Ahh Saturday…I’m looking forward to football season. In the meantime, allow me to continue with some stock analysis of names that I have begun to populate my watchlist.
A bit of background, I have decided to refine my industry performance data collection to just focus on 31 “Major Industries”. Within these major industries I have picked at least 5 heavily traded stocks to keep track of and compare with industry performance. The industries I am following are as follows:
Basic Materials (Chemicals, Energy, Metals and Mining)
Consumer Goods (Consumer Durables, Consumer Non-Durables, Automotive, Food and Beverage, Tobacco)
Financial (Banking, Financial Services, Insurance, Real Estate)
Healthcare (Drugs, Health Services)
Industrials (Aerospace/Defense, Manufacturing, Materials and Construction)
Services (Leisure, Media, Retail, Specialized Retail, Wholesale, Diversified Services, Transportation)
Technology (Computer Hardware, Computer Software and Services, Electronics, Telecommunications, Internet)
I have built an algorithm that produces a numerical relative strength score for each industry analyzed over varying time frames. This numerical value is a form of ‘alpha’ comparison to the S&P 500, where the score of the S&P would be equal to 0.0.
I have not tried to optimize the score…instead I’m just using it to give me a feel for what industries are outperforming the market over the past 3 months. From there I delve into the list of 215 stocks that I have compiled. These are all large cap stocks that trade over 2 million shares per day.
Over time, I have moved from trying to look at the universe of all stocks down to those that are traded the heaviest. Trying to move an enormous tanker ship ($LOW) is much more difficult than moving a 22 ft. Boston Whaler ($LL)…the moves are more predictable. Steer clear of violent storms (earnings) and I feel you can trade with more confidence.
My strategy involves taking small 2-6+ (in a runaway stock/market) day trades (if sufficient liquidity is available, options are used), trying to catch a low-to-high swing. Order placement is almost completely discretionary and is primarily based on years and years of looking at charts and making/learning from mistakes. I will know in a relatively short amount of time if a trade is going to work, so I am quick to take losses.
The worst part about discretionary trading is the psychology involved…the best part about discretionary trading is the psychology involved. I use numerical indicators to try and quantify abstract behavioral information (i.e. equity price data), but ultimately it’s up to me to try and figure out why people are behaving as they are. I use the charts to help me visualize behavior. I make speculations based on my opinion that human behavior tends to repeat itself over time…hence, I use charts as a means for spotting these patterns. It is a strategy based on years of experience.
With that, lets get down to looking at some stocks. The presentation will go something like this: Ticker (Industry, Industry Score)
$SINA (Internet, 3.20): One of the few legitimate Chinese companies…then again, it is a Chinese company. Love the price and volume interaction over the most recent pullback. The price has been dropping, but volume shows that people are not running for the exits. The 7/11 low is 103.19, so I sense there is probably good support in that region, though I would like to see closes stabilize right where they did on Friday.
$CVX (Energy, 1.60) Details here
$CAG (Food and Beverage, 1.01) Click the link after $CVX
$FCX (Metals and Mining, 0.70) A bit of a choppy pattern down into the sweet spot here, so this one makes me a little more leery. I’m looking for more calm on low volume here, if that happens I’d think about taking a chance on this one going back to 56.
$VALE (Metals and Mining, 0.70) See my comments above for FCX…very similar consolidation pattern since the beginning of July. I like both of these on further consolidation, with a slight preference for $VALE.
$KGC (Metals and Mining, 0.70) That’s gold Jerry, gold! Looking for some indecision right around where prices closed on Friday. I’d would prefer to see volume cool off as well. If not, I can see this one blowing right through 16 back to the June lows. I don’t want any part of that.
$D (Utilities, 0.68) Here is where we delve into the really high beta names. It’s funny, my dad bought shares of $D for me when I was a kid. As I got older and became interested in stocks I looked at the tepid price movement of this one and scoffed. Now look at me as I add this to my watch list. Dominion has been pulling back and riding the lower band and 3 month average since late May. This is actually kind of a unique set of circumstances, as the bands have acted more like a channel than a volatility measure…a pattern that I don’t come across very often. Selling volume has been too high for me to feel comfortable jumping in anytime before Wednesday. I’ll be keeping it on watch.
Have a good Saturday.