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Breadth divergence may lead to a pullback

Posted on 1/31/2017
If you have been tracking breadth regularly , you will see a divergence developing in breadth. The number of stocks up 13% plus in 34 days has deteriorated and yesterday you had more stocks down 13% in 34 days than up.


As you can see breadth picked few weeks ago and since then is deteriorating steadily. Often such deterioration results in market pullbacks.

You can see the breadth trends daily under the MM tab on this blog.


How to profit from big earnings surprise Part 2

Posted on 1/30/2017
Big earnings surprise leads to big moves.
We are currently in earnings season and it is good time to look at stocks with big earnings surprises daily and see how stock reacts to it. 
It is very easy to find these earnings surprise stocks. Information for that is available free on many Finance sites. 
One good site to find earnings data and earnings surprise is Zacks.
You can also look for earnings surprise history for any stock on chart. It also shows you how stock reacted to that surprise.
For example look at OCLR chart below. You will see a big earnings surprise started the rally few months ago. 

Make a habit of studying stocks earnings growth and surprise history. Look at NVDA which was one of the biggest winner last year in S&P 500. Look at its earnings history shown below.

If you are serious about making money trading ,you can gain an edge by focusing on stocks with first or second big earnings surprise. It will help you catch some big moves. 

How to profit from big earnings surprise Part1

Posted on 1/26/2017


image
Big earnings surprise leads to big moves.
We are currently in earnings season and it is good time to look at stocks with big earnings surprises. 
Everyday hundreds of stocks release news before and after hours. These news releases can lead to stock making big move for the day. What you have to look for is extreme surprise or growth.
When news is released either it is already discounted by the market or the market is surprised by it. The stocks can either go up or go down.
A heavily shorted stock on good news can lead to short squeeze. A heavily favorite of fund stock similarly on surprisingly bad news can tumble.
Announcement related to earnings in either as guidance or actual earnings have potential for starting or ending multi month moves.
This phenomenon is called PEAD or Post Earnings Announcement drift. It is considered a market anomaly.

In a perfectly efficient market a news should get discounted immediately and there would be no way to profit from it.

So let us say a stock releases significantly better earnings. If such earnings is going to lead to doubling of the stock, then at open it should gap up to the double price and there would be no way to profit from the new information.
But markets are not efficient. What happens is the new surprise gets priced in over time. This is what the PEAD phenomenon is about.

When companies announce earnings, if the earnings are significantly better or worse than market/analyst expectations then the company stock goes up or goes down for next couple of months.

That is what happened with FB. It surprised the market big. Now the PEAD effect is working for it. Post Earnings Announcement Drift or Pead is 40 year old discovery. Ball and Brown in 1968 first documented the PEAD anomaly in their ground breaking study that challenged efficient market hypothesis.
What does the study show. it shows that if you form 10 portfolios of stocks ranked by their earnings surprize then the portfolio of stocks that are in top 10% by earnings surprise outperforms the 9 other portfolio and similarly the bottom decile portfolio under performs the nine other deciles.
This is the most researched topic in financial field. Every year at least 50 new papers are published on PEAD and is persistence.
Stocks react vigorously to earnings acceleration.
After a few quarters of earnings acceleration, every one notices it and the reaction is more muted as the earnings get discounted.
While there is a vast effort by many speculators to anticipate such earnings acceleration and take positions in anticipation, even if you react to earnings and enter after the earnings announcement, you still can catch bulk of the move.

Typically first earnings acceleration is followed by more earnings acceleration or the improved earnings continues.

The structural factors which contribute to earnings acceleration do not disappear in one quarter. That is why earnings trends persist and price trends persist.

PEAD phenomenon is more pronounced in thinly traded stocks.

PEAD phenomenon is more pronounced in stocks with no analyst coverage.

PEAD returns persist even after one quarter.

PEAD is more pronounced on stocks with revenue surprise in addition to earnings surprise

While day traders look for one day moves on earnings day, for position traders or swing traders the PEAD phenomenon can offer longer duration picks.
After the day trading frenzy is over in these stocks , in many cases, they pullback and setup and go up after a breakout.
PEAD was relatively unknown phenomenon among retail traders around 6 to 7 years ago . Now everyone is aware of it and as a result many PEAD stocks tend to move big on earnings day often going up 20- 40% and then spend several weeks pulling back .
Buying after earnings is less risky as the news risk is out. However companies use the good news to time secondaries and this can lead to stocks with good earnings dropping aster few days of rally after earnings.
Secondaries for growing stocks are not a big problem as long as the money is used for expansion. Secondaries where the owners sell aggressively can be rally killer for a stock with excellent growth.
Buying after earnings is good strategy for position traders.
In a market driven by growth , you will find small companies offer best PEAD opportunities. In inefficiencies are greater on them.
When looking at earnings news, you also need to look at guidance. If the guidance is not in line with expectations, stocks can drop on earnings even if earnings are good.
Same way a stock with bad earnings will make big move if the guidance is good.

