how to make the market monitor talk to you)
b.) No black-box approach (You explain everything in very plain, easy to understand language, no hidden stuff!)
c.) Your response to members questions (email / comments section questions) has been excellent. You have responded to my every email and comments section in question and that too in a timely manner.
d.) Your reviews about many trading books and how to make good use of / incorporate those strategies in our trading

In short, I believe your member's only site is excellent, full of information. I have been with your member's only site for almost two years and will be a member for coming years as well. There is no substitute for your member's only site, your experience and service to members. You are truly an "easy" guru!

Thanks,
sp

9/25/2009

How to benefit from the airline sector rally

GOL: Gollinhas Aereas Inteligentes

This low cost and low fare Brazilian airline has good fundamentals. It had a big earnings surprise last quarter.

9/24/2009

How to avoid getting caught in a reversal

For last few days the market breadth was at extremes. Such extreme breadth is seldom sustainable. The Market Monitor indicated very high probability of correction and as a result on Members site we closed many position on Tuesday and yesterday morning a warning was posted about a likelihood of correction.

From Members Site:

Sticking my neck out

Posted by: easyguru, on Wednesday, September 23, 2009 07:58 EST

Based on Market Monitor readings, the action in speculative stocks, the surge of IPO expected to hit the market, the flood of secondaries, and my prior experience with Market Monitor, we are most likely to see a correction in next 5 to 10 days.

There might be a bit of speculative frenzy in beaten down stocks or low priced stocks for 4-5 days before that. But everything I see points to a high probability of correction at this stage. Such corrections have been so far dips in the main trend where MM readings have bounced back from around 300-500 levels.

Market typically tends to be easiest to trade just before a correction. So I am hearing lot of talk of this market will never correct and it is bull market, and how easy it is to trade and so on.

But I have seen this movie before. If you are on full margin such dips can badly damage you . So as of yesterday I have reduced my exposure to level where I am very comfortable. I am not going to be aggressively chasing things as of now and will only look for hit and run trades.

21 Comments..

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How to find stock using technical analysis !

CBAK: China Bak Battery Inc.

This CBAK stock chart has everything a technical analyst would love! The yellow spikes in middle panel indicates where this stock satisfied this "chart pattern" scan in Telechart. If you know how to use Telechart and if you are skilled technical analyst, you can find such opportunities regularly.

Are you lost in technical analysis jungle

Burn your charts

9/23/2009

How to find stocks with yearly momentum

If you are short term swing trader, you need to be in stocks with momentum. There are many ways to find such stocks in Telechart.

In Telechart set up following PCF:

1 year ROC from a yearly low

(C + .011)/ (MINC260 + .011)

Minimum Volume 3 days

MINV3.1 > 1000

In easyscan set up a easyscans

1 year ROC from a yearly low

Common Stocks

Volume 3 days =true

Price per share>3

1 year ROC from a yearly low rank>97

Now look at the top 50 or so stocks in this scan. These are the stocks currently favored by the market. They have had the highest price % change from their 260 days close. To find trades from this you can sort the scan output by Price Percent Change 5 days and look at stocks with less than 5% price change in last five days. Those stocks are having a small pullback in their strong trend.

Here is a example of a quick swing trade on JAZZ using this kind of momentum approach:

Top 40 stocks in this scan currently:

AIB

ARM

AXL

BZH

CAR

CNO

COT

CVGI

DAN

DDRX

DNDN

DTG

FOE

FRZ

GNW

HGSI

IRE

ISTA

JAZZ

KFN

LNET

LVS

LZB

MIC

OFG

OMN

PALM

PLAB

PMI

RDN

RODM

SCSS

SMRT

SOA

SPDE

TEN

TRW

VCI

VNDA

ZOOM

You would see many of these are setting up nicely for a swing trade.

