The Research Process this Week
Before I get into what stocks I am looking at this week it is important to understand what I am going for with the current market conditions. The market is basically horribly unstable and it is very hard right now to predict where the heck it really is going. As a result, I am not going to be in any stock for too long. The strategy I am going for is finding stocks that are in normal patterns (technical research) and that I can make quick moves with (a day - a few days most likely).
To find what I am looking for, I first ran a custom screen this morning based on the following criteria:
- Industry Group Relative Strength Rating = A
- Accumulation/Distribution Rating = A or B
- Current Price = $0 to $35 a share
- Current 50-day Average Volume = 100,000+
- Debt% (Latest Fiscal Year Reported) = 0
With the market in its current state I only found 17 companies that met these criteria: AGNT, ANR, ARBA, ASR, BEBE, CBK, CHCI, CHIC, FINL, FORD (not the motor company), HITK, HNR, KOOL, LACOE, NAK, PRGO, and WTSLA. My reasoning behind searching for these types of companies is as of follows:
1. I am looking for companies that are in a strong performing industry group because doing short term trades these stocks are more likely to go up because as a whole group they are performing great even in this crappy market.
2. Accumulation Distribution is important in being an A or B. This means that the company has been getting accumulated by Institutions over the last 13 weeks. For the short term, we have a btter shot of getting a quic run if the stock is already under accumulation vs. being under distribution.
3. With a current price of $0 to $35 a share it makes it more attractive for me. I personally like having more of a single stock in my portfolio (share wise) and with only $10,000 we aren't going to be buying alot anyways. I included penny stocks just because they are typically alot more volatile and in my opinion fun. You will see me trading them most of the time in this portfolio because of this reason. I want to grow this money as fat as I can, and with higher risk you get higher rewards.
4. Having an average 50-day Volume of 100,000 shares + a day means that the stock is getting traded for the most part. If a stock is only trading 100 shares a day what good does that do me? Usually I will use a number around 400,000+ but with this market it is harder to find good picks.
5. Having no debt in my eyes is important for any company. I personally use this just for my own sake and I have noticed that companies with no debt tend to perform better than those with debt. Don't get me wrong here, there are some VERY successful companies with tons of debt, Berkshire Hathaway anyone? But, for me this is something that I just prefer, and with the current market though, I may be changing this up later on if I can't find anything.
So now that I got my 17 prospect companies, I go in and pull up a chart on each one looking at the overall current trends. This is the major technical analysis part of my research and I apoligize but I cannot display any charts here. I use a program that I pay for, www.dailygraphs.com and if you want to see these charts you can use www.bigcharts.com if you'd like. What I am looking for here are companies that:
1. Are not breaking out/posting new highs - WHAT? Why not? Well, learning in the crash of 2002 I realized that in an unstable market (no the currnet market is not like the 2002 crash) any company that is generally posting new highs or "breaking out" as it is called of bases is not in my opinion gauranteed gains. Usually when the market is in a bearish trend these stocks will quickly fall back into their bases or collapse.
2. Shows a bullish trend - With my program I can go into the intra-day charts and see in 5 minute increments how the stock has traded. This is a part of my analysis that I have developed on my own and as a result I can't tell you exactly how I judge a stock based on this. But, what you are looking for is a sign of short term strength (since we are only gonna be in for a few days).
3. Shows higher volatility - I am looking for stocks that can make 5% plus moves in a matter of a few days. Again my philosiphy of more risk, more reward applies heavily here and I do not go into a stock to get 1 or 2% out of it. I go into a position looking for 5% plus in the shortest period of time. Though this applies to my downside, watching my stock very closely is critical. My research is one important aspect of my work but my abilities to judge a company on the fly during the day is also very important. If I see a downward trend evolving or any other intra-day bullish signs I will adjust accordingly.
3. Has a pattern that I am familiar with - I am looking for companies in patterns that I have seen before (I have looked at 10s of thousands of charts in my short 3 years so far). If I see something I like, I'll write it down for further examination later on. Generally I can make a short term call on where the stock may be going.
4. Where the stock is relative to its 50 and 200 day Moving Averages - This is important because these two lines can be support points or also resistance points depending on where the stock currently is. I will make a judgement call based on the stock if I like where it is according to its 50 and 200 day MA.
5. Other - I look at the graph over time and look at weekly and possibly monthly patterns. I basically just see how the stock has performed to certain circumstances in the past and give it a judgement call rating. There are alot of little details that I compromise in my head as I go over a chart and I apoligize that I cannot relay them to you; it is just my thing.
