Member Q & A: IPO’s, Institutional Demand, How Long to Hold a Stock, Dealing With the Frustrations of Trading

A couple days ago I received a few questions from a member and I thought my answers to these questions would be of benefit to a few more.  This is something I’ll be doing more of from now on and once the new website is released I’ll be creating a section where past member emails and my answers will be archived for review. 

Q:  I got your email on DIVX, but I can’t find it listed anywhere on your site.  Could you tell me what I’m overlooking?

A:  DivX Corp (DIVX) is a recent IPO.  Since the stock has not yet formed a proper base and near a breakout, the stock won’t yet appear in the Breakout Tracker.  That being said, the hottest IPOs often run up significantly before ever forming a real base, trending higher and higher right out of the gates in a stair step pattern.  This likelihood only increases in a bull market when their is great enthusiasm for the next hot stock.   So what kind of pattern am I looking for in these situations?  Basically, what I’m looking for is a run up, a retrace/consolidation, then a break.  It may look a lot like a bullish pennant or flag formation.  Be sure to keep an eye on three new IPO’s that came to market on Friday – eHealth.com (EHTH), Acme Packet (ACME) and SAIC (SAI).  A new IPO Tracker section will be coming to the premium members area.. stay tuned for  that!

I’ve posted a report in the members area showing the charts of two recent hot IPO’s, DivX (DIVX), a recent purchase in the Model Portfolio and Mindray Medical Technologies (MR).

Q:  What methods do you use to know where the institutional money is flowing?  Either into sectors or individual stocks.

A:  Price and volume movements are used to track the footprints of institutional money flows.  Here at SelfInvestors I came up with a fairly simple formula (called the Demand Indicator or DI score) which awards points for high volume up moves and low volume selling and subtracts points for high volume selling or low volume buying over the course of 15 and 30 days.  The higher the score, the greater the demand for a stock or sector.  For example, a stock that is carving out a base with sell volume drying up at the bottom followed by a surge in buy volume in the right side and at the breakout is going to receive a very good Demand Indicator score.  Go to the Breakout Tracker when you get a chance, click the View All Stocks link near the bottom of the page, then sort the database by DI15 by clicking the column header.  This brings stocks showing the greatest demand over the last 15 days to the top.  Write down the top 15  tickers, then sort again to bring stocks showing the least demand to the top and  write down those tickers.  Compare and contrast the charts to get an idea of a very bullish chart vs. a bearish chart and how the first sign of great demand leads to further demand for a stock down the road. 

For non premium members who may be reading this report, here’s a top 15 list of stocks showing the greatest demand over the past 15 days: ELE, ININ, EZPW, BFAM, CMG, AOB, CBEY, RICK, GCOM, CTCM, BITS, KNOT, ICON, XING, PRFT

Why track institutions through price and volume movements?  It’s the institutional buys and sells that most often move a stock in a meaningful way.  When institutions initiate a new position (which will often happen in the kinds of high growth, relatively undiscovered stocks we’re interested in), remember that they can’t possibly intitiate their entire position all at one time in most cases.  For example, if a mutual fund wants to initiate a position of 500K shares in a company that only trades 250K shares a day, they are going to need to purchases in phases over the course of several days or weeks.  Once you see these initial surges in price and volume you can safely assume that there is a good chance that the trend will continue down the road, possibly from multiple institutions if the stock is liquid enough.  Basically, the goal is to hop on the back of this institutional wave of buying as early as possible.

Tracking institutional money into sectors or industries can be done through the analysis of ETFs using the same Demand Indicator scores.  Premium members may currently use the ETF Tracker on a day to day basis to see those industries and sectors showing the greatest demand by clicking on "Leading ETF’s" in the ETF Tracker.  Registered *free* members receive these top sectors/industries in the MidDay Market reports and will soon have access to the list throughout the day once the new site is finished. 

At the top are the hottest ETF’s right now:  Retail, Consumer Services, Software, Biotech and Semis.  These are the sectors I would be focusing on right now.

** If you haven’t had a chance you may like to read a report I recently wrote which highlights how I go about tracking where the money is flowing in and out of the market

Q:  How long do you typically hold a stock?  I know that it depends on a lot of variables, but if a stock is fundamentally strong isn’t it a good idea to hold it longer?  Is your approach to buy and sell stocks for a period of days, weeks, months, or longer?

A:  If I were to find some sort of average holding period for a stock it would probably be a month or so, but it really depends on a number of variables.  I have bought and sold a stock in one day and I have held on for several months (including through earnings which I don’t often do). In a strong bull market like we had in 2003 and like it appears we are having now, I might be willing to hold for longer periods.  One thing I rarely do is hold a stock through its earnings report.  It’s just one thing I do to eliminate risk of big downside moves surround earnings.

