Back To Basics
I
would like to get down to the basics of
how I locate leading stocks.
As you know, looking for leaders in this market environment is like
looking for a needle in a haystack. Stocks that are leading the
industry one week tend to fall out of favor the next. What is the best
way to look for leaders in the market? I use two strategies to help
keep my scope on which stocks could be the next possible leaders. The
first approach I use is to look at what the institutions are buying. I
have two reasons for this 1) it shows that the stock has institutional
sponsorship, which can
move a stock and 2) as Kevin Haggerty put it in his "Trading with
the Generals" course, institutions have access to information to
really conduct in–depth
analysis into a stock they would buy for a fund which is beneficial to
us, the retail trader.
My second approach is to
monitor which sectors are outperforming the S&P 500;
I do this by using Percent Change Charts (available in most charting
packages). From that point on I will look to see which stocks trade in
that sector and weed out the strongest performers as possible
candidates for my trading. Pretty basic stuff in my analysis, but it
does have merit.
Turning to some stocks which
are showing some constructiveness in their charts.
Oakley (OO)
has formed a handle to its five week cup. The company is in the
Leisure-Products sector which has been performing rather well as of
late. The only concern I have is price not being above the 50 MA. Also
note, Oakley is due to report earnings this week.
Magellan Health Services (MGL)
is basing and is in one of the top per
Looking at a Percentage
Change chart comparing the Healthcare Index vs. the S&P 500, we
see it is significantly outperforming the broad market index.
Talx (TALX)
is forming a high level symmetrical triangle.
Cryptologics (CRYP)
looks poised to breakout of its handle.
Remember that all securities
are risky. In any trade, you should always reduce your risk by
adjusting position size and placing open protective stops where
you will sell your long or cover your short in case the market turns
against you. For an introduction to combining price stops with
position sizing, see Loren’s lesson, Risky
Business.
Greg