Rocket Stocks

Buying Rocket Stocks; My market indicators are very strong.

@ 7:39 am

I just completed the best 2 week period in a year. I own a lot of the stocks listed to the right, which are having terrific runs.   The GMI registered 5 for the first time since August, 2008, before the start of the major market decline.   My Successful 10 day New High Index turned positive.   There were finally enough stocks that hit a new high 10 days ago that have closed higher than they did 10 days ago.

Stocks on the 52 week new high lists that are also at or near all time   highs is where I find potential rockets.   Nicolas Darvas made a fortune trading such   stocks. IBD100 stocks near all time highs include: GMCR, NFLX, MNRO, QSII, VLGEA, AZO, SNDA, NTES, ALGT. TNDM.   TSYS, HGG and ORLY are also very strong, but are not yet on my IBD100 lists.

While most of the world looks for bargain stocks at new lows, I seek rockets heading to the moon.   The greatest winning stocks are those heading up to ever higher levels.   Think of how many times that YHOO   or CSCO or MSFT hit all time new highs as they multiplied their prices many times during their great bull runs.   If you want to hop a rocket to the moon, it better be pointing up and gaining altitude.

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GMI: 0; GMI-R: 0; Short or in cash; EDU as a model short

@ 12:01 am

The GMI and GMI-R are each registering zero.  The markets are in solid down-trends, with the SPY and QQQQ closing below their 10 week averages for 17 weeks. Gmi0308 There were only 23 new highs and 504 new lows in my universe of 4,000 stocks on Friday .  The Worden T2108 indicator is now at 24%, still above the extreme level at which the market tends to bottom.  At the the January bottom, it registered 18%.  At the bottom in 1987, it registered an amazing less than 1%.  Most recent bottoms/bounces  occur in the area around 14%.
Only 19% of the Nasdaq 100 stocks closed above their 30 day averages and only 28% had their MACD close above its signal line.  Since the current QQQQ short term down-trend began on January 2nd, that index has declined 16.6%, and 80% of its components stocks have declined–30% have fallen 20% or more.  In the same period, 76% of the the stocks I monitor from the IBD100 lists the past year have also declined.  The lesson to be learned is that one should not hold stocks in a general market down-trend.  Why not be in cash or short in a market decline?

So, since I won’t buy rocket stocks (I found 55)  in a down-trend (stocks just rarely keep hitting new highs), I used TC2007 to look for some submarine stocks and found over 500.  All of these stocks are in confirmed down-trends. Edu
The following stock, EDU, has a real promising chart pattern, and is selling at a price-to-sales ratio of over 13! This  weekly chart (click on to enlarge) shows that EDU  tripled, formed a top and then broke down on huge volume (when the company talked of tougher earnings comparisons in future quarters).  After breaking below its 30 week average (red line), EDU rebounded and failed last week to hold that line.  Furthermore, its 10 week average (blue dotted line) is now below its 30 week average.  This is the type of stock I might short by buying a put  in my IRA.  I would close the trade with a loss if the stock trades again above last week’s high of 67.40.  There are so many submarines with patterns like this. In the current market environment, the odds of success favor going short on a submarine like this rather than betting on the rare rocket on the long side. Alternatively, I could wait safely on the sideline, in cash.

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GMI: 0; GMI-R: 0; Nibbling a little at rocket stocks

@ 12:01 am

The GMI and GMI-R are still zero.  This means that most stocks are in a down-trend.  I have therefore been on the sideline for most of the decline.  There were 22 new highs and 174 new lows in my universe of 4,000 stocks on Friday.  The Worden T2108 indicator stands at 41%, in the neutral range.  The markets have been in a tight range since the January decline, going back and forth.  At the same time, a small group of sectors and stocks have been rocketing up.  It seems to me it may be prudent to nibble a little at these strong performers.

I therefore ran a scan using TC2007 to uncover IBD100 stocks that have been incredibly strong throughout the general market’s decline. The following stocks from the IBD100 lists I have monitored over the past year hit a new high during the past week and meet my strict technical criteria for rocket stocks:  MOS, MTL, CF, SID, POT, PCLN, CMED, RRC, PRXL, OIL, SWN.  While not an IBD100 stock, I also like FDG, which this monthly chart indicates has had a high volume break-out to a new all-time high, breaking its peak from September 2005.Fdg  In fact, this monthly chart of FDG looks like a three year cup-with-handle formation.  My smart stock picker friend, Judy, is interested in RIMM, which just bounced off of its 30 week average. (She, of course, started buying it in the low 80’s!)  I may nibble at some of these stocks and place close stops in case they reverse. Many of these stocks have rich premiums on their March call options.  I may buy some shares and immediately write March calls.

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