So, after looking at all the charts I have written down the ones that I like and that I want to look at even further: ARBA, CHIC, HNR, KOOL, NAK, WTSLA. These companies have passed my technical judgement and now I use yahoo finance to look at the comapny statistics, http://finance.yahoo.com. Some of the things I now will look at are:
1. Insider Transactions - Has the company been getting bought by insiders? If so, who has been buying it. Just because I Director has been buying a few times doesn't mean much. But, if the CEO, CFO, Director, and other key management has been accumulating shares recently, well than that could be a bullish sign. But what you do not know is if these insiders are buying the for short or long hold. This is a judgement call I make because even if the company is under insider attention doesn't mean that it will gaurantee me my 2 - 3 day run I am looking for.
2. Splits, Dividends - This is important only because it can relay inna nutshull a company's strength (in a very basic sense). If the company has split 3 for 2 a year ago then that tells me that the company is growing (again, this isn't considered these stats are not considered very gihly but it is something that I will look at). If the company has reverse split in the last 3 years than that is not good in my eyes at all. A reverse split is usually a long term teller that the company is going down the tubes. Also if a company is paying dividends it means the company has access cash sitting around which and could be a sign of strength.
3. Shares Short/Short % - This is HUGE in my eyes. The short term status of a company can usually be told by its short % or the percentage of its overall float that is being shorted. I have done alot of personal research on this and I am actually weighing this highly in my short term module I am developing. If a company has a short % of lets say 20%, well then you can probably bet that someone knows something you don't. I will make a judgement call accordingly on this stat because if the company's short % has decreased the last month well that tells me that the shorters have started to cover and that could be a short term bullish sign.
4. Other - I will glance over all the other stats on this page like cash, price/book value, enterprise value, etc. For the most part these are not important for the type of trade I am going to do but they still will weigh in my mind when judging a stock.
So, now we have looked at these companies key stats and I have narrowed down my field again: ARBA, CHIC, and NAK. Now that I have my 3 companies I take a break from my research and I will look them over again later on. It is important that I refresh my mind because I will rejudge them since I forget alot of my main points I have supported already in my mind. Usually I will pick up on something I missed. Later on tonight is also when I go digging. Digging is basically reading all the public news you can on a company to give yourself any sort of edge. I will try to find out if there is any news that could be released soon, if anything big has happened, etc. This is very important because with volatile stocks any little release can potentially affect the price greatly. As well, I will go in and figure out how much I want to buy, where I want to buy in, my overall strategy behind it for the next few days, when I will sell out, etc. The true game begins once I hit the buy button and take a real position.
With that being said these three companies are my main prospects as of today, Monday April 25th, 2005. I will go over these again tonight multiple times and most likely revise my search (based on the debt%) and look for more prospects. Check for a post sometime tonight on my final decision and if I find one or two I am confident in then I will react accordingly tomorrow.
To the future,
To find what I am looking for, I first ran a custom screen this morning based on the following criteria:
- Industry Group Relative Strength Rating = A
- Accumulation/Distribution Rating = A or B
- Current Price = $0 to $35 a share
- Current 50-day Average Volume = 100,000+
- Debt% (Latest Fiscal Year Reported) = 0
With the market in its current state I only found 17 companies that met these criteria: AGNT, ANR, ARBA, ASR, BEBE, CBK, CHCI, CHIC, FINL, FORD (not the motor company), HITK, HNR, KOOL, LACOE, NAK, PRGO, and WTSLA. My reasoning behind searching for these types of companies is as of follows:
1. I am looking for companies that are in a strong performing industry group because doing short term trades these stocks are more likely to go up because as a whole group they are performing great even in this crappy market.
2. Accumulation Distribution is important in being an A or B. This means that the company has been getting accumulated by Institutions over the last 13 weeks. For the short term, we have a btter shot of getting a quic run if the stock is already under accumulation vs. being under distribution.
3. With a current price of $0 to $35 a share it makes it more attractive for me. I personally like having more of a single stock in my portfolio (share wise) and with only $10,000 we aren't going to be buying alot anyways. I included penny stocks just because they are typically alot more volatile and in my opinion fun. You will see me trading them most of the time in this portfolio because of this reason. I want to grow this money as fat as I can, and with higher risk you get higher rewards.
4. Having an average 50-day Volume of 100,000 shares + a day means that the stock is getting traded for the most part. If a stock is only trading 100 shares a day what good does that do me? Usually I will use a number around 400,000+ but with this market it is harder to find good picks.
5. Having no debt in my eyes is important for any company. I personally use this just for my own sake and I have noticed that companies with no debt tend to perform better than those with debt. Don't get me wrong here, there are some VERY successful companies with tons of debt, Berkshire Hathaway anyone? But, for me this is something that I just prefer, and with the current market though, I may be changing this up later on if I can't find anything.
