How to use the IBD Your Weekly Review (85-85)

Every Friday the IBD newspaper publishes a list of stocks under Your Weekly Review. These stocks list is a curated list of stocks with growth and momentum and extremely good source of ideas for growth investor.

Basically it is list of stocks with:

• 85 plus EPS ratings (that means they are in top 15% in relative rank in terms of their earnings growth)
• 85 Relative Strength rating (that means in top 15% by price momentum rank )
• 15% of 52 week high
• 50 day daily average volume above 100000

Essentially it is a list of growth stocks with momentum. It is published on Friday so that subscribers can study it on weekend and create their watch list for next week.

If you are a growth investor with limited time to focus on market during the week, you should focus like laser on this list. Study the stocks in the list. See if any of them is setting up for a breakout. At what price should you buy it. Where should you put stop, you can figure that out ahead of time.

Study the new entrant to the list as they offer new opportunities in the market. Look at IPO making it to the list and steady them.

Growth investing tries to find few home run growth stocks during the year while swing trading other growth ideas for 10 to 20% gain. The focus of your IBD 85-85 list study should be to try and find that one or 2 explosive growth ideas that are likely to make big move of 100% to 500% or more in a year. Or a growth idea with multi year legs which will keep going up for many years as it is in secular growth trend

.

If you subscribe to  Marketsmith, then you can generate this list daily by using a simple scan and that way you may not miss any stock that makes to the list during the week. The image shows how you can do that in that scanner.

The key to using it is to develop a process flow to analyse the list weekly or daily and then identify good anticipation setup and figure out your entry point and then focus on entering that position during the week if triggered.

Situational Awareness

Market started the year with a bang, going down from first trading day onward. After many months we have witnessed a good broad based correction.

The small caps have lead the downside. They have been in downtrend for months.

As you can see T2108 and T2107 are now at levels where 90% of stocks trends have been demolished.

The MM primary indicator also reached extreme readings below 200. The demolition of trends will set us up for the next bull phase.

Market rallies that start after a bottom is reached after such big demolition jobs tend to be long duration 12 to 18 or more months rallies.

At some stage this year we will see big rallies in all kinds of markets , emerging markets being the most likely place for some of them as they are down most.

In short term we will likely have volatile consolidation. It is still not ideal environment for swing trades. But breadth will show you the future move direction.

How to use the IBD Your Weekly Review (85-85)

Every Friday the IBD newspaper publishes a list of stocks under Your Weekly Review. These stocks list is a curated list of stocks with growth and momentum and extremely good source of ideas for growth investor.

David Ryan the  Market Wizard who also worked for IBD earlier and developed most of its rating  said this list is his main source of finding growth stocks along with Marketsmith Growth 250. All the big stock movers show up on this list during its big move. During the Minervini Master Traders seminar, I spoke to him and he said this is one scan he religiously looks at every weekend to find buy ideas. He created the scan many years ago when he worked for O’Neil.

What really is this list and how are the stocks selected. If you read the fine print accompanying the list, you will see following description:

Basically it is list of stocks with:

• 85 plus EPS ratings (that means they are in top 15% in relative rank in terms of their earnings growth
• 85 Relative Strength rating (that means in top 15% by price momentum rank )
• 15% of 52 week high
• 50 day daily average volume above 100000

Essentially it is a list of growth stocks with momentum. It is published on Friday so that subscribers can study it on weekend and create their watch list for next week.

The list is accompanied by small charts for each of the stock in the list with lot of useful information and buy points like:

• sector rank
• shares outstanding
• composite rank
• EPS rank
• RS ratings
• ROE
• Brief business description
• Annual EPS growth
• PE
• Daily Average volume
• last  quarter EPS and sales % growth
• 4 qtr EPS
• EPS due date
• Accumulation /Distribution rating from A to D
• buy point and chart comment

As you can see it has ton of information packed in small chart. That information is helpful for seasoned growth investors who want to go into more details.

