Q:  Often time, I heard the word "consolidation" or the "market is consolidating", what is it mean?

A:  This typically means that the market is taking a breather after a sizable run up or sell off.  It’s characterized by sideways or mild downward action and generally light volume.

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Q: "This chart looks sloppy" – What is your definition of sloppy?  Can you provide a comparison example?  You have used the term choppy.. is that the same as sloppy?

A:  Sloppy is volatile price action with wide intraday price swings.  Examples: RTEC (sloppy), AEOS (smooth, tight price action).  Sloppy, choppy and volatile are essentially all the same and are words I use to describe wide intraday price swings (differnce between the high and low for the day)

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Q:  "Look for stock that has already "bounce off" the 50 dma".  So, should I wait for stock that is 5-6% from 50 dma to be bounced off, or wait for it to get closer to 50 dma?  When it is away from 50 dma, the "bounce off" (as you were referring) has not happened yet?

A:  Yes, you want to see a stock bounce off the 50DMA before making a purchase because you want to see it find support there.  If you purchase before it’s had a chance to test this support level, your risk increases greatly.  A good time to buy is right after you see a surge in price and volume off this support level and as close to support as possible.  I like to use a 5 min. real time chart for making buy and sell decisions.  So if I"m watching stock where the 50 day moving average is at 18 and the stock begins to surge in price and volume off 18 on my real time chart, I would pull the trigger on the trade.  I wouldn’t chase past 5% from the 50DMA.  I prefer to buy no more than 3% off support provide the volume is there on the buy side.

Question:

Where do the industry strength and general market conditions come in?
As I’ve learned the hard way – the street can kill you
if a stock’s group is not in favor or they’re reducing their weight in the
group. And of course if the NAS is shaky the breakouts fail. The group thing
is the hardest for me to conceptualize because by the time a leading group
is ranked high it has possibly already made it’s run up and isn’t
necessarily safe to buy. [edited] is basically saying that the group stays off
the radar until it is in the top 25% or so of his 197. Maybe that’s too
late. I have written some reports in ms access (using DailyGraphs group
data) to try to catch which groups are moving up. Also, Prophetnet’s screen
is excellent but there are a ton of groups (detail overkill?). Anyway, it
seems like when the market gets hot on a group they’ll buy almost anything
halfway decent in the group. But when they decide to cycle out ya better get
off the train tracks. Don’t laugh at me but I almost think it’s all about
the groups! Look at today – Oil & Gas forever – again. Thanks for listening

My Response:

When making the decision to buy or sell a stock, first and foremost in your
mind should be "what is the health of the market?" and which industry groups
are leading?  You’ll notice the the members portal begins with the Market
Outlook page where I post articles taking a look at the market from a
technical and psychological standpoint.  The calendar there provides a look
at accumulation and distribution days.  The Market Strategy box details the
best strategy, given current market conditions.  Right now, there is
uncertainty with a bullish bias which is why I recommend being only 50%
invested in the strongest industry groups.

The next tab you come to is the Top Industries tab which displays top groups
based on 10,20 and 30 day performance.   From my experience, this table
spots new trends long before they appear in [edited].  What I do is look for
groups that appear in the 10 day performance and make a note of it.  If they
can then make the move to the 20 day performance, more often than not this
means a group is making a move.  I would focus on that group and look for
stocks breaking out.  What you’ll find is that there may be several all
setting up for a breakout at the same time.  Right now, it’s still all about
transportation (trucking, railroads), chemicals, oil and metals (copper,
gold, silver).  While some profit taking has occurred, they continue to show
up in the top performances, so you should continue to concentrate in these
areas.  To find buy candidates from leading industries, you could click on
the "show all stocks" link under the Top Industries tab which will display
all stock in the Breakout Tracker that belong to the idustries listed in the
Top Industries performance table.  To find stocks that have yet to break
out, sort by B/O Date to display stocks with no date.  Then look for high
total rank and RS rating.

Be sure to take a look at my detailed report taking a look at how I go about
finding the best performing industries/sectors (I place much emphasis
on ETF’s now)

Question:

I appreciate all the upgrades you’ve made to selfinvestors.com since I
started subscribing in July.  However, about the only thing I’ve accomplished,
since resuming my active investing last June, has been to limit my
losses.  After numerous trades, my only significant gain was 21% on DHB.

