I noticed that my screens were lacking stocks making new highs (especially on above average volume) and stocks making moves on above average volume across the board. The general market indices were higher but the leading stocks (the few we have left) were not supporting the moves. Overall, the NASDAQ and DOW are trading below their respective 200-day moving averages and are still trending downward on the weekly charts with resistance at the long term moving average.
I was able to pinpoint a few interesting candidates tonight with VISN as my highlighted stock, a stock that has made multiple blog posts since May.
Visionchina Media (VISN), 18.13, a stock I have been starting to profile in multiple blog posts over the past month as it seems to be getting support at the 50-day moving average. It was up almosy 10% today on volume 79% larger than average. It did slide to close the day but looks to be trading in an opportunity area. $15 to $18 is an area to grab shares.
6/4/08: VisionChina Media, Inc. (VISN) – $18.84
Potential Trade Set-up:
Entry: $16.00
Risk is set at 1.0% of total portfolio or $1,000 of $100k
Stop Loss is 10% or $14.72
Number of Shares: 781
Position Size is $12,500
Risk is $1.28
Target is $30 for a 10-to-1 risk/reward ratio.
A move back to $23 with a buy at $16 would be a 5-to-1 risk/reward trade.
Stocks making multiple screens tonight:
CVLT, MA, PPO, PSEM, SLH
Stocks of Interest:
AVAV, EIG, PPO, SLH, SXE, VISN
Aerovironment Inc. (AVAV), 28.64, the stock gapped up for a 14.79% gain today on volume 502% larger than the average. It looks as if the momentum is about to turn-up on this stock as it is now in new high territory
Employers Holdings (EIG), 20.39, the stock was up 2.21% on volume 43% larger than the average as it is now trading above the 200-d moving average. Up more than 30% since February.
Polypore International (PPO), 26.42, up more than 10% today on volume 38% larger than the average as the stock looks to make a new all-time high. It has more than doubled since the fall-out after the IPO debut last summer. Buys along the 50-d m.a. are ideal.
Solera Holdings (SLH), 27.85, up more than 5% today on volume slightly larger than the average as it continues to trend higher (ever so slowly).
Stanley (SXE), 33.20, an interesting stock that seems to be building a cup shaped base over the past seven months with some support at the 200-d m.a. Have some trouble with studder-steps in recent weeks but overall, the chart catches my eye on a weekly view.
Chris,
I’m just curious as to why,as a CANSLIM trader, you are putting on trades when we are not in a confirmed rally? I think the “M” is the single most important piece of the system; protect your capital.
I have been reading your stuff for awhile and your site is one of the few I check daily. I think you would be doing viewers a huge favor by teaching them that cash is a position and that you don’t always need to be putting on a trade.
Just my $0.02 – I would have emailed you, but couldn’t find your address.
L,
Let me start by saying that my foundation on market education is rooted in the CANSLIM philosophy but I am more of a trend trader that a CANSLIM purest. I don’t necessarily buy the patterns of CANSLIM anymore as the risk/reward setups have proven to be less profitable than trend trades along a major moving average or a flat-out new high.
Yes, the M in CANSLIM is not in a confirmed rally but that doesn’t mean I have to park 100% of my portfolio in cash.
I use very basic but reliable position sizing calcs to get in and out of positions so my risk is rather low. The overall odds are stacked against the trade when viewed versus the major market indexes but TITN and IPI are perfect examples of excellent gains you can get in this type of a market if you enter along the ideal trend or momentum areas.
Cash (100%) is king for novice investors during markets that are not in a confirmed rally but it is not ideal for everyone. Let me stress once again that I am not placing positions in every stock that comes up on my screens but I am taking a couple when the risk/ reward is excellent (better than 5-to-1 in this case). Sorry but I am not passing that up potential when the risk is so low (my risk is actually less than 1% of portfolio in this specific case).
So, I don’t need to put on every trade but I am not going to sit and watch the best setups walk right by. I recommend each investor/ trader to determine how they will trade in this type of market (newbies staying in cash).
Chris,
Thank you for taking the time to respond to my post.
