Here's the previous article showing the trade open for IBB: 

I got in at 101, and it's at 122. 

I'll update why I pulled it, but here's a quick summary

1. stock is well outside donchian channel.
2. surpassed my highest target
3. volume seems to be drying up a bit.
4. Pigs get slaughtered.
5. 20% in 2 months is pretty good.

I'm going to watch any dips in IBB to see if they're a nice correction. I would expect a pullback between 116 and 112.

How I Found Harley Davidson

Harley Davidson showed up on the Marketclub New Monthly Trade Triangle stock screen. I setup the screen to show only new monthly trade triangles which occurred today. I then search for stocks which make at least a 2% move, on high volume, and a +100 trend score.

Technical Analysis Summary

1. 100 Trend score
2. Brand new monthly trade triangle
3. Break out of ascending wedge on high volume
4. P/E ratio is 1/2 of the industry average
5. Break above 61.8% Fibonacci retracement level
6. Retest of 200 day SMA as confirmation of support
7. Positive trend confirmation in the MACD and OBV

Hi everybody, it's time for this weeks 52 week high friday rule pick. I'm really excited about today's pick as it's not only a 52 week high friday rule pick, but a longer term buy and hold pick as well. Lithia (LAD), just broke out of a nice cup with handle. It also just flashed a brand new green trade triangle, and a trend score of 100. All of this combines to make a good long term trade.

For those of you trading for the 52 week high friday rule, click the link for a refresher on the rules, as well as previous 52 week high friday rule picks.

Lithia Motors Valuation

When I found this stock, I decided to check and see if it met the recordpricebreakout.com strategy rules. The stock is undervalued by 17% compared to the industry, which is good, but not quite enough for the RPBO method. Currently Lithia is trading at 14.46 times earnings, and the industry is at 17.37. Volume is looking good today, but the breakout from the handle has 150% normal volume which is also a good sign.

Price Targets, Stops, and Accumulation

For 52 week high friday rule traders, you will buy a full position, then please follow the standard rules for the strategy. For those of you looking at LAD as a longer term trade, here are the parameters I'm going to follow:

1. The stock must close today in the upper third of the candle
2. Will purchase 1/2 a position here
3. Price target is $30
4. Stop placed just below resistance at around $21.85
5. Expect a back test at the levels mentioned above. If the level holds accumulate.
6. I will use weekly trade triangles along with on balance true range and on balance volume as exit signals

This weekend, I will be producing a video tracking my current open recommendations on this blog, as well as adding a new record price breakout pick that I purchased yesterday. These include:

1. The trend reversal in the NASDAQ Biotech ETF IBB
   
2. Continued profit runs in Halozyme (a previous 52 week high friday pick) – HALO
3. Today's pick – LAD
4. and the new RPBO pick

Have a nice weekend everyone.

To Profitable Trading,

Steve Warshaw

I started looking through all of the results (there are 22), and I noticed there was the Nasdaq iShared Biotech etf (symbol: IBB). I opened up the chart, and the reversal signals are all over the place. Here is my chart analysis of IBB:

What is a Trend Reversal?

A trend reversal is simply a condition where the existing longer term trend is no longer the dominant price trend. There are no exact criteria for determining a trend has reversed, however, there are ways to spot trend reversals using technical analysis which can be quite reliable.

My Criteria for a Trend Reversal

There are several. The most reliable criteria I have found is price exceeds the 68.2% Fibonacci retracement level of the existing trend. I like to look for technical indicators and price pattern breakouts to confirm the reversal. In this instance, the indicators in the 1-2-3 Bullish Trend Reversal, a breakout from an ascending wedge, and price closing above the 200 day SMA are confirming  the break above this retracement level.

Video Summary:

1. IBB was found using a trend reversal stock screener based on the Aroon, Williams %R, and PPO indicators
2. Price today closed above the 61.8% fibonacci retracement level
3. Price today closed above the 200 day SMA
4. Price is in a rising channel, and broke above the top line of the channel
5. Initial target is $110 – $111
6. Stop loss set at $97
7. The monthly Trade Triangle is still red, but with a +70 score, it is primed to turn green indicating a major trend reversal

My strategy is going to be to buy into any pullback that doesn't come on significant (130%+) volume, and doesn't violate any critical fibonacci retracements.

To answer the reader, I posted what the CANSLIM acronym means; here it is for simple reference:

from wikipedia.org

The seven parts of the mnemonic are as follows:^[1]

• C stands for Current earnings. Per share, current earnings should be up to 25%. Additionally, if earnings are accelerating in recent quarters, this is a positive prognostic sign.