I’m sure some of this resulted from poor decisions on my part.  But one
problem is that, even if I could arrange to watch specific stocks in
real time and/or receive your buy & sell e-mails in a timely manner, my
day job doesn’t lend itself to making immediate trades.  With few
exceptions, I must make my buy & sell decisions in the evening or early
in the morning–before the market opens & before you send your buy &
sell e-mails.

Last night I made another decision that is not working out well.  After
reading about OMM on your watch list, I researched it at investors.com
& other internet sites.  The fundamentals & earnings report seemed very
good, and the stock was up nicely in after-hours trading.  I bought at
the open today (with a limit order) and am already down more than 7%.

I’m seriously wondering whether I should return to investing in mutual
funds–which I don’t find particularly interesting.

I’d welcome your comments.  Thank you.

My Response:

As far as the time issue I understand.  Other members have expressed similar
concern about implementing this method successfully while maintaining a full
time job.  It can be done.  I’m willing to work with you until you are
successful if you’re willing.  You sound like you are.

A couple of key things from what you are telling me:
1.  I think I have mentioned this a couple to times before in emails, but
now I realize I haven’t highlighted this enough.  It is very important.  You
almost NEVER want to buy a stock in the first half hour of trading,
ESPECIALLY on a gap up after an earnings report.  In the first half hour
trading, overnight orders are filled and there is much manipulation going on
from market makers.  You get a much more accurate direction of a stock after
that first half hour.  In the OMM example, I was looking to pull the trigger
only if it proved the breakout.  What do I mean by this?  It proves the
breakout only if the stock clears the high that it made in the first half
hour.  The stock never confirmed a buy.  In your situation you probably
would not have been around long enough to wait to see if it would confirm a
purchase – what you could have done is set a buy stop order above the high
point of the first half hour.  The order will execute only if it clears the
high for the first half hour (you would just need to make sure that the high
point of that first half hour would still be within 5% from the pivot, which
in this case I would have been).

That is one strategy.  A safer strategy would be to just hold off on the
breakout and wait for a return to the pivot area, which about half of stocks
will do.  There is nothing wrong with holding off on the initial breakout
and waiting for the stock to return to an acceptable buy range (0 – 5% from
the breakout point).  The Buy Watch screen lists stocks near a breakout, but
also lists stocks that are still within an acceptable buy range.  For
example, INFY remains in a buyable range, but I’m waiting for a drop to
around the 72 range before entering.  There is a good chance the stock could
do this in the morning when you are able to watch or you could set a buy
limit order at 72, so that your order gets filled if it drops to that point.
DOW is another great company highlighed that has been slow to breakout which
could have been purchased this morning.

Question:

Do the stocks in the "Portfolio" always follow the CANSLIM
criteria.  It seems that some of the "Watch" stocks aren’t always above
$15,  earnings aren’t always in the excellent category, trading volume
is on the slim side, etc.  Are there some CANSLIM criteria that are more
important than others?  Are we mostly looking for breakouts and
interesting technical analysis?  Do I just need a little more experience
in CANSLIM?

My Response:

[the originial response has been edited to reflect changes in the Model Portfolio]

First off, I’ll say that I don’t follow a strict CANSLIM approach but rather elements
of it that are common to many successful investing strategies, such as focusing
on companies that are exhibiting strong earnings/sales growth and technically
superior.  Where I tend to differ is that I won’t hesitate to purchase stocks under
$10/share or that may not have a history of strong earnings but are expected to
increase earnings dramatically in the near future.  In addition I tend to hold more
positions than what would be recommended in a classic CANSLIM approach.

I would characterize the SelfInvestors Model Portfolio as one that ecompasses
a variety of strategies to achieve market beating returns.  Short plays are used
in a market downturn and recently (last half of 2006) I have added the use of ETF’s
and what I call Quick Strike Profit plays (technical swing plays with big short term
profit potential) to add some oomph to portfolio gains.  While the portfolio focuses
almost exclusively on high growth stocks, it’s fairly conservative and well diversifed.

Question:

I am not sure I completely follow how you decide when we are in
a bull or bear market.  I guess I would like a little tutorial in this
area or maybe I should I just be following the "Big Picture" in IBD?  It
seems to me that IBD never really comes right out and says whether they
think it’s a bull or a bear market.

