Reader Question: RVBD

Walter, who always seems to find great stocks, asked my opinion of RVBD.

There is little to dislike about the stock. It's made a nice run after breaking out of it's base at $32-34, is under heavy accumulation (as evidenced by increase in volume during run), has an uptrending RSI reading and has yet to violate any major resistance points. While this is all great for somebody who is "in", I'm not so sure I'd enter right now.

Today's breakout volume is not great comes after a parabolic run. I usually like to enter breakouts that occur closer to base congestion. If I did decided to enter, I would wait for a pullback to$40 and place a stop under the latest pivot point, which would be $36.

So What if There is Light Volume

Many commentators around the blogosphere have pointed out that recent gains have been on light volume and should not be trusted. Rev Shark, an excellent trader, makes this point on his analysis of yesterday's charts. While I respect this analysis, I could not disagree more. It's a holiday week, people! Of course volume is going to be light. Until we see a strong move to the downside, or some major resistance point violations, I'll continue to go long without worrying too much.

I still feel we have a strong market short term, and today is a good example the market's strength. In a weak market, the Shanghai "plunge" would have had a decimated the U.S. market. Instead, we had a light selloff that the market shook off with relative ease.

Note that my bullishness short term is not a sound off to go long with reckless abandon. While I am long, I will continue to honor my stops and have short strategies ready if there is a reversal.

Watchlist

Along with the restaurant stocks posted last night, I am watching the following stocks:

Watchlist:
SONC: pb 24.50
DRI: pb now
VTGY: pb 27-28
LPNT: pb 39
IBN: 46-47
SYNL: now
NTGR: 34-34.25
SINA: pb 37
BBD: pb 24
VCLK: 32-32.50
MT: 56
DNR: 35
BEAV: now

Sector Analysis: Restaurants

The restaurant sector has been on fire over the past two months. On the sector chart below we can see a break out at 775 and made a 50 point rise with limited pullbacks. Finally, we have a pullback to the 20 day MA, making this an attractive entry point. Below are my eight favorite restaurant stocks, all of which are among the strongest in the sector: YUM, WEN, DAVE, BWLD, CMG, JBX, SONC and DRI. All of these stocks have made parabolic moves to the upside, so pick your entry points wisely.

Was The Market Reacting To Greenspan?

If yesterday's dip truly was a reaction to Greenspan's China comments, rather than a more natural need for a correction, I think we are going to see the garden variety one day big dip I spoke of last night, followed by a resumption of the prevailing trend. Barry Ritholtz lays out out quite nicely in this article.

Watchlist

There were only a few additions to the watchlist today. That's not suprising, considering we had a distribution day yesterday and my watchlist is ninety percent on the long side. This weekend I will likely start screening for shorts this weekend, especially if we don't get a decent bounce today.

Today's Watchlist Additions:

BKE: pb 37-38

TTC: pb 56.50

TOPP: pb 10-10.20

How Do We Play This Down Day

As Trader Mike pointed out, we received stochastic sell signals in the indices today. However, I am not yet ready to start selling. There is strong support in the 1490-1500 range, and until this level is violated, we should expect that buyers will step in. That is what happened the past few times we have had down days on higher than average volume, and I always like to stick with what works until it ceases to do so. In the meantime, I will honor my stops and watch the market temperature closely.

A Zen Master on Genuine Insight

Followers of the Way, do not be deceived by teachers who everywhere say “I know Zen, I understand the Way,” and who endlessly deliver discussions like mountain torrents. All this is action that produces hellish Karma. If one is a true learner of the Way, one does not search for the faults of the world, but rather speedily applies oneself to attain genuine insight. If one only can see with perfect clarity, then all is completed.

- Rinzai (d. 866)

Watchlist Additions

Here are the new additions to my watchlist:

CERN: pb 56-57

TSS: now, stop 32 (34.06)

IMB: pb 33-34

FSLR: bo-pb now confirm pb to 50 MA

SPWR: same

DNR: pb 34-35

IBN: high tight flag pattern near high

MT: pb 56

Today's Trades and Analysis: GMRK and DXPE

I sold 400 shares of GMRK at $53.85 (entry at $49.76) for a $1636 gain (+8.2%).