• A stands for Annual earnings, which should be up 25% or more in each of the last three years. Annual returns on equity should be 17% or more

• N stands for New product or service, which refers to the idea that a company should have a new basic idea that fuels the earnings growth seen in the first two parts of the mnemonic. This product is what allows the stock to emerge from a proper chart pattern of its past earnings to allow it to continue to grow and achieve a new high for pricing. A notable example of this is Apple Computer's iPod.

• S stands for Supply and demand. An index of a stock's demand can be seen by the trading volume of the stock, particularly during price increases.

• L stands for Leader or laggard? O'Neil suggests buying "the leading stock in a leading industry". This somewhat qualitative measurement can be more objectively measured by the Relative Price Strength Rating (RPSR) of the stock, an index designed to measure the price of stock over the past 12 months in comparison to the rest of the market based on the S&P 500 or the TSE 300 over a set period of time. ^[2]

• I stands for Institutional sponsorship, which refers to the ownership of the stock by mutual funds, particularly in recent quarters. A quantitative measure here is the Accumulation/Distribution Rating, which is a gauge of mutual fund activity in a particular stock.
   
• M stands for Market indexes, particularly the Dow Jones, S&P 500, and NASDAQ. During the time of investment, O'Neil prefers investing during times of definite uptrends of these three indices, as three out of four stocks tend to follow the general market pattern.

My response was a resound yes… If you are able to be patient enough to sift through a small number of stocks, waiting for basing patterns such as cup with handles, as well as identifying break outs from these patterns.

Then I got to thinking what would happen if I used a CAN SLIM stock screener, and then applied technical analysis screeners only to that basket of stocks.

At this point, the alarm bells started going off in my head. Could I used some of my favorite screens / strategies applied to stocks which already have an increased probability of profit with years of reliable backtesting to back them up? BRILLIANT!

So, the first thing I did is come up with a couple of methods of finding stocks that meet most of, if not all of, the CAN SLIM fundamental criteria.

Free CAN SLIM Stock Sreener #1 – Zingals.com

Zignals is a  very powerful screening / strategy building / backtesting / charting platform using Microsoft Silverlight, and it's free!. I did my best to come up with a set of critera that match most of the can slim criteria, and this is what I came up with:

Currency    USD
Exchanges    All
Sectors    All
% Chg EPS; Q to last yr Q    25    500
% Chg EPS; YTD to last YTD    25    500
Return On Average Equity [%]    17    500
5-yr Revenue Growth Rate [%]    15    759.17
% Chg Revenue; YTD to last YTD    25    5.99M
Average 10-days    250K    42.91B
Net Profit Margin [%]    18    9.81M

This screen consistently returns about 30 stocks which meet the canslim critera for growth and profit margins. It lacks the relative price strength component however, but you could easily look that up on clearstation.etrade.com, or any of the other sites which offer heat maps.

Exporting the tickers for use in stock fetcher

StockFetcher.com allows you to apply your technical stock screens to any basket of stocks you wish using the symlist function. This means that all of the Japanese Candlestick screens, or any other technical screens you find on this site can be run against the can slim stocks.

Watch the video below for how to export the symbol list from Zignals to stockfetcher.com

[video_lightbox_youtube video_id=tfJgdctlFas width=1280 height=720 anchor=http://www.recordpricebreakout.com/wp-content/uploads/2011/11/FirstFrame.png]

Using StockFetcher.com To Screen Against These Stocks

In stockfetcher, you now can use the filter: apply to symlist() , and paste the symbol list between the parentheses.
 

How Not To Use Simple Moving Averages (as a trend trader)

The statement I'm about is going to conflict with the technical analysis 101 lessons you learned about moving averages as a novice technical trader. If you are attempting to trade with the trend, you do not want to using moving average cross overs as timing signals.

Let's examine a stock chart to see what is happening when moving averages cross over each other. In the chart below (click on it to see full size), notice what is going on with price at the points I've circled in red. These points are where a short term simple moving average (9 period) crosses over a longer term 33 period simple moving average.

As you can see from the chart, the stock isn't really trending nicely at the time these simple moving average crosses occur. In fact, it's just the opposite. Why is this?

According to Chuck LeBeau:

What we are really observing at the crossover point is that the average of the last 30 prices is exactly the same as the average of the last 10 prices. If we are looking for trends to trade, this equal relationship of the two moving averages is not a reliable or logical indication of a trend. In an upward trending market the average prices over the last 10 days should be much higher than the average of the last 30 days. By implementing new trades at crossover points we are limiting our trading to points that may not clearly reflect what we should be doing. For best results in a trend-following system we want to be trading when the trend is clear and reliable; not when the trend is confused and questionable.

Reading that paragraph was an ah ha moment for me; although the concept is obvious and simple, it's still easy to over look. The fact is, trading moving average cross overs is a trend reversal strategy, not a trend following strategy.

