How and Why of the new additions.

I am still in the process of putting together a step by step run down on my approach to creating a bull watchlist. In the meantime, here's a quick and dirty run down on how I/we came up with the resulting additions to the current watchlist.

First, I ran a Power ProSearch with the following Criteria:
(click images to see them larger)

From the resulting list, I check only those stocks whose charts look neutral or strong with potential for new buy signals in the near future. Those stocks were saved as a temporary watchlist.
From that list, I eliminated any stocks whose group charts were not at least neutral in the last 2-3 months. I also tagged any stock whose group was looking very bullish for added emphasis on those stocks.
Next came the much more subjective and somewhat "artistic" part of the process. Widdling it down by valuation (PEG no higher than 2 but the lower, the better), relative strength in the chart compared to the group and the market, and various newsy considerations.

Here's quick few words on the appeal of the new additions:

CBI - Strong and healthy looking chart, constructive group chart, PEG 1.5


CHK - We needed Oil & Gas Producers group representation and this chart looks consistent with that group chart, holding up better than oil services. PEG of .55, very low. Low P/E compared to its group. And finally, as a major natural gas company, if natural gas continues to test the 8.5 level as it has in the last year and finally breaks it, this stock will no doubt respond favorably.
Long term chart looks quite nice. Sideways for quite a while there and now moved above that level for sure.


CYBS - PEG of 1.64(at the time, now 1.76), but using the next fiscal year estimate instead of the 5 year estimate, the PEG is much lower. Growth estimate for fiscal year ending 13/31/08 is 56%. That's pretty serious, particularly with a P/E currently of 44. Group chart could be stronger, but it's certainly not bearish. But the stock's chart itself looks fantastic. Big volume gap up on earnings in Oct. Settled back into support and looks to be trying to break above this consolidation area. About 15% of float share are short, so that could make for some nice short squeeze potential. (Of course it also says something about the market's confidence in this stock.)



JASO - Though grouped with with the semiconductors, this is a china-based manufacturer of solar cells, selling mostly to china, but also Germany, Sweden, Spain, South Korea and the U.S. Solar stocks have been showing themselves as the real deal, it seems, and this one supplies some of the stronger companies. ROE of 28 is quite nice. PEG of right around 1 and about .75 using the growth estimate for next year instead of the 5 year growth estimate. Perhaps it's a bit early to feel super confident in the consistency, but the quarterly growth is noteworthy.



Very strong looking chart.



PRGO - I like the looks of the Biotech group knocking hard on resistance. PRGO had a huge volume move up. Maybe a bit far a bit fast, but after it consolidates a bit as it is doing, could be a nice mover yet. PEG - 1.57, but again even better using next year's growth instead of the 5 year estimate. Very low P/E compared to its group. Regardless, the recent breakout is quite bullish. Those two days were on about 4X the average daily volume.


SNDA - China online gaming stock. ROE of 50! Earnings growth has been remarkable, yet the P/E is only 15 with a 20% growth estimate. PEG of less than 1! This type of valuation is fairly consistent with most of these promising china stocks, so perhaps there is more risk here than we know. Nevertheless, the chart looks good. Paused for consolidation in the last two months. Pretty big volume earnings jump in late Nov. Resistance at 40 looks bound to be broken soon.


STLD - The Iron and Steel group looks quite strong and this stock looks right in step with pushing its high. PEG of 1.79(though this comparison is apparently less useful or consistent with commodity stocks due to volatility of the underlying commodity). Very strong growth estimate for next year compared to the group. P/E just under the group average.
Very nice chart.


Wildcard: LIFC - This is a "wildcard" because it doesn't have our required 500K average daily volume. Not yet, at least, and just barely under.
Again, I like biotech, though I think this stock may be better suited to some other kind of medical tech. group. Anyway, very strong sales and earnings growth last year. PEG getting up there at 1.85. But Quarterly earnings growth has been quite consistent.

Strong chart. Nice daily volume this past week on the breakout above recent highs.


I should bring attention to one potentially dodgey issue and that is that there are quite a few china stocks on our list. CMED, JASO, MR, SNDA. Not too similar in their businesses, but China nevertheless. I tend to think it more reasonable to place less emphasis on the groups they are placed with and more on a comparison to the China stock market. I use the FXI.

