Friday, July 30, 2010

Now on buy alert...

With the current four day pullback in the stock market which is also in an intermediate term uptrend, I am now looking to buy stocks. It comes as no coincidence that I see a lot of stocks setting up in my bread and butter pattern; the pullback to the 20 day MA and also the bull flag.

I have ISLN, IDSA and IDT on my focus list for a possible entry today since today it has traded above the high of yesterdays price action. However, there are several stocks that could turn out to be excellent buy setups tomorrow especially if we get a reversal day today in the indexes.

Here is a list of the stocks I will be watching tomorrow: LSCC, OVTI, MELI, HXL, PANL, ARUN, VMW, IGTE, CRUS, INFA. All of these stocks have a new 52-week high and then have pulled back for 3 - 4 days. Now, there are many other stocks that fit this criterion like for instance FNSR. However, the reasons why I will trade the stocks listed above and not ones like FNSR which have the same pattern are as follows.

The stocks I select for trading are part of strong sector move (like Solar and Fertilizer stocks in late 2007) and/or have extreme relative price strength (6 month relative performance > 90% and 3 month relative price strength > 90% like JRCC in early 2008) and/or a hot new IPO (like CYOU in early 2009) and/or have announced a huge earnings surprise which caused explosive price/volume action (i.e. Post earnings announcement drift, like APKT earlier this year) and/or meet CANSLIM criterion (like CREE earlier this year). When many or all of these factors combine in a stock with the markets over sold short term but in an intermediate term uptrend and the stock forms one of set ups I know that the odds that the stock explodes higher is very high!

Nothing is certain in the markets but if you have the odds in your favor you can make big bucks. Thats what I try to do. When the odds are heavily in my favor I put on risk but aggressively protect my account when the set ups fail as they often do since nothing is certain in the markets!

Hope you can apply something from this principle. Good luck with you own trading!

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