Trend Trading Simple Moving Averages The Right Way

Taking the information I learned from the article, I've been thinking about several ways of screening moving average data in order to time entries and exits. There are many variables at play, but all of them involve either the distance between short and medium term simple moving averages, or the slope of those averages. I am using stockfetcher to design the screen, and will be using it to do back testing as well. Let's look at an example of AAPL using the same moving averages but in a different time frame.

I have highlighted the areas in the chart below where the short term and medium term simple moving averages are increasing, and either getting farther apart, or are parallel. As you can see these are the places where the stock is trending nicely, and obviously these are the places where we would want to be long the stock. The trick then is to create a screen which can find these conditions near enough to when they start to be true.

Trend Trading Using Simple Moving Average Slopes

I have developed a screen for this system for both long and short trades. I am currently moderately bearish on the markets, so I decided to run the short simple moving average slopes screen to see what I could find.

A few potential shorts I see with this system are:

Walgreen: Symbol WAG. I will be looking to short WAG at the end of trading below the $31.92 level. The initial price target will be $29.46 or 8.7%, but it could easily go to $26.

Republic Services: Symbol RSG. I will be looking to short RSG below today's of $26.47 with an intial target of the August lows at around $24.75 or 6.5%.

Best Undervalued Stocks with Trend Reversal

As I stated when I opened the trade, this strategy combines the new monthly trade triangle stock screen with stocks which are undervalued by at least 50% compared to their industry, and other strong technical indicators supporting the monthly trade triangles as a trend reversal. You can see my initial post by clicking the link below:

Best Undervalued Stocks: TSTC

Trade Update

My initial price target was hit today at around $8.32. After entering the stock at $6.76, the stock began to go parabolic. The stock continues to rise on increased volume, showing significant upward momentum, and showing price strength by closing near its high.

As with any stock that goes through the roof, it's a good idea to take profits after a good day like today, and to buy into pullbacks. I decided to sell 1/2 of my position at the close today ($9.03), taking a $2.27 profit which is 3 day profit of 34%. I will look to buy into pullbacks as long as I see continuation type patterns developing. I will continue to utilize the chandelier trailing stop method to protect profits, but now I have adjusted the ATR multiplier from 3.25 to 2.25 ATR. The current ATR is $.515, so this places my stop at $7.87

Today I was running a few screens looking for a new trade to get into, and I found a chart with a really nice MACD / price divergence that need some investigation.

Why Undervalued Stocks?

You might be wondering why a technical trader is looking for undervalued stocks. The answer is that through my experience, undervalued stocks with positive technical signals tend to perform more predictably. the best undervalued stocks are those which have either a well known price pattern, or are showing significant signs of trend reversal.

Stock Screen:

Marketclub New Monthly Trade Triangles

The New Monthly Trade Triangles screen allows you to find stocks which are showing strong signs of trend reversals. When combined with an appropriate set of momentum and volume indicators, this can be a great way to find longer term trades.

Strategy

This is going to be a setup for a medium to long term trade. I will set initial profit targets, and buy into pullbacks up to a 33% retracement level.

Trend Analysis – Symbol:TSTC

1. INO Score +90, which indicates that it's in a medium to strong uptrend.
2. 20 SMA and 50 SMA are trending up, with the 20 looking to cross over the 50 soon
3. 200 SMA is flattening out.
4. New Monthly Green Trade Triangle on 11-2
5. Price crossed above 200 SMA on strong volume

Technical Analysis

1. Significant 12/26/9 MACD to Price divergence on the weekly chart.
2. Break out of descending channel and strong resistance now makes good support level.
3. There is plenty of profit potential before reaching the 38.2 and 50% fibonacci levels (drawn from November, 2010 highs to October 2011 lows)

Entry and Exits

1. I will enter this trade anywhere above yesterdays high of 6.75.
2. My initial profit target is the 38.2% retracement which is around $8.30
3. My initial stops will be placed just below $6
4. I will use the Chandelier Stop method of trailing stops to protect profits.

Chart

However, I also mentioned that I like HALO as a mid term trade as well, and to buy into any pullback. on Tuesday, 10/25, HALO did just that, and I made my purchase just before the close at $8.23.

Halo then gapped up yesterday, and VERY strongly today and is looking to break a long term resistance at around $9. The next area of resistance is at around 9.15 and then again at 9.45.

Even after a huge 4 day move, I continue to like HALO, which, as I write thise post has broken through the $9 level. The technicals are all pointing the the right direction.

1. price has broken through the 200 day SMA on strong volume
2. There is a 20 / 200 day SMA cross, and the 50 / 200 is not far behind
3. Trend strength according to the Aroon indicator is increasing
4. Momentum, using On Balance True Range is also increasing.

This chart is simply lovely, and I see no reason why not to buy into pullbacks, and ride this puppy all the way to my $10 target.