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Strategies & Market Trends : Drillbits & Bottlerockets -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (3595)	2/15/2001 2:34:51 PM
From: Rich1	Respond to of 15481

Back to stocks..<VBG> Yesterday the Big Report had this 18 trailing )'s story that actually made sense to me.. Did I buy any of themm... A big emphatic NO.. <Top of Report Long Tail of O'S Down: an Aggressive Trading Technique Those of you who subscribe to our database are probably aware that we provide a series of pre-made reports under the "reports/sector area" link on the main page. These reports range from the "Change In Trend Report," and "Sector Bell Curve" link, to a report we wanted to mention today; the "Stocks with 18 O's" Report. Those who bottom-fish will find this report interesting to help identify possible trades. Very few of the stocks that show up on this report would be ones we would feel comfortable owning, so it's really just a list for the aggressive "bottom fishing" traders to work from. We are beginning to see this list grow over the last few days, and are now beginning to see some interesting names show up on the list. Here is how we like to use that list as an idea generator of sorts for traders. First of all, this report identifies stocks that have fallen 18 boxes without any reversals back to the upside. A lot of times you can get a good trading move back to the upside because the stock has become very oversold, to the extent that it is now due for a bounce. Again, this is aggressive trading and when doing so we would concentrate on the stocks that dropped the 18 boxes quickly. In other words, we are looking for the ones that fell in a matter of days, not weeks or months. The stocks that fall very quickly are more susceptible to an 'over-reaction' situation that leads to a subsequent oversold bounce for traders. Names that take weeks or months to spiral downward often give investors more time to analyze the situation before placing their vote and driving the stock down further. Our experience has shown that for names like that, it is worth waiting for a buy signal or two off the bottom, before entering as a bottom-fish trade. When reviewing the stocks in this list look for the ones that have fallen to a previous level of support on the chart. Using the Expanded chart will help identify these levels, but also look for the stock to be at the bottom of their 10 week distribution (this is designated by the bot on the far right of the chart). Every chart is different, but typically we look for a reversal back to the upside before playing an idea from this page, that at least indicates that demand has re-entered the stock enough to form a near-term bottom. That bottom is critical from a risk-reward standpoint, as it gives us a level to then stop out at should we see the trade begin to go against us. We are always looking for an opportunity of at least 2 points of breathing room to the upside for every point we are risking to that stop loss level below. This takes some of the emotion out of finding stocks that have been hit hard and now appear 'cheap.' If our risk-reward game plan makes us at least wait for three-box a reversal to the upside, and then require a 2:1 risk-reward for the trade after the reversal, we can eliminate many scenarios that are not suitable for even most aggressive trading accounts. Here is an example of a stock that showed up on the "Stocks With 18 O's" radar screen Monday evening after developing a pattern attractive to bottom-fish traders. Keep in mind that the stock, EMC Corp (EMC), is still categorized as an "avoid" for any investor here. Nonetheless, the trend chart below shows a very oversold scenario, one that was certainly due for a reflex bounce. The stock reversed up three-boxes on its trend chart to form a near-term bottom at 50. Aggressive traders could play the stock after the reversal with a stop placed at 49. After the stock bounced to the 58 level, it became too extended from support for traders. At this point, aggressive traders would look for further consolidation to take place, and a buy signal to form from these lower levels. For now, we would stay to the sidelines. Trend Chart – EMC Corp. (EMC) 85 ------* ----------------------------- 84 \| * 83 \| * * 82 \| * X * 81 \| * X O * 80 ------\| --------* --X O X * --------- 79 \| * X O X O * 78 \| X X O X O * 77 \| X O X O X O 76 \| X O X O X O 75 ------\| ----X --X O X O --2 ------Med 74 \| X O X O O 73 \| X O X O X 72 \| X X O X O X O 71 \| X O X O X O X O 70 ------\| X O X O X --------O X O ----- 69 X X \| X O X O X O O ( Next resistance at 69, middle of the trading 68 X O X O X O X O O band now sits at 75. Risk-reward was 67 X O X O X O X ----------------O ----- attractive on reversal up. 66 X O X O X O X O 65 X O X 1 X O X ----------------O ----- 64 X O O X O X O 63 X O X O X * O 62 X O X O X * O 61 X O X O X * O 60 X ----O X O ----------* ------O ----- 59 X O X * O 58 X O X * O X 57 X O X * O X 56 X O X * O X 55 ------O X --* ----------------O X---- 54 O X * O X 53 O * O X 52 * O X 51 \| O X 50 ------\| ----------------------O ----- ( Near-term bottom formed at 50. 49 \| Distribution Curves For Emc Corp (emc) The weekly distribution for EMC was more than 50% oversold, while the daily distribution was 100% oversold. This is typically the sort of situation that is advantageous for a "traders" or "dead-cat" bounce. Wkly Distribution Table Daily Distribution Table \| + \| + \| + + \| + + \| + + \| + + \| + + \| + + +* + \| + + + \| + + + -----\|------------------------------ ------------------------------------ 38.04 74.80 111.55 56.95 69.27 81.59 In summary, in this approach the aggressive trader identifies a stock that has fallen 18 O's (or more) straight down on its P&F chart. Then, once that stock experiences the first three box reversal up from that "long tail" down, it can be bought for a trading move back up. The idea here is that a stock quickly drops for whatever reason, then becomes very oversold and is due for a reflex bounce. The trader is merely trying to capture this "bounce" back up. This type of trade is typically for the more aggressive because a stock that has fallen to this degree (18 O's or more straight down) is in weak hands, and often times is in an overall downtrend – not the type of stock we typically like to recommend. But again, all you are trying to do is play the stock for a bounce. Be sure to adhere to the double bottom sell signal stop point in the event the trade doesn't work out. Also, be willing to take profits if you get a quick move to the upside. Here is what the "Stocks With 18 O's" report from Monday evening showed. We limited the list to those stocks that were optionable. A chart of Sandisk (SNDK) is included below, remember the process described above for using this technique. Stocks With 18 O's – Monday, February 12, 2001 Symbol Company Price Trend Sector Mom Wks AMCC Applied Micro Circuit 43.125 Neg Electronics Neg 2 BCGI Boston Communications 8.547 Neg Telephone Neg 5 BRCD Brocade Communication 53.250 Neg Computers Neg 0 BSY British SKY 87.000 Neg Media Neg 2 EMC EMC Corporation 54.160 Neg Computers Neg 0 EMLX Emulex Corporation 40.375 Neg Computers Neg 0 GLW Corning Inc 41.700 Neg Telephone Neg 0 JNPR Juniper Networks, Inc.79.875 Neg Computers Neg 1 MERQ Mercury Interactive 67.000 Neg Software Neg 0 MUSE Micromuse Inc 57.563 Pos Software Pos 8 QLGC QLogic Corporation 54.813 Neg Semiconductors Neg 0 SDLI SDL Inc 152.375 Neg Semiconductors Pos 4 SNDK SanDisk Corporation 24.813 Neg Computers Neg 0