The greater the degree of uncertainty, the greater your risk in holding a position in a stock. All stocks are uncertainties, but there is no moment of greater uncertainty than that of an earnings report. It’s the time when the company reports on how well it is doing now and how well it expects to do in the future. Often times, other major announcements are made as well. It can be a time of extreme volatility, especially with small cap, high growth stocks. Sure, the upside potential can be great, but there are too many things that can go wrong, which could cause the stock to plummet. Remember, the name of the game is preservation of capital. You can always repurchase the stock once the coast is clear.  A company may report below analyst estimates, or the whisper number (earnings that the company is rumored to report, often leaked by an insider). There are times when a company will beat the analyst estimate, but not the whisper number and sell off.   They may release negative news about the company, the industry, or reveal a less than optimistic outlook for the future. "Buy the rumor, sell the news". Often times a stock will rise ahead of expected good earnings, only to sell off once the great earnings are released.

Is it a good idea to hold a stock longer if the stock has great fundamentals?  It really depends… on the charts.  The charts will tell you when to get out.  Whether you are more of a short term trader looking to lock in a quick profit (something I have been leaning more towards recently) by focusing more on the intraday and daily charts or looking for a longer hold and focusing more on the daily and weekly charts, high volume selling and a breach of support levels on those time frames will let you know when it’s time to get out.  One thing to caution against is falling in love with a company and "riding it out".  The market always looks well into the future by several months and it’s the charts that often forecast bad news down the road.  Remember, someone always knows something.  Whether it be insiders or the detailed research of the institutions.  By the time  the company is reporting earning and sales not consistent with the great results of the past, you may find that the stock is already down 30, 40, 50%. 

Knowing when to sell is the most difficult part of trading because there are so many variables involved, not to mention elements of fear of and greed.  Many experts say to have an idea of where to sell before you purchase the stock in order to take out the emotion of trading.. have a game plan and make it as mechanical as possible.  I don’t believe in using a mechanical approach to investing because the market itself is not mechanical and predictable.  While I do use support lines and price and volume movements to dictate when to get out, I absolutely don’t use profit targets and stop losses.  For example, some strategies advise cutting your loss at 8% no matter what.  I prefer greater flexibility.  Sometimes I’ll cut my loss at 1%, other times I may let a stock ride out a bit longer and take a loss more than 10%.  It really depends on what the market is doing and the relationship of price/volume and support/resistance.

Q:  I get frustrated at buying a stock then just see it stall out or fall.  I look for a stock that is fundamentally strong, in a good industry/sector, good ROE, growing sales and earnings, low debt, good management ownership and in a breakout pattern or bouncing off the 50 day moving average.  Where should I concentrate my efforts on your website and just what should I look for in a company that would make it attractive to big buyers?

A:  Yes, trading stocks can be quite humbling at times can’t it!  There will be times when you follow all the rules and trade the best companies in the best industries at just the right time, yet the stock fails to meet your expectations.  It may even happen a few times in a row.  The bottom line is that this business is far from easy and nothing is certain, but by by sticking to the best companies and buying at the right time you give yourself the best PROBABILITY of success over the long haul.  Be prepared to go on streaks where nothing is working, but don’t let it get you down.  Learn from any mistakes and move on with confidence.  Also be prepared to experience streaks where everything you touch turns to gold, but don’t let it get to your head and start making mistakes.

The second part of your question asks about how to best use the Self Investors service to locate the best opportunities.  You should take a top down approach to investing – always know what the overall market is doing.  Are we in a bull market, a bear market, chopping sideways?  Next, focus on those industries/sectors that are leading the market (see 2nd question above), then trade leading stocks in those industries/sectors at the right time.

This is all easier said than done and would require a tremendous amount of time on your part to keep track of all this information from week to week.  That is the reason for creating SelfInvestors.com.. to save you a ton of research time.  The Breakout Watch screen is a list of the best breakout stocks updated nearly daily, with the best opportunities right at the top (ranked according to fundamental and technical analysis).  The Play the 50 Day screen is a table of stocks near the 50 Day moving average which is a great tool for finding stocks that have previously broken out and returned to support (providing you with another point).  The Hot Stocks screen combines these two tables, but takes it a step further by filtering so that only stocks showing the greatest demand are listed.  This is where I typically start my research. 

