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Everyone is expecting a correction !!!

Posted on 8/31/2009

  • The story was more or less same on Friday.
  • A holding pattern is developing.
  • Everyone I talk to is expecting a correction.
  • Which itself may be contrary indicator.
  • If sell off develops I will quickly take evasive action and close many positions.
  • # of stocks down>25% in a quarter tells you the story in this market.
  • For a week it is in narrow range between 300 to 260.
  • When it starts approaching 200 just enough selling happens to keep it in the range.
  • When it goes above 300, just enough buying happens to keep it in range.
  • The daily 4% breakouts have settled down below 300.
  • There is a steady sideways churn going on.
  • I am as of now just going by individual stock action and catalyst.
  • As of now I am finding lot more bullish set ups than I can handle.
  • But I am ready to trim positions aggressively if selling develops.
  • Month end tend to be bullish, so let us see if real selling actually shows up. It will come in last two days or so.
  • At this stage my primary focus is on three things:
    • Episodic Pivots on stocks with explosive earnings
    • Top 20 Sector stocks (for hit and run)
    • Modified Double Trouble (for hit and run)



Market Monitor
Market monitor is market breadth
based market timing tool

Current Readings
Market has had a very shallow correction.




Type IndicatorValueComments




Daily# of stocks up >4% on high volume142
15 stocks with 100 million plus dollar volume.(M$V)
The new leadership keeps emerging.
If you keep a daily eye on the stocks with
100 million plus dollar volume having 4% plus b/o
you can become good at spotting where money is flowing.
Now if you look at the 15 stocks with 100 M$V on Friday
you will clearly notice money flowing in to technology sector.
intc mrvl mu amd qlgc isil are all technology stocks.
Yesterday you had big companies like
dell and stx attracting buy interest.
The second sector theme that is clearly emerging in last one week is retail.
Daily# of stocks down>4% on high volume 75No major selling. The dollar volume 100 million plus b/o
has one stock today
GT.If market turns this is where you would notice
100 M$V stock dominating the action.
As of now the large stocks are in sideways pattern.
Primary# of stocks up >25% in a quarter2003I always look at the top 25 to 30 stocks in this list sorted by dollar volume.
That tells you whether such large stocks are showing
topping formation or continuation patterns.
On weekends or on days when I have time I look at all
100 M$V stocks in this list.
If you see this scan output today you will see that
there are 132 stocks with 100 M$V
When the market rolls over the big stock start rolling over.
As of now you see few signs of that because there
has been no serious selling in last few weeks.
Primary# of stocks down>25% in a quarter271260 to 300 is the range on this for a week or so.
There are only 5 M$V stocks in this scan CIT FSLR DRYS ATI S
Secondary # of stocks up> 50% in a month21In this market this number at around 100 level has been
when froth has shown up.
So at 20 it is still comparatively benign for this market.
Secondary # of stocks down>50% in a month1
Secondary # of stocks up>25% in a month154
Secondary # of stocks down>25% in a month23No edge on short side as of now, for those attempting it .
Primary
fast
# of stocks up>13% in 34 days2352
Primary
fast
# of stocks down>13% in 34 days570
MMA+% of stocks in confirmed uptrend69This is gain range bound.
In this scan also I look at top 30 to 100 stock by 100M$V
MMA-% of stocks in confirmed downtrend 1316 stocks in this scan have 100 M$V.
When market rolls over or corrects such stocks
can make good short candidates.
Weak stocks become weaker.
10 day
cumulative
breadth
ratio
#of stocks up> 4% in last 10 days/
#of stocks down>4% in last 10 days
1.48A reading of below 0.5 on this will confirm bearish trend.












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What drives my trade selection

Posted on 8/28/2009

Posted yesterday on Members Site explaining the reason behind buying RTI in the morning.

---------------------------------------

What drives my trade selection

Posted by: easyguru, on Thursday, August 27, 2009 13:36 EST

The only thing I am focused on in the morning is Episodic Pivots. Based on my past experience I know 4-5 good EP can make your year if you bet sufficiently big on them. So from early morning I have my IB scanner on. I might be doing other things but I have one eye on the scanner. Till 11 Am only thing I focus on is EP. I don't look at my emails, or work on other things but single minded focus on finding that good trade which can make a difference to your account. The stocks showing up on scanner, I keep immediately researching on Dailygraphs or Moneycentral or Google .

Today morning I saw BA early in the scan, so I immediately went and read the news on it. BA is a very big stock, it showing up with a gap up is big news. So my mind was working (like that example I highlighted yesterday of earthquake in Turkey, so buy all glass companies stock). So my first reaction was look for BA suppliers. I knew about PCP, BEAV (which is more secondary market because it does retrofitting once plane is bought), RTI. So my immediate reaction was to look at PCP and RTI as possible buy, I was looking at BA showing gains of 7 to 8% . So I knew supplier might make similar move. RTI has 22 million float, so will make bigger move. PCP has 138 million float so will not be big mover.
RTI was a stock which was EP some months ago and I had researched it then (besides that I knew it from previous research as it was one of the big mover in last bull market. It was highlighted in IBD many times). Last time when it EPed it was related to a large plane order by UAUA. I was thinking of buying the stock on pullback so I had written a note on the chart like this.

