Picture this

Looks like the higher highs on lower volume couldn't last all that long.

Bad time for a conference

So I'm at a conference and can't give the market my full attention. Too bad because I missed a doozie.

I already posted the fact that my SIMO position was stopped out today, which was a real downer. It sure sucks to have a 12% gain turn into a loss just because my broker couldn't process my order fast enough.

On the plus side, I reopened a sizeable QID position again. I did this just after the open. Although the QID was already up 3.5% I didn't want to miss a possible crash. Long story short, I easily made up for my earlier SIMO loss when the Nasdaq continued to go down.

I'm going to look to add more of the ProSHares Ultrashort on any bounce.

OUCH!

The panic this morning triggered my stop loss on SIMO at 19.87. The problem is that it wasn't filled until 19.13.

Of course SIMO is now trading back at 21. That sucks!

Flotek Industries (FTK) Price and Volume Warning!

Don't get me wrong because I love Flotek. The company is great and should have bright future but the chart is flashing some warning signs. Most importantly, FTK is making some new recent highs on dramatically lighter volume. I have posted a candlevolume chart to help illustrate this point. What is clear is that institutional investors are not interested in buying FTK at these levels. There have been some relatively high volume selling days in the early days of January and February.

One should keep a close eye on FTK, especially with earnings coming up soon. If you are interested in buying, you should wait for a pullback.

Growing readership

Not much to say except to show how much my audience has grown since I started. I'm gunning for Barry Ritholtz type numbers. Check out "The Big Picture" stats below.

Looks like I still have room to grow.

The market is strong, but...

My QID trade was finally stopped out today.While it was up over 8% at one point, I only took a 2% loss. I was gunning for a big drop in the NDX and it just didn't happen. No big deal.

Now that I'm back to a 60% long and 40% cash position I'm sure that the market will crack soon. What is particularly troubling is that I saw that Jim Jubak had a very bullish article today. Considering his record at market timing, it might be the perfect time to reestablish my bearish stance.

My CanSlim screen

I'm going to start posting the results of my own version of Bill O'Neil's CanSlim stock selection screen. This has been a great way to spot stocks before they show up on the IBD 100. Some of these companies are thinly traded and should be treated very carefully. Always cut loses short and don't mess with cheap stocks or those that trade on the pink sheets. Click here for the screen.

I'll start with an example that has frustrated me ever since it exploded. Almost Family (AFAM) has showed up on my screen for months. This company interested me mainly because I liked the story. It provides in-home nursing care for the elderly. Most of the old folks that I know hate the thought of a nursing home and considering the ageing baby-boomers, AFAM seemed like a great stock to keep an eye on. I watched AFAM flatline for the months of August and September and began to wonder if it would ever break.

Well break it did, but to the downside in early October. I found no news on the company and eventually stopped watching, figuring that something was not right. As it turns out, nothing was wrong, it was just experiencing a classic shakeout. In early November, AFAM exploded to the upside on huge volume. If I was still watching, I would have been tempted to jump in. I'm not sure if I would have bought, but since I wasn't even watching the chart, I will never know.

"It's like lotto, you've got to be in it to win."

The message is simple. If you find a good story and a good chart, keep it on that watchlist. Don't get lazy.

Interesting Paper

I was reading some papers the other day and came across a very interesting paper regarding the 1987 stock market crash. What was particularly interesting was that this paper appeared in Physical Review Letters, which is probably the top physics journal in the world. (I have one paper published in it and have another being reviewed.)

I'll try to summarize the basic points of the paper. Usually stock prices move in small increments that can be modelled by a Gaussian distribution (bell-curve), with large price moves being less probable than small ones (The Black-Scholes model). The authors analyzed a 2-month period surrounding the market crash of 87 and found that there were large fluctuations that were equally probable on many different time-scales in the weeks preceding the crash. Basically it was a breakdown of the Black-Scholes model and made a crash much more probable.

Interestingly, this behavior is quite similar to the behavior of electron spin in a phase transition of a ferromagnetic metal, or in the behavior of heart muscles between heartbeats.

The authors think that their method could help analysts asses risk.

A very interesting paper, indeed. The link is here, but you need to access it through a local library or university.

Electronic Data Systems (EDS)- The perfect cup with handle

I know that I've been bitching about this market's not stop move up, but I have actually been finding some pretty good trades. I hope I don't give back all of my gains trying to anticipate the downturn.

I picked up some shares of EDS yesterday (2-14-07) while the stock was still within 5% of the 28.03 buy point. Check out the chart. It is probably the best looking cup-with-handle pattern that I've ever seen. It is textbook!

Bye bye mr. bear

My QID is just $1 away from my stop loss point.

Here is my prediction. A pop in the market in the very near future, thus triggering my stops, followed by the beginning of the 20% market correction that every Tom, Dick and Harry is calling for. (Remember QID goes up when the QQQQ go down)

Here is a comforting post on Decisionpoint.com for you bears out there.

On the plus side, SIMO had a nice day today.

Just give up bears!

This market will never correct until the bears finally give up. We have had record short interest on the NYSE for months now. Hopefully today did something to help cull the heard a bit. My problem is that I would like to play the long side more, but I can't find any stocks that breakout and continue up. Everything seems to just whipsaw back and forth.

I would like to see a pullback for the overall health of the market. The more we climb this "wall of worry" the more severe the correction will be. I don't want to see a mini-bubble followed by a mini-bear market.

My chart of the day is the S&P 500. How long can this divergence between price and volume continue? It sure seems weird.

