ParkTwain's Parlor

[skiracer]

Park,
Sounds like a plan viable plan to me. If it is working, which it seems to be, for you an you're satisfied with the results that's all that matters. I know several people that adhere to the same type of philosophy regarding entering after a proven breakout to gleen 10% or so off the ensuing uptrend. My opinion is that any well thought out plan is 100% better than no plan or a half-baked plan. Knowing your parameters and staying within them for your investing needs takes self-control and not deceiving yourself into believing you can accompolish things that will put a strain on other areas in your life is something many people involved in trading can't do. That alone is a big accompolishment. Good luck.

[Gatorman]

Similar System

Park:
I use a system somewhat similar to the one you outlined with a few differences. Mine uses an IRA account but I try to hold to a 15% gain although I am able to watch the stocks more closely than you are able to do so I can adjust more quickly if I see a reason to either exit the postion or add to my position. I solved the problem of having to settle one transaction before entering another by maintaining a 10% cash balance in the portfolio that allows me to enter a new position earlier. I find this cash balance to be the hardest to maintain because I have always liked to be 100% in stocks in each portfolio. I also have been known to exit at 10-12% gain if I am approaching earnings dates or other circumstances such as downgrades. Ski is right about the discipline aspect that he mentioned. Whatever the plan, discipline is the key to success but, at the same time, is very hard to follow in practice.

[ParkTwain]

Opened a position yesterday in DDD, maker of technology for delayed release of medication in the body. Stock is up today on announcement of deal with Wyeth, with more announcements of more deals expecting going into the new year. Check out the DDD board on Yahoo.

OXPS has perked up a little today, but yesterday was a disappointment on an up market day. Significant near-term appreciation expected going into New Year's, but might see some tax-related selling in January.

[ParkTwain]

Bot TWGP this morning on the breakout. Other open positions: OXPS, STGN, DDD.

[ParkTwain]

Amazing drama taking place on a daily basis with SFCC, as documented in the comments of the participants on the Yahoo board for SFCC. Indications of massive naked shorting, an "activist" (short selling-oriented) hedge fund CEO (Dan Loeb of Third Point in NYC) who verbally slams the company during a recent conference call, "expose" articles at Bloomberg.com. Like a slow-motion documentary playing right before your eyes. Among the forum's messages, look especially for those by *aldigit01*, who claims to have witnessed similar stock takedowns on OSTK and NFI.

[stocksensay]

How to calculate pivot price?

Great commentary Park. Quick question, can you elaborate on what you mean by pivot price? How is that calculated/defined/determined? Thanks

Hi ski,

This year especially I focused on setups involving stocks making breakouts to all-time highs. I have a particular set of technical indicators and measures that I scan for almost every day in the market. My rules call for buying only after the breakout and within 5% of the pivot.

[ParkTwain]

For my approach, the "pivot" would be the highest price at which there is previous resistance (which for me, or you might say, by definition, must also be at or very near the stock's previous all-time high), as best as I can determine it. For my recent buy of TWGP, the pivot would be about 21.00/sh:

http://stockcharts.com/def/servlet/SC.web?c=TWGP,uu[h,a]daolyyay[dc][pb50!b200][vc60][iUb14!Ll14]&pref=G
(paste this entire URL into your browser URL field)

For TWGP, this previous high occurred only a few weeks ago. Very often for other stocks, that point could have been reached many months, or even several years, ago.

I made this pick to participate in this week's POTW but not after doing my complete round of chart research, so I don't consider this setup to have the strongest probability of success (5% to 10% gain) within a short timeframe (1 to 2 weeks) because the pps didn't spend more than 1 to 2 trading days at that previous all-time high. As for any area of resistance, when the pps has spent more time at or near that previous high, there is more bullish energy required in the market to get the price above that point later in the stock's life. That's why the breakout past that point can be so powerful and the subsequent rise more brisk. That would be the case for any breakout above established resistance. What I like about a breakout above an all-time high is that there is no further "friction" from sellers against the stock's rise after the breakout has occurred. This kind of breakout can result in a rise that can continue literally for months and with good downside safety because the previous resistance is now support.

Because of this approach, I won't get interested in even monitoring a new position until the pps has reached within about 3% to 5% of the stock's previous all-time high.

I use this URL to watch for new candidates at end of each trading day:

http://www2.barchart.com/high.asp?=&sort=8&what=ALL&force=high%2easp

Among these, I look for new watchlist candidates (I also keep a "disqualifieds" list) whose new high is also an all-time high. I can set price-based alerts on the stocks that I am watching, then let the market tell me which ones to buy as they "pop". For one of these new candidates to join my watchlist, there must also be corroborating evidence from the RSI and Wilder's DMI plots, which I run using stockcharts.com. I prefer a stock whose RSI is already uptrending for about the previous 30 calendar days but is currently around 60 to 70. That tells me that I have a robust-acting stock already but one that also has room to strengthen further. A more robust-acting stock has a better chance of breaking through that previously established resistance.