If you subscribe to  Marketsmith, then you can generate this list daily by using a simple scan and that way you may not miss any stock that makes to the list during the week. The image above shows how you can do that in that scanner.

The best way to use this scan is for finding anticipation setups. For working people this is a good way to find growth stocks. For those looking for longer term position trade ideas this scan also gives you best of the best growth stocks. A 30 minute effort on weekend is all that you need once you understand the logic and rationale behind this scan.

How well does this scan do as compared to S&P?

The key to using it is to develop a process flow to analyse the list weekly or daily and then identify good anticipation setup and figure out your entry point and then focus on entering that position during the week if triggered.

If you are serious about making money trading then 30 minutes of weekend effort on the 85-85 list can help you find some very profitable growth stock trades.

How to use market breadth to time markets

Breadth statistics are valuable because they give some of the best indications about the health of the liquidity that is available to the stock market. A small amount of money can be employed to make a handful of stocks go up or down, and if they are the right stocks then even the major market indices can be moved. But to affect the breadth numbers, which measure all of the stocks on the exchange, requires major changes in the liquidity picture. The available money has to be so plentiful that it can be spread far and wide in order to make the majority of stocks close higher, and especially so in order for the market to show positive breadth for several days.
From the McClellan paper

Stock markets are composite markets.The overall move in market is an aggregate of moves of several hundred or several thousand stocks. So the level of participation in a move is important. How many stocks are participating up or down move tells you about extent of money flow in the market. Market breadth measures the number of stocks participating in a move.

In Worden telechart there are number of breadth indicators.

T2 Market Indicators

T2100 T2101 T2102 T2103 T2104 T2105 T2106 T2107 T2108 T2109 T2110 T2111 T2112 T2113 T2114 T2115 T2116 T2117 T2118 T2120 T2121 T2122 T2123 T2125 T2126 T2127 T2128 T2129

The Complete Guide to Market Breadth Indicators: How to Analyze and Evaluate market Direction and Strength Hardcover –by Gregory L. Morris, is the most comprehensive book on breadth.

If you study the Stockbee Market Monitor it essentially daily tracks number of stocks making big moves on various timeframe. That tells you about the underlying buying or selling pressure in the market.

Many Of the most reliable market timing models are based on Market Breadth. Understanding Market Breadth will help you if you want to do market timing. Study every single Market Timing model and you will see that most of the reliable ones rely on market breadth. They use different kinds of market breadth measures but ultimately the core concept is market breadth.

If you can understand this you will be able to develop your own home brewed workable market timing model. For more than 100 years people have attempted to build market timing models and they have ultimately come to same conclusion, that market breadth is one of the best way to do it.

Market Breadth tells you how many stocks are participating in a move. And it is just simple common sense that if you have more stocks participating in a move to upside it is a bullish market, and if more are participating in a move on downside it is bear market and at either end (bullish or bearish) there is breadth extreme or breadth divergence.

There can be periods when divergence can last long but ultimately either more buyers come on or more selling comes in to resolve divergence.

Ultimately most breadth based models are based on same concept of exhaustion of trends. Extremely bearish breadth is considered bullish as it signals seller exhaustion. (the 90% plus day indicator is based on that). Extremely bullish breadth is considered bearish as it becomes unsustainable and leads to trend exhaustion.

In a bearish market breadth keeps going down till it reaches extremely bearish levels. At that stage no one is left to sell. Buyers step in and you get a breadth thrust to upside. Breadth can flip from negative to positive in matter of hours near bottom. Market breadth is extremely good at spotting bottoms .

Near top there can be significant time lag between extremely bullish breath and top formation. Market breadth is not very reliable for top signal. Breadth divergences are more common in uptrends.

If you want to use breadth in your trading , there are many ways to measure breadth.

% of stocks above 200 MA

% of stocks above 50 MA

% of stocks above 40 MA (Worden T2108)

% of stocks above 10 MA

% of stocks above 5 MA

% of stocks making new high

% of stocks above upper bollinger band

% of stocks in bullish mode as per P&F chart ($bpnya)

and many more methods primarily look at finding out how many stocks are participating in a move.

