Connors’ Weekly Battle Plan

October 12, 2003
Larry Connors

Baseball, Momentum, and More

“The World Series we all want to see is Red
Sox versus Cubs.
Not even the baseball gods could make them both lose, although something crazy
would probably happen, like a 43-inning Game 7, an outbreak of bubonic plague or
a shift in the polarity of the Earth, hurtling us all into outer space.”

– Newark Star-Ledger columnist Lawrence Rocca on anything being possible
this postseason

Momentum

Earlier this year it was pretty easy to make money on the short side. The
momentum was there. In March, April and May, the momentum shifted the other way.
And, it was fairly easy to make money on the long side. But since then it’s been
tougher.

Now if you listen to the financial press, and are not long technology stocks,
you probably feel like the only idiot in the world who is not making a
fortune. If you feel that way, guess what? You have company. And I’m in that
company. Yes, we’ve made a few pennies from our trading over the summer and
into the fall. But we have not made what we made earlier in the year, and we
certainly do not own any of the negative cash flow Internet stocks that have
quadrupled in value over the past year (no one talks about the fact that most of
these stocks are still down 50-80% from their highs).

Why was it so easy to make money earlier in the year and so tough to make money
the past few months? Well, as I stated before, it’s a lack of momentum. And you
only have to look at a 10 period ADX of the S&P 500 to see this statistically.

My researcher, Conor Sen, pointed this out to us this week. Since the end of
June, the 10 period ADX has been spending most of its time below the 25 level.
This is fairly rare, and usually only happens when there is no sustainable
trend. And since the end of June, there has been no sustainable trend in the
market. Yes, the market is up a bit, but nothing to provide the tremendous
opportunities we saw earlier in the year. And, if you trade momentum, as most
traders do, it means the opportunities to profit have certainly been less than
usual.

And from there, we come to two pieces of good news. The first is that if you
feel left out over the past few months, you can stop feeling that way. Most
traders and investors are experiencing the same thing (stop listening to the
hypesters on TV who only scream about the stocks that have tripled off the lows
from a year ago!). And the second piece of good news is that whenever the
market has had long periods of ADX readings under 25 (such as now), it’s always
led to a major move. And if history repeats itself here, as it always has in
the past, it means a large momentum move is near. And that large move will mean
lots of opportunities. It’s not a matter of if. It’s now just a matter of
when.

How To Profit From TradingMarkets – Part 1

As many of you who have been with us since inception know, TradingMarkets has been
around for 5 years. What started as a handful of web pages brought to you by
a very small number of professional traders has now grown to over 30,000 pages
of information, strategies, articles, interviews, indicators, methodologies, and
more, all housed under one roof. I don’t think I’d be out of line by stating
that the largest library of trading education in the world is found here.

That’s good and that’s bad. It’s good because no matter what your trading
style or your experience level, there’s a plethora of information here to help
you grow. It’s bad because there is so much information, it’s sometimes next to
impossible to find all the gems that are published on TradingMarkets.

I’m going to take the next few weeks and help you mine these gems. When I’m
done, you’ll know how to go about better utilizing the site to improve your
trading even further.

The TradingMarkets Stock Scanner – Finding Momentum

Buried within our nightly indicators section is the

TradingMarkets Stock Scanner. It’s excellent, and today I’m going to show
you a few ways to use it to find the stocks to focus on for the upcoming day.

First, as you will see, the scanner’s main emphasis is on helping you find the strongest
stocks to potentially be long and the weakest stocks to potentially be short. We
do this by giving you both ADX filters and Relative Strength Filters. And our RS
filters (ranked 1-99 with 99 being the strongest), goes even further by allowing
you to look at RS not only a 12 month period, but also a 3- and 6-month period.

Also, we let you look at fundamentals. Obviously, having a strong moving stock
that is also showing strong earnings tend to be better stocks to be long (and
vice-versa for shorts) and you can find these stocks as they are also ranked
1-99. You also have the ability to add further filters
to your search. Moving averages and volume changes allow you to pinpoint the
stocks that best fit your criteria.

For example, let’s say you want to find the
stocks that are trading showing a strong 6-month RS, a strong 6-month Earnings
Rank, is trading above its 50-day moving average, and has traded double its
average daily volume.
Simply type in “20” in the price section, “80” in the 6-month RS section and
“80” in the EPR section. Put “200” in the % of average volume and then click on
“greater than” in the 50-day MA box. Click “Start Search” and out will come a
handful of names whose companies are doing well and whose stocks are also
performing well. And from there, you can apply your best strategies to these names.
As
you know, being in the correct stocks each day is critically important to your
success as a trader and having the ability to scan each evening for these stocks
is a big edge that successful traders use to their advantage.

TradingMarkets Stock Scanner. The lists you
generate will quickly allow you to focus on the better names to trade for the
upcoming days and weeks. Also, here is

Part One,

Part Two,

Part Three, and

Part Four of a terrific series on how to use the scanner.