My Response:

The strength of the market, like the strength of an individual stock is determined by price and volume levels as well as support and resistance areas.  I’d say more than half of my time spent on blog articles is focused on the health of the overall market. IBD’s The Big Picture is helpful and you may like to look at the tutorial here.  I suggest you read through the entire tutorial, specifically the section  regarding Market Direction.  Once you’re comfortable with the idea behind that and are familiar with distribution and accumulation, you’ll understand why I track those days in the calendar on the Market Outlook page (accumulation – green days, distribution – red days). 

Question:

Would you cover on an intra-day bounce above 31 or closing above 31?

My Response:

The reason for waiting until market close would be  to see what the so
called "smart money" will do (institutions do much of their trading in
the last hour of the day).  Many traders will avoid making a sell decision
(or in this case, a cover decision until then).  However, if SFA surges
above 31with heavy volume I would be covering regardless of when that occurs,
considering that volume levels will tell you what institutions are
doing. The only exception might be in the first 30 – 60 min. of trading, where I
typically avoid making any trading decision. 

Follow up question:

Thanks.  Just curious, do you use more of a mental stop than a hard stop
order so you can watch volume?  And if SFA goes above 31 on light volume
will you not sell.

Since I don’t trade full time and have trouble monitoring trades
throughout the day I enter stop orders immediately after a trade has
been entered.  I have placed my stop on SFA at 31.  This seems to work
best for me but always open to suggestions if you have any (I feel exits
are one of the more important aspects to trading and always looking to
improve in this area).

My Response:

Since I am able to watch the market most days, I don’t use stop orders.
This way I can base my decision on volume levels as well as the strength
of the market.  To answer your question, I would be less likely to cover if
the stock rises through resistance with light volume.  Although, it would be
surprising to see it get past those resistance levels with light volume.

Most are not able to watch the market during the day, so you MUST use
stops.  Here’s a hint though.  Never place a stop on a whole number.  You
increase your chances of getting shaken out.  Remember that market makers know
all stop loss levels.  It is human nature to want to set stops at even numbers,
so there will be a large number of stops at those places.  Market makers
may run a stock up in order to cause a short squeeze.  I don’t want to get
too complicated here.. make sure you place stops at odd numbers where others
wont’.  So maybe 31.23 or something like that.

Question:

It looks like you didn’t make the ADBL and CRDN shorts part of the portfolio. Will you notify by email a buy to cover or should I just follow you targets you gave? Both look great so far. I’m kicking myself for not realizing the climax tops of DHB and XXIA as I’m sure you are, too. Good picks but both went down so quickly. Such is life. This is the first time I’ve shorted a stock so I’m pretty anxious about the whole thing. It helps that they both dropped on good volume yesterday. Thanks for your efforts. The web site looks great. Dave

My Response:

Question:

I signed up your service last Thursday so my exposure to the tools is limited.  I have been a user of [edited] and switched to your service because of the market analysis, model portfolio and the breakout sections on the web site.  I also didn’t feel the buy candidates were all that great on [edited].  I did some back testing of [edited] recommendations (although it was not overly scientific) and was not satisfied with the results.  The back testing of your model portfolio proved much better results.

I am a person who is dedicated to becoming a better trader.  However I have a full-time job and a family so time is very precious.   I am looking for the following from your service:

• An easy way to monitor the direction of the market.  A red/green light or number system to tell me quickly the market direction.  Should on be long, short, on the sidelines, etc.  I think this can be found on selfinvestors.com in the “market strategy” section of the “market outlook” tab.
• Bullish CANSLIM investment opportunities.  I don’t want to do all the research to find CANSLIM trading candidates with the proper charts/technicals.  I use to believe that entry was the most important aspect of trading.  However, I have come to believe more and more that the entry of a trade is of far less significance.  I want to focus my attention on exits, position size, and the psychology of trading and use selfinvestors.com to give me buy candidates of stocks that are moving in the right direction and have a decent probability of continuing that move.  I think the model portfolio with email alerts and breakout sections provide these candidates.
• Bearish CANSLIM investment opportunities.  I do not see this as part of you service today but would definitely like to.  When the market direction turns bearish would like to profit rather than be on the sidelines.
• Monitoring and commentary of recommended positions.
• An online journaling method.  Not provided today by your service but I am looking at traderbrain.com for this functionality. 
   
  Probably much more than you asked for.  But so far I do find your service fairly intuitive with the services I am looking for and at a fair price.  I will keep you posted on whether or not I find profitable opportunities.