Larger companies are masters at manipulating investors earnings expectations through forward guidance and pre announcements. Genuine surprises on large caps tend to be rare. But when they happen they can signal significant shift in underlying business dynamics.

Best opportunity related to earnings is in small unknown company that suddenly starts growing rapidly.
When a small company with say below 50 million revenue starts growing suddenly in increments of 250 millions per quarter then you get explosive situation. This kind of growth happens in new segments or consumer products.
For a consumer product company with hot product , it is easy to grow rapidly as US has 300 million plus hungry consumers and if a product becomes hot must have product , it is easy for the companies to just plug in the product in existing distribution channel. Besides that most consumer products tend to have high margin.
For position traders finding such extreme growth situations should be top priority. A hot growth company if it takes off can make very explosive moves.
While such moves are not common in this market, there are market periods when such stocks dominate the market. This happens when new industry is being created.
During the intenet expansion from 1990 to 2000 you had several hundred such companies. In the bull market of 2003 to 2007 the growth in BRIC countries and in commodities created hundreds of such extreme growth situations.

Become an extremist

Look for extreme earnings growth (just starting out to grow)
Look for extreme sales growth (just starting out and of magnitude likely to make the company a billion dollar company)
Look for extreme price strength ( just starting young trend with explosive first leg)
Look for extreme neglect (multi year , low float, low volume

Related posts : 

Stockbee 50

Posted on 1/25/2017
This list is published daily for the benefit of swing and position traders.

As the saying goes go where the oil is, the momentum leaders are where opportunities for explosive gains are. As a trader you want to be stocks that are moving up or down at fastest speed.

Momentum stocks show a distinct phenomenon known as momentum bursts. During their momentum phase they go through periods of fast activity where they make 8% to 40% move in 3 to 5 day short term bursts. Swing traders exploit this structural tendency of the market.

The following stocks give you the top stocks by momentum in the market:



Top Ranked stocks by momentum. The list is  updated daily after market close.

You can access all the Top ranked momentum stocks for free by visiting this link.

You can use the list to find anticipation setups or breakout setups. With just 50 stocks to focus on you can concentrate your attention on handful of opportunities.

What to look for in good swing breakout setup

Posted on 1/24/2017

These are 2 setups which showed up in swing trading scan yesterday. They meet the following conditions I look for to select swing trade candidates:

  • prior to breakout there is 5 to 20 days of shallow pullback or sideways move
  • during the pullback or sideways move there is range contraction
  • prior to b/o day stock has very narrow range bar or negative bar
  • stock is not up 3 days in a row
  • the move prior to correction/sideway action should be linear
  • on b/o day there is volume and price surge
  • closes near high
If you setup the scans I discussed yesterday and look for setups like these , you will find some good setups.The key is to be selective and focus only on good setups.

MOMO one of the trade ideas showing up on 4% breakout scan

Posted on 1/23/2017

MOMO is one of the Chinese stock showing up on the 4% breakout scan that I discussed in early morning post today : A simple scan to find big winners. 

The stock has 8 days of compact sideways consolidation and today showing price and volume surge. The previous 4% breakout in stock at beginning of the year resulted in 20% move in 5 days.

If you want to find stocks like these everyday , setup the scan and learn the setup. Onetime effort in learning a setup like this can help you make millions over the years

A simple scan to find big winners





Most stocks start their swing move or big move with a 4% breakout. You can validate this for yourself by looking at every big winner last year.A 4% move kicked of this REN move and each subsequent swing move was preceded by 4% b/o



A 4% move kicked of this MPET move and each subsequent swing move was preceded by 4% breakout. A simple scan can find you stocks like these.


A 4% move kicked of this AKAO move and each subsequent swing move was preceded by 4% b/o

Stock moves start with a momentum burst and that basic tendency of the stock moves has not changed since stock markets started.

If you just do a good job of focusing everyday on 4% breakout you will find the best opportunities in market every week.