During the trading day, I use the SelfInvestors database to track stocks moving up and down with volume.  Take a look at the Today’s Market Movers list and do a sort by % Gain from BO (percentage gain from the breakout or pivot point).  Focus on stocks that are no more than 5% extended from this point.  Looking at Friday’s data I see there are 9 such stocks that meet this criteria, 4 of which were breaking out of nice looking bases: CHIC, PSEM, KNXA and EZPW.  All are nice looking opportunities and were were showing up in this screen very early in the trading day.  Another way to use this screen during the trading day is to sort by % from 50DMA (percentage from the 50 day moving average) which will allow you to easily see stocks just moving above the 50 day moving average with volume.

Rather than checking the database several times during the day, you have the opportunity to receive all of these opportunities in your email inbox by signing up for the email alerts.

That’s the service in a nutshell anyway.  As always, unlimited live chat sessions may be scheduled where I walk you through the entire service (even during the trading day if you wish). 

These were all great questions, keep them coming! 

MidDay Market Report – Inflation Jitters Setup Much Needed Profit Taking; Stock of Day – Chicago Mercantile (CME)

::: Today’s Market Action :::

With the market looking tired up at key resistance levels, it’s no wonder the market was a bit skiddish about the inflation data this morning despite the fact that much of the rise was due to the largest increase in auto prices in 15 years.  Clearly, the market was looking for an excuse to sell and it got it’s reason.  Despite heavy selling today, the bulls are showing their teeth once again after homebuilders sentiment improved a bit – possible indicating the housing market has stabilized. 

However, it’s going to take quite an end of day push here to avoid a day of distribution, which would be the first in nearly a month.  You never like to see heavy selling when the market is pulling back from its highs, but considering the magnitude of the rise over the past several weeks, one or two should be expected and even welcomed to help keep this market in order.  Orderly advances help to sustain a lengthy rally, so profit taking is up here is welcomed.   For more of my notes on the current health of this market, please see the latest blog post:  http://investing.typepad.com/tradingstocks/2006/10/market_priced_f.html

(Note: volume averages are based on the average over the past 50 days)
Data as of 2:45EST

Nasdaq: down .95% today with volume 12% ABOVE  average
Nasdaq ETF (QQQQ): down 1.13%, volume 21% ABOVE the average
Dow: down .33%, volume 1% BELOW average
Dow ETF (DIA): down ..43%, volume 15% ABOVE the average
S&P ETF (SPY): down .5%, volume 27% ABOVE the average
Russell Small Cap ETF (IWM): down .59%, volume 7% ABOVE the average

::: SelflInvestors Leading Stocks :::

SelfInvestors Leading Stocks are down significantly today, but volume levels indicate just normal profit taking.

Summary:

* Decliners leading Advancers 251 to 64.
* Advancers are up an average of 1.06% today, with volume 20% ABOVE the average
* Decliners are down 1.35% with volume 12% BELOW average
* The total SI Leading Stocks Index is down .90% today with volume 5% BELOW the average

* Where’s the Money Flowing *

Many investing websites just provide leading industries based on price performance alone.. without the volume, this can be misleading.  The only way that I know of to guage industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for guaging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash. 

* Leading Sectors/Industries:  Retail, Software, Consumer Services, Homebuilders

* Lagging Sectors/Industries – Remains just as it has for past several weeks: Oil and Gold – although I don’t expect to see these industries on the list for too much longer.

* Today’s Market Moving Industries/Sectors (UP) – Utilities and Pharma are bucking the trend today with good moves up; global dividend plays also faring well

* Today’s Market Moving Industries/Sectors (DOWN) – Semiconductors (on the Intel downgrade) and Energy plays seeing significant selling today.

** Stocks **

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average.  Today’s stock is Chicago Mercantile Exchange(CME), which this morning announced a merger with CBOT Holding’s to create a futures trading powerhouse.

ABOUT:  Chicago Mercantile Exchange Holdings Inc. (CME) offers market participants the opportunity to trade futures contracts and options on futures contracts, primarily in four product areas, including interest rates, stock indexes, foreign exchange and commodities. CME’s key products include Eurodollar contracts and contracts based on United States stock indexes, including the S&P 500 and the NASDAQ-100. The Company also offers contracts for the principal foreign currencies and for a number of commodity products, including cattle, hogs and dairy. Its products provide a means for hedging, speculation and asset allocation relating to the risks associated with interest-rate sensitive instruments, equity ownership, changes in the value of foreign currency and changes in the prices of commodity products. CME’s customer base includes professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, supranational entities and governments.

FUNDAMENTAL: They don’t get too much better than CME with consistent growth each and every quarter of around 30 – 50% quarter over quarter.  That goes for sales and earnings.

TECHNICAL: Cleared a long base and vaulted to a new all time high on Oct 9th and remains in that range but something to be careful of is fact that it has formed a late stage base, so is more vulnerable to failure.  Perhaps the CBOT purchase will give it the strenght for another leg up.

