Greetings, fellow Pro-fundity team members -
12-15-00 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):

• (ASHW) [Consumer Nondurables - Textile, Apparel Clothing] Ashworth, Inc.
• (BBBY) [Retail - Home Furnishing Stores] Bed Bath & Beyond Inc.
• (CDIS) [Energy - Oil & Gas Equipment & Services] Cal Dive International
• (CHBS) [Retail - Apparel Stores] Christopher & Banks Corporation
• (CVAS) [Drugs - Drug Manufacturers] Corvas International, Inc.
• (LENS) [Concord Camera Corp] Concord Camera Corp.
• (PHCC) [Wholesale - Drugs Wholesale] Priority Healthcare Corporation
• (PNRA) [Leisure - Specialty Eateries] Panera Bread Company
• (SHRP) [Specialty Retail] The Sharper Image
• (ULTE) [Retail - Electronics Stores] Ultimate Electronics, Inc.

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 $5.00 and $15.00, that merit your consideration. Any fundamental, technical or news screens are left to the subscriber.

D. This Week's Guidepost

1. Using principles covered in our last Guidepost we're ready to show the value of combining price changes with corresponding volume changes. This duo will help us discern the direction of price change. We should wait 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. Rather, we should wait for some sign of strength, that it is ready to turn the corner and start to increase.

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-tick strategy by noting the accompanying volume changes. For instance, a price up-tick with an increase in volume is a much stronger case than simply a price up-tick by itself. The stronger the increase in volume the stronger the case. Several price up-tick’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. Looking at all combinations of ticks, up and down, with volume, looking for a pattern of profit, we found the following on Intel over a timeframe of two years:

   

4. This table shows a combination that returned over 90% in just less than one year. Beginning the back-test in November 1998, we didn’t find a buy signal until July the following year. On July 28, 1999, the BUY criteria was met and we purchased shares at the closing price of $35.08. The marker on the following chart is set for this day, showing price OHLC and daily volume in hundreds. What is important in this picture is the price and volume working together to trigger the buy.

   

5. The sell signal came almost a year later, on July 19, 2000, at a closing price of $69.01. The chart is repeated below with the marker moved to the date the sell criteria was satisfied.

   

6. Notice how several down-turns occurred between September and December 1999, but the volume was not sufficient to trigger a sell. Rather, the criteria left us long in the stock as it rose to a hefty $70. The following chart continues the pattern up to the current date showing the value of getting out when we did. This avoided the beginning of the current technology bear, with no buy signals in sight.

   

7. Moving forward, lets consider this example. What have we learned? We chose Intel (INTC) as a benchmark example because it is a very high volume and volatile stock. The choice of criteria was based on back-testing, using a set of criteria that worked. In the back-test, many combinations worked providing less return than the one selected. This is not a magic system that takes the place of sound judgement. This demonstrates principles that can be used in concert with other buy/sell techniques. We will investigate these combinations in future Guideposts.

8. Again, the importance of this example is to show the role volume plays in the rise and fall of a stock price pattern. It has been said that increasing price on increasing volume is bullish, whereas price decreases with increasing volume is bearish. This example demonstrates the truth of these statements. We can see the importance of staying long in the face of varying stock prices. We stayed in, using the volume/price duo as our director, but got out ahead of a steep decline. In coming Guideposts we will discuss how these principles apply to smaller companies with less volume. Stay tuned.
   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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