These are also breadth indicators published daily on Stockcharts site.

Sellers dominating the action

Sellers are in complete control as of now from beginning of the year. We are getting big selling day in terms of breadth daily.

The breadth started to deteriorate months ago as % of stocks above 200 day MA (T2107) kept on going down from around April 2015. As of now only 12% of stocks are above 200 day MA.

Breadth deterioration was ignored by market as handful of large cap stocks still kept the indexes up. Now they are started to rollover.

Personally none of this was a surprise as I monitor breadth daily and had taken defensive posture ahead of sell off.

For those caught on wrong side of the move this is painful period. And as a result they will lose capital and confidence.

Markets periodically do this and wipe out traders , having good defense is your best offense for this kind of market periods.

As and when the market turns you have to be ready to go back in and have your list of stocks ready.

Stocks from DT + MDT+ TI65 that are still holding up well. Some of these will go on to make big moves in next bull move.

EXR NFLX BKH HR LXFT LULU MGLN NJR DLTR EDE FIZZ SLP CUBE ERI ENZ RIC LOCK CRAY BAK ONE LMAT LPTH SPWH OCLR PLAB CZR ADTN SSS TTS CHUY NSA ORBC MXL GHDX DRI VTL ROVI FIVE PACB VLRS AGRO HRL FIVN OLED OLLI VCRA WB SGI SPNC ANFI VRA DWA SIEN UTEK ERII FRAN ANGI CSTM ANF ITC GLOB CAFD ASPS FSLR PLCE CBPO PCRX MMYT PRAH ITCI WBMD FPRX DLR SEDG SCAI TSN NVRO ISRG EGRX ABMD STMP AMZN

Best money in market is made after such big corrections. If you protect capital and confidence then that period will more than compensate for being defensive during such bad period. 

First strep in being a profitable trader

At the beginning of year lot of people decide to take their trading seriously. If you are one of those person , the first thing you need to do is to develop a logical and well thought out setup and a process flow to trade it. 

The setup selection process is most important part of the puzzle and requires research and very good understanding of various trading styles and intricacies of them. Fortunately there is lot of information available about this in public domain.

Most traders in the beginning start by imitating someone else. They learn the  style and setup.from some person or some book or service and that helps them to shorten their learning curve. As the person gains more confidence or finds the style not working for them , they experiment and develop own setups. This is an iterative process. 

Finding setups is only 30% of the challenge for new traders. Good setup by itself does not guarantee trading success. For that you need to develop a well thought out process to trade that setup and stick to that process for long period of time. 

Developing a good trading process flow will pay dividend for years as once a process becomes part of you , you need very little time to manage it and it becomes automatic process. Developing good process for just one setup requires six to 12 months. 

The challenge for new trader is to survive this entire process and not lose money. Which is where many who attempt fail. They underestimate the time and effort required to find good setup and process flow.

Control what you can control

I started full time trading right at the start of big bear market in 2000. Having seen 2 big bear markets in last 15 years has influenced my thinking on risk management. What doesn't kill you makes you stronger.

My primary objective is to get returns while controlling risk and having very little downside. If you take care of the downside and avoid having negative years the  money compounds. If you are losing money in this market then having a re look at your strategy of managing risk is important.

Risk is always there in trading . As soon as you put on a trade risk is in play as the market is not under our control. If as a trader we do good job of managing what is under our control, the market risk becomes manageable.

The things that are under our control are:

• Market timing ( that is why  Market Monitor based timing tool)
• Setups selection (momentum burst , EP, anticipation)
• Stock selection (stocks with established absolute momentum MDT DT TI65 or growth +momentum using IBD scanner)
• Trade time-frame (swing trades)
• Entries
• Stops
• Exits
• Per trade risk

All the above things are under your control. How the market or stock will react after our entry is not. But by controlling the controllable factors we reduce but not completely eliminate the risk.

Market corrections are good time to think about your risk management and actually develop and use timing tools. If you do not manage risk you will be out of this game soon.

