Greetings, fellow Pro-fundity team members -
10-13-00 Page Background music:

A. This weeks picks (remember the basis of our stock picks: a) sound fundamentals, b) supportive technicals, c) possible near-term buy, and d) positive news):

• (ARGX [Manufacturing - Industrial Electrical Equipment] Arguss Holdings, Inc.
• (IMP) [Banking - Regional, Pacific Banks] Imperial Bancorp
• (LDP) [Insurance - Life Insurance] London Pacific Group Ltd.
• (NFB) [Banking - Regional, Northeast Banks] North Fork Bancorporation
• (NITE) [Financial Services - Investment Brokerage] Knight Trading Group Inc.
• (OMM) [Transportation - Shipping] OMI Corporation, One Station Place
• (SWS) [Financial Services - Investment Brokerage] Southwest Securities Group Inc.
• (TTIL) [Computer Software & Services - Information & Delivery Systems] TTI Team Telecom International Ltd.
• (WBB) [Materials & Construction - Residential Construction] Del Webb Corporation
• (XTEL) [Electronics - Diversified Electronics] Xetel Corporation

B. Quick Picks

We have added five low-cost price charts for subscriber interest. These have good technicals and have passed the news scan, but the subscribers must do their own fundamentals research.

C. 100 Optionable Possible’s

The link on the home page to 100 OPTIONABLE POSSIBLES provides a list of tickers with interesting price patterns, all optionable between $4.00 and $15.00, that merit your consideration. Any fundamental, technical or news screens are left to the subscriber.

D. This Week's Guidepost

1. In our last guidepost, we re-visited the role volume plays in the selection of buy and sell triggers. We should buy into strength (early) and sell into weakness (early) to maximize our returns. The "early" handle is key because we do not want to buy near the top of a roll (Buy high) and sell near the bottom of a pullback (Sell Low). We know historically that many novice investors do just that, buy high and sell low, and beat a hasty exit from market action with an attitude. By following the "early" pattern we do two things: First, we improve our chances of watching a stock's price rise after we take a position, and second, we allow a healthy riser to run its course. That is, not sell after a modest profit, only to see the price continue to rise out of sight. Let's accept this paradigm, buy low and sell high (a novel concept), by letting the price and volume patterns guide our decision points.

2. If we seem to be setting up some "System" to answer all our problems, forget it. We are trying to tilt the table a bit in our direction, trying to increase the odds, the likelihood, that we will have more winners than losers. The master market success stories do not win all the time. Far from it. They win more on winners and lose less on losers. Think about it. We don't have to be right all the time.

3. We started this approach in our book where we used the number of upticks (successive price increases) to signal strength and the number of downticks (successive price decreases) to signal weakness. Paper trades can help serve to understand when such an approach is viable on what type of price patterns. If the price increases three days in a row, that is a level of strength. If it increases five days in a row, that is greater strength. The reverse is true with downticks.

4. Technical analysts (chartists) know that price changes do not take place in obscurity, somewhere in the wilderness. Rather, strong price trends are usually accompanied by corresponding increases in volume. That goes both ways, on increasing (bullish) trends and on decreasing (bearish) trends. Volume increases represent the attitudes of the large institutional investors (mutual funds, insurance companies, etc., which represent roughly 80% of the market dollars. That is, where is the big money flowing? Volume patterns can help us answer that question. Volume changes usually precede price action. Volume is a pretty sound predictor. All the time? Not all the time. But we will win more often that we lose this way... tilting the table.

5. We have been conducting a heavy study of price and volume action for several months trying to quantify this relationship. We have some data, some results that strengthen our case. Is it the magic bullet? The Holy Grail of which so many have written? Sorry! It is an understanding of the principle, the methodology that will allow us to what? Increase the odds! So come with me, take a look at the first of a series of understandings to enhance our individual trading success.

6. We have coupled the uptick/downtick price strategy with volume changes in the following way:
   • We considered price upticks and downticks at three levels; 1, 2 and 3.
   • We considered volume increases (with each up & downtick level) at three levels; 3-day average, 7-day average and 20-day average.
   • That gave us (for you math-smart dudes out there) 27 combinations of levels to consider.
   • Lastly, we considered 10 levels of volume increases over the chosen average level. Multiples of 1 (no change) to 2, in 1/10 increments, actually 11 levels. That means we ran 11 times 27 back-tests (297 iterations) on each stock selected looking for patterns that suggested a correlation between price and volume. Whew!

7. What follows is a chart (matrix) that shows the result of this test on Intel (INTC). We chose this volatile price pattern to demonstrate the principle on a stock with sound volume history and good fundamentals. We will carry the example to smaller tickers we have posted as rolling stocks on previous pages. Take time to study this matrix and form some of your own conclusions. We will discuss these results next week with another way to understand what message the chart sends. Also, consider the value to your own investing/trading learning curve to have this type software at your disposal.
   Understanding:

   It is our intent to help our subscribers understand market strategies well enough to make informed decisions and understand the risks.

   TC-2000 tutorials are available on the home page.

   Be diligent...
   Take action!

   

   
   
   
   
   

   
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