I have started to compile the complete results of the MSW Index and the MSW weekly screens throughout 2005 and have developed the top 20 list for your viewing on the blog. Click the picture at the bottom of this page to view the chart of the top 20 stocks from 2005. You will notice that 8 of the top 20 stocks are still active on the current MSW Index and several of the stocks with coverage initiated during 2005, ended their runs in recent weeks.

In the coming days, I will be uploading an exclusive page to MarketStockWatch.com that highlights the top stocks throughout the year, the worst stocks picks throughout the year, the ratio of winners to losers on the Index, our top shorting opportunities last spring and other important information about the stocks we covered in 2005. The next lists to appear on this blog will be the top shorts of 2005 and MSW’s biggest busts in 2005.

- As you all know, every trader has many busts throughout the year but the greatest traders learn to sell these stocks before they do further damage. As for the MSW Index; any stock that drops 10% from the initial coverage point is automatically cut!

Enjoy,
Chris Perruna “Piranha”

p.s. – Notice how many of the top stocks were covered week in and week out for 20 or 30 weeks (many consecutively) as they made their huge advances to profitability. (make sure the image opens to full size to read it properly)

This post is non-stock related but I thought it would be cool to post a picture of my dog playing in the blizzard yesterday since snowfall totals can make investors money. How? I will explain that below!

Many of the readers of this blog come from other parts of the country and even other parts of the world. We received about 22” of snow in a 15 hour period. We did not set the snow record in my town as we are in the suburbs and have had storms reach 30” or more but it was the all-time record at 26”+ in NYC.

My wife named our dog Bob! I call him Buddy Bob or Bobby.

Since it did snow, I figured I would link this image of my dog playing in a lot of snow with something that many of you may not know:
Weather futures can be traded on the CME (Chicago Mercantile Exchange).

Inside of this world of weather futures, investors are now able to trade Snow Futures and Options as reported in the Chicago Tribune and Bloomberg News:

Chicago Merc to trade snow futures, options

By Darrell Hassler and Nandini Sukumar
Bloomberg News
Published February 9, 2006, 2:19 PM CST

The Chicago Mercantile Exchange, the biggest U.S. futures market, is creating futures and options contracts that pay out based on amount of snow that falls in New York’s Central Park and Boston’s Logan International Airport.

The Merc, the only exchange to offer weather derivatives, is expanding its range as trading surges in existing contracts linked to the number of frosty days and the temperature in U.S., European and Asian cities.

Weather derivatives trading at the Merc jumped more than sevenfold last year to 889,000 contracts on demand from companies whose fortunes change with the weather. The derivatives might be used by municipal snow removers or energy traders, said Brian O’Hearne, managing director of the environmental and commodity markets for Swiss Reinsurance Co.

“There really is an increasing interdependence of commodity price action and weather action,” O’Hearne said in an interview from his New York office. He is also president of the Washington- based Weather Risk Management Association, a trade group.

The derivatives will be based on a new snowfall index that the Merc will create, with contracts for each month from October through April, the Merc said in a memo to clients yesterday. Merc spokesman Allan Schoenberg confirmed the contents of the memo today.

The index will be based on the amount of snowfall in the designated month of the contract, as reported by Earth Satellite Corp. taking measurements at the Boston airport and New York park.

Futures are agreements to purchase contracts at a set date and time, while options give one side of the contract the right to do so. The contracts are settled only on the last day of each contract month, the Merc’s memo said.

Schoenberg declined to elaborate more on the contract.

The Merc’s shares fell $3.39 to $400.51 at 2:48 p.m. in New York Stock Exchange composite trading. Before today, they gained 92 percent in the past year.

-Piranha

Due to our typical mid week special screen, I have uploaded another mini-screen with general market analysis and a few stocks that made noise on Wednesday (a few MSW Index stocks are included).

Oil prices fell again ($62.55) but still remain at historical highs. To put today’s prices into perspective, we must look at a multi-year chart to see how inflated the price of crude truly is. In 2003, crude was slightly above $30 a barrel and maintained its price throughout the year to close in the same vicinity in 2004. In early 2005, prices closed slightly above $40 en route to $70 over the next twelve months. Crude has dropped over $6 since the peak in late January which was close to the record highs set in late August. Supplies are up in the United States but many investors and analysts (yes the talking heads) still fear the tensions in Iran and the supply fears out of Nigeria.