So now that I got my 17 prospect companies, I go in and pull up a chart on each one looking at the overall current trends. This is the major technical analysis part of my research and I apoligize but I cannot display any charts here. I use a program that I pay for, www.dailygraphs.com and if you want to see these charts you can use www.bigcharts.com if you'd like. What I am looking for here are companies that:
1. Are not breaking out/posting new highs - WHAT? Why not? Well, learning in the crash of 2002 I realized that in an unstable market (no the currnet market is not like the 2002 crash) any company that is generally posting new highs or "breaking out" as it is called of bases is not in my opinion gauranteed gains. Usually when the market is in a bearish trend these stocks will quickly fall back into their bases or collapse.
2. Shows a bullish trend - With my program I can go into the intra-day charts and see in 5 minute increments how the stock has traded. This is a part of my analysis that I have developed on my own and as a result I can't tell you exactly how I judge a stock based on this. But, what you are looking for is a sign of short term strength (since we are only gonna be in for a few days).
3. Shows higher volatility - I am looking for stocks that can make 5% plus moves in a matter of a few days. Again my philosiphy of more risk, more reward applies heavily here and I do not go into a stock to get 1 or 2% out of it. I go into a position looking for 5% plus in the shortest period of time. Though this applies to my downside, watching my stock very closely is critical. My research is one important aspect of my work but my abilities to judge a company on the fly during the day is also very important. If I see a downward trend evolving or any other intra-day bullish signs I will adjust accordingly.
3. Has a pattern that I am familiar with - I am looking for companies in patterns that I have seen before (I have looked at 10s of thousands of charts in my short 3 years so far). If I see something I like, I'll write it down for further examination later on. Generally I can make a short term call on where the stock may be going.
4. Where the stock is relative to its 50 and 200 day Moving Averages - This is important because these two lines can be support points or also resistance points depending on where the stock currently is. I will make a judgement call based on the stock if I like where it is according to its 50 and 200 day MA.
5. Other - I look at the graph over time and look at weekly and possibly monthly patterns. I basically just see how the stock has performed to certain circumstances in the past and give it a judgement call rating. There are alot of little details that I compromise in my head as I go over a chart and I apoligize that I cannot relay them to you; it is just my thing.
So, after looking at all the charts I have written down the ones that I like and that I want to look at even further: ARBA, CHIC, HNR, KOOL, NAK, WTSLA. These companies have passed my technical judgement and now I use yahoo finance to look at the comapny statistics, http://finance.yahoo.com. Some of the things I now will look at are:
1. Insider Transactions - Has the company been getting bought by insiders? If so, who has been buying it. Just because I Director has been buying a few times doesn't mean much. But, if the CEO, CFO, Director, and other key management has been accumulating shares recently, well than that could be a bullish sign. But what you do not know is if these insiders are buying the for short or long hold. This is a judgement call I make because even if the company is under insider attention doesn't mean that it will gaurantee me my 2 - 3 day run I am looking for.
2. Splits, Dividends - This is important only because it can relay inna nutshull a company's strength (in a very basic sense). If the company has split 3 for 2 a year ago then that tells me that the company is growing (again, this isn't considered these stats are not considered very gihly but it is something that I will look at). If the company has reverse split in the last 3 years than that is not good in my eyes at all. A reverse split is usually a long term teller that the company is going down the tubes. Also if a company is paying dividends it means the company has access cash sitting around which and could be a sign of strength.
3. Shares Short/Short % - This is HUGE in my eyes. The short term status of a company can usually be told by its short % or the percentage of its overall float that is being shorted. I have done alot of personal research on this and I am actually weighing this highly in my short term module I am developing. If a company has a short % of lets say 20%, well then you can probably bet that someone knows something you don't. I will make a judgement call accordingly on this stat because if the company's short % has decreased the last month well that tells me that the shorters have started to cover and that could be a short term bullish sign.
4. Other - I will glance over all the other stats on this page like cash, price/book value, enterprise value, etc. For the most part these are not important for the type of trade I am going to do but they still will weigh in my mind when judging a stock.
So, now we have looked at these companies key stats and I have narrowed down my field again: ARBA, CHIC, and NAK. Now that I have my 3 companies I take a break from my research and I will look them over again later on. It is important that I refresh my mind because I will rejudge them since I forget alot of my main points I have supported already in my mind. Usually I will pick up on something I missed. Later on tonight is also when I go digging. Digging is basically reading all the public news you can on a company to give yourself any sort of edge. I will try to find out if there is any news that could be released soon, if anything big has happened, etc. This is very important because with volatile stocks any little release can potentially affect the price greatly. As well, I will go in and figure out how much I want to buy, where I want to buy in, my overall strategy behind it for the next few days, when I will sell out, etc. The true game begins once I hit the buy button and take a real position.
With that being said these three companies are my main prospects as of today, Monday April 25th, 2005. I will go over these again tonight multiple times and most likely revise my search (based on the debt%) and look for more prospects. Check for a post sometime tonight on my final decision and if I find one or two I am confident in then I will react accordingly tomorrow.
To the future,
posted by Blain Reinkensmeyer at
1:07 PM
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