LOW RISK STOCK TRADING ADVICE

Moving Averages Broken

2011-08-08T17:38:00.000-07:00

Moving averages of the major indexes were broken to the downside 10 days ago leading to big selling. The selling has only increased as we head lower. Currently we are seeing major distribution as concern increases over government debt. World markets are all heading down as concern increases about another possible recession. Don’t try and guess just follow the averages.

Readers should all be in cash and awaiting the next follow through day. Follow through days are important since they help avoid getting sucked in on the very next big up day. Remember the biggest up days happen in down trends so don’t get sucked in. The time to buy is when we see a high volume up day at least 4 days off the low followed by consolidation before another up day. That is the follow through day and don’t buy until you see that.

Ignore the pundits that say stocks are cheap, stay on the side lines and be glad to be in cash.

Follow Through Day – HRC HEI PLCM HLF

2011-07-02T14:58:00.000-07:00

A follow through day occurred on June 21st just four days off a low. This was a weak follow through day but none the less a valid trigger. A follow through day tells us “odds favor” buying of stocks at this point in time. Of course follow through days are not fool proof as I have said it just gives us an odds favor point in time to buy. Since that day we have also had three accumulation days with no distribution days with a successful test of the 50 day moving average. See the graph below of QQQ a proxy for the Nasdaq courtesy of www.bigcharts.com

It is not prudent to wait and be sure because then you lose the best opportunities. A preferred approach is to use the money management techniques and risk control we have already discussed. Start initial purchases of very small positions and add to them if the market cooperates and continues its upward move. Remember it can turn back down even with these positive signs and this is the reason you have to start small and raise your stops to break even as soon possible. Once in that position you can continue adding to that stock and also initiate new positions in other companies. If this all fails we get stopped out at break even and wait for the next follow through signal.

Here are a few stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice. You can also catch me on Twitter for more regular updates and YouTube for some educational videos. See links at upper left.

HRC - $47.33

HEI - $55.93

PLCM - $64.90

HLF - $57.85

Rules of Engagement

2011-06-11T12:57:00.000-07:00

The stock indexes have now broken down as they tumble through the support of the 50 day moving average.Many sectors have been breaking down even before the indexes started tumbling. In particular pay careful attention the financial stocks since they entered their own bear market even before the indexes started down. The chart of the S&P 500 below tells the story in a very clear format as indexes fall below the 50 day moving average which is now also starting to turn down.

Graph courtesy of http://www.bigcharts.com/

The rules of engagement going forward should be as follows…..

1. Continue maintaining a list of great companies with fantastic earnings and revenue increases that are not falling with the general market. These stocks should remain close to their old highs and hence show strength. These will be the first stocks to move higher when the indexes turn up again. It’s human nature to buy the big fallers in a down turn thinking you are buying a bargain but these companies are falling for a reason, don’t get caught.

2. Watch for a follow through day before commencement of buying. Indexes tend to get their strongest up days in a down trending market. This will sucker in unsuspecting investors before the next down draft. Just look at last Thursday’s strong up day before we went down again. What you need to see is a strong up day on volume followed by some quiet sideways action or slight pull back. Then around the 4^th to 12^th day from the recent low you get another strong up day on volume, this is the follow through day. This puts odds in your favor of being successful but of course it still does not guarantee success.

3. After the follow through day take very small positions in companies that begin moving up from their recent consolidations. Make sure you place a sell stop so if the follow through day fails you don’t get hurt too much. As these stocks break out they will move up and consolidate again.

4. As we move up, out of each of the consolidations you can continue to add to these positions.

5. Money management is of paramount importance. Every time you add to your positions calculate your new break even point so you can never be in a losing position.

6. Start selling when the stock falls below the 50 day moving average on volume.

Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

Sideways Action

2011-05-28T16:59:00.000-07:00

Dow Jones index and most other indexes have all been trading sideways for 3-4 months depending on the index. A 16 week wait can drive people crazy and this is not the time to be buying stock. We have to wait and see the next move of the markets. Interest rates continue to stay low indicating weakness in the economy. Indeed GDP is not robust as can be found in the latest figures. Post recession the unemployment rate is still stubbornly high. None of these actions should be occurring in a post recession environment suggesting we need to be careful. The chart below shows the action as discussed courtesy of www.bigcharts.com

All that can be done here is to continue keeping a list of stocks with great earnings and revenue that hold well regardless of a weak market. When the market does turn up this list of stocks will be the first to take off and we should be ready for it. My suggestion is update your lists once and week and wait for that follow through day in the market before buying. We have no idea when we break this sideways action or whether it will be to the upside or downside. Don’t follow the forecasters unless you want to get broke. Yes the economy is weak but the stock market has a habit of turning up when things look their bleakest. Remain on the sidelines and wait for a breakout to the upside. Of course a break to the downside means we have even longer to wait.

Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

New Dow Breakout – TRLG BKE MSM TIBX

2011-04-23T13:50:00.000-07:00

Dow breaks out to a new high on volume as the uptrend continues. This gives us reason to add to our positions and even continue to take on more new positions. Readers paying attention to money management rules are only using profits to start new positions so any small losses in these positions will come from profits already made. Remember the strategy has to be risking the house money on new positions rather than your own money. As long as we risk profits we are never in a position to be concerned about losses. Tight stops on new purchases will take a small part of those profits if you are stopped out but if successful the new positions will only add to profits given you an even bigger buffer for new positions. The chart below shows the action as discussed courtesy of www.bigcharts.com

The pessimists amongst us will follow the bad news and give a hundred reasons not to invest. We only look at price and volume. Remember markets bottom when news is dire and top when news is fantastic. That’s the way of the market since is a forward looking model. Review the what, when and how I have mentioned many times in the past and continue investing as long as the market tells us to.

TRLG – $26.6

BKE – $44.34

MSM – $71.63

TIBX – $29.77

What, When and How Revisited – ISRG BBBY DMND MERC

2011-04-09T13:46:00.000-07:00

The up trend we are seeing continues giving us opportunities to buy. It could end tomorrow, it could end next month, we don’t know and neither does anybody else. All you can do is buy the up trends of a stock market and protect against loss. I think it’s a good idea to do a quick review of what to buy, when to buy and how to buy again.

What to buy :- Maintain a list of stocks currently under consolidation (sideways action), close to new highs with great earnings and revenues. Such stocks being close to new highs have resisted any downward pressure and are now consolidating recent gains before their next move up.

When to buy :- As these stocks start moving out of their consolidation phase preferably on large volume it is time to consider buying such stocks. This means the recent gains have been fully consolidated and digested and the market is now ready to move these stocks higher again.

How to buy :- Start with a very small purchase that won’t keep you awake it night just in case the breakout fails. As these stocks move up you can continue adding to them. Also remember that previous purchases from earlier breakouts you are already adding to on a regular basis.

ISRG – $367.67

BBBY – $53.82

DMND – $61.61

MERC – $14.62

Follow Through Day – TDSC SWI LULU CTCT

2011-04-01T18:35:00.000-07:00

March 24th was a weak “follow through day” on the NASDAQ index. The index was well up with volume higher than the previous day. Follow through days are expected on the 4^th to 12^th day from a low and 24^th was within that criteria. It was weak but valid so we have to honor it and act since it presents an odds favor chance of making money in stocks.

Remember what a follow through day is. It is simply a point in time that says “odds favor” a rise in the market and “may” be a good time to buy. Follow through days can fail but they usually indicate a gain of unknown price and duration. Not much help you might think but remember ALL bull markets begin with a follow through day but not all follow through days lead to a bull market. As I have said before the stock market is an art not a science. All we can hope to do is find “odds favor” conditions such as now.

Remember start buying small and wait to see if your picks are successful. If they are successful then add to them and buy more stocks, don’t forget your sell stops and as always money management is key.

TDSC - $55.05

SWI - $24.13

LULU - $89.13

CTCT - $35.37

Bulls Retreat

2011-03-19T12:07:00.000-07:00

The stock market bulls are in retreat. After weeks of big swings up and down, the bulls have thrown in the towel. How deep will it be? How long will it last? Of course nobody knows the answer to that question even when they claim they do. The chart below courtesy of www.bigcharts.com shows clearly how the major indexes have now broken the 50 day moving average decisively.

It is important to know that in a down trend we can get big up days to suck in the bargain hunters only to take the market lower. To combat against this we have to look for an odds favor condition, we call this a follow through day. While making up a list of stocks holding up well in this down trend we also have to watch for a follow through day. A follow through day is when we see a move up on volume four to ten days from a recent low. This does not guarantee a new uptrend has begun but puts odds in our favor that it may have. Remember no bull market starts without a follow through day but not all follow through days will guarantee a new bull market has begun.