So what does all of this mean?

It means that the market and investors are unsure of themselves and their investments with many questions unanswered. Looking at the New High-New Low ratio (NH-NL), we can see the dramatic drop in support of the leading stocks over the past week. The number of new highs for the first three days of this week has dropped 48%, 63% and 66% from the ratio of the first three days of last week. Even though we started last week with ratios of 572, 545 and 571, we ended the week in a decline, closing at 218-55. So far this week, we failed to surpass 200 new highs, two of the three trading days, not a sign of strength. Adding to this analysis is the fact that several stocks have been removed from the MSW Index based on sell rules and the fact that the Index dropped 4.65% earlier in the week.

The NASDAQ did manage to close back above the 50-d m.a. with a 1% gain and did close in the upper half of the day’s trading range (the first positive sign of the week). Cisco Systems posted earnings that topped analyst expectations, lifting the big cap stocks higher. As Investor’s Business Daily noted, recent leaders (AAPL), (HANS) & (GOOG) have fallen along with many of the leading energy stocks over the past few weeks. I know many of you have been locking in gains or cutting losses during this tumultuous environment and I commend you for following the rules. By following the rules, you will save yourself money on all fronts.

A few stocks that made some noise from yesterday:

• STMP – 30.99, a stock we have been following on the daily screen for months. The recent slide to the 50-d m.a. turned out to be an excellent buying opportunity for trend traders.
• EXBD – 102.25, another stock completed the $60-$100 move. The pattern was text book at it hit the $60’s and then corrected for several months before making the true run. The advance took about a year as patient investors were rewarded.
• MLR – 24.50, after the correction from $22, the stock based and is now moving to new highs. The correction lasted for four months and should have shaken out most of the weak holders
• TS – 156.44, up over $8 on volume 125% larger than the 50-d m.a. (the stock is now forming a high handle to the cup shaped base that lasted for four months)
• OXPS – 30.97, up on volume 227% larger than the 50-d m.a. as the stock has setup another double top breakout above $32
• HAL – 74.55, after reaching a 52-week high above $80, the stock has now corrected due to the drop in crude oil. The stock is energy related and has large ties to the Middle East which is at unease with the tension in Iran

Piranha

On Saturday, I added Sterling Construction Company (STRL) to the MSW Index as a non-traditional play. Why is it non-traditional for MSW? Because it was not breaking into new high territory as we screened it onto the Index. I said:

“This is not a typical MSW Index play but I see up-side potential on the chart after the correction in the $20 range and the support at the moving average. The down-trend was also broken as I will show you on the MSW Index charts. Rating: Buy (target is $30 in 2006)”

After giving a target price, I was questioned by a member as to how I came up with $30. I don’t teach how to develop price targets because there are many methods and none of them are extremely accurate and some vary greatly with their predictions. I don’t want to give false hope with a price target and I definitely don’t want to get sued by a member that believes a stock is going to reach a certain point based on my analysis. I run an equity research and education site, not an analyst firm so I am more concerned with finding stocks with the potential to move higher based on fundamental and technical analysis and not price targets (or upgrades and downgrades).

The stock entered the MSW Index at $18.93 on 2/4/06 with support at the 200-d m.a. I will show you two methods I use to develop price targets and then tell you why I picked $30 as a possible target based on the information provided by the two methods.

The first method to determine if the stock had bottomed is the use of the Fibonacci retracement levels (in this case, the 38.2% retracement which equals $15.46). It turns out that this retracement level also corresponds with the 200-d m.a. support and lifted the stock higher. Turning to the retracement level on the positive side, the method predicts a top at three common locations:
61.8%: $23.26
50.0%: $21.13
38.2%: $20.13

I also use another method that I first learned about in Stan Weinstein’s book “Secrets for Profiting in Bull and Bear Markets” called the swing method. This method takes the peak number ($28.35) and subtracts the bottom number ($15.05) to give us a swing number of $13.30. This was the size of the correction of the swing from $28.35 to the bottom at $15.05. Weinstein states that you take the swing number ($13.30) and add it to the peak number ($28.35) to give you a price target of $41.65. You can read more about this in chapter 6 of the book.

