Building short list

When one is looking for short candidates it is important to jump onto the laggards and to never short the leaders. Just like when a bull market is in full force, one should always buy the leaders.

In this current correction it is no secret that the financials have been the weakest. They led on the way down and have not fully recovered with the rest of the market on this current counter-trend bounce. Just check out the financial ETF (XLF) chart. It is looking very ugly at the moment, with the relative strength vs. the S&P 500 trending lower.
Ok, so we've identified the weakest sector, what about the best short candidate within that sector? Take a look at the choppy and volatile action of Icici Bank (IBN). Not only is this guy living below its 50 dma, it also has a horrible Accum/Dist rating of D in IBD's stock checkup. Another nice thing about IBN is that it has come a long way up, giving it plenty of room on the way down. Another reason to short Icici Bank is that it is an Indian bank and we all know that the emerging markets tend to go down a lot more than the US during corrections.

The only problem now is to find an entry point.

Before considering if we should wait for a bounce back to the 50 dma, consider the possible downside of IBN. Below is the weekly chart, which shows the dangerous broadening top pattern. These patterns often result in huge drops, so it might be prudent to just short it now instead of waiting for a bounce. We could also wait for it to hit support around 31, bounce and then short, because this guy is headed to the 26 level.

My plan is to wait for a small bounce, and buy some put contracts. The premiums will drop a bit if IBN can get back up to 38.

Short the market, Buy Hittite Microwave (HITT), and Short the airlines (LFL)

I got into the QID pretty heavy at the open today (Remember a long QID is short the Nasdaq 100). The Nasdaq went down nicely after that, recovering later on in the day. I'm looking for the Nas to get down to 2200. I hope my stomach can get through tomorrow because it should get interesting.

On the long end, I finally spotted an entry point in Hittite Microwave (HITT). It tested the lows on lighter volume and should head higher soon.

I'm tempted to short some of the airlines. They are extended and fuel costs are going through the roof. Lan Chile (LFL) would have been a perfect short during the second peak of the double-top but I missed it. I will look to short this guy when it sinks below the 50 day moving average.

This chart looks a lot like the CorVel Corp (CRVL) chart of a few weeks back.

Second leg coming?

The markets are choppy and seem very worried.

I'll probably get back into the QID on a bounce.

Next stop for the Nasdaq is 2200!!!

Becky's Birthday

I'm off to Chapel Hill to celebrate Becky's birthday and watch the Tar Heels.

GO HEELS!!!

The Great Humiliator Strikes Again

Ken Fisher likes to refer to the market as "The Great Humiliator" and it sure lived up to the name today. The shorts were absolutely destroyed today.

Once again, Tom O'Brien makes the right call. I could have sworn that he was wrong this time but at least I was smart enough to not short this market after the whipsaw of March 14th.

With the Fed leaning against rate hikes it looks like gold is going to explode. They would rather see inflation than slower growth, that much is obvious. Since I have some sizable student loans, inflation is just what the doctor ordered.

Oh yeah, we got our follow-through day today.

Metalink Ltd. (MTLK): My portfolio's messiah?

As SIMO continues to rocket higher, mocking me along the way, I'm left with finding another winner that I can stick with, through thick and thin (not too thin of course).

A similar situation took place last summer when Sigma Designs (SIGM) broke out and never looked back. I waited and waited for a pullback but it just never came. It was easier to get over this one because I never actually owned it.

What attracted me to SIGM was its position in IPTV (Internet Protocol TV). It makes chip sets that bring content over the internet to the home. Eventually everyone will have a IPTV box on their HDTV that will bring video on demand, internet, and communications to every room in the home. Very exciting, especially since the fiber optic infrastructure is already in place for the explosion in bandwidth that will be required for the technology to work.

I keep up with SIGM and found this article today about a small Israeli company and a huge deal it just announced with Samsung and STMicroelectronics. Metalink Ltd makes similar chips but better and at a lower cost.

Metalink joins the big league

I suggest you check it out. Also, look at the company's website.

Here are my charts for the company. I don't think it will rocket up like SIGM did, mainly because of the large overhead resistance that exists (check out the date of the IPO). I think there is some serious upside to MTLK and should be added on dips.

