Market bounced back after yesterdays carnage. The market will take some time to reveal its intended direction. In the meanwhile earnings based breakouts had a good day today. In most circumstances a good earnings always creates excitement. Those who understand the earnings game are quick to jump on such opportunities.

Market Monitor

Total 4% plus bullish breakouts=105
Total 4% plus bearish breakouts=56
65 day bullish/bearish ratio= 677/279
Stocks up 50% or more in a month=7
Stocks up 25% or more in a month=64
Number of stocks with 100% plus move =321
Number of stocks up 200% or more = 69
4% plus signals for 100plus universe=21
4% plus signals for 200plus universe=5


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see my earlier post "How to find a stock which makes 1500% move in a year"

AKS,Ak Steel Holding Corp (Google  Yahoo  Earnings  Chart) 
AMSF,Amerisafe Inc (Google  Yahoo  Earnings  Chart) 
ANGN,Angeion Corp (Google  Yahoo  Earnings  Chart) 
APAC,Apac Customer Services (Google  Yahoo  Earnings  Chart) 
CBLI,Cleveland BioLabs Inc (Google  Yahoo  Earnings  Chart) 
CLN,Celsion Corp (Google  Yahoo  Earnings  Chart) 
DECK,Deckers Outdoor Corp (Google  Yahoo  Earnings  Chart) 
GNLB,Genelabs Technologies (Google  Yahoo  Earnings  Chart) 
ICE,Intercontinental Exchange Inc (Google  Yahoo  Earnings  Chart) 
ICGN,Icagen (Google  Yahoo  Earnings  Chart) 
NETC,Net Servicos De Comunicado Ads (Google  Yahoo  Earnings  Chart) 
OFI,Overhill Farms Inc (Google  Yahoo  Earnings  Chart) 
PRKR,Parkervision Inc (Google  Yahoo  Earnings  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings  Chart) 
RBY,Rubicon Minerals Corporation (Google  Yahoo  Earnings  Chart) 
SGXP,SGX Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
SUNH,Sun Healthcare Group Inc (Google  Yahoo  Earnings  Chart) 
SWIM,Investools Inc (Google  Yahoo  Earnings  Chart) 
VSNT,Versant Corporation (Google  Yahoo  Earnings  Chart) 
VTO,Vitro Sociedad Anonima (Google  Yahoo  Earnings  Chart) 
WHT,Westside Energy Corp (Google  Yahoo  Earnings  Chart) 


Stock in the Focus



Amerisafe Inc is a 2006 IPO. It has been up over 113% in last 260 days. The stock broke out few days after earnings in November. Stock has had 5 quarters of triple digit earnings growth. My research shows Episodic Pivots on young companies have high probability of success if backed by earnings.

The big crash is not a bastard. There are several claiming that they predicted it. I went through my over 500 Google Readers feeds and the usual suspects plus every Tom Dick and Harry is claiming they predicted it.Some have been predicting this for their entire life. Some who were saying Greenspan call was contrary indicator to buy have quickly changed their tune to claim paternity of this crash.

The real issue is markets are not controllable. But your reaction to them is. Your trading methods are completely under your control. Market is what it is. How I react to it is important. For any given time period there is a pool of potential profit available to all market participants. Some have better method of grabbing part of that pool, some have no methods.


Now that the event has happened the big question is what is the game plan. If you think opportunities are on short side or on long side you still need a method to extract that money out of market.

As I have said before in my scheme of things conceptually I look at my trade factory having many conveyor belts. The conveyor belts bring opportunities to me, I inspect and put on trade based on risk and return parameters. Now in this trade factory there is one area for bullish conveyor belts and one for bearish. For several month the well oiled bearish conveyor belts were more or less not bringing much of opportunities. Yesterday the bearish trade factory got humming. So now bearish opportunities will present themselves.

As a speculator all I am interested in is where is the next big opportunity. If it is on bearish side I have well oiled strategies to capitalise from them. Like my long ideas all my short ideas are based on some fundamental structural concepts. Those ideas work best in bearish environment.

