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70 Plus EPS

Posted on 5/31/2007
As of 1 PM the following stocks were meeting the 4% plus breakout and 70 EPS plus ratings.
AEM,Agnico-Eagle Mines Ltd (Google  Yahoo  Earnings  Chart
AEY,Addvantage Tech Group (Google  Yahoo  Earnings  Chart
AGE,A.G. Edwards Inc (Google  Yahoo  Earnings  Chart
ARGN,Amerigon Inc (Google  Yahoo  Earnings  Chart
ASML,Asml Hldgs Nv Ny Reg Shs (Google  Yahoo  Earnings  Chart
BFAM,Bright Horizons Fam Solu (Google  Yahoo  Earnings  Chart
BHE,Benchmark Electronics (Google  Yahoo  Earnings  Chart
BKRS,Bakers Footwear Group Inc (Google  Yahoo  Earnings  Chart
BLK,Blackrock Incorporated (Google  Yahoo  Earnings  Chart
CIEN,Ciena Corporation (Google  Yahoo  Earnings  Chart
CNC,Centene Corp (Google  Yahoo  Earnings  Chart
FTK,Flotek Industries Inc (Google  Yahoo  Earnings  Chart
HEI,Heico Corp (Google  Yahoo  Earnings  Chart
HSOA,Home Solutions Of America (Google  Yahoo  Earnings  Chart
JCG,J Crew Group Inc (Google  Yahoo  Earnings  Chart
LAYN,Layne Christensen Co (Google  Yahoo  Earnings  Chart
LXU,Lsb Industries Inc (Google  Yahoo  Earnings  Chart
NVT,Navteq Corp (Google  Yahoo  Earnings  Chart
PJC,Piper Jaffray Companies (Google  Yahoo  Earnings  Chart
PNSN,Penson Worldwide Inc (Google  Yahoo  Earnings  Chart
RHT,Red Hat Inc (Google  Yahoo  Earnings  Chart
RJF,Raymond James Financial (Google  Yahoo  Earnings  Chart
RRST,RRsat Glo Comm Network Ltd Ord (Google  Yahoo  Earnings  Chart
RVBD,Riverbed Technologies Inc (Google  Yahoo  Earnings  Chart
SF,Stifel Financial Corp (Google  Yahoo  Earnings  Chart
SNP,China Petro & Chem Ads (Google  Yahoo  Earnings  Chart
SSRX,3Sbio Inc Ads (Google  Yahoo  Earnings  Chart
TKC,Turkcell Iletisim Hizmetleri ADS (Google  Yahoo  Earnings  Chart
TSRA,Tessera Technologies Inc (Google  Yahoo  Earnings  Chart

While many are having second or third breakouts , the one with low 65 days price growth are worth investing.

Perma Bears and History

“in February 1948, the communist leader Klement Gottwald stepped out on the balcony of a Baroque palace in Prague to harangue hundreds of thousands of citizens massed in Old Town Square.
Gottwald was flanked by comrades with Clementis standing close to him. It was snowing and cold, and Gottwald was bareheaded. Bursting with solicitude, Clementis took off his fur hat and set it on Gottwald’s head.
The propaganda section made hundreds of thousands of copies of the photograph taken on the balcony where Gottwald, in a fur hat and surrounded by his comrades, spoke to the people. On that balcony the history of Communist Bohemia began. Every child knew that photograph, from seeing it on posters and in schoolbooks and museums.
Four years later Clementis was charged with treason and hanged. The propaganda section immediately made him vanish from history and , of course, from all photographs. Ever since, Gottwald has been alone on the balcony -. Where Clementis stood , there is only the bare palace wall. Nothing remains of Clementis but the fur hat on Gottswald head.”- The Book of Laughter and Forgetting by Milan Kundera

Since the 2002 bottom, the market has been rallying, interspersed with occasional corrections. One permanent feature of the advance has been the perma bears insisting on this 5 year rally being just a counter trend rally in larger bear market.Various hypothesis and arguments have been advanced by the bears at various stages of the move. All of them have proven wrong.