Be Patient

2011-03-12T10:44:00.001-08:00

The stock market continues to have wild swings as the bulls and bears fight to make headway. If the selling dries up then we are left with just the buyers to form a new trend upward. Of course if the buyers cave in that leaves the sellers to form a new trend downward. Don’t be a hero and try to guess the outcome, you do not need to. Simply wait for a trend to re-establish itself before committing new dollars. With the bulls and bears battling it out then we are bound to see the big swings we are currently seeing.

While you wait maintain a list of companies that are resisting any sell offs. These companies will be moving sideways and will most likely be the first to break out to the upside when the stock market re-asserts itself. Is that tomorrow, next week, next month? Only a fool knows the answer to that question, wait for the confirmation.

Middle East Turmoil

2011-02-26T10:59:00.000-08:00

Eyes are on countries such as Egypt and Libya to name just two. Stock investors are rightly concerned about the events they see unfolding. Concern over fuel prices are extreme as people see the price of a barrel of oil continue to rise. As I have stressed many times markets bottom when news is bad and we must be ready to pounce if buying on volume resumes.

As the graph below shows courtesy of www.bigcharts.com we had a high volume sell off which is certainly not good news. However note that major indexes are still above the all important 50 day moving average.

The investor at this point should watch carefully for the indexes to hold above that moving average and continue to maintain a list of stocks that are consolidating during this market down turn. Stocks that can consolidate will be the first to rise if the stock market strengthens. Try and maintain a list of stocks that have moved up and are now moving sideways rather than breaking down. If the down trend continues do not buy but continue to add to this list as you find more stocks holding up. Remove from your list the stocks that break down.

Indexes March Onward – ADS AVT CMG DECK

2011-02-21T18:16:00.001-08:00

For most of this year the gains have been slow and grudging however the indexes continue to march forward and stay above their 50 moving average. As I have been previously mentioned we have no choice but to follow the indexes as long as they continue to move up.

Personal opinion suggested the markets were risky however my recent stock picks have all moved up, some significantly. It just goes to that personal opinion should never influence your stock purchasing strategy. Always look at price and volume and ignore the news and forecasts. As long as the indexes stay above their respective 50 day moving averages then you need to be on the lookout for new positions as well as topping up on the positions you already have. My readers were taken out of positions as we had the aggressive sell off of some of the leaders at the start of January. Many of these reasserted themselves and started moving up again. The correct decision in some of these situations was to sell out as they fell on high volume. We can never know where the sell off will end. Such stocks can always be repurchased as they form new bases and then break out again to new highs on volume. Remember capital preservation must always be priority number one.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice. You can also catch me on Twitter for more regular updates and YouTube for some educational videos. See links at upper left.

ADS – $78.96

AVT – $36.97

CMG - $260.15

DECK - $90.03

More Cracks are Showing

2011-01-28T18:25:00.000-08:00

For the last 4-6 weeks the Nasdaq has been struggling as the Dow has been making new highs. Many of the stock market leaders have been losing their leadership and many falling significantly. The market is being held up by fewer and fewer stocks even as the main indexes still hold over the all important 50 day moving average. As long as the indexes stay above this moving average there is still hope although things are looking worse by the day. In my last report I discussed how most of my readers should still be 80-90% invested. Sad to say because of the leadership stocks giving ground I would suspect that number is now closer to 30-40% as more and more sell stops get triggered.

The chart below courtesy of www.bigcharts.com shows the Nasdaq as it tops out and you can see we have two distribution days as we see much higher volume on those down days. Now is not the time to be a hero, wait for the market to stabilize even if it is still above its moving averages.

Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice. You can also catch me on Twitter for more regular updates and YouTube for some educational videos. See links at upper left.

Grudgingly Moving Up TER, CPHD, FTNT, AGU

2011-01-14T18:24:00.000-08:00

The stock market is 2 weeks into 2011 and is very slowly making headway to the upside. This is not a decisive move however we must respect the trend. The Dow is still very clearly above the 50 day moving average which itself is trending up. Until we see a break on higher volume through that moving average to the downside then we must continue investing. See the chart below courtesy of http://www.bigcharts.com/.

Followers of my blog should still be approximately 80-90% invested in the market even though some of the leaders have labored and even failed. Enough stocks are still holding up to support the indexes. For this reason we should use some of our profits and add to positions or even take on new positions.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice. You can also catch me on Twitter for more regular updates and YouTube for some educational videos. See links at upper left.