Let's hope all the new recruits turn out to be great additions.

Hot off the press. Updated Group Watchlist

(updated to reflect CHK/ESRX slip up)

Cut:
AOB - Price Pattern 2.25 (But keep an eye on it. Constructive big cup pattern. Set alert at 14.
BLUD - Price Pattern 2.25, sideways, choppy chart for the year, bad press (SEC investigating)
DIOD - Low F/E, Price Pattern 2.25
FMCN - Group chart makes it not buyable according to our rules. (Even though it's a China stock and who really knows the correlation to this "group." )
HLF - Drastically under performing its group. Bad press. Price Pattern 1.75
SCRX - Yuck! Nasty chart. Price Pattern 1.5
NOV - Oil services looking iffy and RIG is enough representative
CAM - Same reasoning as for NOV


Add:
CBI
CHK
CYBS
JASO
PRGO
SNDA
STLD

Bonus Wildcard:
LIFC - Strong fundamentals, BUT avg. volume 492K. Just a touch under. I doubt it'll stay that way for long. BUY BUY BUY.

In all its glory, the new money pool:



On probation:
PCP - Iffy group, clinging to resistance. BUT, ROE of 28, Nice, consistent track record for earnings and sales growth and meeting estimates.
(Find this on info the "Quarterly Earnings" link.)

Click to see it bigger.


Comments, thoughts, insights, totally off-the-wall trade ideas all welcome.

ZOLL

Isn't it great when one of the trades you go public with just turns right around and bites you in the as*?
Just to give an eye to ZOLL which I mentioned to the group, anyone with most any combination of moving averages and indicators would avoid this stock as a bullish play, particularly when looking primarily at the last 3 months.
It's really not all that important which set of indicators you use, if any, but the price action tells the story regardless. Short term trend is certainly down. Intermediate to long term, though, has a neutral/bullish picture to it.
MA's certainly pointing down. Not much more to say. And sure, descending triangle even (though not yet triggered, and therefore still only "potential"). So was/is really still just a support line that is still holding. Just as reasonable to play a bounce when it doesn't breakdown as it is to short it when it breaks down.
In any case, here's what the long term looks like with my markings and no indicators. I think you'll understand my thinking on the trade a bit better by seeing my view of it. It was to bounce at support and go to a target of 27. Stop would get me out if it went the wrong way. And so it did, but it still may prove to be a whipsaw. Am I confident in this trade enough to enter again and maybe even again? No. On the intermediate to long term, it really is at best neural and not so bullish. I may have jumped the gun trying to get in early here. I could still work out. The recent candles seem to forecast it stillbeing a good play off these bottoming hammers. But it's probably safer to look at it again once it convincingly gets above 24.50 but better yet 27. Though I like the idea, I've never really played sideways channels, so I should think more on that instead of trading sideways just because the Market seems somewhat neutral.


On the daily, it did seem to be bouncing off support, but the candle sticks were not clean and clear in the support of the bounce. I liked that volume was picking up with the bounce, but somehow I let that overweight what the price action was telling me in the form of a spinning top, a picture of indecision.



One of the things I wrote down twice a the workshop with Dave Johnson was, "Volume is secondary!" I need to repeat that to myself. Another lesson reinforced. Candles beat volume. The other glaring issue is that the downtrending resistance line was breached intraday, but still not closed above.
Simply put, I jumped in earlier, closer to support, so I could get a better risk/reward and tighter stop/bigger position.

Market Posture for the Holidays. Feel the spirit!

I like going through the market posture on the weekends. Not so much because it's so different from a day or two before, but because you can look at the bigger picture using all complete weekly candles. Looking at this way tends to smooth out the noise of each individual day and somehow makes the process a bit easier and perhaps more objective.
Here is the Market Posture Grid as filled out at Thursday night's meeting.
(Click on image to see it bigger.)