So there is no point in getting involved in to all the discusion of who called it right or wrong, what matters is how much you profit from the opportunity the market presents.

All rallies come to an end. Sometime they end dramatically, like we saw today. From July the market was in rally mode with little pullbacks or correction , so a correction is not a bad thing. If you have made money in last 8 months, the trick is to not give up much of your profit.

Now the next game plan is more important. Again the question is what will maximise profit for a given time frame. To short also you need to find right stocks to short. The stocks likely to go down the most are best shorts. Finding them is much difficult task than finding longs. Because things do not work the same way on short side. Anyone who tells you to do reverse of what you do for long for short has no idea of what he or she is talking about.

So if this correction has legs on downside, you will have opportunities to find low risk high probability opportunities. First and fundamental thing is capital protection. For long term traders better opportunities will show up in few days.

Market Monitor

Total 4% plus bullish breakouts=24
Total 4% plus bearish breakouts=1404
65 day bullish/bearish ratio= 656/281
Stocks up 50% or more in a month=8
Stocks up 25% or more in a month=65
Number of stocks with 100% plus move =294
Number of stocks up 200% or more = 69
4% plus signals for 100plus universe=2
4% plus signals for 200plus universe=1


Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see my earlier post "How to find a stock which makes 1500% move in a year"

SGN,Signalife Inc (Google  Yahoo  Earnings  Chart) 
TATTF,Tat Technol Ltd (Google  Yahoo  Earnings  Chart) 


Now in the midst of this carnage Radioshack managed to make a 12% move. What was the catalyst- earnings announcement. In January it had a high volume day after raising earnings guidance , since then it has gone up about 50%.



Keep a close watch on companies announcing earnings acceleration even during this sell off. That will convince you of the power of earnings as a catalyst.

It is easy to lose perspective on days like today. But panics are good for markets. The most important thing to look at is what happens after the panic. Like a rubber ball the markets bounces back.


Victor Niederhoffer often quotes Henry Clews when it comes to market panic:

Henry Clews wrote in Twenty-Eight Years in Wall Street (1887):

But few gain sufficient experience in Wall Street to command success until they reach that period of life in which they have one foot in the grave. When this time comes, these old veterans of the Street usually spend long intervals of repose at their comfortable homes, and in times of panic, which recur sometimes oftener than once a year, these old fellows will be seen in Wall Street, hobbling down on their canes to their brokers’ offices.

Then they always buy good stocks to the extent of their bank balances, which they have been permitted to accumulate for just such an emergency. The panic usually rages until enough of these cash purchases of stock is made to afford a big “rake in.” When the panic has spent its force, these old fellows, who have been resting judiciously on their oars in expectation of the inevitable event, which usually returns with the regularity of the seasons, quickly realize, deposit their profits with their bankers, or the overplus thereof, after purchasing more real estate that is on the up grade, for permanent investment, and retire for another season to the quietude of their splendid homes and the bosoms of their happy families.

Few more days like today and we will be at ideal bounce scenario. So keeping the powder dry is the key.

In recent days and weeks there has been a flood of new visitors, thanks to the following folks, who have linked to various posts.
http://www.chrisperruna.com/
http://highchartpatterns.blogspot.com/
http://nysetrader.blogspot.com/
http://tradewhileworking.blogspot.com/
http://tyrotrader.blogspot.com/
http://valueblogreview.blogspot.com/
http://stockdaytrading.blogspot.com/
http://www.thekirkreport.com/
http://tradermike.net/
http://greenonthescreen.blogspot.com/

There are lots of mails I am going through currently and answered most of it. If your question is still not answered you should hear by the end of the day.
Here is a quick and dirty summary of most of the things I have said in the individual mails about various issues.


Long Strategies: All things I trade and write about revolves around three basic concepts. Earnings, momentum and neglect. Various strategies are just different versions of same ideas. It is like Coke, Classic Coke, Diet Coke, Vanilla Coke , XXX Coke, etc. versions of same basic strategies.
So if you want to trade them you need a good and deep understanding of those three concepts.
My trading time frames are medium to long durations with most trades lasting weeks to months.