The game is about making money  while keeping your risk to lowest level possible. If you can build a track record of doing that you will find no shortage of money to trade as your friends and family will entrust more money to you than you can handle.

As of now I am in capital preservation mode on all long term accounts. Any change in breadth surge will change that approach.

The Primary Indicator at 192 is now below 200 which means extreme bearishness. Such readings often lead to bottoms or vicious counter trend rallies. 

Just because the readings reach extreme does not mean you start hugging and kissing each other, they should be followed by significant breadth improvement. Often it means a series of back to back buy days with 4% plus numbers of at times 1000 plus. That indicates institutional buying . Keep eyes open for that but wait for confirmation.

T2108 at extreme

Telechart has a good breadth indicator called T2108, it shows you % of stocks above 40 day moving average. As of now only 14% of stocks are trading above 40 day MA. That shows you the damage caused by selling in last few weeks.

However markets tend to be mean reverting. This tendency is more pronounced on short side. Market weakness tends to be short lived and attracts buyers.

If you study the S&P returns since 1926 that I posted some days ago you will see on calendar basis only 11 times in last 90 years the market have had 10% plus year to downside. Implication is probably we will recover from this downturn sometime during this year.

Periods like these are very volatile periods and if you do not have right strategy you can get chopped to death. 

Extremely bearish breadth leads to bounce

Markets have experienced significant distribution in first 2 weeks of new year. Breadth trends have deteriorated and are now reaching extremely negative readings.

As you can see in above breadth tables we have had more selling pressure than buying pressure in last 6 trading days of the new year. The T2108 indicator (% of stocks above 40 day moving average) is at 14.55% indicating 85% of the stocks are below their 40 day MA. 

Such extremely negative readings in T2108 historically lead to bounce in the market.  Not all bounces indicate bottom , some weak bounces lead to further downside. A bounce accompanied by significant improvement in breadth indicators would be good. 

The current market conditions are ideal for getting ready and keeping your buy list ready in case of next bull up leg. When market undergo corrections the focus of anticipation setups should be to find longer term position plays as swings after corrections are larger. Because most stocks are in correction , you are working with very small list so you have lots of time to research things and be ready when turn happens.

Some of the stocks on my anticipation radar currently are:

TUBE LOCO KR ROVI NXRT TSN STMP MPSX FCPT PLNT LOCK RP OME FPRX GKOS GCI STZ ALRM DRI ULTA FIVN HRL FN SPNC DLTR ACOR OLED AGRO MAT AGR

Risk management has to be integral part of your trading strategy

Risk management has to be integral part of your trading strategy if you want to make money in the market. It is not something you can think of when market is weak and you are caught unprepared. You have to proactively manage risk.

Every trader who prospers in long run has developed some kind of market timing model to avoid risky periods and to push the pedal in good times. 

Absent that you can spend lot of time just recovering from drawdown. Once you have risk under control and no losing years compounding can work wonders compared to traders who go through boom and burst cycles. 

One of the key lesson I learned in last 15 years of profitable trading is to proactively identify risky periods and reduce risk before it becomes an issue. That is why I have not had negative year in 15 years and have multiplied original starting capital multi fold. 

There is no glory in blowing up account and then coming back. It is waste of opportunity as in that time you could have grown the account more if you did not have loss in first place. 

If you are serious about making money trading develop your own market timing model. There are many ways to do that but first you need to prioritize risk management.

Our market timing model has been bearish for sometime so not at all dented by this carnage. Watching the fun now for possible rebound in near future. 

How to use the IBD newspaper to find good buy ideas

Investor's Business Daily (IBD) is a good source of information for growth and momentum investors. It is focused at helping individual investors beat the market by focusing on a specific style of investing . On a given day it has lot of content and one needs to have a strategy to focus on right columns and sections to find actionable ideas. 

One of the very useful column published daily is Stock Spotlight. Today it is on Page B9. This section daily highlights the best growth stocks. Unlike many other columns and lists in IBD it has many actionable ideas. It will highlight stocks setting up bases or consolidation or having minor pullback. Many of those ideas will be stocks that have just started to breakout or are lining up for breakout.