Below is the weekly chart for the SPX. It's hard not to notice that there is a very clearly formed double top formation in process. But like any pattern, it's just a potential pattern until it is complete which is when the support line is broken in this case. It's also very apparent that the higher high is less of an improvement than the previous higher highs. Same with the higher low, and on the daily chart it's more of an equal low. Nevertheless, the intermediate posture on the SPX is still arguably neutral due to no major lower low and still having no major lower high despite the clearly bearish short term trend. What further supports an at least neutral intermediate posture and potentially bullish short term posture is what looks like a possible short term reversal at significant support. This week's candle is clearly bullish(engulfing and then some).
Thursday night we spoke about potential points of resistance to look for in this market rally. Having been a very significant point of support and resistance many times in the last five months, 1490 seems the most obvious level. Interesting to see the rally peaked out just a dollar short of there intra-day on Friday.


The weekly VIX chart also shows some reason to be bullish at least for the time being. The long term trend in the VIX is clearly up and this is a long term bearish indication, but remember that it is the intermediate and to some extent short term that we should be most aware of, as the "long term" shows us what has happened somewhat long into the past. The Intermediate and short term will give us a better idea of what to expect for the immediate future.
On an intermediate time frame, we have a lower high even if just slightly, and a lower low from mid August to late September. Looking a the bearish reversal candles in beginning November, we see that they have been confirmed in the past week's lower close. Furthermore, this week, we got the important piece of the puzzle we were waiting for which was a lower low on the short term VIX, a movement below daily support(and former resistance) just below 24.


For the final component of the Market Posture routine as taught by Investools, the Market forecast is giving us a clear bullish reading on the intermediate term with the green intermediate line having moved upward out of the lower reversal zone.
There is also seen one of the major "signals" that the Market Forecast indicators give which is the "Near Term Divergence." This is where the blue Near Term line puts in a higher low while the SPX itself makes a lower low(opposite for a bearish divergence). As with any signal, it doesn't tell the future or work out every time, but in this case it has worked out at least short term.


It's hard not to feel the fear in the air and even to notice that the SPX is still under the 200 MA even with the rally of the past week. I'll let you do the process with the Nasdaq, but it's interesting to note that doing the three pronged posture in as objective a way as we could, we came up with a Bullish posture for the Nasaq and Neutral for the SPX and only then looked to note that the SPX is below the 200 MA and the Nasdaq is above it. Perhaps it is not earth shattering news, but noteworthy nonetheless.
There are certainly lots of things to be worried about with the economy and even the charts. But there are also potentially positive factors for the market, so who knows?
I won't list the negatives, but as for a few potential positives from one who is FAR from an economics guy, how about oil prices finding a potential top?

How about the weekly bearish engulfing on the Yen at long term resistance? It may be short lived, but it looks like it needs to come back in a bit before moving higher if that's going to happen.

How about the plunge in the US Dollar coming to a halt at least for a while as is shown possible by the bullish engulfing candle on the weekly chart? It's awfully far from the 40 week MA.


This may be grasping at straws, or however that saying goes, but the home builders have just been relentlessly hammered for a long time. Even if the outlook is still far from rosy for them, an end to the plunge is inevitable at some point. We know that all homebuilding in the US will not come to a complete stop and therefore the homebuilders will not go to zero. (All you gloom and doomers, yes the apocalypse is the exception.) Though far from a convincing bounce just yet, we do have a bullish engulfing at an old support level and even bullish divergences on both the MACD lines and the MACD histogram. I can't remember who, but I believe someone from the big name investors out there announced taking a major position in one of the homebuilders this week.


For an even more thorough feel of what "The Market" is doing, I encourage you to build a watchlist of the Sector Spiders. 9 ETFs that as a general snapshot show you the action of the market in 9 clumps of related stock groups. There are many ways to look at the sectors of the market and the "sectors" seem to be defined differently by all, but this seems about as quick and easy as any. Notice that the XLF put in a monster bullish engulfing on the weekly chart with its highest weekly volume to date.

I do realize that my showing only the positives and not the negatives seems an awful lot like being a bullish cheerleader. But really, I just want to focus on the positive a bit, because all we've heard about lately is the negative.

There is, without a doubt, downward pressure on the SPX and tough resistance at 1490 even with this week's rally. I will look to 1430 (support from the inverted head and shoulders in August) for a potential level of support. Just about all of the above will probably be null and void with a decisive break below 1406. With a real break below 1375.......Look out below.