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.


QUIKTDR said...

How would you write a PCF for relative strength >70 and the earnings component for TCnet 2007?

Pradeep Bonde said...

Relative strength PCF can be written.:
2 * (C * 100 / C65) + (C * 100 / C130) + (C * 100 / C195) + (C * 100 / C260)

Earnings ratings has to be taken from IBD.

krisam36 said...

I am amazed at your abilities to find out innovative methods to come up with new strategies to trade profitably in this environment. However, I am overwhelmed by the increasing number of strategies.
When I started to read your blogs I believed it is IBD 200 looking for 2% and 4%. Today I read IBD 70 plus EPS. Where can I find the details of this method? What is IBD 70 list ( compared to IBD 200)?
If you were to choose one trading strategie,what will it be?

I think that you are the best in Trading blogs, offering such a vast amount of useful and practical info and formulae for TC 2007 totally free ( you are on par with ejr, who does a great job on Yahoo telechart newsgroup).


Pradeep Bonde said...

The most profitable strategy is Episodic Pivots

There is no IBD 70 plus list. IBD 70 plus EPS ratings is what I am talking about. To do that you have to look at the 4% plus breakouts and sort them in IBD website by EPS ranking. IBD 70 plus EPS is for more experienced traders. Beginners are better off with IBD 200.
Following 70 plus EPS will get you in to IBD 200 stocks much before they get in to IBD 200.