SELFINVESTORS RATING: With a total score of 51/60 (29/30 for fundamentals, 22/30 for technical), CME is considered a top breakout stock

Weekly Market Report – The Avalanche of Earnings Begin, Inflation Data, Major Resistance Ahead

Last week the stars were aligned for another rise in the market.  Strong earnings reports indicating a strong consumer, manufacturing remains robust all while inflation remains in check.  Add some positive comments out of the Fed and you have a recipe for more market green.  However, last week was just a little taste…an appetizer before the meat of earnings and economic reports flooding the market beginning this week.  In addition the market faces much stronger resistance areas than the areas I discussed in the last report – the headline number Dow 12,000 and the April highs of the Nasdaq around 2375.  Perhaps this is the week that the market digests recent gains?  The market is still showing few signs of slowing down, but with the Dow butting up against 12,000 and the Nasdaq inching closer to its April highs, CPI and PPI data in addition to high profile earnings out of Apple and Google maybe.. just maybe this is the week that consolidation begins.  I would certainly continue to play cautiously up at these levels and look at significant selling in the market to add to existing positions or initiate new ones.

::: Model Portfolio Update :::

The Model Portfolio regained its footing this week but still lagged the overall market, rising just 1.1% with gains tempered by a couple short plays I continue to hold.  It’s frustrating not to fully capitalize on the move in the market the past two weeks, but I have no regrets and know that the time will come to get significantly aggressive on the long side and begin leveraging with margin.  That time is not now. 

During the past week, I initiated 2 new short positions and 4 new long positions.  One long position in GOL Intelligente Airlines (GOL) was sold for a small 2% loss following a high volume drop below support of the 50 day moving average.  Considering the stock still has support at its 200 day moving average around 32, I considered holding the position.  However, given the huge selling volume and earnings coming up, I opted to unload this lagging position.  No other positions were closed out during the week.  With last weeks rise in the portfolio, the YTD return stands at 17.6% with current allocation of 64% long, 28% short and 8% cash.

::: PinPoint the Highest Ranked Breakout Stocks in Just Minutes Each Day! :::

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There are literally dozens of breakout stocks to watch every day.  How about a database of stocks all ranked according to fundamentals and technicals, complete with pivot points, earnings date, % change from breakout and moving averages, future earnings estimates and relative strength rating?  How about Stock Watch reports highlighting long and short opportunities for the coming week?  It will save you hours of research every week and drastically improve your results.

Try it out for yourself for 30 days!  Sign in to your account here: http://www.selfinvestors.com/amember/member.php and take advantage of the no risk trial.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Building Materials Wholesale             8.29%
2. Copper                                               8.25%
3. Industrial Metals & Minerals                7.30%
4. Metal Fabrication                                5.55%
5. Sporting Goods Stores                      5.45%
6. Gold                                                    5.40%
7. Semiconductor – Specialized              5.15%
8. General Contractors                           5.00%
9. Steel & Iron                                         5.00%
10. Technical & System Software          4.95%

– Top 10 Worst Performing Industries For the Week –

1. Catalog & Mail Order Houses              -7.75%
2. Long Distance Carriers                       -6.30%
3. Health Care Plans                                -3.20%
4. Specialized Health Services                -3.15%
5. Investment Brokerage                         -2.45%
6. REIT – Hotel/Motel                                 -2.15%
7. Personal Products                                -2.10%
8. Regional Airlines                                   -1.80%
9. Processed & Packaged Goods             -1.65%
10. Confectioners                                     -1.35%

– Top 5 Best Performing ETFs For the Week –
 
1. Turkish Invest Fund (TKF)                    12.50%
2. Ishares South Africa (EZA)                   7.45%
3. PowerShares China (PGJ)                     6.70%
4. PowerShares Clean Energy (PBW)       6.25%
5. Templeton Russia & E. Europe (TRF)     5.50%

– Worst 5 Performing ETF’s –

1. Korean Fund (KF)                                -2.25%
2. Ishares South Korea (EWY)                -1.85%
3. Lehman 20 Yr Treasury (TLT)             -1.25%
4. HLDRS Internet (HHH)                            -.90%
5. Japan Equity (JEQ)                                 -.75%

:::  IPO’s Worth Watching for This Week :::

There are lots of IPO’s coming to market this week, but only one is worth watching on Friday.

1. ExlService Holdings (EXLS): Provider of offshore business process outsourcing services for the banking, financial services, and insurance sectors.   ExlService is a small but profitable and growing company.  Set to start trading Friday.