The IBD methodology is based on using historical precedent analysis of past big winners to find similar stocks in current markets. It focuses on stocks that have earnings momentum and price momentum and that are being favored by mutual funds and other big buyers. 

The Stock Spotlight column is useful for finding such new ideas.

Obviously if you are seasoned IBD user and expert in using IBD tools like Marketsmith you would find many of these stocks on your own even before they make it to the column because they will show up in many other screens. But for those who are new or with no access to those tools, the list can still help you find some gems every week. Pay attention to new addition to this section and start tracking them. 

There are many other useful ways to profit from IBD daily and in next couple of posts this month I will focus on them. 

Why are markets struggling

Market have struggled to make progress in last 12 month. The reason is steady decline in number of stocks above their 200 MA. As of now only 25% of stocks are above 200 MA. In the middle of 2014 this trend started and it has continued to get worse. Each bounce has been lead by less and less number of stocks.

Some of the big component of the index is where the action is focused on. And some of those suffered big distribution days recently.

This is the backdrop to market which if it continues means there will be fewer big moves and more breakdowns. The implication is to be more selective and have small targets. And focusing more on anticipation so that you have better entries. Also the 25% of stocks still holding might start breaking down and could be focus for shorts.

A dramatic improvement in this trend will be required for a sustained breakout above recent highs.

If you are serious about making money in the market develop SA

Situational awareness or situation awareness (SA) is the perception of environmental elements with respect to time or space, the comprehension of their meaning, and the projection of their status after some variable has changed, such as time, or some other variable, such as a predetermined event. It is also a field of study concerned with understanding of the environment critical to decision-makers in complex, dynamic areas from aviation, air traffic control, ship navigation, power plant operations, military command and control, and emergency services such as fire fighting and policing; to more ordinary but nevertheless complex tasks such as driving an automobile or riding a bicycle.

Situation awareness involves being aware of what is happening in the vicinity, in order to understand how information, events, and one's own actions will impact goals and objectives, both immediately and in the near future. One with an adept sense of situation awareness generally has a high degree of knowledge with respect to inputs and outputs of a system, i.e. an innate "feel" for situations, people, and events that play out due to variables the subject can control. Lacking or inadequate situation awareness has been identified as one of the primary factors in accidents attributed to human error. Thus, situation awareness is especially important in work domains where the information flow can be quite high and poor decisions may lead to serious consequences (e.g., piloting an airplane, functioning as a soldier, or treating critically ill or injured patients).

Situational Awareness is a skill that looks at the environment and surrounding forces driving the market action. SA is aviation term that mean as a pilot you must all the time be aware of the situation around you. Loss of SA is blamed on many major aviation accident.

 

Same SA logic is applicable in the market. If you are aware of the market conditions you will play the market accordingly and change or shift your tactics. What if you cold predict what is about to take place in the market and be one step ahead of the situation and position yourself accordingly.

Make a habit of writing your own Situaional Awareness (SA) everyday. It should be actionable SA like say be aggressive on long side, stay out of market till reversal happen, or anticipate a turn, or tighten stop on existing position, or sell in to strength, or fade this move.

Situational Awareness is very critical for swing traders and position traders. By definition day traders have to trade everyday so it does no matter to them.

Situational Awareness will help you avoid risky periods where your setup is not likely to work. It will help you identify periods where your setup is likely to do very well and then you can step on gas pedal. SA will allow you to adjust your tactics like say letting trade run if your SA tells you this is start of a new bull market. Or take profit early if the trend becomes weak or likely to fade.

While some stocks will work independent of the market direction, majority are influenced by the market. Especially at turning points in market this is important.

If you want to be in this game for long term and keep your profits develop SA skills by practicing daily. You will see that all successful traders have some sort of market timing model which helps them avoid some periods in markets.

Don't focus on what others think. Develop a logical framework for your own SA. My framework is driven by market breadth trends, but you can develop your own framework based on market structure.