To find stocks like these I run a very simple 4% breakout scan:

c/c1>=1.04 and v>v1 and v>100000

where
c= close today
c1= close yeserday
v= volume today
v1= volume yesterday

It finds stock that had a price and volume surge today. What the scan means is :

The stock should be up 4%,

volume should be higher than yesterday

and volume should be greater than 100000.

Once you run the scan you will get several stocks meeting the scan conditions , but they are all not buy candidate.

A buy candidate should meet the setup definition for a breakout swing trade. If the context of the breakout is right , it should be bought for 3 to 5 day hold trade.

A good setup should show following characters:

stock should close near high

prior to b/o day there should be a narrow range or negative bar

stock should not be up 3 days in a row

stock should have a narrow range sideways consolidation or narrow range orderly shallow pullback prior to b/o day

the previous leg of up move should be linear

the breakout should be first to third setup since start of the move

as far as possible look for young trend and not extended trend ( youngsters defined by number of days stock has been rallying in overall move)

first and second pullback/consolidation in rally are preferable

extended rallies are vulnerable to correction and breakout failure

In process term I run the above scan from 9:30 onward and look for candidates meeting setup definition. As and when they show up I enter. The stop is low of the breakout day.

If you are serious about making money swing trading you can setup the scan yourself and study several big movers in recent days and last year and see for yourself how the scan would have found them on first day of their move.

If you use this scan daily you will find most big moves right at their start day. 

Stocks Setting up for 8% to 20% move January 19, 2017

Posted on 1/19/2017




Stocks highlighted in the video:

CNAT

NBR

KRO

HCHC

GBX

DK

EVR

SGYP

XCRA

GPI

REI

SEAS

HOS

LOPE

TRUE

MTB

PLAY

KFY

SMTC

DNR

DAL

AHT

THO

PWR

AKAM

SAIC

OSK

FRC

KS

TSRA

NRE

PVTB

FSS

JBHT

BC

FCH

SWM

MAR

ALSN

WRB

EOG

RFP

HFC

DRQ

PDCE

LHO

BWA

TRN

GD

YELP

IP

DFT

DGX

WSTC

NYT

MSFT

NOV

PCLN

PZZA

BURL

PYPL

ZTS

AMN

PAYX

LULU

AMZN

INTC

CIB

BABA

AMGN

AGN

EVBG

How to find big moves Part 2

Posted on 1/18/2017
Big moves need big catalyst. 
At the start of most big moves there is some kind of a catalyst. It is often a surprise to the market and that leads to start of big move.
AAOI a stock with recent earnings catalyst. The stock has a potential to make 30 to 50% move and possibly headed to 50.
SN had a huge volume breakout in last 3 days and is possible headed to 20.

Catalyst that can lead to big moves

Earnings growth
Sales growth
New orders
Shortages
Govt policy change
Sector
Valuation
Turnaround
Drug approval or rumor of approval
New product
New pricing power
Death of competition

If you are serious about making money and want to  find such stocks then you need to develop daily scan and method to find and trade them. 
One of the simples way you can scan for them in Telechart is using the following scan:
c/c1>1.04 and v>3*avgv50.1 and v>=100000

After that you have to study the catalyst on each of them. 

How to find big moves Part1


8 to 40% move in stock is common and requires no catalyst. These are swing moves. They happen very frequently.
But a 100% plus move is not common and it requires some catalyst. When a stock doubles, there is often some major reason behind the move. Many times this reason is apparent at start of the move.
If you want to catch big moves , scan for stocks that doubled and then pullback or consolidate for few months. These stocks have a good catalyst and that catalyst can often lead to further move in those stocks. 
Those are proven horses.Something is going right for those stocks.
In order to find stocks that are potentially going to double you can develop a simple scan in Telechart that looks for stocks that have doubled after putting in a bottom.
c/minl252>=1.80 and minv3.1>=100000 and c>=5
These are the stocks that are your starting point. On these stocks then look for consolidation of few weeks to enter.


Stocks setting up for 8% to 20% move : January 12, 2017

Posted on 1/12/2017


Stocks highlighted in the video
GS
UDOW
BHI
JBHT
AMN
MAR
STMP
NTRS
GD
PRU
JPM
WYN
UNH
MSI
IP
MTB
KRE
CMA
FRC
PVTB
LNC
NTAP
PFG
WRK
BOKF
CORE
FMSA
IAT
TMK
KBWB
BOFI
C
BBT
DFIN
ZION
WFC
NSIT
KBE
DGX
LOPE
KEY
XLF
RF
PLAY
HBAN
NRE
SF
HES
SREV
SMCI
PAYX
USFD
GATX
DRD
JLL
FFIV
ZIXI
L
LRN
WEB
BA
XRX
GNTX
SLM
EVTC
CSOD
AKS
CNAT
DFT
BEAT
CDEV
NUE
NFLX
THO
X
AERI

Look for explosive moves like AKAO and HQY



AKAO is up 9% pre market. This stocks was highlighted here couple of times before its 27% move in six days as anticipation setup.