Now the great race to erase the history will start. Bears after bears will crawl out qualifying or subtly changing their past calls. Some will just air brush their past hypothesis and calls. Just watch the fun. After all at some stage after being wrong consistently for five years even the most ardent fans will start questioning the logic and threaten to quit.

Casting a wider net

Last night I talked about looking at the 4% plus universe to figure out market trends and sector trends. Now that the market open is out of the way lets look at it closely.
  • There were 132 4% breakouts yesterday
  • If you add the Episodic Pivots to it, it was a total of 139 stocks.
Now these 139 stocks are divided in to sub groups:
  • Double Trouble
  • Episodic Pivots
  • Virgin
  • IBD 200
So obviously the stocks in each of the above subgrouping have a well defined methodology to select stocks out of them. But looking at the list as a whole also gives you a deeper understanding of where money is flowing in the market.

To track that, everyday I segragate the list further in to two groups from the total 139 stocks:
  1. Stocks with IBD 70 plus EPS
  2. Rest of the stocks
Now if you look at last nights list following stocks had 70 plus EPS ratings.

AAON,Aaon Inc (Google  Yahoo  Earnings  Chart
AG,Agco Corp (Google  Yahoo  Earnings  Chart
AZZ,Azz Inc (Google  Yahoo  Earnings  Chart
BCSI,Blue Coat Systems Inc (Google  Yahoo  Earnings  Chart
BIIB,Biogen Idec Inc (Google  Yahoo  Earnings  Chart
CDWC,Cdw Corp (Google  Yahoo  Earnings  Chart
CF,CF Industries Holdings Inc (Google  Yahoo  Earnings  Chart
CMGI,CMGI Inc (Google  Yahoo  Earnings  Chart
CNH,Cnh Global Nv (Google  Yahoo  Earnings  Chart
COH,Coach Inc (Google  Yahoo  Earnings  Chart
CROX,Crocs Inc (Google  Yahoo  Earnings  Chart
CTCI,Ct Communications Inc (Google  Yahoo  Earnings  Chart
CTCM,CTC Media Inc (Google  Yahoo  Earnings  Chart
CWTR,Coldwater Creek Inc (Google  Yahoo  Earnings  Chart
DBRN,Dress Barn Inc (Google  Yahoo  Earnings  Chart
EON,E.On Ag Ads (Google  Yahoo  Earnings  Chart
ESEA,Euroseas Ltd (Google  Yahoo  Earnings  Chart
ESV,Ensco International Inc (Google  Yahoo  Earnings  Chart
FISV,Fiserv Inc (Google  Yahoo  Earnings  Chart
FSTR,L.B. Foster Co Cl A (Google  Yahoo  Earnings  Chart
GMKT,GMarket Inc (Google  Yahoo  Earnings  Chart
GOOG,Google (Google  Yahoo  Earnings  Chart
GRMN,Garmin Ltd (Google  Yahoo  Earnings  Chart
GTLS,Chart Industries Inc (Google  Yahoo  Earnings  Chart
HEI,Heico Corp (Google  Yahoo  Earnings  Chart
HP,Helmerich & Payne Inc (Google  Yahoo  Earnings  Chart
IMA,Inverness Medical Tchnlg (Google  Yahoo  Earnings  Chart
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart
JOYG,Joy Global Inc (Google  Yahoo  Earnings  Chart
KOP,Koppers Holdings (Google  Yahoo  Earnings  Chart
LQDT,Liquidity Services (Google  Yahoo  Earnings  Chart
MALL,Pc Mall Inc (Google  Yahoo  Earnings  Chart
MEA,Metalico Inc (Google  Yahoo  Earnings  Chart
MKTX,Marketaxess Holdings (Google  Yahoo  Earnings  Chart
MOV,Movado Group Inc (Google  Yahoo  Earnings  Chart
NDAQ,Nasdaq Stock Market Inc (Google  Yahoo  Earnings  Chart
NILE,Blue Nile (Google  Yahoo  Earnings  Chart
NSIT,Insight Enterprises Inc (Google  Yahoo  Earnings  Chart
NVT,Navteq Corp (Google  Yahoo  Earnings  Chart
PDA,Perdigao Sa Ads (Google  Yahoo  Earnings  Chart
PLD,Prologis (Google  Yahoo  Earnings  Chart
POT,Potash Cp Saskatchewan (Google  Yahoo  Earnings  Chart
PRAA,Portfolio Recovery Assoc (Google  Yahoo  Earnings  Chart
PVH,Phillips-Van Heusen Corp (Google  Yahoo  Earnings  Chart
SUG,Southern Union Co (Google  Yahoo  Earnings  Chart
SWSI,Superior Well Services Inc (Google  Yahoo  Earnings  Chart
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart
URBN,Urban Outfitters Inc (Google  Yahoo  Earnings  Chart
VSNT,Versant Corporation (Google  Yahoo  Earnings  Chart
WFR,Memc Electronic Material (Google  Yahoo  Earnings  Chart

