SMCI, CKSW Model Book for Earnings 2014

Earnings season is beginning to ramp up so it's time to begin to build out the model book and watch list that I'll focus upon for the next 3 to 6 months. Each earnings season there tends to be a theme and nuance to the stocks that are breaking out and the pattern that unfolds thereafter. Two of the main characteristics that I will be looking for in my candidates is an 8% increase in price with the highest volume over a years period. One my early candidates is SMCI.

SMCI

SMCI meets my primary criteria. Additionally this earnings break out is to all time highs. The float is fairly small at ~34M of which 10% turned over today. Earnings were up 94% and sales 22% which is fairly solid.

A candidate that I took a small entry position in on the day of was CKSW which pre-announced its earnings. This met my 8%+ and YHV criteria and of note Soros has a position in this company. Earnings are still due to how this behaves before hand remains to be seen, but as of today it is getting close to breaking out to fresh highs with all time highs on the horizon as well.

CKSW

A Tale of Two Index

While the SP hit a fresh high today and comes within 6 points of its all time high set in 2007, the Russell continues to lag and has gone 11 sessions without making a new high. In addition, after yesterdays 1%+ drop on the index there was follow through to the downside. Over the duration of the move off of the November lows both of these indexes have moved lock-step overall and have tended to dip below the 10MA during the same minor pullbacks until this week.

Russell

SP

Also of note today two ETFs of printed their highest volume over a years time, FAZ and TZA. I take this with a pinch of caution because both had reverse splits so this may have had some influence upon the days trading. The simplest confirmation of today's volume being significant from my perspective would be rising prices.

FAZ YHV

TZA

Looking at the SPY, the pattern over the past three years has been fairly consistent with a market correction in Q2 and usually starting around April. It remains to be seen if this pattern repeats but it's worth keeping in mind.

SPY

Ships Ahoy!

Shipping has been on my radar for a couple of months now and is on the move and gaining momentum. I have a rudimentary frame work to place shipping into context: Shipping is macro/cyclical in nature, and shipping is very subject to the laws of supply and demand as well as a boom/bust business model. When economies turn sour shipping begins to suffer as vessels are docked due to lack of demand. In turn shipping rates will lower, profits lower, and growth stalls. When economies turn around, demand on shipping increases along with rates as there aren't enough vessels to haul. In turn shippers go through a boom cycle and will use profits to increase their fleet to meet up with demand and replace decommissioned vessels. It takes time to complete a build and often by the time the new ships are ready to be christened economies are on a downturn which means there are more ships docked as the cycle repeats.

With shipping currently in demand this may be a tell on the larger picture economic out look of macro players who are positioning themselves on the cheap and perceive the sector as a value play. I keep in mind the maxim I've heard that money in the market flows to where it's most wanted and over the past few months there has been an inflow into shipping. I noted shipping back in January when there was a cluster of them giving off a clue that I watch attentively, year high volume.

YHV Cluster in Shipping

As can be seen from my watch list and tracking dates, the returns after this signal have been 221%, 71%, 42%, 26%, and -66%. This week there were three more shippers that have been placed into my March year high volume watch list which signals to me that this is a sector related move and potential new leadership group moving forward.

DSX

EGLE

FREE

GASS

GSL

NEWL

PRGN

Thar's Gold in Them Thar Hills

I spent a couple of years living in the Sierras just south of Yosemite. One blazing summer afternoon I spent a few hours along a creek bed adjacent to my friends property panning with a buddy. He had the gold bug. I vividly recall an evening a coworker of his came down from a hike with a solid chunk of quartz that appeared to have gold flakes hugging the exterior. I can still visualize the look of utter despondence in his eyes as he peered into the soul of that quartz as if it were an Oracle while murmuring to himself in abjection that he had never found anything like this in all his years of searching. It turned out after all that it wasn't gold, but that day I came to intimately learn the power that just the thought of gold can have on a man.