How to find stocks with momentum

9/22/2009

AIG is where all the action is

9/21/2009

How to develop your own "secret sauce"

If you want to crack the secret of profitable trading, here are couple of things you can do:

Read every single thing published on growth investing and internalise it.
Read every single thing published on value investing and internalize it.
Read every single thing published on momentum investing and internalise it. Value investing, growth investing and momentum investing are the proven approach to making money.
Read every single thing published on swing trading. All swing traders ultimately do same basic thing of trying to capture small part of a larger ongoing trend. They use different terminology, indicators or claim to have "secret sauce" but they all do same thing.
Read every single thing published on market timing models. Again you will find most market models are based on similar ideas or the "secret sauce" in most timing model is mostly common.
Stop paying attention to macro stuff unless you are trading 100 million plus account. Macro matters only 2% of the time, it is perfectly useless for 98% of the time. But 98% of the trading blogs spend 98% of their time on chewing over macro stuff.
Don't worry about Goldman Sachs, Ben Bernanke, Barack Obama or Tim Geithner. They don't need your advise. If you are coveting their job, there are tens of thousands waiting in line ahead of you. Every one on the main street thinks that they are smarter than the policy maker.
Above all have a role clarity. What is your role. Do you want to be a trader. Or you want to be macro economist or a political scientist. Through out the history of mankind in every society there have been structural imbalances. None of them matter to speculators. As a speculator your job is to profit from them. There will always be bubbles and crashes. Your job is to constantly spot where the next bubble is going to be and profit from it.

9/18/2009

How to find hot IPO

Some recent IPO's have been doing well currently.

Now if you have TC2007 , it is very easy to find IPO's for your chosen time frames.
Supposing you want to find all IPO's that happened in last 1 years just follow the following steps:

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

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

9/17/2009

A very lopsided breadth for last 10 days.

There is a high probability of correction in next 2 to 5 days.
The correction may be just a minor dip in overall trend .
That has been the trend so far since March.
However if you are not positioned right and have lot of overextended stocks you can suffer sharp draw-downs.
We have had a very lopsided breadth for last 10 days.
The cumulative breadth ratio is at 6.11. Which means in last 10 days for every 1 stock down 4% there were 6 stocks up 4% plus.
New sectors continue to breakout.
Stocks which are currently overextended are vulnerable.
But we continue to find stock breaking out from consolidation.
Market is also shifting its focus to growth stocks.
IBD 100/200 are now having breakouts and follow through.

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Cautiously bullish

Type	Indicator	Value	Comments

Daily	# of stocks up >4% on high volume	555	77 stocks with 100 million plus dollar volume.(M$V) Big stocks are breaking out.
Daily	# of stocks down>4% on high volume	48	9 stocks with 100 million plus M$V
Primary	# of stocks up >25% in a quarter	2496
Primary	# of stocks down>25% in a quarter	131	This is in caution mode. This is the lowest level I have seen in MM since I have been tracking this data for last 8 to 9 years. This year everything is abnormal. We will get a correction soon. But other secondary indicators are not at extremes. So move might have more legs.
Secondary	# of stocks up> 50% in a month	33	This is moving towards extreme territory. In this market these readings have gone up above 100 couple of times
Secondary	# of stocks down>50% in a month	1
Secondary	# of stocks up>25% in a month	336	Moving towards extreme. Highest was 875 in August
Secondary	# of stocks down>25% in a month	6
Primary fast	# of stocks up>13% in 34 days	2412
Primary fast	# of stocks down>13% in 34 days	357
MMA+	% of stocks in confirmed uptrend	73	Bearish
MMA-	% of stocks in confirmed downtrend	11
10 day cumulative breadth ratio	#of stocks up> 4% in last 10 days/ #of stocks down>4% in last 10 days	6.11	We had lot of buying in last 10 days. So you see cumulative ratio has turned above 6. Typically the buying persists for sometime after this hppens. So the correction might be just a pullback.

9/16/2009

Why is self efficacy important

Life does not come with a neatly designed manual.No one gives you a manual on trading when you start. You have to figure out things on your own.
Traders spend so much time moaning about lack of good training resources or programs. Or claiming this does not work, that does not work. Many of these issues are related to self efficacy.
When I did bulk of my work on Market Breadth there was no book on market breadth. I got the same help manual that you get with Telechart when I started using Telechart. In fact when I did bulk of my work on designing my trading methods, Internet was not such a big source of information.Life is much easier now, you can find so much information for fraction of effort and cost. Same thing that I figured out you can also figure out if you spend sufficient time going in to depth and peeling the layers.
That is the story of every successful independent traders. They figured out the market on their own.