Now why should one look at this 70 EPS plus EPS list. EPS and all other things which are important in IBD CANSLIM methods like margin, recent quarter earnings or sales trends, ROE, etc. are all reported at three month interval. So for a quarter that rating is static. What changes is sector ratings and relative strength. Relative strength is a derivative of price. So any change in price growth gets reflected in relative strength. So Relative Strength is dynamic variable in a quarter. If you focus on breakouts, you know if this breakout is successful at what price stage the relative strength ratings will change. So you can buy earlier.

For example look at COH, GOOG,and PVH the three stocks highlighted by IBD under "Stocks in the News", they were all part of the IBD 70 plus EPS breakout list. While IBD insists on buying based on certain chart patterns, in reality few stocks have those ideal chart patterns. Most time the ideal buy able breakout on such stocks is a 4% move much earlier before the IBD idal pattern forms.

The same logic applies to the price cut offs used by IBD, many times the lowest risk buyable breakout on stocks with high EPS will happen 1 or 2 dollars below the cut off.

Now out of the 50 again I use an Relative Strength of 65 plus to shortlist candidates and look at them in greater details. I have found buying on a 4% breakout on 70% plus EPS with 65 days weakness is a better option than waiting for the relative strength to build up to 80 and buying. If there is a breakout and price moves in the direction of breakout, Relative Strength ratings climb very fast.

The other thing you will notice is this approach helps you spot sector moves very early. If you noticed all the retail/ fashion related stocks had breakout yesterday. This is a very common phenomenon, some months ago all the shipping and fertilizers stocks broke out in span of 2-3 days. Most sector moves start with the stocks with better EPS ratings breaking out first followed by the weaker ones. So doing this day in and day out will keep you on top of the sector trends. Everyday I do this and generate around 2 pages of notes based on my analysis. One of these days I might post a complete analysis of 4% plus breakout list.

After I am done with the IBD 70 plus EPS list, I go through rest of the list to see why these stocks are moving. Many times stocks move in anticipation of better earnings. Such stocks you will find in this list. In many sectors like Biotechnology, Retail, and Technology especially, the stocks make a move in anticipation of better earnings. So looking at rest of the list is useful. Sometime sector starts moving ahead of earnings seasons and then good earnings come in. Similarly I look at the 4% plus breakdowns to see sector and individual stock trends.

So in essence casting a wider net gets you in to good EPS candidates much earlier. This method is more suitable for those with much deeper understanding of how stocks with good earnings move. The IBD 200 is a lazy way to do same thing for beginners.
The wider net approach gets you in to trends on high EPS stocks at the beginning of a major move. That way your risk is lower and you can pyramid all along the move.

