My trading diary entry from William O’Neil’s workshop in 1995; a set-up for buying $LMAT; $HEIA–Cup and handle break-out

GMI5/6
GMI-27/8
T210850%

In the 1990’s while I was teaching myself to trade in that roaring bull market, I kept a diary of my trades and reactions to the market and current events. I looked it over this weekend and saw this entry from 11/11/1995 and thought you might be amused by it:

This past week I attended a lecture at the Sheraton by William O’Neil, founder of Investor’s Business Daily and one of my heroes. Most of what he said I already knew from reading his book. The most startling thing that I learned was that contrary to his rules about selecting only stocks with high EPS values, he was advising institutional investors to buy the current fad internet stocks like C-Cube and Netscape. I got the distinct impression that he was saying that volume and price action was more important than demonstrated earnings growth. In fact he did say that a dramatic rise in volume could be the most important factor. His lecture sensitized me to the need to always look for the most dynamic and fastest growing companies. Stocks that are growing 100% in price a year or have 99 Relative Strength seems to be his major criterion. I would have liked to ask him whether he consciously breaks his written rule to also require a high EPS before purchase. (Copyright, Dr. Eric Wish trading diary, 11/11/1995)

I have written 200+ pages about my thoughts while I traded my way to a small fortune during the 90’s. The diary shows how difficult it was for me to trade profitably as I reacted to the market and current events. When one looks at a long term chart of the indexes over that period it looks like it was easy to make money. It was not. I wonder if anyone would want to read my trading diary if I chose to publish it………

The focus of my class for undergraduates is to teach them, “in a rising market buy visionary rocket stocks that are breaking to new all-time highs or bouncing off of support.” They have now completed 5 weeks of classes and are ready to start specifying their set-up for purchases during a trading competition of a virtual 100,000 margin portfolio. I am posting this analysis of LMAT to provide them with an indication of a possible set-up.

LMAT came to my attention because it hit an all-time high on 8/30.  I looked at a monthly chart using TC2000 and drew in a green line top at the last all-time peak that had not been surpassed for at least 3 months. I then looked at its modified Guppy chart of 13 weekly exponential moving averages (six short term and 12 long term averages plus a one week average that shows its weekly closes).

lmatrwbI saw that LMAT  had an RWB pattern with all 6 short term averages (red lines) rising above the rising longer term averages (blue) with a white space between them. Thus, LMAT had an RWB pattern and is a launched rocket stock.  In other words, it was an advancing stock that had rested for at least 3 months (formed a base) and broken to an all-time high.

LMAT closed above its green line 2 times on above average trading volume (see daily chart below). The first time the break-out failed, as it traded back below its green line for 3 days. (I immediately sell failed break-outs.) Then LMAT had a much larger break-out on considerably higher trading volume. If I missed that break-out or had exited after the failure, then I wanted to enter this rocket after a decline to short term support and a likely resumption of the up-trend. That happened on Friday when LMAT bounced up off of its rising 30 day average and its lower daily 15.2 Bollinger Band on increased volume. This is one of my favorite set-ups. If I were to buy LMAT on Monday I would do so and place a sell stop around the low of the bounce, near 19.29. However, I must sell immediately if the bounce I bought on does not hold. One never knows in advance if a particular set-up will be successful. Of course, I would first check LMAT’s news and fundamentals to make sure that it was worthy of my risking capital to purchase it. For example, IBD gives LMAT a composite ranking of 99, the highest possible reading.

lmatdailysetup

I actually use TC2000 to scan for stocks with this set-up. By the way, the Worden people are presenting a workshop in the DC area next weekend.  Will see you there on Saturday…

I noticed this possible cup and handle break-out from Friday. Note HEIA is above its last green line top–a good sign. It also has a nice RWB pattern (not shown).  I do not like the high volume down day in the handle on Friday, just  before Friday’s bounce, however. IBD composite rating for HEIA= 98. Let’s see if HEIA  holds this break-out on Monday.