To begin with, Livermore would strongly disagree as he was fond of saying that one doesn’t always need to be in the market. Livermore was not exactly a “newbie”. Most of the Market Wizards would disagree as well.
To simply state that cash is for newbies is an over simplification. Cash is a position, just like going short or long. I think it is a rational position to be employed when the markets are in, what I call, a ‘confused sea’ and the path of least resistance is unclear.
I would argue that cash is the hardest position for new traders to enter. It takes lots of experience, a clear head and patience to admit when one doesn’t have a clear shot at profits. It took me years of trading away profits to come to grips with this. To use an overly quoted saying, “When the tide goes out all the boats go down…”
Lastly, the psycological and emotional beating you can take in this confused sea is enough to get you so beaten up that you miss the potential for the real gem – the long pull that reaps you real profits.
I appreciate your response, your position and I continue to be a fan.
L:
L,
I do agree with you and I turn to cash more often than most as I don’t day trade and I have other income (primary income) that allows e the freedom to not trade. However, I will trade a low risk setup when it presents itself. I am not as aggressive in a market that trades below the 200-d m.a. but I won’t turn a blind eye.
Livermore may have been one of the best of all time but do remember he went broke 4 times at a minimum.
Bottom line – I would not argue against your points as I make them myself through the blog, especially in earlier years but I won’t ignore the market as a whole when a risk/ reward setup presents itself. That’s why we use position sizing and expectancy to protect and gauge the downside risk.
Great points L, thank you for the comment and keep them coming!
Chris,
I don’t day trade although I have no bias against it. I prefer boring set ups: going long in the strongest growth stock in the strongest sectors during confirmed market uptrends. I go for the long pull with the least amount of risk and the most reward.
It’s not just Livermore who believed in cash as a position mind you, but Darvas, Loeb, Baruch, Oneil (of course) and many of the other past heavyweights.
While Livermore did go broke, most successful traders have blown up their accounts a few times along the way. I don’t think that should be counted against them. The fact that they had the audacity to make it right back when counted out is what made them the giants.
Back to my original post, I sent this to you out of concern for the new investor who may visit your site. Especially in this market where the inexperieinced may want to tempt fate and buy a dip or short the obvious stock too late into the set up. The talking heads fill them with bad ideas and they have not learned to turn off the tv.
Thank you again for taking the time to respond.
L:
Yes, most have blown out their accounts and I had quite a blow-up in late 2000 and 2001 that I spoke about in my audio interview but four times is a lot (and I love Livermore).
That shows lack of discipline, lack of risk control and lack to learn from mistakes. He committed suicide due to the lack of self control and other family problems that stemmed from his trading activity.
Victor Sperandeo or Martin Zweig are modern day masters that relate to the pre-CANSLIM guys you mention above.
Great discourse guys, keeps the learning curve in even in a poopy market. Thanks
The emphasis on positon sizing and risk control on this blog may make this the best place to send a new investor – you help readers realize its more about knowing themselves and making their own decisions, not blindly following you or any other “master”.
While the market indexes are under serious pressure, there may be excellent opportunities right now in gold, oil, oil services, agriculture. To me, Canslim is overly tied to the major stock indexes. Especially with the ability to get exposure to actual commodities thru ETFs, there is no need to ignore these – as long as you keep risk under control.
And yes, Livermore is overrated.
Keep the good stuff coming –
D
Chris,
Fair point on Livermore. I would argue though, that perhaps if he followed his own advice and moved to cash more often, he would have blown up less (IIRC it was more from shorting, than long positions – could be wrong though) and maybe kept his sanity & his life.
I’ve read Zweigs work & Trader Vic’s as well. Good stuff no doubt. I would strongly recommend their books.
Hopefully we see a spike in the $VIX and some other positive signs of capitulation in the coming days and get back to a healthier trading market.
Regardless of your trading system, this recent action doesn’t allow for the deep profits that make this game so financially rewarding and fun.
Have a good weekend.
L:
Just found your site and is nice reading.
Regarding VISN you highlighted, it should stay on any watch list now as it may set up nice Double Bottom pattern. It undercut its previous low made on June 12th and has been on lower volume. If we can get a new confirmed rally, this one has a pivot point at $19.20.
Good luck to all.