The bears and the dip buyers

  • Market were down premarket Wednesday morning to news that the Shanghai Composite Index had shed 6.5%. The Chinese government is trying to avert a disaster. Weakness across Asia and Europe had the bears excited.
  • But that action also excited dip buyers sending the market higher for the rest of the day.This was a classic bear squeeze. Month end also added a bit to that squeeze.
  • A good thing about yesterday was number of stocks with good earnings lead the action higher.
  • All the numbers , 65 days 25% plus, 100 and 200% plus and month 25 and 50% plus are in new high territories. So unless we see a major negative catalyst or 300 plus breakout on negative side, this rally has more time on its side.
  • A new set of sectors have started a move up in last couple of days and that is getting reflected in the 4% breakout list clearly.

Double Trouble

Posted on 5/30/2007
468 stocks up 100% plus is a new record for this rally. The Double Trouble system keep churning out opportunities. Today there are over 39 stocks in the universe. To reduce them to more manageable level you can look at the integrated Telechart breakout scan.

65 Days Weakness Plus Breakout
(100 * (C1 - C66) / C66) < 10 AND ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

21 Days Weakness Plus Breakout
(100 * (C1 - C22) / C22) < 10 AND ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

The rally has got second wind but in last couple of days breakouts have not had major follow through, so caution and tight stop is still the name of the game.

Once you become expert at identifying opportunities from this list, you can look at the total 4% breakout list. Today it has 132 stocks. Tomorrow morning I will post my methodology to sift through the 132 stocks in the list. Throwing a wider net can give you better understanding of the market and sector trends.

AG,Agco Corp (Google  Yahoo  Earnings  Chart
AZZ,Azz Inc (Google  Yahoo  Earnings  Chart
BCSI,Blue Coat Systems Inc (Google  Yahoo  Earnings  Chart
CF,CF Industries Holdings Inc (Google  Yahoo  Earnings  Chart
CHTR,Charter Communications Inc (Google  Yahoo  Earnings  Chart
CLF,Cleveland-Cliffs Inc (Google  Yahoo  Earnings  Chart
CMGI,CMGI Inc (Google  Yahoo  Earnings  Chart
CNH,Cnh Global Nv (Google  Yahoo  Earnings  Chart
CRM, Inc (Google  Yahoo  Earnings  Chart
CROX,Crocs Inc (Google  Yahoo  Earnings  Chart
CYTR,Cytrx Corporation (Google  Yahoo  Earnings  Chart
ESEA,Euroseas Ltd (Google  Yahoo  Earnings  Chart
EVOL,Evolving Systems Inc (Google  Yahoo  Earnings  Chart
FMT,Fremont General Corp (Google  Yahoo  Earnings  Chart
GTLS,Chart Industries Inc (Google  Yahoo  Earnings  Chart
GTXI,Gtx (Google  Yahoo  Earnings  Chart
JADE,Lj Internat Inc (Google  Yahoo  Earnings  Chart
KOSN,Kosan Biosciences Inc (Google  Yahoo  Earnings  Chart
LBIX,Leading Brands Inc (Google  Yahoo  Earnings  Chart
LBY,Libbey Inc (Google  Yahoo  Earnings  Chart
LNOP,Lanoptics Ltd (Google  Yahoo  Earnings  Chart
LQDT,Liquidity Services (Google  Yahoo  Earnings  Chart
MALL,Pc Mall Inc (Google  Yahoo  Earnings  Chart
MOS,Mosaic Company (Google  Yahoo  Earnings  Chart
MVIS,Microvision Inc (Google  Yahoo  Earnings  Chart
NFI,Novastar Financial Inc (Google  Yahoo  Earnings  Chart
NILE,Blue Nile (Google  Yahoo  Earnings  Chart
NOVC,Novacea Inc (Google  Yahoo  Earnings  Chart
NTL,Nortel Invesora Sa Ads (Google  Yahoo  Earnings  Chart
NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart
PDA,Perdigao Sa Ads (Google  Yahoo  Earnings  Chart
POT,Potash Cp Saskatchewan (Google  Yahoo  Earnings  Chart
RZ,Raser Technologies Inc (Google  Yahoo  Earnings  Chart
SDA,Sadia S.A. (Google  Yahoo  Earnings  Chart
TRCR,Transcend Services Inc (Google  Yahoo  Earnings  Chart
TTG,Tutogen Medical Inc (Google  Yahoo  Earnings  Chart
VSNT,Versant Corporation (Google  Yahoo  Earnings  Chart
VSR,Versar Inc (Google  Yahoo  Earnings  Chart
XNPT,XenoPort Inc (Google  Yahoo  Earnings  Chart