I sold 500 shares of DXPE at $52.35 (entry at $47.40) for a $2475 gain (+10.4%).

Self Analysis:

These trades are good examples of how I have grown as a trader. Last year, I would have most likely taken profits before my profit target, which was just under the recent high in both cases. Instead, I sent my targets right after I took my positions and fought the temptation to micro-manage the trades. The result was a combined +18.6% gain, rather than what would have likely been an 8-10% gain.

Trade Analysis:
Without going into too much detail, both of these trades offered nice breakout-pullback setups. I entered at support, which was at the bottom of the breakouts, just under price congestion.

While I am not very precise with entries, I am becoming much more focused on exits. Here, I timed my exits just under the recent highs, where there would likely be some panicked traders who bought the stocks at the high and watched it pullback.

As you can see from both of today's charts, that is exactly what happened. The stocks dipped right after hitting my profit targets.

After I have taken profits at the highs, I do not dump the stock off of my watchlists. If the stock bases and then breaks out above the old high, I may re-enter on the breakout, or allow the stock back on the breakout-pullback watchlist, in hopes for a pullback to what now is the old high.

I am still holding STLD, ZUES, SYNL and IBN

Today's Trades: SYNL and ZEUS

Both of today's trades came from last night's journal. As I noted last night, I like the action in steel stocks. I bought:

400 shares SYNL at $39.12

400 shares of ZEUS at $32.90.

Both stocks made confirmation moves following low volume pullbacks.

I am heavily weighted in steel stocks, with these two and STLD, so I may take some profits later today.

Sunday's Personal Trading Journal in Preperation For Monday

Here is exactly what I wrote in my personal trading journal today.

March 20, 2007

Overview of last trade:
500 IBN @ $47.64 on 5-18-07.

Breakout over 4 month resistance level on strong volume and accumulating stock. Cause for concern is that new highs are formed with slightly lower RSI and parobilic 6 point move prior to new high breakout. I will place stop at breakout point ($45).

Market and Sector Notes:

Look for pullback in energy. Currently overbought. The sector has been a buy on any dip for the past few months.

Many steel stocks are close close to good buypoints but may want a little more pullback.

Indices are all extended and on or near new highs. Expect a hard correction that could happen at any time, and be prepared. Until then, continue to play the long side.

Self-analysis:
I need to continue to honor my stops and not be so quick to pull out of a trade. I've been tempted of late to chase some hot sectors, like energy. I need to keep my cool and wait for a pullback.

Watchlist:

bo-pb that are ready now

SYNL, 39.61

ZEUS: 32.58

JADE: 11.81

ZOLT: 34.58

NTGR: 34.48

GMRK: 51.75

Breakout-Pullback

JRCC, 13.68: bo, bowl pattern, pb 12.50

BTU: pb 51.50-52

MEDX: pb 15 or bo 16.20

EFD: pb 30-31

BRP, 58.91: pb 55-56 Telecom Brazil

TMX, 38.83: pb 37 Telecom Mexico

MPRW, 17.69: pb 16.50 Semi

NTG, 42.21: pb 41 Energy, Drilling

NM, 10.30: pb 9.50 Shipping

TVL, 18.88, pb 17.50

FDG, 28.65: pb 27.25

MIR, 47.32: pb 46

DK, 23.48: pb 22

CTRP, 79.48: pb 75-76

TWI, 31.58: pb 30

DDS: pb 36-36.50

More For the Breakout-Pullback Watchlist

Here are some more stocks to add to the breakout-pullback watchlist: OMNI, CPS, CTRP, DNR, RAVN, GRB, GPOR

Thursday Watchlist: Breakout-Pullback Candidates

Here is a list of breakout-pullback candidates: CPA, VDSI, IMO, CLRK, NX, EWZ, NTGR, MDTH, FST and HAL.

Chart: APPL

Earlier today, I mentioned that I felt there was a good chance AAPL would hold it's rebound from the lows of the day and print a long tail at the close. Sure enough, the stock closed near it's high and looks ready for another leg higher, assuming we get confirmation tomorrow. If the stock closes above today's high, I may go long again. However, if the stock does not confirm today's close, the bullish implications of the close will be nullified, a hanging man could print, and we could see a top form.