TER – $14.69

CPHD – $24.54

FTNT - $37.37

AGU - $93.48

Wait and See

2011-01-08T14:32:00.000-08:00

A good jobs report yesterday failed to fire up the market. We still need to see significant volume to the upside or downside to decide on a strategy going forward. For the moment readers should continue to monitor their holdings with a view to tightening up the sell stops. Now is not a time to initiate new positions in companies until we see which way the conviction lies.

A number of my readers have been asking for more regular updates. To comment on the market on a daily basis is for day traders only, however I can understand the need for more information. For this reason I have started giving short concise comments on a more regular basis at http://twitter.com/rmhs my link is also on the left. Additionally I will continue to comment here as and when I consider necessary. I have also started adding occasional videos in youtube.com explaining some of the strategies and reviewing some of the companies highlighted here in the past.

Stalemate

2010-12-31T19:46:00.000-08:00

The Dow Jones Industrial Average continues to grudgingly head higher on very low end of year volume. This is occurring even as the leaders are beginning to break down. Many other leaders are still consolidating so we need to watch closely as they approach the 50 day moving average. A break on volume below this average will not be welcome. Before committing new money to new positions we must discover the direction of least resistance for the indexes. A move in either direction early in 2011 will give us our cue. Don’t guess just wait for the stock market to turn its next card. Profit comes from NOT forecasting the market (which is impossible) but reacting to the action as we see it each day.

The astute trader could play commodity stocks since they have been very powerful the last few months. I would not recommend commodity stocks in this blog because they are cyclical in nature and are hard to play. Growth stocks have a track record of increasing revenue and earnings. Commodity stocks are much harder to play being cyclical. These cyclical stocks can go from profit to heavy loss and back to profit in the blink of an eye. Cyclical stocks are tied very closely to the economy and currency swings and are not for the casual investor. Long term profits come from growth stocks which often trend longer term giving us greater chance of success in the stock market.

A number of my readers have been asking for more regular updates. To comment on the market on a daily basis is for day traders only, however I can understand the need for more information. For this reason I have started giving short concise comments on a more regular basis at http://twitter.com/rmhs my link is also on the left. Additionally I will continue to comment here as and when I consider necessary.

Dow at 2 Year High

2010-12-17T17:13:00.000-08:00

The Dow Jones Industrial Average is teasing a 2 year high yet we see lots of sluggishness. A decisive breakout to the upside would certainly be welcome. Looking at the indexes reveal painful gains as we move higher. At the same time many of the leading stocks have retreated back to their 50 day moving averages. The answer to the next move as always will lie with what the leading stocks are going to do. Some of the leading stocks have broken down this last two weeks but others are going through a healthy consolidation.

Most of my followers should be close to be 100% invested by now and perhaps in the last two weeks may have fallen back a little as some stops got hit. At the same time if you have seen opportunities to add to positions then by all means do so. In a market such as this you have to trim the losers and add to the winners. As we continue to move sideways we will hopefully see new stocks setting up for potential breakouts later. Those stocks will be the ones that have refused to go down and are setting up for the next rise.

A number of my readers have been asking for more regular updates. To comment on the market on a daily basis is for day traders only however I can understand the need for more information. For this reason I will start giving short concise comments on a more regular basis at http://twitter.com/rmhs my link is also on the left. Additionally I will continue to comment here as and when I consider necessary.

Successful Retest - EPAY CNK DDIC MNRO

2010-12-03T17:54:00.000-08:00

This week was packed with news as we had to consider budget deficit commission, fed speak on QE2 and the latest unemployment numbers that came out today as well as the ongoing problems in Europe. We could spend a few paragraphs talking about each of these and quite frankly it doesn’t help the investor since it is all just noise which can sway you either way regarding your stock holdings. As always let’s forget the noise and look at price and volume of the stock market which is all that matters.

Note the graph of Dow Jones Industrial as shown above courtesy of www.bigcharts.com indicating price, volume and the 50 day moving average over 6 months. As so often happens we have successfully retested the moving average by bouncing up off it. This is of course very good news for the bulls although it would have been more convincing to see volume increase on the rebound.