Technical Analysis Books

For the most part, the technical analysis books that I've read have been pretty lame. They usually just tell you what to do when a certain pattern appears or explain what to do if a certain indicator gives a buy or sell signal. A good example of this is the recent TA book of Gerald Appel, the inventor of the MACD (an indicator that I don't use). I would not waste one's money on this book. I found it completely useless.

I just finished a TA book that is a definite exception to the rule. "Technical Analysis: Plain and Simple, 2nd Edition", written by Michael Kahn not only gives a comprehensive overview of most of the important chart patterns and indicators, but also tells you how and why they work. Kahn has a degree in physics and his scientific training definitely comes through in this book. Kahn also covers many aspects of risk/reward and money management, skills that most novice investors lack.

If you are looking for an introduction to TA, I would highly recommend this book.

Almost Family (AFAM) makes the IBD 100

I'm still depressed about some of my trades these last few weeks. I was stopped out of Silicon Motion (SIMO) on the big drop of Feb 27th and that stock has never looked back. I definitely feel that missing out on big gains is much more painful than taking a big loss. The thing that really sucked is that there was so much panic that day that I couldn't cancel the stop order when the markets opened. When the order finally went through, it was $1 below the stop point.

To add insult to injury, Almost Family (AFAM) made the IBD 100 list this week. I was following this stock back in September 2006 and missed the buy point. It has since doubled. Again, very, very painful.

I hope I'm learning from this.

Tournament time

I'm putting a hold on my trades. This market is just too dangerous for me right now. Time to be patient and watch some college basketball.

I'm in uncharted waters.

Go Heels!

Ouch!

I got whipsawed today when I went short after the market bounced off the lows and headed back to even.

Want to see the correct play for today's action? Check out this post by Brent Steenbarger. It couldn't have been posted at a better time.

How did it go today?

My strategy of picking up some stocks that were already at local bottoms seems to have protected me a little. I don't like the way gold is trading and will exit more of my long positions tomorrow.

I did pick up some Gateway (GTW) at the lows. This should be interesting to watch.

Strange trade with Gateway (GTW)

Check out this bottom feeding target. Gateway Inc. is a washed-up old computer sales company that I didn't even know existed anymore. I came across it in a technical screen and it actually has a nice setup.

First, the weekly broke a solid downtrend.


Second, the daily just broke out of a symmetric triangle pattern. I think I'll give it a shot.

Some quick gold trades

Here are some of the gold stocks that I've picked up recently. I hope these guys can make up for the fact that I missed the MEMC Electronics (WFR) buy. Also, did you see Lumera (LMRA) today? It is back in the range and could be a buy when it tests the 200 day moving average again.

UPDATE: I didn't even notice that HMY was downgraded to neutral from overweight by JP Morgan today. The stock actually traded up most of the day. I love it when that happens. Very bullish sign. The same thing happened when I bought AllianceBernstein back at $70.

Lumera (LMRA)

CANSLIM investors should not be buying stocks until we have a follow-through day. In the meantime, I'm looking at some other stocks to trade. I've mentioned that I've been picking at some gold mining stocks, but I also want look at some other possibilities.

Lets take a look at Lumera Corp. (LMRA). This is a stock that was brought to my attention by Ariel, a reader living in Spain. I've had some trouble getting any meaningful information about the companies products. Interestingly, I saw a talk at Northwestern today given by a guy who works in the field that Lumera is making products for. I don't have time to get into it but the guy is a professor at Caltech (Jim Heath) who was the primary grad student researcher who helped discover C60 with Rick Smalley. (you know, buckey balls). Professor Heath now tries to find ways to help identify proteins that are associated with disease.

Lumera is making a machine that would make this process easier and more accessible to non-experts. The company also dabbles in electro-optics that could revolutionize the way companies transfer data among its workers. Basically they make a machine that acts as a high bandwidth wireless LAN.

They reported earnings today and the stock plunged 11% after hours. Their revenue was up but they lost 0.70 cents for the year compared to losing 0.63 cents the year before. Lets look at the chart and see if that is a bad thing.

First of all, notice that the stock broke its downtrend line on higher volume. The stocks then pulled back on lighter volume and tested the trendline breakout point and the 200 day moving average. Tonight the stock plunged down all the way to 3.88 in after hours trading but then pulled back up to 4.05. If it can pull itself back up even further so that it is above the 200 dma then I would be very optimistic about LMRA.