Holy Grail: There is no holy grail. I am not selling any service, no software, no mentoring service and no black boxes. None of this is magical stuff. It will take at least 6 months for anyone to understand and duplicate the strategies.Lot depends on market circumstances, some things do not work under some circumstances. That does not mean the strategy is wrong.


Trading set up: I am surprised by number of questions on this. All I have is two old computers and one laptop. I use Worden brothers TC2000 for data. I also have Amibroker, which I rarely use. From TC2000 software I pull data in to my own data analysis and trading system development software and bulk of my systems operate on it.
I use Interactive Brokers.


Scans: All scans I have mentioned so far are in TC2000. When trying to use them in other programmes be careful of volume parameters because TC uses different volume parameters.


Returns: I do not disclose my returns, but I am profitable for last 6 years and have outperformed market by large margins. How much you will make out of these strategies depends on how you execute them, how much you understand them and above all what kind of risk management strategies you use. I get high returns because I classify my ideas as A, B, C, class ideas and risk different amounts on different ideas (A-10%, B-up to 5% and C1%). Also I vary my risk based on market phases. I also vary my risk based on how much I am up for a year. If early in the year I have high returns then I risk more on some ideas in subsequent months. That can make significant difference to your returns.

Lot of you have asked for recommended books. I will by the end of this week put together a list of 5 to 10 books or resources which might be helpful.

Looks like we are gapping down. Now the action like what you see today is coming after a long and enduring rally. So it is not a bad thing. Now the usual perma bears will be dancing in the street saying we told you so. But if you want to make money, you should not be very worried. And also if you want to make money in a market with 100 years of updrift, you should any way never follow perma bears.

Most sell offs have an intense selling phase. This last few days or few weeks. The risk is highest during such periods on existing positions depending on where your entry was. The moment the intense phase gets over, slowly you will find the 100% list blossoming again. In fact you will find very good set ups after few days of weakness.

On an individual stock if there is a catalyst, barring the intense sell off phase, you would find it will still rally. The universe narrows and you might need larger stops but there are opportunities.

On the short side you will find good opportunities in the same 100% plus universe once the market turns. Later I will talk about how using the same concept of 100% plus moves in 260 days you can build a short system. It works best when market reverses after a long rally.

Later: How to find high probability shorts

The market character has undergone a change in last few days. It is a slow process and many new themes are emerging. Some old themes have for the time being run their course. In a rally of long duration, such correction zones are a bit tricky because if you remain on sideline the new emerging sector rallies you will miss out. If you short at this stage you will need good heart to hold through some nice volatility.

Some things are clearly visible. The large caps are no more the favorite. Some sectors like financials, brokers, airlines, etc. have entered correction zones after strong rallies. The small caps are back in action. More than that several new sectors are emerging as likely to take on leadership. The health care/biotech sector continues to find buy interest. But again the kind of companies leading in the sector are not the ones people are most familiar with. The Internet related sector is also attracting buying. Similarly some software companies are also in recent up trends. The commodity sector and alternative energy sector has seen the largest number of breakouts in recent 20 days. The most attractive sector currently is funeral services!!!!




While the sector action is interesting, it is individual stocks where most of the action is for individual traders. Upside breakouts continue to exceed downside breakouts and for almost 10-15 days the breakouts above 4% have been 100 plus. So this still looks like sector rotation and churning.

In few weeks the markets attention will shift to next earnings and some stocks will start breaking out in anticipation. One thing to watch closely is analysts future earnings estimates revisions. The ratio is moving up currently for 2007.

The Index weakness today was deceptive. For the first time in this rally the 100% plus universe has crossed 400 today. As I have said earlier, this number can go up to 1200 plus in healthy rally and the 200% plus number exceeds 300 by the end of rallies.
If you look at number of breakouts in the universe , it has increased sharply to 36 indicating buyers still at work. So far the market action looks like garden variety sector rotation and post earning season selling in some sectors.