screen-shot-2016-10-02-at-9-52-09-am

The GMI remains Green. Note the QQQ short term up-trend is now 11 days old. Since that short term signal at the close on 9/16 through Friday’s close, the QQQ has advanced +1.22% and the leveraged 3X bullish ETF, TQQQ, +3.37%.

gmi09302106

 

 

12th Day of QQQQ short term up-trend; 8 rocket stocks

GMI6/6
GMI-R10/10
T210883%

The market rally continues, with many stocks breaking out.   There were 229 new 52 week highs in my universe of 4,000 stocks on Monday.   The following stocks at new highs were near multi-year highs and had triple digit earnings increases in their most recent quarter: SAN,   CTXS,   PPO, CMI, OPEN, HWK, BIDU, ALK.   I own some of these.   The new high list is a great place to look for promising growth stocks. Check out this monthly chart of BIDU, (click on chart to enlarge),   a true rocket stock.

How to use IBD 100 and New America stocks and TC2007 to find potential rocket stocks; Market rally begins

GMI6/6
GMI-R10/10
T210853%

I am writing this post primarily to teach my students how I search for potential rocket stocks–stocks that have been launched and appear headed towards new peaks.   As I said in class this week, it makes the most sense to buy stocks that have the best fundamentals and technicals.   This strategy has been advocated both by Nicolas Darvas and William O’Neil in their extraordinary books (listed at lower right of this blog).   Darvas,   made a fortune trading in growth stocks in the late 19050’s and said that he liked to buy stocks that were trading at all-time highs and that had already doubled in the past year.   So, I am going to show you how I use the great TC2007 stock charting and analysis program to find   potential rocket stocks that I research further before buying.

Read moreHow to use IBD 100 and New America stocks and TC2007 to find potential rocket stocks; Market rally begins

Some new rocket stocks to watch

GMI6/6
GMI-R10/10
T210865%

I used TC2007 to scan the market for stocks that meet my most stringent fundamental and technical criteria for rockets.   These stocks have great fundamentals and technicals, have already doubled their price a year ago and are near 5 year or all-time highs.   I have listed in this table the 11 stocks out of 4,000 in my stock universe that met these criteria.  Rocketstocks1218 All of these stocks had last quarterly earnings up at least 100%.   Coincidentally, all but 4 of the 11 are in my records as having appeared on the IBD100 and/or IBD New America lists during the past year. I have also noted in this table where I might place long term or short term stop losses on each long position.   The most conservative stop loss is the short term support level.   With a growth stock I rarely retain   a long position if the stock closes below its short term support level.   However, if I bought near long term support I might use the LT support level as my exit strategy.   I will return to these 11 stocks in a future post to show you how they behaved.   These stocks have already proven themselves as being in strong up-trends, but one never knows when an up-trend will end.   That is why I immediately enter a sell stop or buy a put option for insurance, after buying one of these high momentum stocks. I currently own 3 of these stocks.

Below is a Guppy Multiple Moving Averages (GMMA) weekly chart (click on chart to enlarge) of one of these rocket stocks, RDY. Note how all of the shorter term averages (black lines) are well above the rising long term averages (red lines). This is the type of technical strength I seek in a potential rocket stock.

GMMARDY

Meanwhile, the GMI and GMI-R remain at their maximum levels.  

Read moreSome new rocket stocks to watch

All indicators positive; beware of gold, STEC, GMCR

GMI6/6
GMI-R10/10
T210864%

My indicators are all positive again.   There were an amazing 398 stocks in my universe of 4,000 that hit a new high on Friday.   59% of the 4,000 stocks closed above their 10 week averages.   Nevertheless, two rocket stocks I have written about weeks ago are now in downtrends, STEC and GMCR.   GMCR has now closed below its 30 week average.   I hold no stocks that close below this critical average.   It may be wise to buy some puts on these stocks. While gold is still in an up-trend, it declined on Friday with the highest daily volume in more than a year.   Gold may have completed a climax run.   Be careful not to give back all of your hard earned profits.   The dollar is rising and bonds were weak. Maybe higher interest rates are coming. Meanwhile, the GMI

Read moreAll indicators positive; beware of gold, STEC, GMCR