After recent hesitation in buying it would be acceptable to be on the look out for more investments. Hopefully over recent weeks during this small correction you have been carefully monitoring the stocks you own and maybe tightening up a little on the sell stops. I have found that most of my leaders have so far held up and are starting to move up again as I resume the buying. During any minor correction it is very healthy for the stocks you own to move in a sideways action for a few weeks consolidating recent gains. If and when the stock market resumes its climb these stocks will hopefully be first to move since they did not fall by much in the correction.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

EPAY - $19.45

CNK - $18.60

DDIC - $10.98

MNRO - $51.42

Caution Required

2010-11-20T17:05:00.000-08:00

This week was a week of distribution after the recent breakout failed. Notice how the down days are accompanied by hi volume spikes. These are clearly distribution days and can be expected after the run up we have seen since the follow through day on September 1st. Of course the question now becomes are we at a market top and is it time to take some big profits? As I always remind you nobody knows and don’t let people fool you into thinking they do. All we can do is apply money management and risk control as always and the rest will take care of itself. We don’t need to guess what the market will do next since that would be a fool’s game.

The Dow Jones Index shown in the graph below courtesy of http://www.bigcharts.com/ clearly shows that we have had quite a run up with very little in the way of pull backs. The index has moved well above its 50 day moving average indicating it is oversold and needed to pull back at some stage. In a market trending up it is not unusual to trace back to the 50 day moving average before moving higher again. A touch of the 50 day moving average by the index often indicates a break down or bounce back is likely. Bad news is when the index cuts down through the moving average on volume, which we haven’t seen yet. In fact it has bounced off the moving average back up so all is not yet lost, we need to watch the action around these levels.

At this point we need to see the index pick up in volume as it moves higher. If it moves higher on low volume that is not good news and we can expect another test of the moving average.

Coming back to the money management and risk control now is not the time to be buying new stock positions until the trend has reaffirmed itself if indeed it does. The plan should be to start tightening up on your sell stops to lock in some of those profits and as always follow the progress of the individual stocks you own. If you have a stock that has consolidated sideways and breaks out on high volume again then by all means buy more of that stock but do not initiate new positions at this point in time on new companies.

Breakout – LULU EXLS LFT AFSI

2010-11-06T08:13:00.000-07:00

This week was quite interesting with lots of news such as elections, the Federal Reserve meeting and employment numbers. Clearly any one of these items can move the stock market in a big way. The most interesting news of the week was the Federal Reserve stated intention to buy back yet more bonds. The idea behind this is to “artificially” force down interest rates to lower the value of the dollar and so improve our export market. This in turn would spur investment as our factories increase manufacturing and so start hiring people. It is already very clear with the low interest rates that almost all commodities are increasing in price and have been for some time. Currently these increased commodity prices are not being seen at the retail level but it is only a matter of time before it affects you and I. This bond purchase program is a wonderful idea to stave off deflation but is also a very risky idea on a number of fronts. The inflationary nature of this tactic can sometimes be hard to control. We have to hope that as inflation starts picking up the Fed will be able to control it. The Fed by creating yet another bubble (housing and now bonds) does not inspire people with confidence down the road. The other issue is that as the dollar starts sinking due to lower interest rates the other world currencies all things being equal will go up in value on a relative basis. This will not be welcomed by the foreign powers and could start a currency war.

However this is all in the future and we can speculate forever. As investors all we care about is price and volume. After 2-3 weeks of market consolidation the stock indexes have broken out into new high ground on increased volume suggesting accumulation. This bodes well for the stock market but of course does not guarantee a continued bull market. Clearly odds favor more accumulation of stocks going forward and until we see a downturn on increased volume then the order of the day is still to accumulate stock.

The chart below of Dow Jones Industrial Average shows quite nicely the recent breakout and accompanied high volume, courtesy of http://www.bigcharts.com/

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

LULU - $48.15

EXLS - $20.29

LFT - $41.84

AFSI - $16.50

P/E Ratios – WYNN GOOG IDCC BMA

2010-10-29T21:07:00.000-07:00

Many people purchase stocks that have low P/E ratios. The feeling is that the stock is under priced. A P/E ratio is price/earnings ratio and is calculated on a per share basis. For example a stock at $20 which has $1 in earnings would have a P/E ratio of 20/1 or 20. Depending on the industry class ratios lower than 15 are often considered inexpensive. My belief is that P/E ratios can be very misleading and my research suggests that if you try to buy low P/E ratio stocks then you miss most of the winners.

A P/E ratio can be low because of low stock price or high earnings. If the price is low then one should assume it is low for a reason since the stock market is forward looking. A stock may have a P/E ratio of 10 today but if the next earnings come out at only half of the last earnings that immediately adjusts the ratio up to 20 from 10. Suddenly the stock looks expensive and if the earnings get worse the P/E ratio would be much higher.