::: Upcoming Economic Reports (10/16/06- 10/20/06) :::

Monday:        NY Empire Manufacturing Index
Tuesday:       Industrial Production, PPI, Retail Sales
Wednesday:  Housing Starts, CPI, Real Earnings, Petroleum Status, Mortgage Apps
Thursday:      Money Supply, Leading Indicators, Philly Fed Survey, Jobless Claims
Friday:           None

::: Notable Upcoming Earnings Reports I’ll Be Watching This Week :::

Monday: None

Tuesday: CBOT Holdings (BOT)

Wednesday: Alliance Data Systems (ADS), Apple Computer (AAPL), Etrade (ET), Raymond James Financial (RJF), SEI Investments (SEIC), CyberSource (CYBS), General Dynamics (GD)

Thursday: Google (GOOG), TradeStation (TRAD)

Friday: none

Market Priced for Perfection, Ripe for Retreat

Christmas has come early for the Bulls.  Over the past several weeks it seems that just about every economic report, Fed speech and recently earnings reports (most notably from consumer related stocks) have been just what the Bulls have asked for.  Commodities are off their highs, the consumer is strong, manufacturing robust, inflation in check, all while the housing market cools providing the perfect "goldilocks" situation.  With that, the market is priced for perfection and ripe for a fall.  Will traders "sell the news" after tomorrow mornings PPI data? The charts would indicate that scenario is highly likely.

The Dow remains the strongest of the major indices and is still showing considerable strength despite kissing the upper reaches of its short term trend line.  Combine the overbought conditions with today’s lack of enthusiastic buying as well as psychological resistance of Dow 12,000 and you have a set up for profit taking.  Considering the amount of strength behind this move, the Dow may just retest the bottom of the channel around 11800 before moving higher.  This is an area I might look to start adding new positions, depending on the amount of sell volume.

The Nasdaq looks mighty tired up here, lacking much conviction to punch through resistance of the April highs.  Notice it’s gotten ahead of itself in the past couple days, by moving ahead of the trend channel.  This has occurred with decreasing buy volume, indicating the big fellas are easing off a bit.  Again, considering the strength of this run, there is a good chance that the Nasdaq will undergo a minor drop to the first level of support around the bottom of the channel (approx 2300).

The S&P won’t face any significant resistance until it tackles all time highs above 1500, but it too has gotten ahead of itself in the past couple days while volume continues to subside.  Look at the bottom of the channel in the 1345  range as a potential area of support.

When to Sell Before Earnings

Question:

You said you don’t like to hold a stock through it’s earnings date.  I own DRIV with its earning date of 10-26.  How close to the earnings date would you recommend selling?  The stock just hugs its 20 day MA and I thought for sure it was ready to break below that today.  Instead it opened on the upside and as of now is still rising.  I think it has pretty much run its course and that I should get out.  It has doubled its average number of days from base to peak and exceeded its average gain for that same period. 
 
From the chart I can’t figure if the institutions are letting the price go up then dumping some shares or if they wait for the price to drop to the 20 day then buy shares.  Since the trend seems to be up I’m guessing its the latter.  Key word there is "guess".  At some point the trend is over and past trends in that stock show that it could be a sudden drop without warning.  I would rather take a small profit than none at all.

My Response:

I can’t give buy and sell recommendations on an individual basis due to SEC regulations (not to mention we all have different risk levels), but I can tell you what I’ve done.  The stock looked great until yesterday when sell volume picked up signficantly. It did briefly dip below that 20 dma this morning but bounced back and has flatlined over the past few hours.  Over the long term it is a great company and should report very good earnings, but I like to lock in profits on any weakness in any stock especially before earnings.  Might be worth holding for a few more days if it can stay above that 20dma today. In a nutshell, I almost always sell before earnings and whether that’s one day before or several days before depends on the health of that particular stocks.

A little hint about the actions of institutions – if a stock is showing big volume without price progress then they are selling into the rising stock.  If the stock hits the 20 dma and bounces with volume, then they are adding shares at that short term moving average.   Based on the current volume and price activity in this one it looks like they aren’t doing much of anything right now. 

 

Catching Hot IPO’s Out of the Chute

The hottest IPOs often run up significantly before ever forming a real base, trending higher and higher right out of the gates in a stair step pattern.  This likelihood only increases in a bull market when their is great enthusiasm for the next hot stock.   So what kind of pattern am I looking for in these situations?  Basically, what I’m looking for is a run up, a retrace/consolidation, then a break.  It may look a lot like a bullish pennant or flag formation as we’ll see in the chart of recent IPO Mindray Medical International (MR) below.

DIVX, a recent purchase in the SelfInvestors Model Portfolio provides a good example of this kind of move.  The stock spent a few days running up with good volume, retraced much of that move as sell volume dries up, then breaks out of that consolidation with a pick up in buy volume.  One thing to keep in mind with this pattern: make sure the volume is there during buying and dries up during the selling (the volume bars should look like the right side of a bell curve).

