This Week’s Battle Plan

Last week we
pointed out the fact that the VIX
had approached
three-month lows, and the OEX put/call price indicator (prices of 40
point out-of-the-money puts versus calls) had reached an exceedingly
low level — below three. Both signified that some complacency had set
in, and a short-term correction was likely near. We saw a piece
(entire piece?) of that correction on Tuesday and Wednesday, with the
Dow losing over 240 points.

Thursday’s rally led to Friday’s NR7
day (narrowest range of the past seven days). In fact, Friday was the
narrowest range day of 2001 for the S&Ps. This tells us that a
large, sharp move is likely near, as volatility is likely to revert to
its mean. As to which direction this move will be, there is no
indication or edge here today. Most of the indicators I use are in
neutral territory with a slight (very slight) edge to the upside.

With the two-month trend for the market
decidedly higher, let’s look at some good strong stocks that have
pulled back this week. If we explode to the upside, these pullbacks
are the stocks to be focusing on.
The
best place to find these is on the TM Pullbacks
From Highs
list. Here you will
find the strongest-trending stocks that have pulled back from highs
over the past few days. Some of the better stocks that stand out are
Vimpel Communications
(
VIP |
Quote |
Chart |
News |
PowerRating)
(#4 on this list). The stock has a
three, six, and 12-month RS over 90 and an earnings growth rate over
90. The number-two stock,
(
EDS |
Quote |
Chart |
News |
PowerRating)
, is going through a first-stage
pullback, always the strongest pullback to focus on. Same for
(
GKSRA |
Quote |
Chart |
News |
PowerRating)
,
(
FD |
Quote |
Chart |
News |
PowerRating)
, and
(
TBL |
Quote |
Chart |
News |
PowerRating)
. Again, no guarantees as to
which direction the move will be, but if it is to the upside, the
names above are a good place to focus on.

Nightly To-Do List
— Part 2

Last week’s “A Nightly To-Do
List” struck a nerve with members. A thank you goes out to the
dozens of you who sent me e-mails regarding the column. (If you missed
it and wish to read it, click
here
.) One of the many pushes we are making internally at TM is to
further segment the site based upon trading style. Our columns,
indicators, education, etc. for a day-trader are far different than
for the intermediate-term trader. And the intermediate-term trader’s
daily regimen is different than the options trader’s and futures
trader’s regimen. We are in the midst of redesigning and laying out
the site to better reflect your trading style. With more than 3000
pages on the site, hundreds of lessons, and more, it’s a big job, and
we’re working towards completing it by mid-to-late January.

In the meantime, for the next few
weeks, I’m going to give you “A Nightly To-Do List,” using
the many features of TM, segmented by trading style. This week the
focus is on the intermediate-term trader. Next week we’ll cover swing
trading, followed by options trading, then futures trading, and we’ll
finish up with day-trading.

Nightly To-Do List –
Intermediate Term Traders

1. 
Market

From the home page, click “Stocks,” then “Tools &
Research,” then click on the Market
Stats
page. Keep track of the Nasdaq index for accumulation and
distribution days, advances vs. declines, advancing volume vs.
declining volume, and new 52-week highs vs. new 52-week lows. Go to Boucher’s
Intermediate-Term Timing Signal
for a proprietary
intermediate-term market indicator. On the Indicators
page (from the Home Page, click “Stocks,” then
“Indicators”) go to Mark
Boucher’s Top RS and EPS New Highs List
. This list gives you
intermediate-term stock candidates, but it also serves as a market
barometer. Mark looks for the New Highs List to reach 20 or higher
consistently in a week as a bullish indicator.

Tracking this market information every trading day gives
intermediate-term traders the first and most important piece of their
formula for committing capital to the long side.

2.  Groups

There are key ways that an intermediate-term trader can identify the
groups that are leading the charge. On the Indicators
page, go to Mark
Boucher’s New High RS Industry Sector Concentration
, New
High RS Group Concentration
and New
High RS Sub-group Concentration
. These graphs show you which
sectors, groups and sub-groups are generating the most new highs. Go
to the Proprietary
Momentum list
to see which groups are driving the
strongest-performing stocks. Also, follow the process in the next
paragraph,
using our StockScanner,’
to identify stock candidates. The industry groups that show up in that
scan are leading the market. From the home page, click “Tools
& Research,” then “Top Stocks.” Under the
“Category” pull-down bar, click “52-Week
Highs.”  This list tells you which types of companies are
leading.

 

3.  Stocks

The TradingMarkets.com StockScanner
is an ideal tool for intermediate-term traders. You’ll find it at the
bottom of the home page, and at the top of the Indicators
page. To get you started, enter this criteria:

1. Closing Price: >12

2. 50 day avg. volume (00’s): >1000

3. RS (12 mo): > 85

4. EPR: > 80

4. Closing Price > 50 Day MA

5. Closing Price > 200 Day MA

6. Sort by Sub Sector

As of this weekend, 66 stocks are listed. These are the high RS, high
EPS growth stocks that are at-or-near new highs. Review the charts of
these stocks to see where they are in their base-building process. You
can be more or less restrictive to generate a shorter or longer list,
but be consistent, and review them every day, as tracking the number
of stocks gives you an excellent barometer of market health. Also, as
stated in the “Groups” section, monitor the leading groups
from this list.

On the Indicators
page, look at Mark
Boucher’s New Highs list
and the Stocks
Building a Base
list. Lastly, go to the New
52 Week Highs
list (from the Home Page, click “Tools and
Research,” then “Top Stocks”) to get a visual chart
display of stocks that hit new 52 week highs. (Important note: we will
be introducing a “Stocks Completing a Base” list soo
n.)

In addition to all these tools for intermediate-term traders, we have
the excellent commentaries from Mark Boucher (every Friday), Gary
Kaltbaum and Tim Truebenbauch. I don’t know of any other place where
you can read the analysis and commentary of hedge fund and money
managers that actually manage money based on the intermediate-term
strategy. Finish the night off with the new TradingMarkets Nightly
Intermediate-Term Traders Reports, published each night at 7PM ET.

TM Good News

Beginning this
Wednesday and going forward every Monday, Wednesday, and Friday, Tony
Saliba will be writing an early-morning options alert column for us.
As many of you know, Tony runs a successful trading operation in
Chicago, was a pit trader for years, and was the only options trader
selected by Jack Schwager for his book Market
Wizards.
Tony’s morning column will give you the
options alerts and setups he and his team are looking at for the
upcoming day. Also, more good news on the Saliba front: the CBOE just
approved the launch of Saliba
Options
, and it will go live later this week.

Until next
week, best of luck with your trading!

Larry
Connors
and Brice Wightman

P.S. Special
thanks to Raul Pallares for his insights into this week’s commentary.

Larry Connors
is CEO and co-founder of TradingMarkets. He is also the author of four
books on trading, including Street
Smarts
,
co-written with Linda Raschke, Connors
on Advanced Trading Strategies
,
and his latest release, Trading
Connors VIX Reversals
.

Brice
Wightman is a Market Analyst at TradingMarkets.com.

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