I now have two price targets that are completely different:
Fibonacci 61.8% retracement of $23.26
Weinstein swing method of $41.65

My target of $30 was developed by looking at the pattern and determining that the stock will most likely top near $30 if the former 52-week high is surpassed. The Weinstein method is accurate with CANSLIM type stocks and the Fibonacci method is very accurate when determining a pullback area.

Bottom line: everything is just a guess based on a certain set of parameters and information. No one truly knows where it will go. Place the position, set a sell stop slightly below the moving average and see what happens. If the stock gains more than 25% in the first few weeks, place a trailing stop to protect profits. Follow the rules and you will make money on winning trades and lose small amounts on losing trades. In the end, it should work out in your favor if you place several trades throughout the year. Several winning trades and several losing trades but the winners should be larger than the losers, keeping your portfolio in the black!

Piranha

Today’s mini-screen was developed due to the two day exercise I performed on the typical daily screens on the main site. Instead of screening for stocks making new highs, I have decided to focus on stocks that are within 15% of a new high that possess strong fundamental and technical characteristics. I will review some of these stocks for the upcoming MSW Index this Saturday but we will not know if any of them are strong enough to make that list until tomorrow. Many of the stocks listed below are building bases are have started to form new trends that are suggesting higher prices in the coming weeks and/or months. Remember, the strongest stocks will land a spot on the MSW Index so don’t buy blindly because I post up a “mid week special screen” or a “mini-screen” on the blog. You still need to do your homework and determine if a specific stock will fit nicely into your portfolio and style of trading. I have eliminated all MSW Index stocks from the list below since I will cover them in depth tomorrow.

The DOW and the NASDAQ are flirting with their respective 50-d moving averages as they are still trading sideways when viewing a multi-year chart. The NASDAQ has been slowly creeping higher within the sideways pattern but has not launched a significant up-trend since 2003. We know the individual stock market leaders took a breather yesterday and the MSW Index stocks dropped more than the major indices but many of them did so on below average volume (a good sign). Friday will be important as some of our stocks will test support levels and/or moving averages. Today’s trading results may eliminate a few stocks from the Index, opening up positions for new candidates.

Interesting Stocks within 15% of a New High:

• CEPH – 76.00, extended on the weekly chart but about to challenge the $77 high set on the point and figure chart

• BBBB – 29.66, strong support this week with an 11.92% gap-up gain to recover the 50-d m.a. The support at the 200-d m.a. was very encouraging.
• CLX – 63.08, forming a 10 month cup shaped base on the weekly chart that should form a handle before you look to take establish a position. If it breaks out, the stock will also qualify for the $60-$100 run
• ANF – 69.27, forming an irregular cup shaped base that is currently forming the right side with higher lows on the P&F chart (support at the moving averages)
• GRMN – 64.42, flirting with the 50-d m.a. as the stock sits in the $60 range but is not a an official $60-$100 candidate until it can breakout above the recent peaks set at $70.07 and $68.88
• LRW – 25.54, set up for a triple top breakout with a move above $27. Solid support from the 200-d m.a. this week with a strong 8.27% advance on Thursday
• CENT – 51.29, forming a six month cup shaped base with an obvious pivot reversal at the bottom of the cup in November
• CNTF – 16.90, an interesting IPO from last fall that is starting to move higher with support from the 50-d m.a. On the weekly chart, a 10 week base has formed.
• CERN – 48.35, an eleven week flat base has formed (it can also be considered a consolidation period after the larger up-trend in 2005. A triple top breakout will occur above $50
• COGO – 9.11, a risky low priced stock that can make a double top breakout on the P&F chart with a move above $9.50 (risky play with an ideal entry closer to the 50-d moving average)
• MCO – 63.95, when the stock reached the $40’s, it traded sideways for 7 months. It may do the same in the $60’s so if you make am options play for the $60-$100 run – give it time (at least 9 to 12 months).
• PMCS – 9.76, not a typical stock selection for any MSW screen due to the larger overhead resistance that dates back many years but it did break the recent down-trend and has recovered the 200-d m.a. In my opinion, the risk is present but the chart suggests the stock is going higher.

Piranha