Mindray Medical (MR) is another recent hot IPO that has formed what looks more like a bullish pennant pattern which is outlined in red.  You see the retracement happens much sooner (immediately following the IPO) and slides into its first consolidation.  On October 11th, the stock broke out of this consolidation but I would have held off on a purchase at this point because the volume wasn’t there.  Volume did pick up the very next day and it could have been purchased here, but being patient has provided a much better opportunity right here right now.

After Market Update – The Consumer is Alive and Well; Stock of Day – American Oriental Bioengineering (AOB)

::: Today’s Market Action :::

With robust earnings out of Costco, Pepsi and McDonalds its clear the consumer remains alive and well, with an ever expanding waistline.  That was enough to kick start the market in the morning and the Dow added fuel to the fire in the afternoon with its "goldilocks" beige book report, further indicating a soft landing.  Inflation is in check, manufacturing remains strong and the consumer continues to spend spend spend all despite continuing cooling in the housing sector.  It all seems a little too perfect doesn’t it?  No question this market is currently priced for perfection and is fragile up at these levels, but as of today there is still no indication of topping action.  The only negative in today’s action is that volume could have been a bit better. 

(Note: volume averages are based on the average over the past 50 days)
Data as of end of day

Nasdaq: up 1.64% today with volume 14% ABOVE  average
Nasdaq ETF (QQQQ): up 1.66%, volume 11% BELOW the average
Dow: up .81%, volume 36% ABOVE average
Dow ETF (DIA): up .74%, volume 16% BELOW the average
S&P ETF (SPY): up .87%, volume 11% BELOW the average
Russell Small Cap ETF (IWM): up 2.02%, volume 10% BELOW the average

::: SelflInvestors Leading Stocks :::

SelfInvestors Leading Stocks did fantastic today, further validating today’s move.

Summary:

* Advancers Leading Decliners 282 to 38.
* Advancers are up an average of 2.12% today, with volume 9% ABOVE the average
* Decliners are down 1.02 % with volume 45% ABOVE average
* The total SI Leading Stocks Index is up 1.75% today with volume 13% ABOVE the average

* Where’s the Money Flowing *

Many investing websites just provide leading industries based on price performance alone.. without the volume, this can be misleading.  The only way that I know of to guage industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for guaging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash. 

* Leading Sectors/Industries:  HomeBuilders, Software, Retail, Technology and Consumer Services (no changes here for the past several weeks)

* Lagging Sectors/Industries – Energy, Energy, Energy.. and Energy AND Gold (also no changes here for the past several weeks)

* Today’s Market Movers (UP) – Homebuilders led the way again today (that’s a bit of a scary thought).  Retail was also a big mover as was Energy and Software.

* Today’s Market Movers (DOWN) – No significant down movers today.

** Stocks **

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average.  Today’s stock is American Oriental Bioeng (AOB), a Chinese ADR.

ABOUT:  American Oriental Bioengineering, Inc. is engaged in the development and production of plant-based pharmaceutical (PBP) products and plant-based nutraceutical (PBN) products. PBNs, also referred to as dietary supplements or nutritional supplements, are essentially prophylactic or preventive, in contrast with the PBP products. PBPs, composed of leaves and roots of one or more plants, have certain medicinal function and treat one or more illnesses or symptoms of illnesses. Twenty-eight regional representative offices throughout China are primarily responsible for servicing the Company’s distribution platforms and monitoring the markets. Products include UrinStopper Patch and UrinStopper Capsule introduced, during the year ended December 31, 2005. In April 2006, the Company completed the acquisition of Guangxi Lingfeng Pharmaceutical Company Limited, a pharmaceutical company specializing in the manufacture and distribution of plant-based medicines in China.

FUNDAMENTAL: While the company can be fairly inconsistent in its earnings growth from quarter to quarer, it has grown from 30 – 50% in each of the last few years

TECHNICAL: Cleared a 5 month base on Oct. 9th which is part of a much larger nearly one year base.  The stock looks poised to take out all time highs of 7.68 within the next couple weeks.

SELFINVESTORS RATING: With a total score of 51/60, AOB is considered a top breakout stock.

Weekly Market Report – Ready for a Pre-Earnings Rest

Two things are now very clear in this market.  The rally is for real and it’s due for a rest.  The volume accompanying the move up and the lack of a sharp reversal after the Dow touched all time highs are good indications that this market has some legs.. but those legs need a rest.  With the major indices hovering around "psychological" resistance areas (Dow 12000, S&P 1350 and Nasdaq 2300) there’s a good chance that will happen sooner rather than later. 