Today's Trades: GMRK, EWZ and AAPL

Yesterday, I sold 200 shares of AAPL at $108.25 (entry at $101.25) for a $1400 (+6.9%). I had moved my trailing stop when the stock hit $110. I have a feeling a long tail is going to print today, followed by another move up. I hope I didn't sell too early using too tight of a stop.

I sold 250 shares of EWZ at $56.47 (entry at $52.78) for a $922 gain (+7.1%). The reason for getting out is stochastics, RSI and OBV are printing divergences (lower highs) at the new high.

I bought 400 shares of GMRK at $49.76. We have a low volume pullback of a trending stock from the recent high of $54. These types of pullbacks have held strong during the trend, and I'm betting that this one will be no different. I haven't decided whether to place my stop under the 50 day moving average ($46.72) or under recent congestion at $48.

Watchlist

Here are a few stocks added to the watchlist: PRGX, NTGR, GMRK, JADE, ZEUS and ZOLT. A common theme with all six of these stocks is that they are all under accumulation, as evidenced by positive trendlines, increased volume and strong obv.

Today's Trades: DXPE, STLD and LFC

I bought 500 shares of LFC at $50.09. This is purely a breakout play. I am not waiting for the pullback. My intital target is the late 2006 high at $56.

I bought 500 shares of DXPE at $$47.40. This is a breakout-pullback play. My initial target is the recent high at $52.50, and a stop will be placed at $44.90.

I bought 300 shares of STLD at $47.70. It looks like a high, tight flag is forming off of the recent breakout.

While all three involve different variations of breakout setups (breakout with high and tight flag, breakout-pullback and pure breakout), a common theme is that they have all been trending higher and under heavy accumulation.

Breakout-pullback Candidate: FRPT

I'm looking to buy FRPT on a pullback to $25.

Chart: GRP

GRP, an oil services/drilling play, has been on my secondary watchlist for quite some time. I was hoping for a bit more of a pullback on Thursday, but the stock recovered nicely on Friday, albeit on low volume. I won't be trigger shy the next time I see a low volume pullback.

Chart: CCJ

Way back in December, I had highlighted CCJ as a Uranium play on a breakout over $42. While I missed out on that trade, I entered today at $50.10, as it recovered from yesterday's dip. Anybody care to analyze this trade?

Watchlist

I'm still sick as a dog, hence the lack of posts. I hope to update my trades this weekend. Here is my watchlist:

CCJ, DXPE, BEAV, ISIL, NILE, ALGN, ONXX, CAKE, SPEC, ORB, IT, FST, DAVE, BLUD, MTOX, BBD, CROX, HNSN, ROC, NVEC, KNOL, APPB, NXST, OII, EMS, TSL.

Watchlist

I'm under the weather today, so I won't have any detailed posts or trade updates. Here is a list of stocks on my watchlist:

AKS, STLD, ZOLT, DRI, HANS, DNDN, EDO, BEAV, DRYS, NILE, FSLR, MT, RIG, VLO, PDE

Trades, Watchlist and Earnings Observation

I'm in a hurry today, so I'll have to outline today's trades tomorrow. In the meantime, here is my breakout-pullback candidate list.

USU: pb-20-21
RSH: pb 30
EXM: pb 23-23.50
CRY: pb 11
AWC: pb 25.50
DRSY: pb 35-36
LXU: pb 17
MCY: pb 56

NILE is moving after hours based on a well liked earnings report. I've noticed that, this earnings season, stocks have been making some crazy moves after earnings. Not only are they making big gains on earnings, but instead of pullbacks from profit taking, stocks continue to ramp up the next couple of days. BWLD is a good example, and there are a bunch more.

I might take a stab at playing this seasons momentum. Remember, we must always stay flexible and adjust our trading to current conditions. In this case, it means setting aside my bread and butter pullback strategy and riding the earnings momentum wave.

Sector Analysis: Aerospace-Defense

As I do every Sunday, I spent the evening researching over 200 market sectors in order to get a feel for where the "smart money" has been flowing over the past week. Aerospace and Defense caught my eye, though it is do for a pullback.