If I get low on new candidates, I can also use the Java-based stock screener at MSN Money to find stocks whose price is no more than x% lower than its 52-week high. That search parameter is very valuable to me and is not found on the other widely used stock screeners, AFAIK.

What's interesting is that there are always at least 2 dozen stocks for me to choose from, based on my preferred criteria. I am not giving up opportunities to trade from using more stringent entry criteria. At least that's been the case for the last 3 years or so. I expect that the mix of microcap, mid-cap, and large-cap stocks that get found using my criteria will change as the bull/bear market cycle changes. Of course, to the extent that these breakouts fail (fall back to the pivot support), I can get a sense of the strength of the broader market. Or sometimes it's just luck to be in the right one that really rockets up past its pivot. That happened a couple of times in 2005.

[Gatorman]

Park:
Your approach is not very different from one that I employ.
I infer from your commentary that you are able to use the MSN stock screener in such a way as to return candidates that have been at or near their 52 wk high for several days or am I reading it wrong?
As you indicated, the number of failed breakouts in weaker markets can be frustrating. I do,however, like your use of a 60-70 RSI. I have been concentrating in the 50-60 range trying to limit those I feel are approaching an overbought area. Perhaps I am missing some opportunities.

[ParkTwain]

Hi Gatorman,

No I don't use the MSN stock screener in the way that you mention. I use it primarily to find stocks whose current pps is no more than x% below their 52-week high price, and I usually set 'x' to 5%. In a strong overall market, there will be many candidates returned from a setting of 5%, so I might set it to 3% just to give me a more manageable list of stocks to consider for that iteration of my research. I also limit this query to stocks with >50K avg. daily volume, pps >$10.00/sh, and perhaps also beta >1.5.

Regarding the use of an RSI measure, I just edited my previous post slightly to say that I want to find a robust-acting stock (with RSI of 60 to 70 and trending higher) because these have a better chance of breaking through that established resistance at the previous all-time high while also indicating that the stock can strengthen even more (that is, with respect to that stock's own past behavior, which is what the RSI measures). As you have probably noticed from your chart readings, a stock can surpass and remain above RSI of 70 for a calendar month or longer, so I don't interpret that indicator so much as showing an "overbought" condition.

As a practical matter, a given stock's previous all-time high might not actually be the strongest resistance that had been established among the stock's most recent resistance levels. If the degree of resistance at the pivot is not actually all that strong, then making sure that the RSI is higher rather than lower might perhaps be less important.

Regarding your using an RSI of 50 to 60 as a screening criterion, that would result in your having probably more candidates to examine than I am usually seeing. But I feel that I am getting plenty of candidates each few days, many more than I can act upon.

Regarding how to discriminate how long the stock spent at its previous all-time high, I have to rely on the chart. For instance, here is a 6-mo chart for ANST, a stock that is included in this week's POTW list:

http://stockcharts.com/def/servlet/SC.web?c=ANST,uu[h,a]daolyyay[dc][pb50!b200][vc60][iUb14!Ll14]&pref=G
(paste this entire URL into the browser URL field)

Notice how long the pps has recently hovered at or just below the 35.50/sh price level. This would lead me to believe that the stock will have to accumulate a good bit of bullish energy to surpass this price level. But when it does, it should also make for a nice run up beyond it, but only if the RSI is trending higher and has reached a good level of strength such as around 70.

[ParkTwain]

50 Reasons why (futures) traders lose money:

http://www.zaner.com/education/top_50.asp

[ParkTwain]

After today's bullish market action that started at 2.00 pm, the DJI, Naz, and S&P500 are each within 1 to 2 days striking distance of 52-week highs. ROCK AND ROLL in 2006!

[Lyehopper]

After today's bullish market action that started at 2.00 pm, the DJI, Naz, and S&P500 are each within 1 to 2 days striking distance of 52-week highs. ROCK AND ROLL in 2006!

Hey Park.... The new guy (Dave) likes OXPS too dude.

[ParkTwain]

Very glad to see the publicity! ROCK AND ROLL! I've got a $20K position in OXPS. Been a sleepy stock during 2nd half of Dec., but I watch it like a hawk.

[Websman]

Park dude, after seeing how well you did in 2005, I'm going to be watching you close. Maybe you'll rub off on me some.

[ParkTwain]

Breakout happening in OXPS today! ROCK AND ROLL!