The best thing about being under a blazing sun panning that day along the creek was dipping into the cold water to grab a cold beer. While I did find a couple of minute flakes the amount of work put into it and the soreness of my lower back after being hunched over for long periods put things into perspective -this was not fun, and not really worth it -except for the beer. What made things worse is that while digging through the embankment we unsettled a colony of ants that had a fierce bite and would crawl up my shorts when I bent over to peer through the snipe scope and nibble on my legs.  This is not the way it's glamorized.

I by no means have the gold fever, but when I see an opportunity arising I'm interested, and it looks like right now the market is indicating there may be one in gold. One of the sage pieces of wisdom I've heard relating to gold is that you buy when the charts are ugly, not when they look good. Over the last couple of days miners have been showing up in my screens and if one thing is clear from their chart it's that they don't look good at all, with many are at or near their 52-Week lows.

One of the first that popped up this week was IAG. On the daily price is near it's 52-Week low, but what stands out is volume on the monthly chart. We're currently in the middle of March and volume has picked up to levels not seen since May of 2010.

IAG

In addition a number of high volume surges have shown up today in other gold related and mining related stocks as well.  Looking at these charts I see no reason why the average retail investor should be interested in this other than it looks cheap. This amount of volume pouring in suggest to me that there may be bigger players accumulating.  It is said that price follows volume so I'll be keeping an eye on these stocks to see if this bears true in this situation.

EGO

GFI

LSG

NSU

SBGL

SVM

Year High Volume and Rotation and Watch List

Since late October I've been keeping a list of new highs, all time highs, and year high volume. In the beginning I had a concept as to why I was doing this but I didn't have a clear direction. Through this process a number of ideas were germinating but I was clearly lacking a cohesive plan on how I would begin to use this information. Each time I take on a project like this I become concerned with redundancy in my process and the possibility that what I'm doing is superfluous and unnecessary and takes time away from applying myself to more significant and pressing issues. Luckily this has had a positive effect and the time I've spent on this has proven to be worth while.

In keeping tabs on year high volume I've noted that this does not occur often on a daily basis so that it is easy enough to keep a watch list that isn't overwhelming and can be managed easily. Additionally, it's been excellent at highlighting significant changes in a stocks character when price begins to follow volume after a clustering of such days. Another feature is the clustering of sectors and sub-industry groups for observing rotation in the market.

The following images contain the symbol and Worden Sub-Industry Group of stocks in November that I decided were worth adding to my list. Using this process I jotted down the Resort & Casinos theme with the three listed stocks, PENN, PNK, and ASCA all making year high volume on 11/16.

In having this information accessible it has become more meaningful when other stocks begin to follow . This past Friday another Resort & Casino had year high volume, MGM.

MGM

The same process can be applied and adjusted to IPOs for which I look at 3 Month and 6 Month volume highs and CZR, also in the Resort & Casino industry, had its highest volume since it's debut.

CZR

For myself, keeping tabs on this information is simple, easy, and more importantly, manageable. Volume of this magnitude is not created by retail traders, it's the foot prints of institution money. It's worth paying attention to when and where this happens for context as well. On neglected stocks hovering at lows for months or years, this can be the first signs of accumulation. After a prolonged down trend this can be the last flushing of old hands capitulating, especially if it's a gap down. At highs this can be a warning. For further research I'd recommend the price activity of CPSS and ZIP.

Weekend Review 11/30/2012

I was reminded today that now all is what it seems, especially with indicators.  For the past few weeks I've been comparing the following two charts and have noted divergences between the $BPSPX and $BPCOMPQ with the later showing the most weakness.  The same can be noted in RHSPX and RHCOMPQ respectively.  The following charts clearly show this.

SPX

COMPQ

However, when taking these same two indicators and viewing them in relation to a PnF chart from which they are derived a much different perspective emerges.  As determined not by a line declining along a chart but by the price action of the underlining components another story was being unfolding.  This was a helpful reminder to be more conscious when taking indicators and abstracting them in a different form and trying to draw the same conclusions.

$BPSPX Point and Figure

$BPCOMPQ Point and Figure

This oversight aside, my bias is still to the upside and this is the direction I am leaning in my analysis coming into the week.

