What drives big moves in stocks | stockbee

1/02/2014

What drives big moves in stocks


I follow a combination approach looking for both very short term 3 to 5 days for swing trade and at the same time looking for big multi month moves. The two approaches require different mindset and understanding of the market. To find big moves you have to know what drives big multi month or multi year moves.

What makes a stock go up a lot has fascinated traders and investors for ages. If one can isolate factors that lead to big moves then one can find those stocks. While many of these studies find same things, there is no "magic" formula to find a big winner.

Frank Cappiello's New Guide to Finding the Next Superstock is one of the book which focuses on this topic.

Frank A. Cappiello is President of a McCullough, Andrews & Cappiello, Inc., a large investment counseling firm with offices in San Francisco, CA and Baltimore, MD. Frank Cappiello was best known to television viewers as a regular panelist of the PBS television series "Wall Street Week With Louis Rukeyser". He appeared on it for over 20 years starting from first episode onwards.

The central premise of Frank Cappiello's book on growth investing is that
"There are stocks and then there are super stocks, there is a stock market and there is a super stock market. And they barely know each other."

Super stock according to him is a stock of small growing company which will beat the market significantly. His book was published before O'Neil book. It also gives a approach to trading growth stocks.

He studied the characteristics of some of the biggest historical winners for many years. All the things he finds about growth stock are more or less same as what the CANSLIM approach emphasizes in stock selection.

He found 9 characteristics common to super stocks

Small to medium size

Rising unit sales volume

Rising pretax profit margins

Above average and improving return of shareholders' equity

Strong earnings per share growth relative to other stocks

A low payout ratio with rising dividends

Low debt ratio

Low institutional holdings

Increasing price earnings multiple

These findings are in line with what most other growth investors look for in growth stocks. Mere presence of these characters in itself does not make a stock a buy. There is considerable art to finding these stocks right at the start of their big moves. 

If you master that art and can find just 3 to 5 such growth stock right at the beginning of their move, you can make a lot of money. Especially for Working People with severe constrains in terms of trading and availability of free time during trading day , growth stocks can offer good opportunities. 

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