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This Week's Guidepost

1. Many questions have been raised about the value of the "Rolling Analysis" published each week with the picks and if the buy/sell levels are current recommendations.

No!!! Let’s see why.

2. Look at the price chart for three stock picks to help make the point. First, (GEND):
   

3. If we want to show the value of (GEND) as a rolling stock, where should we put the buy/sell channel?
   1. For the first case, choose the time frame between 8/31 and 10/26 with a channel between $2.60 and $3.80. We get two rolls and an APR return of 620%! Our rolling analysis selects buy/sell at $2.90/$3.51 for the greatest return.
   2. Lets take advantage of the larger price rise and select a time frame between 9/28 and 12/7 with a price channel of $2.50 to $6.50. In this case the optimum buy/sell is $3.50 and $5.51 with only one roll and a return of 369%, about half that returned with the more narrow channel!

4. Second, (NSPK):
   

5. In this case we have stronger rolls in November with anemic activity in September and October. However:
   1. First case choose the time frame between 8/31 and 11/09 with a channel $6.70 to $8.00. We get three rolls and an APR return of 472%! Our rolling analysis selects buy/sell at $7.00/$7.66 for the greatest return.
   2. Next take the time frame between 10/05 and 11/30 to get more of the November increase with a price channel of $6.00 to $10.00. Now the optimum buy/sell is $7.00 and $9.01 with only one roll and a return of 316%, about 30% less!

6. Thirdly, (DNCC):
   

7. DNCC has a dramatic rise in November. How does that impact our rolling analysis?
1. For the first example on this chart we will choose a time frame between 9/2 and 11/18 giving us two rolls in a price channel of $2.55/$3.50. This returns 392% APR at $2.79 buy $3.27 sell.

2. Next take the time frame between 9/02 and 11/25 to get the big jump in November with a price channel of $2.00 to $6.00. The optimum buy/sell is now $3.00 and $5.00 with only one roll and a return of 597%!

So What?

8. If you've stayed with us this far, now is the time to ask what is the value of all this. Let’s try to summarize:
1. We found in the first two examples a greater return when we pursued a modest path, the smaller channel with more rolls. That is an important message. The last example had a dramatic price increase that brought a greater return than the smaller channel.
2. The last example is the outlier, not the normal case. We cannot predict such a price jump.
3. In any case, what we have observed with these three examples is a play on history. It is easy to look at what has happened and predict with hindsight what would have been best. The optimum values in the Rolling Analysis are not recommended buy/sell signals going forward.
4. The value in the Rolling Analysis is the flavor, the color, the personality of how the stock has reacted in the past.
9. We take this flavor going forward, coupled with entry and exit rules defined in the Rolling Stocks tutorial, and maximize our returns.

D. Breakout Possibilities

As we monitor the many stocks to offer on the page each week, we often encounter interesting price patterns with strong fundamental and technical support, but patterns that don't look much like rollers. These are breakout possibilities and we include them as picks from time to time because they often provide rich returns. The are not recommended stock purchases (remember, we do not make recommendations). They look interesting to us and may look interesting to you after doing your homework.

TC-2000 tutorials are available on the home page.

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