QID trade

I added to my QID position on the big spike this morning. I also sold out my WFR position. I buy it again on a more substantial pullback.

Chicago Snow

Ok, its not that bad but its the worst since I've lived here.

My CorVel Corp. (CRVL) call

Before I get started I would like to apologize for the following self-congradulatory post. I don't have a large readership so I have to pat myself on the back every once and a while.

Perhaps some of you remember my conversation with TradingGoddess regarding CRVL after I posted my concern over many of the leaders taking a nose-dive. She wondered what my "crystal ball" had to say about CorVel's future. Here is what I said:

The strength shown by the market last week probably means that you are ok for now, but with CRVL almost 100% above the 200 dma I would probably be one of the profit takers. Also, just before the large decline, CRVL was making new highs on much weaker volume. This is always a big warning sign. The bounce on Friday
was also pretty weak and on much lower volume than the ealier decline. (Jan 15, 2007)

TradingGoddess responded with a chart that showed increasing RSI and MACD, to which I replied:

Using RSI and MACD for market leaders can be very dangerous. They usually work best with stocks that are in consolidation patterns. My sell rules are based on William O'Neil's methods, which work very well with high-flying growth stocks (like CRVL).Look for CRVL to retest the highs and if there is a failure, then get the hell out of there fast. With only a 7.8 million float, it is easy to push around. (Jan 15, 2007)


Here is the chart as of today. I hope she got out when the highs were tested on much lighter volume.

What is interesting is that CRVL came out with earnings today and they doubled their earnings compared to earnings a year ago. This just goes to show that fundamentals mean absolutely nothing with growth stocks. It has been shown time and time again that growth stocks usually top when their fundamentals look the best.

UNC vs Duke

UNC 79 Duke 73

The good guys win!

Update: Here is something you don't see everyday.

My MVP for the game: Tywon Lawson

I've been watching you Ormat (ORA) and Atheros (ATHR)

Here is a stock that I've been watching for a long time. Ormat Tech. is a subsidiary of Ormat Industries, an Israeli company that builds geothermal plants for energy generation. ORA has been in a tight consolidation for almost a year. I've kept an eye on it because I like what the company does and I've also felt that if it could bust out of the flat base that it was in, ORA could really take off.

Well it seems that Bush's budget proposal gave Ormat the kick-start that it needed, promising tons of money for alternative energy. It will have to prove itself to me, but things are looking good. I also expect the budget to have a positive effect on MEMC Electronics (WFR).


Atheros (Athr) has also been on my watch list for a while now too. It has endured a large and long price correction that looks to have ended. Athr broke out of a cup-with-handle pattern today. I won't chase it because I already own a similar company, Silicon Motion (SIMO), that had another huge day today.

MEMC Electronic Materials (WFR) and Silicon Motion Technology (SIMO)

So it is superbowl Sunday and I'm stuck at home writing a research proposal for my boss. Uhg.

As a break, I thought I might write about a couple of buys I made last week. I'm still up on my QID hedge so I feel quite comfortable buying some tech stocks. The first buy was MEMC Electronic Materials (WFR). This is a large-cap company that sells silicon wafers to semiconductor and solar cell companies (silicon wafers are the primary materials in solar cells). I like the chart, breaking out to new highs, but also like the way all of the solar energy companies have been acting. Look at Sunpower Corp. or Suntech Power (STP).

On the fundamental side, check out what Will Gabrielski had to say about WFR last week. I really trust his analysis, mainly because it was Will that opened my eyes to Flotek Industries. He has a tendency to be a little early when it comes to trades, but he is usually right about the overall story.


The second buy I made was Silicon Motion (SIMO), a small-cap semiconductor company that supplies electronics for consumer electronics like mp3 players, cameras, and notebook computers. Simo just broke out of a cup-with-handle chart pattern on massive volume. I love that kind of action.

Counting Bases

I just ripped this off from IBD so I can refer to it later. I am always confused by the base count issue.

As you study the chart (it's best to use a weekly one) isolate all corrections of seven weeks or longer, plus any flat bases of five weeks or more.
How far back do you count?

In most cases, you start counting with the first base once the current bull market started, in March 2003.

Bear markets "reset" the base count on all stocks, wiping the slate clean for new rallies to take root.

Also, don't count bases until the company is producing strong earnings and sales growth, the type that you would demand from your investment candidates.

Baker Hughes, (BHI) for example, didn't become a growth stock until its 87% EPS gain in Q1 of 2004. Thus, its first base was the March-July pattern 1.



Make sure the stock has gone up at least 20% from its last breakout before you count another base. Start from the proper buy point of the last breakout. That's usually 10 cents above a key resistance point, such as the handle in a cup-with-handle base.

Corrections starting before that 20% threshold could simply be normal pullbacks. For example, Baker Hughes climbed 16% from its February 2005 breakout before forming a new correction the next month.

That was a base-on-base pattern — from October '04 to early June '05 2 — that should be considered a single base in your count.

Sometimes, stocks form irregular or improper bases. If they result in a 20% or better advance, include them in your base count.

Bear markets aren't the only way to reset base counts. Another way is when a stock falls so much that it undercuts the prior base.

Baker Hughes' current correction has done that, by sinking below the lows in its February-to-April 2005 consolidation 3.

Sometimes, stocks hit their peak after third-stage bases. That's what may have happened to this oil services provider; the stock is now 21% off its high.

Dead Bear

We have to be getting close to the capitulation of the bears.