This is where self efficacy becomes very critical. If you have strong perceived sense of self efficacy, you would spend your time and energy on finding solutions to your ignorance problems and overcoming inhibitors.

People with strong sense of self efficacy never have inertia problem. They have intrinsic motivation.

See my earlier post on "Three most common problem faced by traders"

The three most common problems when it comes to trading profitably are:

Ignorance
Inhibitors
Inertia

Ignorance problems can be solved by acquiring knowledge. These are easiest problems to fix. If I don't understand something, I need a strategy to overcome my ignorance. It might be reading, attending courses/training program, researching .

For example many users of Telechart do not know how to use many functionality. That is easily fixable problem.Same is true of say IBD methodology. Many people are ignorant of how say EPS or RS rating is calculated. People of ignorant of momentum or risk management or growth investing.

If you overcome your ignorance problem, you might encounter next set of problem.

Inhibitors are things which inhibit us from acting on our knowledge. I know IBD 200 works and how it works and it can be profitable, but I do not have time to input the 200 stocks. Or I know how I can make money trading Double Trouble, but i do not have software to do this for me.

All inhibitors kind of problem require innovation . A little innovation and resourcefulness can solve most inhibitors kind of issues. If A route or scan does not work, you find B route or plan B. When faced with constrains, you have to innovate.

If you are motivated enough trader, you will find solving the ignorance and inhibitors problem is not very difficult. The third set of problem is the most difficult to solve.

Inertia is lack of action on what we know and inability to act on overcoming inhibitors. Inertia makes most people stick to their current orbit of success or performance. You can spend years living suboptimal life and wasting your potential if inertia is your problem.

Inertia problems have one simple solution. A kick in the ass.

To overcome all three you need to have higher perceived self efficacy. If you have that then you will find several ways to overcome your ignorance problem. If you have that you will innovate around the inhibitors and if you have that motivation will not be a problem.

The concept of self efficacy is applicable not only to trading but to everything else in your life and career. You will see same thing in organisation, the vast majority is waiting for "the manual", "the instructions", "the rules" , "the holy grail" and so on. Few people in any organisation will have the self efficacy to figure out many of the things themselves and they will be the real leaders.

The concept of self efficacy is very critical if you have kids and you want them to be successful in life. Much of the school system and learning tools used are not geared to developing self efficacy. Plus parents are so indulgent that they hinder self efficacy development. Kids get rewarded for little efforts.

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9/15/2009

What does it take to become a full time trader

I am often asked what is required to be a full time trader. While one can always make a laundry list of things essential for success like amount of starting capital, a trading method with edge, sufficient reserves and so on and so on. The most important thing for becoming a independent trader is:

Self-efficacy

Self-efficacy is a person’s belief in his or her ability to succeed in a particular situation.Self-efficacy is the most important thing if you want to be a full time trader. If you have that then all other things are manageable or you will find solutions to all your problem. Independent traders, entrepreneurs, and leaders have one common thing, strong sense of self efficacy. Why do you think Barack Obama became the President Of USA and others who aspired for it for many years could not. The secret is self efficacy.

Perceived self-efficacy is concerned with people's beliefs in their capabilities to exercise control over their own functioning and over events that affect their lives. Beliefs in personal efficacy affect life choices, level of motivation, quality of functioning, resilience to adversity and vulnerability to stress and depression. People's beliefs in their efficacy are developed by four main sources of influence. They include mastery experiences, seeing people similar to oneself manage task demands successfully, social persuasion that one has the capabilities to succeed in given activities, and inferences from somatic and emotional states indicative of personal strengths and vulnerabilities. Ordinary realities are strewn with impediments, adversities, setbacks, frustrations and inequities. People must, therefore, have a robust sense of efficacy to sustain the perseverant effort needed to succeed. Succeeding periods of life present new types of competency demands requiring further development of personal efficacy for successful functioning. The nature and scope of perceived self-efficacy undergo changes throughout the course of the lifespan.

