Greetings, fellow Pro-fundity team members -
11-3-00 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):

• (ACRT) [Fanancial Services - Check Services] Actrade Financial Technologies, Ltd..
• (ASGN) [Diversified Services - Staffing] On Assignment, Inc.
• (CDT) [Manufacturing - Industrial Electrical Equipment] Cable Design Technologies
• (EVG) [Energy - Independent Oil & Gas] Evergreen Resources, Inc.
• (NEV) [Energy - Independent Oil & Gas] Nuevo Energy Company
• (OXY) [Energy - Independent Oil & Gas] Occidental Petroleum Corporation
• (PETD) [Energy - Independent Oil & Gas] Petroleum Development Corporation
• (RELL) [Wholesale - Electronics Wholesale] Richardson Electronics, Ltd.
• (SPP) [Consumer Non-Durables - Paper & Paper Products] Sappi Limited
• (SRTI) [Telecommunications - Communication Equipment] Sunrise Telecom

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. We have discussed the concept of waiting for a show of strength before buying when trading with rollers. That is, we shouldn’t just buy a stock because is has a low price. Stocks are usually low in price for a reason. Rather, we should wait for some sign of strength, that it is ready to turn the corner and start to increase. Sounds easy enough, but knowing when that strength exists is not an easy task. We suggested one sign might be increases in price. That may be a blinding flash of the obvious, but the natural variation in stock price may fool us. That is why we didn’t settle on a particular number of successive up-ticks in previous discussions for that signal. One up-tick is extremely weak. Two is stronger, three stronger yet, etc., etc. Eventually, however, the successive up-tic’s that would truly signal a price increase would be the increase itself, as we watch the train go by.

2. When a stock price “turns the corner,” beginning a move up with strength, it is almost always accompanied by increases in volume. We can strengthen our up-tic strategy by noting the accompanying volume changes. For instance, a price up-tic with an increase in volume is a much stronger case than simply a price up-tic by itself. The stronger the increase in volume the stronger the case. Several price up-tic’s in succession with increased volume is a very strong case. The stock is in a true breakout mode and should be a good candidate for purchase.

3. But what constitutes an increase in volume? Twice as much? 1.5 times as much? As much as what, yesterday’s volume or the average of the last 30 days, or what? If you consider the many possibilities it becomes a bit overwhelming. We worked on this problem to determine first if there is a correlation between volume changes and price performance. Secondly, to see what amount of change coupled with different up-tic’s and down-tic’s worked best in predicting price performance. Here is how we tackled the problem:
   • Up-tic’s: We used three levels for this factor; one up-tic, two up-tic’s and three up-tic’s.
   • Down-tic’s: Again three levels; one, two and three.
   • Volume increase: Three reference volumes were used; the average of the past three days, the past seven days, and the past 20 days.
   • The multiple of volume increase: We sampled 11 multiples of the reference average; from 1x to 2x in 0.1 increments.
   • For instance, one sample of the price action on a selected ticker might be; buy only after two up-tic’s with a volume increase 1.5 times the average of the previous 7 days, and sell only on three down-tic’s with an increased volume of 1.3 times the average of the previous 7 days. We examined price performance buying and selling under these conditions, including a price for commission and a dollar value for the initial investment.
   • We repeated this examination for every other combination of these parameters with our proprietary computer program. For you math buffs, that means 27 combinations for the 3 Up, 3 Down, 3 volume average levels, all times 11 for the volume increase parameters or nearly 300 combinations for each ticker examined. We show the result on 8 rollers in the table below:

   

4. Of greatest importance in this study is the powerful relationship between price and volume. Volume does matter when trying to forecast price moves. In our rolling stock strategy, all of these steps (techniques) could be done calmly after the market close each day, finding direction for market action the following day. Did we discover the Holy Grail, the black box we can put on auto-pilot and just watch the money roll in? Not quite.

5. Can we see any patterns in these results? The size of this sample is too small for meaningful generalizations, but it may provide direction for further study. For example, among these 8 tickers, the two with the highest daily volume worked best with only the 3-day average reference volume. The three highest % return tickers worked best on the 7- or 20-day reference volume. There were no 20-day reference volume tickers when only 1-down-tic was used. Again, these are pointed out only to suggest the kinds of questions we might ask as we extend our studies with paper trades seeking a better way. To effectively use this strategy, we need to find which pattern works for our selected tickers. This means some paper trading to find clues in our quest to improve returns. This effort shows the potential return that can be ours with some hard work.

6. Finally, we have demonstrated the important role volume plays in the success of rolling stock strategies, perhaps the most important lesson of all. Stay tuned as we expand our study of this trading strategy.
   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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