Market Monitor

Total 4% plus bullish breakouts=109
Total 4% plus bearish breakouts= 66
65 day bullish/bearish ratio= 957/193
Stocks up 50% or more in a month=13
Stocks up 25% or more in a month=139
Number of stocks with 100% plus move =402
Number of stocks up 200% or more = 90
4% plus signals for 100plus universe=36
4% plus signals for 200plus universe=6

Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see my earlier post "How to find a stock which makes 1500% move in a year"

Select breakouts from the list:

EVOL,Evolving Systems Inc (Google  Yahoo  Earnings  Chart) 
FTEK,Fuel Tech Inc (Google  Yahoo  Earnings  Chart) 
INCY,Incyte Corp (Google  Yahoo  Earnings  Chart) 
MFRI,Mfri Inc (Google  Yahoo  Earnings  Chart) 
OMRI,Omrix Biopharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
RIMM,Research In Motion Ltd (Google  Yahoo  Earnings  Chart) 
SONS,Sonus Networks Inc (Google  Yahoo  Earnings  Chart) 


OMRI almost trippled from its first episodic pivot. The second major episodic pivot on earnings annuncement was another good entry point.

A reader asked me my opinion on INFY. Now as regular readers know the hazards of commenting on any single stock. Many times those opinion do not matter because what is important is methodology. But I sent him the following chart of INFY with episodic pivots marked on it. My studies show , further away from the episodic pivots you buy, more risky it is. In fact one of the systems I am experimenting with is to use the price move from such episodic pivots to identify possible short candidates.

As of now there are 14 stocks in the Stocks up 50% or more in one month list. Two of them ADZA and PREM are related to mergers. So we have 12 stocks. What I did is put the markers where they appeared in episodic pivot scans. They are the green and blue spikes in last two panels.
Out of the 12 I have positions in or closed positions in 8. All of these stocks came through the Episodic Pivots scan.

ACY,Aerocentury Corp (Google  Yahoo  Earnings  Chart) 
ADZA,Adeza Biomedical (Google  Yahoo  Earnings  Chart) 
CBLI,Cleveland BioLabs Inc (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
HDNG,Hardinge Inc (Google  Yahoo  Earnings  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart) 
KRSL,Kreisler Manufacturing (Google  Yahoo  Earnings  Chart) 
NM,Navios Maritime Holdings Inc (Google  Yahoo  Earnings  Chart) 
ONXX,Onyx Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
PREM,Premier Community Bnkshrs (Google  Yahoo  Earnings  Chart) 
REFR,Research Frontiers Inc (Google  Yahoo  Earnings  Chart) 
TRT,Trio-Tech Internat (Google  Yahoo  Earnings  Chart) 
TSL,Trina Solar Ltd. (Google  Yahoo  Earnings  Chart) 
XIDE,Exide Tech (Google  Yahoo  Earnings  Chart) 








The remaining stocks in next post as blogger did not allow more pictures.

Studying episodic pivots on daily basis can be profitable strategy. It is not a purely mechanical strategy. The starting point of the idea was my study to find what leads a stock to move rapidly in short time period. Or what triggers a 100% plus move in a stock in a year. Or 50% move in a month or 25% plus in a quarter.

Majority of the stock in the list had one day 10% or plus move within first 20 to 25% of their 100% or more growth in 260 days. So I framed the question as "Can a one day move signal something about future returns". Initially I tried to look at it as purely mechanical thing, but it was not very useful.There were too many stocks. So I abandoned it.

Most of the time when I abandon a concept, I put it in "Idea Pickle" jar. This is a long term practice I have used for several years, where I put half baked or promising ideas in a jar to pickle. Revisiting them after some days or months sometimes gives you a completely new idea. I have several of such "Idea Pickle" jars to ensure I never run out of ideas. Not all are related to trading , in fact most are related to new business ideas or other stuff.

Some months after I stopped working on the idea, I read a book:Swing Trading:Power Strategies to Cut Risk and Boost Profits by Jon D.Markman. There is not much useful information in that book except for one system. It describes a trading system used by George Fontanills. It is a system based on price and volume.

Now if you know Fontanills, he sells a 3000 dollar option course which basically tells you if you want to master these strategies then you need to buy another $5000 platinum course and so on. So when I read it at first I was very skeptical of it. But then I remmbered my "idea Pickle". So I investigated it further.