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9/14/2009

How to find stocks with momentum

If you are short term swing trader, you need to be in stocks with momentum. Easy way to find such stocks in Telechart is by running a six month and two month momentum scan to generate a list of stocks.

In Telechart set up following PCF:

Six Month momentum

C / AVGC126

Two month momentum

C / AVGC42

Volume 3 days

MINV3.1 > 1000

In easyscan set up 2 easyscans

Six month momentum

Common Stocks

Six month momentum PCF set to list Rank >97

Volume 3 days =true

Price per share>3

Two Month Momentum

Two month momentum PCF set to list Rank >97

Volume 3 days =true

Price per share>3

Now look at the stocks in these two lists. These are the stocks currently favored by the market. To find trades from this you can sort the scan output by Price Percent Change 5 days and look at stocks with less than 5% price change in last five days. Those stocks are having a small pullback in their strong trend.

Here is a example of a quick swing trade on BEXP using this kind of momentum approach:

9/09/2009

Chinese Stocks resume rally

Chinese stocks have started to rally .

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Market in correction.

Type	Indicator	Value	Comments

Daily	# of stocks up >4% on high volume	394	55 stocks with 100 million plus dollar volume.(M$V)
Daily	# of stocks down>4% on high volume	73	6 stocks with 100 million plus M$V
Primary	# of stocks up >25% in a quarter	1896
Primary	# of stocks down>25% in a quarter	242	We keep hovering between 200 to 350 range.
Secondary	# of stocks up> 50% in a month	7	Not many large moves happening currently.
Secondary	# of stocks down>50% in a month	1
Secondary	# of stocks up>25% in a month	55	Back in positive territory. But again not many big moves. So post breakout many stocks are going sideways.
Secondary	# of stocks down>25% in a month	18	.
Primary fast	# of stocks up>13% in 34 days	1802
Primary fast	# of stocks down>13% in 34 days	672
MMA+	% of stocks in confirmed uptrend	60
MMA-	% of stocks in confirmed downtrend	17
10 day cumulative breadth ratio	#of stocks up> 4% in last 10 days/ #of stocks down>4% in last 10 days	1.34	A reading above 2 will signal bullish breadth thrust. A reading of below 0.5 on this will confirm bearish trend.

9/08/2009

The sideways pattern remains

The sell offs do not follow through.
The buying lacks vigor.
So the sideways pattern remains.
Since 10th August the market has been in tight range.
Attempts at corrections have been unsuccessful.
Attempts at making new high has been partially successful.
It is a tricky market. There are opportunities, but you need to be nimble.

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Market in correction.

Type	Indicator	Value	Comments

Daily	# of stocks up >4% on high volume	243	19 stocks with 100 million plus dollar volume.(M$V) Sector trend
Daily	# of stocks down>4% on high volume	19	No follow through selling. 1 stocks with 100 million plus M$V
Primary	# of stocks up >25% in a quarter	1796
Primary	# of stocks down>25% in a quarter	283	We keep hovering between 200 to 350 range.
Secondary	# of stocks up> 50% in a month	7	Not many large moves happening currently.
Secondary	# of stocks down>50% in a month	0
Secondary	# of stocks up>25% in a month	53	Back in positive territory. But again not many big moves. So post breakout many stocks are going sideways.
Secondary	# of stocks down>25% in a month	20	.
Primary fast	# of stocks up>13% in 34 days	1680
Primary fast	# of stocks down>13% in 34 days	757
MMA+	% of stocks in confirmed uptrend	57	Rapid drop from 71 to 57
MMA-	% of stocks in confirmed downtrend	18
10 day cumulative breadth ratio	#of stocks up> 4% in last 10 days/ #of stocks down>4% in last 10 days	1.17	A reading above 2 will signal bullish breadth thrust. A reading of below 0.5 on this will confirm bearish trend.