Market Gems manual is getting to be a bit more than a manual, its a book that will be taken care of by others when I'm done my part and I won't have to bother any longer. The last two chapters are really about 'strategies' that I isolated pertaining especially to the techo-fundamental trader. I've been balancing different strategies for the past 3 years of full time trading and 4 1/2 of part time trading and it took this quarter and last quarter (remember the internet drop off) to bring certains strategies to the forefront. Those of you who were with us from the beginning might remember how many stocks we held through earnings and how little we really 'understood' the successes we were making. The occasional 'tankero' would be a little sobering at the time.
Earnings plays were just for the 'pop' at first, then little by little we began to see a trend. It was first noticed that at every minor rally, those stocks that beat would trend even higher than any other stock. Stock like NSOL at 21 or at that time it was AEOS, TOM, INTU. I started telling threaders to 'have a permanent database' of those street beaters, eventually we held them for longer periods, but I never actually understood WHY they were doing that well.
When the internet sector intervened in 1998, it was like an avalanche of wonderful plays that were not earning but even then they 'beat their estimated losses'. Then of course 'earnings plays' were relegated to the sidelines in January 1999 and 'fundamentally' strong was only for the occasional pop once again but everyone was just buying the nets (so was I). But its almost like we didn't realize what we had until we lost it. The sober awakening the last week of April 1999, when the internet party was over. Then once again there was a rush to the fundamentally sound stocks, but they were separate from the internet stocks. The technical and momentum traders were separate from the 'fundamentalists'. And for a while the nets were on the sidelines.
Then came the mid-September earnings season once again and I saw that why not have both? Fundmaentally sound, high flyers and especially internet stocks with 100% growth in revenue instead of 'EPS growth' so we could add those as 'earnings plays'. The internet stocks made the transition very well to earnings plays. And when stocks like BVSN, KIDE, BRCM, CHKP, were actually earning a few cents they went ballistic.
Not too far behind were the smaller float technology stocks that because of their higher demand and their 50% on average eps growth quarter after quarter, year after year were flying up and evoked everyone's interest, even institutional investors.
(That's when we fell for QCOM, HLIT, QLGC, RFMD, SNDK, etc)By this time every gain at earnings would bring big blocks. That's basically when we decided why not use a combination of fundamental and technical analysis on these stocks. That way you have a company with a strong EPS rank, and the investor interest catapulted it into a high technical rank as well.
Scans began to change. Instead of just technical indicator I added strong EPS rank, high ERG, etc. growth at least 50% last quarter etc.. Of course we still made sure they were not overbought etc. This evolved and from 2 separate scans, one scan was born.
Now with the gargantuan volatility fluctuations, volatility factors in much more than last year. Finally when the market pretty nearly crashed in early and mid October we were flying high on the 'earnings plays' and it was then I began to sift through tons of archives and posts and charts to check the variables and backtest the theories.
Nothing is foolproof or guaranteed, nothing can be backtested more than a few years, but baring these impediments, I think we can establish some pretty nifty strategies for swing and/or day trading based on accumulated knowledge and experience from the last 3 years. The culmination being this last month with the earnings plays in a down market. We didn't invent the theories, they were around long before I ever traded but we actualized them and made them workable for us. That is why for the first time in 3 years I'm not flying all that blindly into a trade.
Chart patterns are easier to 'understand' as well as just plain recognize. I don't want to see a "man hanging on a post" as a 'buy trigger' without knowing the rationale behind the trigger and why would a hammer be needed what did it all really mean? I don't want a stock that is 'undervalued and beats the street but no ones wants it (i.e. no volatility). The man hanging from the post (candlestick reversal) has to have a friend who is "Mr. America" who flexes is muscles (technical strength seen in price rank) and the twosome then have to meet up with Mr. Money Bags (fundamental strength) who can bankroll them or else they can't have much fun.
So we have a three friends that are inseparable and make our lives as traders infinitely more profitable. |