A stock with future earnings potential usually gets bid up in price even before the great earnings come through making the P/E ratio appear very high. A stock might appear expensive with a P/E ratio of 50 until the day it announces great earnings, then suddenly the P/E ratio drops to some low level because of the high denominator (high earnings). Of course the price then starts climbing in recognition of the great earnings and up goes the P/E ratio again.

My suggestion is ignore P/E ratios.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

WYNN - $107.00

GOOG – $612.00

IDCC – $33.57

BMA – $49.79

Darn That Market – BIDU ROVI KVHI HMIN

2010-10-22T20:07:00.000-07:00

A friend said to me this week “Darn that market, too late to buy now”. My response was “I wish I knew”. The fact of the matter is people get scared to enter the market when stocks are low because of all the bad news around. Then of course they won’t buy the market after it has gone up because they say prices are too high and rightly or wrongly assume we have missed the rise. My response is as allows we don’t know when we are at bottom, middle or top. You have to look at it from a money management point of view.

The last few weeks I have been talking extensively about money management because when you are heavily invested as you should be by now then the order of the day should be money management and risk control. Even now it’s not too late to buy equities I don’t know where the top is. As I have said many times before risk management is key and I have outlined the techniques to protect your wealth and limit your risk. If you have ignored all my advice and not bought when we had the follow through day at the start of September it is still ok to invest. Find those companies breaking out on volume and start buying slowly. Build up your positions as they increase in value and sell out and step to the sidelines if indeed the market is at a top.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

BIDU - $107.77

ROVI – $50.47

KVHI – $15.97

HMIN - $51.27

Earnings Season – HLF TZOO MASI TEO

2010-10-17T13:01:00.000-07:00

The stock market continues to do well. We have had some consolidation this last couple of weeks and stock prices have held firm. Looking at indexes like the NASDAQ a case can even be made that we are now climbing out of the recent consolidation. During this consolidation there has been some sector rotation in particular the cloud computing stocks got hit quite badly and continue to be weak, these stocks are no longer leaders. However other stocks have come to the front and are helping move the major stock market indexes higher. Indexes such as the DOW are lagging a little but this index is very focused and has been impacted by the turmoil in financial stocks. The recent news from the government about stalling housing foreclosures sounds good for housing short term. However in the long run this will prolong the housing crisis since we cannot get excess inventory onto the market and sold off. This has impacted the financial stocks recently which also impacted some of the financial heavily laden indexes.

All things considered we are not seeing a general sell off so the plan should be to remain invested and look for positions in new companies, add to existing positions and tighten up on sell stops where a company looks to be slipping. In particular be careful during this earnings season which is about to start. As companies announce better or worse numbers, this can very easily change the playing field for better or worse.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

HLF - $65.89

TZOO - $27.18

MASI - $28.94

TEO - $22.72

Risk Control Yet Again – LULU GEOY EXLS PANL

2010-10-09T16:12:00.000-07:00

By now I think you are realizing that risk control by way of money management is absolute key to successful investing. I wish to talk about risk control yet again this week. Last time we spoke about how you can develop a broad base of stocks with very little money at risk. Each one of those purchases is like planting seeds in your garden. Some seeds will die (stopped out of stocks at a small loss) and a few will grow into big acorn trees (stock winners). We need to discuss how to take advantage of those companies with massive price appreciation. Since we only made a small pilot investment in each of those “seeds” (as discussed in the past) we will make very little money from them even with tremendous price growth so read on.

As well as broadening out our base of stocks we need to be adding to the companies that are going to start moving up. Companies move up in spurts then consolidate only to break out of new consolidation bases and move up again. A stock will move up 10, 20 or 30% perhaps then you will see some profit taking followed by some sideways movement called “basing” before it breaks out on volume and starts moving up again. Imagine a stock is owned at $20 and starts moving up to perhaps $21. Now is the time to move the sell stop up to break even on the $20 purchase and buy more stock at $21. As it moves through $22 you buy more raising the sell stop on the $21 to $21. Once the $22 purchase starts moving up you can raise that protective sell stop up to $22 as you prepare to buy more. You should have many purchases on the way up with many sell stops in place at your purchase price except for the last one you purchased which you can only lose a little money on if the stock starts falling back. One point I would like to add here is only buy more of a stock if you see the upward movements are happening on increased volume.