Here are my nine favorite stocks in the sector. The one thing they all share, with the exception of SWHC, is they have all outperformed a strong sector and have recently broken out.

Breakout-Pullback Watchlist

Here is a list of breakout pullback candidates. Note that these are not primary watchlist candidates yet. We want price to slowly pullback to the entry point on diminishing volume, which should take a few days.

Some of these stocks have been trending up and are under accumulation, which is what we want. This decreases the risk of a breakdown at support; negating the need to wait for confirmation before entry. If a stock has been in a downtrend or has not picked up in volume prior to breakout, I would wait for confirmation before entry.

CMG: pb $72-74
TTMI: pb 10.50-11
UNTD: pb 15
BWLD: pb
MNST: pb 46
AH: pb 72-73
GTI: pb 11
SMDI: pb 10
EDO: pb 29-30
PDGI: pb 29
GMCR: pb 66-67
IGLD: pb 15
NVEC: pb 32
KNOL pb 18

Chart: DXPE

As stated in the "today's trade" post, I took a position in DXPE. The stock is a nice breakout-pullback candidate, and also has been under heavy accumulation over the past month and a half. This leads me to believe the stock will find strong support at current levels and could make another run up. At the least, I expect it to retest it's recent high at around $52.50.

Today's Trade: DXPE and TSL

I bought 350 shares of DXPE at $47.55. This is a breakout-pullback play. The stock broke out and is pulling back on diminished volume. I will likely place a stop at $44, and my initial target is $52.50, making for a 3:5 risk to reward ratio.

Note that I've been going with smaller positions sized of late. Most of the indices are hitting the top of their trend channels, so I am expecting a pullback in the near future. Specific to DXPE, it's in the midst of it's second breakout from it's base, causing me to be a little more cautious.

I sold 250 shares of TSL at $55.47 (entry at $51.07) for an $850 gain (+6.6%). My initial target was $60, but I'm not happy with the volume on the upmove. This leads me to believe this move is a dead cat bounce that will continue to breakdown, rather than a reversal upswing.

Earnings Breakout Entry Question

On Tuesday I posted a few earnings breakout plays. A backer of BWLD (Buffalo Wild Wings) gave me some heat for not entering pre-earnings, and asked why I take such a conservative approach to earnings plays. Here is my answer:


While it's great when you catch a BWLD earnings move, it hurts just as bad when you are the victim of an ADM-like breakdown. To combat these two extremes, I prefer to enter on post earnings breakout moves that make there move over resistance. For example, in the case of ADM, I would have entered on a breakout over $39.75. The stock would have entered intermediate new highs with a ton of nearby support.

Each and every day during earnings season, I take a look at the following day's earnings schedule and pick out stocks that are basing near support or resistance levels. A move above this level is likely to yield positive results, as prior support should become resistance.

If you miss the breakout move, earnings breakouts can also become good breakout-pullback plays. In the case of BWLD, a pullback in the next few days that holds at the breakout point could provide a good entry, with a stop just under the breakout bar.

Today's Trades: ZOLT, FUL, TSL

As mentioned in comments yesterday, I sold:

250 shares of ZOLT at $31.80 (entry at $32.30) for a $125 loss (1.6%).

500 shares of FUL at $26.14 (entry at $27.22) for a $540 loss (4.1%). I am upset at myself over this trade because I did not pay attention to earnings. I did not even check the earnings schedule. I rarely hold pullback plays into earnings. Bonehead move on my part.

Well, after 24 straight wins, 3 of my last 4 round trip trades have been losers. Luckily, they have been small losses.

I bought 250 shares of TSL at $51.07. This stock has pulled back to the 50 day moving average and has not broke any major trendlines, although the pullback has been fairly hard. The stock has reacted well to these types of pullbacks in the past, but I still decided to go with a small position size and will place my stop under the 50 day moving average.

Tuesday's Watchlist

GROW: bullish engulfing
JSDA: strong at support
SIGM: Short on pullback to gap point
ADM: $39.75 breakout earnings play
BWLD: $67.50 bo earnings play
OII: $48.50 bo earnings play
UPL: $58 bo earnings play
UA: $51 bo earnings play
VLO: pb to moving average