So I quickly started putting in order and bought it.
Did it meet a EP criteria that time , no. But the idea behind EP is to trade the EP concept (behind every big move there is a big catalyst) and not some Telechart scan. The telechart scan is a tool to trade EP. You don't need it to trade EP if you understand the concept. RTI might meet EP conditions by EOD. That is inconsequential.
The main idea behind EP is that new information starts new trends. Surprisingly new information, if it is not priced in stock currently, leads to big trends. If one can enter right at the beginning of such trend then one can make big money. If you understand and internalise this fact then you will be able to identify potential EP fast without running EP scan.

Market is churning at this level.

Posted on 8/27/2009
  • Market is churning at this level.
  • Breadth keeps on showing no major selling efforts so far.
  • More and more lower quality stocks continue to breakout.
  • That typically happens before a correction.
  • We are poised for a correction but unless you see a 500 plus down day on 4% plus it will not show up.
  • There has been no major buying push and breadth push as indicated by 10 day cumulative breadth ratio.
  • So a weak rally has developed.
  • So we are in a sideways pattern till something major pushes market in either direction.
  • There is lot of sector rotation happening.
  • In this earnings season, there have been no major growth stories.
  • You can count on your finger the number of growth stories that have emerged from this earnings season.
  • Stories like STEC, GMCR, PEGA, FIRE, LCRD, HITK are needed for big gains. Some of these are old stories.
  • The stocks with best growth currently are the Chinese stocks, but the Chinese market is having nasty correction and many of the good growth stories have suffered damage .
  • The Chinese stocks with potential and still holding on to their gains are PWRD , KONG, CYOU, HMIN, CHDX , CGA, TXIC, FUQI, BIDU, EJ, and VIT. These are the stocks to watch. Once Chinese market turns, these could breakout quickly.
  • A stock like PWRD has potential to make a big move. As of now it is showing very good relative linearity, which tends to be a indicator of support from funds.
  • From US stocks list a handful of stocks with good earnings and growth characters and with potential for big moves are: STEC, GMCR, NITE, AMSC, MED, VRX, SXCI, PEGA, SCLN, HITK, ARST, TLEO, FIRE, ANEN, LCRD, DDRX,

Pullbacks watchlist for Tuesday

Symbol Trigger PriceStop
catm8.247.80
seh13.0312.34
bzh4.283.85
say5.605.30
thc4.764.50
vnda13.9213.27
plab4.854.58
caas8.828.37
hitk14.2113.28
chdx14.3613.60
abax28.3627.82
hgrd5.094.90
cksw7.377.03
cray8.227.75
vit14.4014.00
tsl27.1026.07
mrge3.893.67
tibx9.338.93
jdas20.5119.54
cvlt18.8018.06
tsra26.6425.61
ulti27.6026.84
icon17.7317.12
shoo32.1231.62
tdc26.7325.92
mant55.0653.65
life46.6045.76
star23.9422.69

Not much selling pressure as of yesterday


Top 25 stock by Dollar Volume
up 4% plus on high volume
(100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1and c*v>=1000000
fnm fre stec wcrx chic lo amd hgsi bcrx mtl
Only 10 stocks had 100 million plus dollar volume
on 4% breakout day
Top 25 stocks by Dollar Volume
down 4% plus on high volume
( 100 * (C - C1) / C1) <= ( - 4) AND V >= 1000 AND V > V1 and c*v>=1000000

f pnc bby hban tol gt
6 stocks had 100 million plus dollar volume.

Many look like pullbacks


  • This tells you where big money is flowing.
  • If you do it daily, you will quickly notice overall market direction change.
  • At the beginning of a move large stocks start breaking out.
  • At the end of a move, you will see larger stocks breaking down.
  • Large stock=100 million plus dollar volume
  • Yesterday did not show much selling pressure as shown by this scan.




Related Post

AAII Stock Screens last 10 year returns

If you study the top performing screens on the AAII site you would see growth screens dominate.

StyleScreen10 year
Returns
Comments
ValuePiotroski1304%This is the only value screen
which approaches growth screen performance.
Graham 630%
Neff 625
Growth+value O'Shaughnessy
Tiny Titans
1905%This is basically small companies growth screen.
CANSLIM variation.

Zweig1325%Growth at reasonable price
This is CANSLIM on stocks with value characters.

Magnet 839%Growth+momentum+value
This is very similar to Zweig
CANSLIM will capture all these.
The only difference from CANSLIM is that Magnet
emphasises revenue growth instead of earnings growth.

GrowthCANSLIM2767%The best performing growth screen out of all the screens.

Canslim R 613
SpecialityEarnings estimate
up5% plus
1880%This is Zacks Rank kind of growth investing approach.

  • The AAII Stock Screens are based on AAII understanding of these methods.
  • You can study the exact methodology on their site.
  • Currently growth +value screens are doing well.

How to monitor and trade top sectors

Posted on 8/21/2009

To do this you need subscription to :
IBD Daily Graphs and
IBD Custom Screen Wizard
Here is how I do it:
Step 1
DailyGraphs Industry Groups
Take top 3 stocks from top 20 sectors.

