My List is Still Poor

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  • on June 23rd, 2011

In the wee hours of every morning, I filter my stock universe as step 1 of the trade process.  It’s the equivalent of running through 500 or so charts, but my brain can’t maintain focus and objectivity for that long so scanning and color coding in Excel works better for me.  The goal in this exercise is simply to find buyable and shortable candidates, not trades.

I’m not looking for perfect setups here, simply a list of stocks that have honored the essence of trend but also haven’t had a blowoff high or low that could mark the end.  The lists come from basic filters like rising moving averages, hugging of highs, and lack of overhead “event”(vice versa for shorts) measured on an absolute & relative basis, and across short and intermediate time frames.  After that, I screen further to eliminate chaotic candidates or those stretched too far from trend.

What I’ve found most valuable about the process is its ability to label the overall climate as healthy or more importantly, unhealthy.  I should be able to tell from eyeballing an $SPY chart, but funny things happen on an index that everyone watches.  By applying the same analysis to a diversified universe of liquid stocks I remove my opinion and let the evidence reveal itself as a true measure of supply and demand.

I dig further to find setups, and every day do my best to buy the strongest on intraday market selloffs and sell or short the weakest on intraday market rallies.  Lately it’s been more just pulling of weeds…covering $IWM June 78 puts and replacing them with July 75s against my long July 79s.  Selling stocks that just couldn’t deliver like $VECO & $SWN & $TSLA.  All part of maintaining balance and feel, but mostly exits rather than entries of late.  A little frustrating to let 200 point swings occur without trying to move the needle, but my setups have just not been of high quality.

This list of 27 buyable candidates is what remains after my scans; a rising number from the depths of last week but it’s tough to feel urgency about a mish-mash of dollar stores, HMOs, & trendy consumer names.  If the lists were flipped and these 116 stocks were the healthy ones, I’d feel much better about reaching out for some exposure.

From what I see, $SPX 1307-08 represented the last bit of overlap on June 2/3 before markets added to the June 1 losses.  It would have been much easier for buyers to at least temporarily seize this region yesterday than to shift the supply/demand battle going on in the stocks I’m tracking; thankfully I didn’t need to address that debate as The Bernank left his printing press at home.  I trust the significance of $SPX, but trust the same analysis applied 546 times much more.  Until I see not only a reduction in shortable stocks but also a shift in candidate type towards more risk, I’m going to maintain the heaviest defense and keep my commitments small.  Quick trades in volatile names is still the preferred approach so as my friend @1nvestor says, I’m long $NIMBLE.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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