Market shrugs China

It is a very slow day. As of now only 66 stocks are up 4% plus and 27 down 4% or more. Market has formed small range in this area and it continues to churn. The dip buyers have been active pushing the tape around. As of now this looks still like a garden variety correction/consolidation with possible more upside.
Bloomberg had a big piece on how the short interest is at very high level. So squeeze may not be far off. Buying dips continues to work and it will take repeated failed attempts for the dip buyers to give up.

IBD 200 Breakout Scan

Some of you are confused by the two step process and some have valid question about what if the stock meets the 65 days less than 10% growth condition mid way through week.

To simplify all these kind of concerns you can run an integrated Telechart breakout scan.

65 Days Weakness Plus Breakout
(100 * (C1 - C66) / C66) < 10 AND ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

21 Days Weakness Plus Breakout
(100 * (C1 - C22) / C22) < 10 AND ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

Running either of the scan daily will give you list of breakouts, which one can then shortlist further.

The basic philosophy behind looking for weakness in high relative strength stock is line with the fact that when trading breakouts, one should look for higher per trade returns. Also such entries allow for pyramiding.

Similar logic applies to the Double Trouble universe.

Market Monitor

Posted on 5/29/2007
  • Market character has changed with early strength being sold and dip buyers not in position to break above morning high.
  • If you see the components of 4% plus breakouts, in last few days most are stocks at or near their 52 week lows. This often hints at trouble.
  • The other possible sign of trouble is junk stocks below 5 are finding bids in large number in last couple of days.
  • Month end effect should still keep a bid in market. But as pre mature bears learned today, shorting requires waiting for perfect spot. Lot of bears were excited when morning strength reversed but the dip buyers were active and the later half action looked like a bit of old fashioned panic covering by some shorts.
  • Trading volume should start dropping as the weather becomes more tempting than the market.

Reducing the IBD 200 list

The IBD 200 list is essentially top 200 stocks ranked by IBD composite rating. If you look at the rating closely, it has higher weights to relative strength and sector relative strength. You will notice if a sector has high relative strength, even a 65 EPS rated stock will be in IBD 200.

The other thing to note is all the stocks on Thursday would be around 15% of their 52 week high or recent high in case of IPO. As a result in IBD 200 you get stocks which are in last stage of rally, some midway through and some stocks which are consolidating or correcting. The reduction method should find the third kinds.

65 Day price growth is one way to do that. It gives you a very few candidates to focus on. You can try 33 day price growth. It is more suitable to swing trading. Anything less than 20 days may not be very useful.

Also the patterns like cup with handle, pullback to 10 week MA line, double bottom at top of range, flat bases etc, which are popular patterns in IBD methodology, you will find them only in stocks with low 65 to 30 days price growth, not on overextended stock. Even if you find those patterns on overextended stock, chances of their failure is high on those stocks.

The number of opportunities you get is function of market phase. If you see the list after a 2-3 months market correction or more, you will get lots of opportunities. After 2to 6 months of rally , you will get few opportunities.If you consistently trade the IBD 200, then you would anyway would have bought the breakout on the overextended stocks on 65 days scan long time ago if at that time they were member of IBD200. Probability of that happening is high because you are constantly getting in IBD 200, top 4% stocks ranked by composite ratings.