EPS+RS (sorted by EPS)
I have shown first 3 sector stocks. Like that I get 20 sector top 3 stocks.
Rank IBD Industry GroupStock
rank1
Stock
rank2
Stock
rank3
1Paper and paper products kppc clw rkt
2Auto Truck Original Equip TXIC WATG caas
3Media Radio TVsalmctcmsga
4
5
.
.
20
This goes to Top 20 Sector Watchlist in Telechart

Step2
DailyGraphs Custom Screen Wizard
Sector rank= 1 to 20
Composite Rating>96
Screen Name: top 20 sectors 96 composite
To Top 20 Sector Watchlist in Telechart
Step 3
DailyGraphs Custom Screen Wizard
Sector Rank= 1 to 40
EPS% >40
sales%>25
50 day avg volume>100000
(These criteria are 100% EPS and 25% sales during bull market)
Screen Name: Top40 sectors 40eps+25sales
This is a separate Top 40 sector 40/25 watchlist in Telechart.

These are the stocks I focus on. Together the three things give you only around 75 stocks to monitor. From that list anticipating breakouts or trading breakouts is easier. If you focus on the top 20 sectors it is unlikely you would miss big moves.
The other advantage of sector based strategy is it allows you to anticipate breakout and enter in anticipation. RKT and GYMB two breakouts bought recently came from such monitoring.


Get the training to be a profitable trader

Many factors at play...

Posted on 8/19/2009
  • When the second phase of the rally started around mid July, we had stocks with earnings power like STEC, NTES, PWRD, UTA, CISG, BIDU, FUQI, GMCR, FIRE and other Chinese stocks leading the rally.
  • Rallies need stock with earnings power to propel them forward.
  • In last few weeks all these rally leaders have come under severe pressure. When stocks with good fundamentals run in to trouble, it is usually a hint of impending correction.
  • When leaders come under pressure, lower quality stocks take on leadership for few days or weeks but such moves cannot last long.
  • The second factor which acted as a catalyst for the rally was the earnings season, where earnings were better than expected.
  • Now bulk of the earnings are out of the way. So there is no catalyst till around mid October.
  • Another thing, if you have noticed so far in this earnings season is that, there have been very very small number of stocks with blowout earnings compared to last earnings season.
  • FIRE and HITK are the only stock I remember from this earnings season which had good earnings and then they had follow through.
  • Can the rally continue on the back of just turnaround stocks and near bankruptcy companies rallying? Anything is possible in the market, but I have my doubts.
  • The emerging markets were on steroids for last 5 months or so, many of them almost doubling from the low. But most of them have run in to trouble.
  • The Chinese market has had series of distribution days.
  • If you see the number and kind of breakouts happening in top 25 stocks by Dollar Volume in last few weeks, you would see not much action in good stock.
  • Rallies have higher participation by 100 million plus Dollar Volume stocks.
  • So in addition to the Market Monitor signal there are factors at play here which are likely to act as a drag on the market.
  • So does it mean start of a bear market. No. Till Primary indicator is bearish or 10 Day Cumulative Breadth Ratio goes below 0.5, I will treat this as a correction in primary trend.
  • It has been the nature of this bull market so far , where bulk of the gains have happened in two intense burst of few weeks.
  • If you did not catch those bursts you had very slim pickings.
  • A correction is a good time to put your affairs in order to catch the next big burst which is likely after this correction plays out.
  • At this stage my primary focus is on three things:
    • Episodic Pivots on stocks with explosive earnings
    • Top 20 Sector stocks (for hit and run)
    • Modified Double Trouble (fr hit and run)



Market Monitor
Market monitor is market breadth
based market timing tool

Current Readings
Market in correction.
Earnings season currently on





Type IndicatorValueComments




Daily# of stocks up >4% on high volume203 Dip buyers were active early. But the 203 numbers show
that they were not very aggressive.
Any change of trend would be signaled by
a 500 plus day on this indicator.
Daily# of stocks down>4% on high volume 34
Primary# of stocks up >25% in a quarter1817
Primary# of stocks down>25% in a quarter354If more selling does not happen or if market does not go sideways and attempts a rally,
within days this readings will again start approaching 200.
That will result in lot of volatile moves.
Secondary # of stocks up> 50% in a month30These readings have dropped significantly in few days.
Few days ago it was at 172.
So extreme breadth readings are coming down,
but need to see below 20 readings for becoming bullish.

Secondary # of stocks down>50% in a month2You want to see this climb to 20 for a real correction. That will be bullish.
Secondary # of stocks up>25% in a month232
Secondary # of stocks down>25% in a month15No edge on short side as of now, for those attempting it .
Primary
fast
# of stocks up>13% in 34 days2424
Primary
fast
# of stocks down>13% in 34 days750
MMA+% of stocks in confirmed uptrend61
MMA-% of stocks in confirmed downtrend 15
10 day
cumulative
breadth
ratio
#of stocks up> 4% in last 10 days/
#of stocks down>4% in last 10 days
1.01A reading of below 0.5 on this will confirm bearish trend.







Several things pointed to corection