::: Model Portfolio Update :::

It was not a good week for the Model Portfolio.  The market went one way and the portfolio went the other after taking sizable hits with my 2 semiconductor plays (which I’m still holding) and smaller losses on a couple short positions.  It was a busy week in terms of the number of transactions.  In the beginning of the week, 5 new long positions were initiated following a breakout of the Dow to all time highs.  On the other hand, 2 shorts were initiated in commodity plays. 

A few positions were closed out during the week – 3 long positions in Cognizant Tech Solutions (CTSH), PrivateBancorp (PVTB) and NutriSystems (NTRI); one short in Kinetic Concepts (KCI).   I locked in a small 4% profit in CTSH following several days of weakening technicals.  With the market in near term overbought territory I’m locking in profits in stocks not showing strength well above average.  I also locked in a small profit in PVTB following a high volume drop below the 50 day moving average.  NTRI was sold quickly for a small loss after the stock failed to stage a big follow through after breaking out.  Buy volume was meager and sell volume picked up on Oct. 3rd when the position was sold.  The KCI short was covered for a small loss on Oct. 5th for  a small loss after it appeared the stock was gaining momentum and would clear resistance of the 50 day moving average.  The stock vaulted 5% the very next day.

The game plan at this point is to avoid making large bets on the long side and wait for the pull back, which would offer the opportunity to get much more aggressive on the long side and begin leveraging with margin.  Despite a 1.1% loss in the portfolio last week, it still sits with a 16.5% YTD return.. more than double the S&P500.

::: PinPoint the Highest Ranked Breakout Stocks in Just Minutes Each Day! :::

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There are literally dozens of breakout stocks to watch every day.  How about a database of stocks all ranked according to fundamentals and technicals, complete with pivot points, earnings date, % change from breakout and moving averages, future earnings estimates and relative strength rating?  How about Stock Watch reports highlighting long and short opportunities for the coming week?  It will save you hours of research every week and drastically improve your results.

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::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Restaurants                                    10.78%
2. Specialty Eateries                             9.75%
3. Resorts & Casinos                            6.85%
4. Appliances                                        6.45%
5. Sporting Activities                             6.20%
6. Gaming Activities                              6.05%
7. Major Airlines                                    5.80%
8. Trucking                                            5.10%
9. Networking & Comm Devices            4.85%
10. Aerospace/Defense                        4.85%

– Top 10 Worst Performing Industries For the Week –

1. Copper                                              -15.80%
2. Silver                                                   -5.70%
3. Medical Practitioners                           -5.20%
4. Semiconductors – Memory Chips        -4.30%
5. Drug Stores                                         -4.20%
6. Oil & Gas Drilling & Exploration            -4.20%
7. Oil & Gas Equipment & Services          -3.55%
8. Gold                                                      -3.00%
9. Independent Oil & Gas                          -2.45%
10. Semiconductor – Integrated Circuit     -2.10%

– Top 5 Best Performing ETFs For the Week –
 
1.Powershares Dynamic Biotech (PBE)   4.10%
2. Ishares Broker Dealer (IAI)                   3.90%
3. Ishares Singapore (EWS)                     3.45%
4. Ishares Brazil (EWZ)                             3.30%
5. Latin Discovery Fd (LDF)                       3.25%

– Worst 5 Performing ETF’s –

1. Ishares Gold  (IAU)                              -4.50%
2. StreetTracks Gold (GLD)                     -4.20%
3. Central Fund of Canada (CEF)             -3.80%
4. HLDRS Oil Services (OIH)                    -3.75%
5. Turkish Invest Fd (TKF)                        -3.75%

**  IPO’s Worth Watching for This Week **

The number of IPO’s coming to market will increase dramatically over the next few weeks, so keep an eye on this space!

1. Acme Packet (APKT): Provider of session border controllers that allow service providers to deliver secure, high-quality interactive communication, such as voice, video, VOIP, and other real time multimedia sessions across IP network borders.  The company’s products enhance security and encryption for telecom providers, corporations and law enforcement agencies.  Acme Packet is a raidly growing company that is now profitable.  Trading set to start on Thursday.

2. eHealth (EHTH): California based online provider of health insurance for individuals, families, and small businesses in 50 states.  It’s another rapidly growing company that has turned the corner to profitability.  Trading set to start on Friday.

3. SAIC (SAI): Defense contractor suplying scientifc, engineering, systems integration, and technical services to all branches  of the US government.  SAIC is a large and growing company with 43,000 employees.  Trading set to start on Friday.