Bullish Anticipation Setups for January 4, 2017




The stock had a good anticipation setup as per my guidelines for finding anticipation setups.  Next day it had a breakout and since then it is up 27% (taking pre market price in to consideration.

The  stock has also been part of the Stockbee  50 list for multiple days. If you just focus on those 50 stocks you can find several good opportunities in a year.



Top Ranked stocks by momentum. The list is  updated daily after market close. You can access all the Top ranked momentum stocks for free by visiting this link.

If you want to find next AKAO kind opportunity , then set up your own scans and process to find and trade them. I have detailed the process to find such stock multiple times. Study the posts in the sidebar of this blog.

Another stock which I highlighted 2 days ago in video HQY was found using same methodology and scans. It is up 17% in 2 days.
HQY had successful  breakout and followed through with explosive gains.




If you are serious about making money trading stocks then invest time and effort in mastering few key setups and then you will be on your own finding stocks like these. Anyone with just average intelligence can find stocks like these day in and day out once they master this setup.

First step in finding stocks like these is to focus on stocks with confirmed momentum. These stocks go through periods of range contraction. Such range contraction period is followed by range expansion.

The range expansion phase leads to momentum burst that results in stocks making quick 8% to 40% move in matter of days. By constantly exposing your capital to such momentum burst trades you can accumulate profit over multiple trade while managing your risk.

Bullish Anticipation Setups for January 5, 2017

Posted on 1/05/2017
bee.png


a2.png
AMN: AMN Healthcare Services
AMN is setting up nicely for a breakout. Target 50


a5.png
GS: Goldman Sachs
GS: After recent up move is consolidating for possible next up leg.


a4.png

TLYS: Tilly’s
TLY: Recent earnings breakout on high volume consolidating for next up leg
a1.png


CNAT: Conatus Pharmaceuticals
CNAT is setting up nicely for a breakout.
brs.png
BRS: Bristow Group
BRS is setting up nicely for a breakout.


Other Anticipation candidates:

CNAT
AMN
BRS
TLYS
GS
HES
RHP
ATW
CORE
ERF
HEES
MSI
COST
HT
MDR
KBAL
MTL
WEB
TRS
NGHC
HOME
DENN
PFS
TDY
LOPE
UIS
RF
KEY
EMKR
PVTB
PWR
CTB
EXC
HBAN
TRMK
EPE
CECE
TRN
CSRA
CBU
CMA
DCI
HMST
UCBI
TCB
NTAP
ZION
LNC
IBOC
STL
WLB
APC
IDCC
NTRS
HMN
PLAY
FFIV
BPOP
REN
RE
AAP
WCG
CWEI

Bullish Anticipation Setups for January 4, 2017

Posted on 1/04/2017
bee.png

ant1.png
AKAO: Achaogen Inc
AKAO is recent drug trial news EP. Since then it had a secondary offering at 13.50. Now set for a breakout. Target 20

ant2.png
GS: Goldman Sachs
GS: After recent up move is consolidating for possible next up leg.

ant3.png
DFS: Discovey Financial Services
EPE: Recent breakout on high volume consolidating for next up leg

Other Anticipation candidates:

AKAO
GS
DFS
CWEI
EGRX
REN
MC
WLB
CNAT
IVC
HMST
VRTU
NXST
CECE
TDY
PLAY
SMTC
NSM
VIRT
CORE
ZLTQ
UIS
RHP
PEGA
BNCN
PAG
ANET
LOPE
WCG
HMN
AMN
SFBS
TCBI
ATW
KTOS
NGHC
TRUE
SIVB
FNGN
IBOC
TRMK
PFS
AAP
UCBI
FFIV
EPE
PVTB
BPOP
BRO
STL
CIEN
CSRA
TRN
TCB
NTAP
MSI
ZION
NTRS
MDR
P
FHN
LNC
HES
CBG
DE
LUK
APC
LUV
DAL
HBAN
KEY
RF
KBAL
ERF