2008 March

Challenging the 200-d m.a.

March 17, 2008 By Chris 5 Comments

Today’s screen is covering stocks that are trading below the 200-d m.a. and are currently attempting to challenge the line for the first time since their fall from 52-week highs. The first failed attempt to recover the 200-d m.a. is typically an opportunity to short or a signal to buy put options.

However, historical charts show that the likelihood of an ideal short setup comes when the 50-d m.a. is trading below the 200-d m.a. By the time the 50-d m.a. crosses below the 200-d m.a., a second challenge is taking place and this is where I look to initiate a position. I will be watching these stocks for that type of opportunity.

NUVA – 33.92, screened a couple weeks back as the stock is now trading below the 200-d m.a. The stock is now trending back towards the 200-d m.a., also known as the next ideal short setup.
FLIR – 26.36, NuVasive reversed on Friday after a failed attempt to recover the 200-d m.a. The 50-d m.a. is still above the 200-d so this will keep me on the sidelines. However, the failed recovery and a crossover in the future will catch my attention for a trade setup
DECK – 105.23, the stock has moved from $89.88 to $102 over the past few days as it looks to challenge the 200-d m.a. for the first time. A failed attempt to recover this line will be the first short setup/ opportunity. I would like to see the 50-d m.a. fall below the 200-d m.a. before initiating a position.
CRL – 56.02, Charles River is in the same boat as FLIR and DECK as the 50-d m.a. is still trading above the 200-d m.a. The stock reversed on Friday as it attempted to recover the line.
OII – 61.30, the stock was up almost 3% on Friday on strong volume but the 50-d m.a. recently crossed below the 200-d m.a. The downturn of the 200-d m.a. is still premature but the overall trend seems ot be turning downward.
STRA – 156.00, the strong education stock is starting to hit hard times as the 50-dm.a. is trending downward towards the 200-d m.a. The price is currently challenging the 200-d m.a. for the first time in years.

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Filed Under: Daily Stock Screens, Shorting, Stocks

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March 15, 2008 By Chris 1 Comment

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Filed Under: Blogs

Snapshot Friday

March 14, 2008 By Chris 4 Comments

Interesting Chart Snapshots:

Filed Under: Crude Oil, General Market

Reversal and a Follow-Through Day

March 12, 2008 By Chris 14 Comments

I am not getting overly excited about the 3.55% move in the DOW, the 3.98% move for the NASDAQ and the 3.71% jump for the S&P 500. Today’s action does raise some interest but trend reversals and new bull rallies can’t be confirmed after one day of action. All major bull markets started with a reversal and then a follow-through within the next four to ten trading days.

This idea was first revealed by William O’Neil, the founder of Investor’s Business Daily, and became a cornerstone in his CANSLIM investing method. I believe this theory to be accurate but it is not an exact science. Before I describe this method, I would like to be clear that my indicators are still pointing down and my screens are still focusing on shorts. It’s a good time to write about reversals and follow-through days even though I don’t think this rally has legs but my opinions must be checked at the door.

The key to understanding this follow-through philosophy is that reversal signals usually occur after a significant market correction, not a minor market correction. The reversal and follow-through in 2003 was classic and one I like to refer back to when looking at the present market. Both the reversal and follow-through days must move at least 2% to the upside on above average volume.

If today acts as day 1 of a possible reversal, then the next two days are not very important except for one fact: the market must not undercut today’s low as that would kill the start of a new rally. As long as prices stay above today’s low, the rally attempt is safe.

The follow-through day should come within four and ten days of today’s reversal although O’Neil’s original rules stated that the follow-through should come between day 4 and day 7. One of the major indexes must move higher by 2% or more on larger volume than the previous day to qualify for a follow-through. Multiple indexes participating with a follow-though shows conviction that the market has sustainability to move in the new direction.

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Filed Under: CANSLIM, Education, General Market

Stages of a Stock Breakdown

March 11, 2008 By Chris 5 Comments

The five charts tonight profile what a stock looks like as it starts to breakdown and become a prime shorting candidate. I have been highlighting multiple shorting candidates (stocks trending downward) over the past several nights with the exact characteristics of the charts below.

Recent stocks trending down:

Stage I
Bunge – 96.00, is a stock that is starting to breakdown after a prolonged period of up-trending price increases. The stock continuously maintained a position above the 30-week moving average after the 10-week moving average crossed above it in the summer of 2006. However, recent action suggests the stock is going to fall as the 10-week moving average is now pointing down on above average volume. A cross of the 10-week moving average below the 30-week moving average is a major red flag and sell signal. The first failed attempt to recover the 30-week moving average is the ideal shorting signal.

Stage II
SYK – 59.74, here is a stock that also enjoyed a prolonged period of up-trending prices from the summer of 2006 until the close of 2007. The stock started to drop hard on above average volume in January of this year and now shows signs of a prime shorting candidate. The 10-week m.a. is now below the 30-week moving average with both lines starting to point south. The next failed attempt to recover either moving average is a short setup. Rallies will occur and this is where opportunity will lie.

Stage III
MS – 38.30, Morgan Stanley is a stock that has been hit hard since the collapse of the credit markets and the sub-prime fallout. The 10-week moving average gave us the exact moment to classify this stock as a red flag back in July of 2007. From there, the stock failed to recover the 30-week moving average and presented a prime shorting opportunity. Only the best traders took this trade as the overall market was still trending higher. The extreme volume confirmed the downward spiral that would follow and the stock has yet to recover the 10-week moving average. Day traders will continue to short every failed rally attempt back to the 10-week or 50-day moving average