** Upcoming Economic Reports (10/9/06- 10/13/06) **

Monday:        None
Tuesday:       Wholesale Trade, Retail Sales, Economic Optimism
Wednesday:  FOMC Minutes, Job Vacancies, Petroleum Status, Mortgage Apps
Thursday:      Money Supply, Treasury Budget, Trade Balance, Jobless Claims, Biege Book
Friday:           Import Price Index, Business Inventories, Consumer Sentiment (prelim), Retail Sales

** Latest Blog Entries – In Case You Missed Them!**

– SelfInvestors Blog –

Dow to Record High, Now What? (Oct. 3rd)
http://investing.typepad.com/tradingstocks/2006/10/dow_to_record_h.html

MidDay Market Report – Market Charges Ahead With Greater Momentum, Resistance Looms; Stock of Day – Iconix Brands (ICON)

::: Today’s Market Action :::

Today, the market doesn’t need a plunge in oil to get it surging higher and that is a good sign.  It’s fueled on the hopes of a possible rate cut and volume is extremely robust as institutions put money to work with more aggression.  This is the kind of action big bull runs are made of.  While I myself have added a significant portion of cash to the long side earlier today, I still remain somewhat cautious up at these levels and will maintain a couple short positions as a hedge.  Next potential resistance areas loom – Nasdaq 2300, S&P 1350 and Dow 12000.  All may be hit in the next day or two so keep an eye on them.  If you’ve been on the sidelines for the past couple days and feel like you’ve been left out, don’t chase this market.  Make it come to you… it will.

(Note: volume averages are based on the average over the past 50 days)
Data as of 2:45PMEST

Nasdaq: up 1.69% today with volume currently tracking 11% ABOVE  average
Nasdaq ETF (QQQQ): up 1.79%, volume 23% ABOVE the average
Dow: up .85%, volume 20% ABOVE average
Dow ETF (DIA): up .88%, volume 44% ABOVE the average
S&P ETF (SPY): up .89%, volume 1% BELOW the average
Russell Small Cap ETF (IWM): up 1.87%, volume 7% BELOW the average

::: SelflInvestors Leading Stocks :::

SelfInvestors Leading Stocks are faring much better today than they have in recent days but still aren’t seeing a ton of momentum just yet.  Volume is just a hair above average for advancers today.

Summary:

* Advancers Leading Decliners 261 to 58.
* Advancers are up 1.91% today, with volume right at the average
* Decliners are down 1.72% with volume 75% ABOVE average
* The total SI Leading Stocks Index is up 1.25% today with volume 14% ABOVE the average

* Where’s the Money Flowing *

Many investing websites just provide leading industries based on price performance alone.. without the volume, this can be misleading.  The only way that I know of to guage industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for guaging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash. 

* Leading Sectors/Industries:  Software, HomeBuilders, Retail, Technology and Consumer Services

* Lagging Sectors/Industries – Energy, Energy, Energy.. and Energy AND Gold (still no change here)

* Today’s Market Movers (UP) – Surprisingly Energy is leading the way today.. is this the bottom in Energy?  We may be close.. I’ll have a report on this sometime next week.  Homebuilders and Biotech also seeing some big buying today.

* Today’s Market Movers (DOWN) – Gold stocks getting whacked again today.

** Stocks **

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average.  Today’s stock is Iconix Brands (ICON), which was highlighted in the premium Stock Watch report this morning.  Just one of several Stock Watch stocks moving big today!

ABOUT:  Iconix Brand Group, Inc., formerly known as Candie’s, Inc., is a brand management company focused on licensing and marketing a diversified portfolio of its own consumer brands. The Company owns five brands, Candie’s, Bongo, Badgley Mischka, Joe Boxer and Rampage, which it licenses directly to retailers, wholesalers and suppliers for use across a range of product categories. The Company also continues to arrange, as agent, through its wholly owned subsidiary, Bright Star Footwear, Inc., for the manufacture of footwear products for mass market and discount retailers under their private label brands. In July 2005, the Company acquired the principal assets of Joe Boxer Company, LLC and three of its affiliated companies. In September 2005, Iconix Brand Group, Inc. acquired the principal assets of Rampage Licensing, LLC. In April 2006, the Company acquired the MUDD brand from Mudd (USA) LLC. In August 2006, it acquired the London Fog brand from London Fog Group Inc.

FUNDAMENTAL: Not a company with a great history of earnings and sales growth but is currently one of the fastest growing retailers around.  Sales have doubled and earnings have nearly doubled in just the last 9 months and the company isn’t expected to slow down anytime soon. 

TECHNICAL: Just minutes ago it broke out of a good looking base with volume well above the average.

SELFINVESTORS RATING: With a score of 51/60, one of the highest rated retailers in the database.

ETF, IPO & Breakout Stocks Analysis, Tracking & Research