At some point the expected sell off will materialize and a few of your recent purchases will get sold at “BREAK EVEN”. It is important to note you are NOT losing money since you are selling at the price you paid for that stock (remember you raised the stop on all purchases to sell at break even). A good company will stop selling off at some point as the sellers dry up and the stock will start its basing or consolidation before starting another move up. Once it breaks out again on volume you can continue your purchase program.

As your holding in a company becomes much larger from continuously adding to the position you can consider raising the quantity of stock you buy. Imagine buying one units of stock 10 times so you then own 10 stocks. There is not much point in continuing to add one more unit each time, why not change it to 2, 3 or even 4 units. You can see that the more stock you own then the more stock you can buy and still not increase the risk since you are using “house” money from all the gains you have made previously.

Ultimately a great stock will start falling on heavy volume and it may be time to sell. If you see a high volume sell off then sell half your holding. If it continues sell the other half.

Finally if you have a portfolio of stocks that you are adding to (the garden) then consider the following. You have strong stocks and weak stocks so start selling a little of the not so strong stocks and add to the stocks that are doing very well. If those super stocks go into a consolidation phase then sell some of that stock and add it to the stocks that are still moving up.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

LULU - $47.42

GEOY - $42.14

EXLS - $19.98

PANL - $25.60

Risk Control Again – FNSR ACOM OCLR NXTM

2010-10-02T11:28:00.000-07:00

The importance of risk control cannot be emphasized enough. Risk control is even more important when markets have been climbing as they are now. It is easy to get excited and take on too much risk. The market has been moving sideways this last week which is very good news, we need to consolidate recent gains. The interesting move comes next as we discover whether we get a healthy pull back on low volume or a big sell off on heavy volume spelling the end. Notice I don’t claim to know the future, forecasts are useless, go with the flow. If markets continue up then buy more and if they fall back tighten stops to lock in some profit. The graph below shows the recent consolidation courtesy of http://www.bigcharts.com/

Now lets talk some more about risk control by way of an example. I have spoken many times how you broaden your base by buying new stock positions in new companies and also adding to those bases by adding onto positions that are going up. I wish to focus this week on broadening the base in the following example on risk control. Starting fresh after a follow through day you may buy one new stock position with perhaps a 10% sell stop in case the follow through day fails. Let’s assume you are successful and that stock climbs 30%. You can afford the risk of taking THREE new positions each with a 10% sell stop. If every one of those positions are stopped out you sell the original purchase with the 30% gain and end up break even. In all likelihood those new positions will also go up since you have been buying break outs on high volume.

Now note the beauty of the process. If those three new positions have gone up just a little, enough to adjust the sell stops to break even then you have that original 30% gain to buy another three positions. Imagine those three new positions also going up. I know this is hypothetical but let’s say you have 30% profit in each of those new positions. Then you have four stocks each allowing three new purchases with a 10% stop, that’s TWELVE new positions !!!! Imagine how those twelve new positions can grow your base if they all go up. Yes of course this is purely hypothetical but I just wanted to show you what is possible with ZERO risk other than the initial 10% risk.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

FNSR - $19.06

ACOM – $22.99

OCLR – $16.60

NXTM - $19.72

Control Risk – RES, ANDE, JOSB, HLF

2010-09-25T13:23:00.000-07:00

The stock market continues to perform well as accumulation days start piling up. Traditionally the run up to mid term elections are bullish but as I said many times before do not try and be smart by finding reasons, just buy the trend. I could just as easily counter the bullishness by saying September and October are traditionally bad months but it means nothing. I say again just follow the trend and pay attention to price and volume.

After some consolidation on lower volume the Dow Jones Index again broke out on higher volume. This could end tomorrow, next week or next year. Don’t be smart and try to forecast just continue to buy the breakouts by adding to existing positions and adding new positions. The important thing to remember at this juncture is that you can run the risk of buying too many stocks and not waiting until you can move up your sell stops to break even before buying more. This can be dangerous because if the market suddenly turns down then each of those new companies could produce a loss, risk control is still very important.

Remember from all the stocks you buy (and by now you should have many winners) all it takes is ONE great company to make a lot of money even if all your other choices fail. I say this because that one winner you will be adding to in increasing size as it climbs and all those other potential losers you will be stopped out after the initial purchase.

Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.

RES - $19.94

ANDE – $40.09

JOSB – $42.58

HLF – 59.77