The system in short as per the book:

" Basically it comes down to finding stocks with greatest short term momentum that will turn in to long term momentum."
The Scans:
1 up or down 30% in a single day on at least 300000 shares traded or
2 up or down 20% in a single day on at least 1 million shares traded or
3 up or down 5$ in a single day on volume of at least one million shares and
4 still trading above $7 and
5 has options
6 has a long term catalyst like earnings or accounting fraud

He buys options on it after few days , typically such stocks after a pause tend to move up or down.

Now I played around it a bit but could not find good results. So I put the idea aside again in the "idea Pickle" jar. Last year I revisited this concept when I saw Mark Minervini site where he put up a list of his past trades. After close xamination I found that most of them were triggered by news pivots and the entries were post such high volume spikes. So that set off a bell in my head.

I revisited that Fontanills concept and my original price volume spike idea and converted it in to hybrid strategy of using a discretionary filter to eliminate some Episodic Moves.

The basic idea is to study large one day move to find stock likely to go up.

I changed the Fontanills scan a bit and added some more scans to it. So here are the scans in TC2000 for it
Bullish
1 ( 100 * (C - C1) / C1) >= 20 AND V > 10000 AND C >= 5
2 ( 100 * (C - C1) / C1) >= 30 AND V > 3000 AND C >= 5
3 (C - C1) >= 5 AND V > 10000 AND C >= 5
4 ( 100 * (C - C1) / C1) >= 10 AND V > 1000 AND C >= 5
5 C > C1 AND V > 5 * AVGV50.1 AND V > 3000 AND C > 5
These five seperate scans give the bulish pivot list
Bearish
1 ( 100 * (C - C1) / C1) <= ( - 20) AND V > 10000 AND C >= 5
2 ( 100 * (C - C1) / C1) <= ( - 30) AND V > 3000 AND C >= 5
3 (C - C1) <= ( - 5) AND V > 10000 AND C >= 5
4 ( 100 * (C - C1) / C1) <= ( - 10) AND V > 1000 AND C >= 5
These give bearish pivot candidates.

Together the scans give you less than 20 to 25 candidates to work with daily. After that I analyse each for why it is up or down to isolate the catalyst. Most of the time it is earnings, biotech news break, insider buying, major sector breakout or some news.

I enter the 1-2 with clear catalyst and where the move is just starting. Most of them I research during the day itself and enter,some next day.Many I enter later. I have also created same scans for stocks priced less than 5.

After a trial and error and building a database of such episodic pivots over some time now I have got a list of high probability events and low probability events. Earnings, new product, analyst earnings change, increased earnings guidance, sector moves etc have high probability to trigger multi month rallies.Like this I have around 12 Episodic Triggers which have high probability of starting off a 100% plus move. James Crammer, Barron's, WSJ, and other publication mentions, analyst upgrade etc. have a low probability of follow through.

After such experimentation the hybrid concept as of now has climbed to the best performing strategies amongst my pool of 20 odd strategies, beating even my earning lead breakouts strategy(which was the best strategy in my pool of strategies so far).Obviously most of the earnings lead breakouts also figure in the Episodic Pivot list.

Sometime revisiting an abandoned concept works and sometime a semi mechanical approach is better than purely mechanical approach.The Episodic Pivots approach gives you really really top quality ideas to focus on. But it is not purely mechanical.

Other Related Posts:
Episodic Pivots on stocks up 50% plus in a month- Part1
Episodic Pivots on stocks up 50% plus in a month- Part2
Episodic Pivots on stocks up 50% plus in a month- Part3
Up stocks and down stocks

The technical analysis believers like flat bases and cup with handle. In the CANSLIM approach also there is lot of stress on chart patterns like flat bases, cup and handle and double bottom at top of the range. All these pattern essentially indicate stalled price action on the charts. It is a different and visual interpretation of the concept that long term momentum is good but to time low risk entry you should find a weakness on smaller time frame. So essentially you want to find a swing point for entry from where stock is likely to make another major move in the direction of previous major move.