Do your own analysis and write just 4 to 5 lines everyday. See if market is acting as per your SA. Refine and refine your process over days or months till you are very confident in the game.

In few months you will develop confidence in your own judgement and SA will become integral part of your daily market thinking.

Above all SA will help you to make and keep money.

If you are serious about making money in the market work on developing this skill daily. 

How to improve your trading in 90 days

Organize yourself for trading everyday

Everyday do the same thing over and over in a systematic manner.

Once you have a well thought out method the day to day challenge is largely about implementing your plan.

That requires setting up a daily routine and adhering to it as far as possible.

Situational Awareness (SA)

We know swing setups work, but overall market conditions can have impact on the % of trades likely to work. So SA helps you in controlling your trade pace. In good environment you want to be more aggressive. In bad conditions you want to focus on risk management.

Question you need to ask daily for SA:

What is your market bias today

Is there a plan to exploit it

Is there an alternative plan

Anticipation

Anticipation allows you to control risk and get in to setups early or as they are breaking out. Anticipation is also useful on current open positions. If you have thought through what you will do under different circumstances on your open positions you are in better position.

Question you need to ask daily for Anticipation:

What homework have I done to identify good opportunities ?

What are the 3 to 5 very high probability opportunities I must focus on today

What is my plan for existing open positions

What is working currently

Different phases of market favor different kind of stocks or setups. Some time beaten down stocks do well. Sometime stocks with momentum do well. Some time value or growth is in favor. Knowing what is working helps you focus on hot opportunities.

Question you need to ask daily for What is working:

What is working in the market currently

What stocks and sectors are leading the market currently

What style and setups are working currently

What kind of follow through is happening

The hardware and software

All our good plans or intentions or setups are of no use if our hardware or software fails or is not optimum for trading.

Are you setup for today

Is your hardware in proper condition

Is your software working without glitch

What is your backup plan in case of failure.

Your mental state

Your mental state affects your trading. If your are well organised and in proper frame of mind for trading you will be successful. If you are excited, harried, angry, disorganized you will find same thing in your trading.

Are you calm, excited, harried , or confused today?

Are there distractions likely to affect your trading today?

Continuous improvement

As a trader you need to focus at least 25% of your daily efforts on developing new trading setups and ideas and on enhancing your trading skill and knowledge of market. A purposeful plan to do this will cumulatively help you transitions in to new setups and ideas as market changes.

What is your plan for enhancing your market knowledge today

What is your plan for enhancing your trading skills

What is your plan for enhancing your trading mindset

What needs to happen for me to be a confident and in control trader

Do I have resources to get there?

Do I have the burning drive to get there?

Everyday using this kind of framework will make you a better trader . If you rigorously follow these kind of checklist you will see improvements in your trading in 90 days.

Stocks Setting up for 8 % to 20% move

Anticipation Watchlist



FPRX

OHRP

OPHT

LXRX

SWHC

NTES

ADMS

CYTK

WB

IMGN

XRS

NVRO

VLRS

FONR

FSLR

GHDX

SA

ACOR

SAGE

WD

EXTR

TSN

PLAY

SINA

AVAV

SPWR

ANF

ZEN

ULTA

IMMU

CSGS

RAI

RP

VLO

NOC

JD

JKS

RTN

IBKR

HD

KR

PANW

VEEV

WEN

RLYP

HNT

SCLN

HII

CYOU

SFS

BABA

HOLI

TEVA

AMPH

ZTS

RJF

AKRX

DLTR

JPM

SCTY

DATA

ADTN

LBIO

MGLN

SBH

FNSR

DG

MDVN

STKL

CAB

ATHM

KKD

PTCT

ENPH

MTCH

BZUN

EXTN

RMR

GCI

YRD

BXLT

PYPL

RUN

S&P returns since 1926

The S&P ended down .70% for the year 2015. Essentially remaining flat for the year.

S&P returns since 1926

S&P Best Years

S&P Worst Years