Of note on Friday was a clustering of year high volume in Industry Group: Health Services in the Worden database.  Of these, the most notable is GNMK which did so with an all time high as well.

ATEC

CSU

RMD

USPH

Going through the All-Time-High and New-High database that I've been collecting since October 26th, there are a few stocks that I'll be keeping an eye on this week, with quite a few being new issues that have held up well since their debut.

AMBA

CFNL

ODFL

RH

SSTK

TYL

WAGE

BGMD Trade Hypothesis

When markets print very high volume, they undergo significant ownership change that exerts lasting influence on price development. -Alan Farley

The above quote is highlighted in my trading journal and one I return to. This concept is what has drawn me to documenting stocks making new year high volume and keeping them in a watch list to observe their price action down the road. This idea also complements the market maxim that volume precedes price. In keeping with this, I decided to take a lottery trade today with a small position in BGMD.

 Normally I shy away from stocks at their 52-Week low, let alone their all time low, however the volume action over the preceding three sessions drew my interest as each day was a new year high. I'm not sure if someone knows something or expects something, but the volume action clearly indicates to me that there is a change occurring here. I also found it notable that this transition happened while price action was in a tight range.

 I position sized so that worse case scenario, I wake up Friday to find the company has gone bust,  my maximum loss is 2% of my total account size. Best case scenario is that there is legitimate demand for this stock and it's being accumulated and I'm positioned early in the move.

BGMD

SLW Short

Two weeks ago I noted in a post that the ETF, SIL, put in a year high volume bar and that many of the components were setting up nicely and worth keeping on the radar. Originally I had a bullish bias, somewhat reinforced by coming across a number of related mentions elsewhere. One of the immediate thoughts I had afterward was that perhaps I was too optimistic in my view and reminded myself about the standard market wisdom of “Beware of the obvious trade.” This trade was clearly becoming too obvious to too many so I started to temper my enthusiasm quickly.

Of the four charts I listed the first ding happened a week later when CDE gapped down.

CDE

Two days later the second chart got dinged as PAAS gapped down as well.

PAAS

This brought to mind two other market concepts of the cockroach effect and the cousin stock theory.. If these two were taking hits than there was a good probability the other two I had listed, SLW and AG, would be next. So yesterday I took another look at the SIL chart and noted the high tail and close near the lows which  increased my conviction that there was a high probability shorting opportunity to the two components that had held up thus far.

SIL

Armed with this information I felt confident that under the current market conditions and with the prior weakness of the CDE and PAAS that if either AG or SLW gave me a short entry signal I would take it today.  Both did trigger but I prioritized by which had confirmed range expansion first and SLW established a wide range seven bar shortly after the first hour of the trading day so I took this trade.

SLW

AG

Encyclopedia Brown and the Case of SPXU

After the close and before checking the election results I quickly jotted a couple of notes on the SPX and COMPQ.  The general market has been in a down trend since 09/14 with the NASDAQ taking the brunt of it. I've noted a number of times that the SPX has shown relative strength in comparison and that should heavy selling begin to hit the tape this may offer the best risk/reward scenario. The recent bounce and small range offered a lower risk entry by establishing a lower low pivot to trigger entry.

$COMPQ

$SPX

There's three reasons why I looked specifically at shorting the SPX rather than the NASDAQ.

$COMPQ

1) Generally, markets will correct in tandem and since the NASDAQ has lead this down trend my hypothesis is that the SPX will catch up so there is greater reward/risk

2) The $BPSPX is  at 69 while the $BPCOMPQ is at 53 confirming the SPX has held up much better during this correction.

3) The $RHSPX is at 94 in comparison to the $RHCOMPQ which is at 16, so I consider the NASDAQ slightly extended here and more likely to have a counter-trend bounce.

$SPX

At the close of today there were 5 ETFs which put in year high volume giving a clue to current market psychology, the SPXU, SDS, UVXY, VIXY, and VXX. When volatility spikes the corresponding ETFs can break sharply, and during capitulation phases can offer low risk/reward opportunities of 30% to 50% or more.

SPXU

SDS

UVXY

VIXY

VXX