If you can identify such stocks in advance then you can anticipate an entry. Some people calculate complicated pivot points on such stocks down to few cents and put conditional orders at those points. If you see the Investors Business Daily weekly 85-85 list or IBD 100 list, they have such stocks with black border.

Similarly everyday Investor Business Daily in their NYSE Stocks in the News and NASDAQ stocks in the news page have 2 stocks which are first two in that list of stocks which usually have the ideal IBD patterns and also those stocks by IBD standards are ready to breakout.

Most of the time if you read carefully it will also have exact buy points mentioned. Every day I put those 4 stocks on watchlist and you will often find those stocks breakout within few days or in most cases on the day of their appearance. Similarly notice how many of the stocks which are black boxed in 85-85 or IBD 100 breakout on Monday.

Now one of the ways to use the base universe of 100 % plus movers to find flat bases and cup with handle is to just sort those stocks with 65 day price growth and take bottom 10%. If you go through that list of stocks you will find several flat bases and cup with handle in strongly up trending stocks.

So after doing the same on the 397 stocks up more than 100% from their low in 260 days, I got this list for next week of stocks to watch:

AKAM,Akamai Technologies Inc (Google  Yahoo  Earnings  Chart) 
AKH,Air France KLM (Google  Yahoo  Earnings  Chart) 
AMAG,Advanced Magnetics Inc (Google  Yahoo  Earnings  Chart) 
AMIE,Ambassadors Internat Inc (Google  Yahoo  Earnings  Chart) 
AXTI,Axt Inc (Google  Yahoo  Earnings  Chart) 
BRLC,Syntax-Brillian Corp (Google  Yahoo  Earnings  Chart) 
CBEY,CBeyond Communications Inc (Google  Yahoo  Earnings  Chart) 
FCGI,First Consulting Grp Inc (Google  Yahoo  Earnings  Chart) 
HHGP,Hudson Highland Grp Inc W/i (Google  Yahoo  Earnings  Chart) 
LBY,Libbey Inc (Google  Yahoo  Earnings  Chart) 
LNOP,Lanoptics Ltd (Google  Yahoo  Earnings  Chart) 
MAG,Magnetek Inc (Google  Yahoo  Earnings  Chart) 
MFB,Maidenform Inc (Google  Yahoo  Earnings  Chart) 
OVEN,TurboChef Technologies Inc (Google  Yahoo  Earnings  Chart) 
POZN,Pozen Incorporated (Google  Yahoo  Earnings  Chart) 
RBN,Robbins & Myers Inc (Google  Yahoo  Earnings  Chart) 
RIMM,Research In Motion Ltd (Google  Yahoo  Earnings  Chart) 
RVBD,Riverbed Technologies Inc (Google  Yahoo  Earnings  Chart) 
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings  Chart) 
TAR,Telefonica De Argentina (Google  Yahoo  Earnings  Chart) 
TRFC,Traffic.com (Google  Yahoo  Earnings  Chart) 
WRSP,WorldSpace Inc (Google  Yahoo  Earnings  Chart) 


Now if you go through the list it is full of stocks with flat bases and cups with handle. If you further narrow down the list by earnings or any other criteria you have 4-5 good candidates to anticipate entries on. So instead of buying a breakout after a stock has gone up 4% you can anticipate a breakout and enter with a pre defined buy stop. That way you can capture a part of the breakout move.

If you want to go even further in to microscopic details, then you can find out the required volume and price action for a breakout and break it down by hours or minutes and if you see a stock meeting that condition in first one hour of trading then you buy. So that you can benefit from the 5 to 10 dollars move in a stock on day of breakout. This can further reduce your risk on entry by reducing the distance from breakout price. That is how the list on first page of Investors.com is generated under the heading Stocks On The Move. The list is calculated by using hourly equivalent of the the percentage up or down in trading volume of a stock compared to its average daily volume over the past 50 days.(The average 50 day figure is divided by number of trading hours and given a certain weight for first few hours and when the trading volume exceeds that level, the stock appears on that list).

Another very microscopic detail which can help you fine tune your entries.