It should be interesting tomorrow. This is a very speculative stock, so be careful.

Quiet market and gold

Dull market today.

I have to admit that I've become a bit more interested in gold recently (More Tom O'Brien influence). I've been looking for a spot to dip my toe in the water and, after reading a Mark Hulbert article today, I think I've got a possible entry point.

Go check out the article. It basically says that every gold timer newsletter he tracks is very bearish on gold and from a contrarian point of view, this is very bullish for gold.

I'm looking for some cheap mining stocks with big growth potential. Check out:

Anooraq Resources corp. (ANO)
Harmony Gold Mining Co. (HMY)
Tanzanian Royalty Exploration (TRE)
Hecla Mining Co. (HL)

Hittite Microwave (HITT)

Here is a chart that has recently caught my attention again. Hittite Microwave (HITT) has had solid earnings growth. Hitt was a real high flier when it reported slightly lower revenue in October 2006 and subsequently received a 10%+ haircut (first gap). It traded lower and has recently shot back to $44 on a great earnings report (second gap). Look for the stock to trade back down to around $38 (on lighter volume of course).

I'll be a buyer at that price.

MEMC Electronic Materials (WFR)

MEMC Electronics (WFR) is holding up extremely well! If the relative strength continues I'm definately going to pick up some shares again.

Remember, the most important thing to be doing during a correction is keeping a good CANSLIM watch list and acting upon it when the market has a follow-through day.

If you get bored, eat some Cadbury Eggs. They only come once a year!

The Far East Selloff Continues

The Nikkei is down 2% in the first half of the trading day along with Shanghai. All of the American index futures are testing out the recent lows.

Should be another exciting day!

If the futures hold I might get long at the open.

IBD and this correction

I'm pretty disappointed by the market timing methods of IBD during these last few months. Neither the S&P 500 or Nasdaq distribution day count methods predicted last Tuesday's selloff. IBD tracks these days and recommends going into cash when there are 4 or 5 distribution days within four weeks. Luckily for me, I have been cautious mainly because of the guidance of Tom O'Brien. It was with this caution that I was able to act quickly when the market gaped down.

It was a matter of luck that the "Ask Bill" segment on the Tom O'Brien show aired this last Wednesday, where people get to ask Bill O'Neil about his investing strategy. During the interview someone asked if we were in a correction now even though the S&P and Nasdaq only had two distribution days. In a smug tone, O'Neil replied that the Dow Jones Industrial Average had shown 4 days of distribution prior to the selloff. I'm sorry, but your paper doesn't track the Dow industrials Bill, so a lot of good that does us. It is this kind of after-the-fact analysis that gives technical analysis a bad name. It also really irritates me a scientist.

So here is the chart of the DOW. An average that I have consistently heard people disregard due to its small size (only 30 companies). The take home message here is that IBD's market timing method isn't perfect.

Bullish in the short term.

Good news. I was just listening to the Tom O'Brien show and it turns out that he turned bullish at around 3 pm eastern time. He loaded up on the QLD's.

Wow, its a good sign if I'm thinking like Tom.

QID Crash Trade

The market picked a terrible week to get so exciting (at least for me). I had a conference to attend all week and my future wife was in town (we are living apart for a few months). Nevertheless, I was able to get into all cash, put down a sizeable QID bet and make some gold buys.

First, check out my QID trade that began with the huge downdraft of Teusday. Like I said before, I made the buy just after the market opened on Teusday. I got in at about 52.59. I closed the trade today just before the close at 56.35. That is a 7% gain in four days. Not bad.

I closed the trade because I'm looking for a big bounce. I almost bought some calls or the QLD (double the Nasdaq) just before the close today but just didn't have the balls. I will look to jump on board the bullish side at the open on monday.

Earlier in the week I also bought some shares of Harmony Gold.

CNBC

Wow, CNBC is so pathetic. I feel sorry for Becky (my future wife) who had to witness me screaming and laughing at the coverage after yesterday's "rebound". Just look at the headline. (Back on Track The rebound is here and the bull ride is on)

I wonder if these guys have every traded a stock? Have they ever looked at a chart?

50 point gain after a 400+ loss is a recovery?

Just get short on the next bounce or get out of the way!!!