Scroll to the bottom of this Guidepost for an easy way
to ask for clarification on any questions that arise!

Greetings, Pro-fundity team members -
05-30-03

At the bottom of the Guidepost, a full listing of this weeks picks are shown, in addition to the Charts via the Pick-link.

As a benefit of membership, you have access to all Guideposts (including Archived GP's) and Picks. If you miss a week or two for whatever reason, you will be able to go into the Historical Guidepost link to catch up with both the weekly guidepost and the 30 picks made for the week.

Greetings, fellow Pro-fundity team members

1. We have shown “Buy & Hold” success for the weekly picks with weekly Watchlists. For example, the following tables are Breakout Pick results for two and three week’s ago.

   
   

   

   Figure 1 - 5/30/03 Breakout Pick performance (2 & 3 weeks).

2. We see the increased performance with PAX, with others moving up in value. Particularly, TPTH which was second only to PAX in its Accumulation rating. That is, there was a consistent increase it its BOP rating, suggesting smart money has increased its position in TPTH quietly, avoiding a sharp price increase. The value in this observation lies in an understanding of timing. We are unable to command immediate price increases regardless of how good indicators look. In other words, patience…

3. The weekly picks provide a data-base of potential winners. More than that, they are chosen to give you, the trader, opportunities to try your trading skills, making the dramatic choices, when to buy and sell. The watchlists above show potential, but the only way any of us make money is by buying and selling. We learn how to do that by paper-trading until we feel sufficient confidence to lay our own money on the line. Confidence is an important ingredient, enough to step into the battle but not too much to think we have all the answers. A healthy respect for the market will keep us humble, another important ingredient. So, it behooves us to spend time studying techniques for entry and exit, to select the highest expectancy for success.

4. Certain price patterns give us great clues about buying and selling. Let’s examine one that rarely fails, the double-bottom, or “W.” A chart popped up conducting scans for pick selection. One scan that occasionally flags an interesting pick is “Volume % Change,” flagging tickers with one-day humungous volume changes. This is how the scan looked:

   
   

   

   Figure 2 - Volume % Change Scan Result

5. The scan moves high volume changes to the top, giving some 50 tickers that justify a look at the price charts. Going down the list, AUO jumped out as one worthy of further study. Here is the first pattern:

   
   

   

   Figure 3 - AUO price pattern

6. On May 23rd, this pattern shows a steady down-trend for over six months. Not a promising prospect. But look again at the price activity at the end of this pattern.

   
   

   

   Figure 4 - AUO price pattern, showing double-bottom

7. Double-bottoms often precede significant trend changes, down-trends to up-trends. The pattern in Fig. 4 is a potential signal for a trend change. We need to investigate a few criteria before accepting the argument. A double-bottom price pattern looks like the letter “W.” The first bottom sets a new low price. It then moves up in an attempt to break through a resistance level defined by the top-left side of the “W.” In the true W-pattern, price will fail to break through the resistance and fall back to its second bottom. This point serves to shakeout weak shareholders, allowing the price to move up. The last leg-up in the W is the final key. The price must exceed the highest price reached in the W mid-point. That is necessary but not sufficient. Additionally, the volume traded on that day must exceed average trading volume by at least 150% (1.5 X). If both conditions are present, there is a high likelihood of a change in the down-trend.

8. How did AUO stack up? The mid-point of the W was at the open, $5.59. Its average trading volume has been 120,400 shares per day. On 5/23/03, the high price for the day was $5.60. That breaks the midpoint. Its trading volume on that day was 529,100, or 340% higher than its average. AUO meets the criteria! It’s a buy. Let’s see how AUO has done during the past week:

   
   

   

   Figure 5 - AUO price pattern, subsequent to the “W” flag

9. This was a very successful pick, with some fairly mechanical criteria. The key is in finding price patterns of this nature, Volume%Change is one technique.

10. Trading Tip - Larry Williams;
    "No major loss I have ever had, and I have had more than my fair share of them, has been the market’s "fault." "They" were never out to get me. I got myself believing my current trade would be a winner so I did not follow the rules of the game."
    05-30-03 Pick Selection:

    Main Picks:
    CBR,CELG,CFW,CURE,ISCA,RBK,RNT,SBIB,SBUX,TRY
    Breakouts:
    BONZ,BTGC,CHRT,DNR,EQIX,GRIC,NCI,POM,SJT,TSCM
    QuickPicks:
    AMMD,ARW,CFB,CMNT,CXR,FLEX,LII,MNS,NAUT,TIVO

    For detail and followup on Pro-fundity Tradescape,
    find the link on "Advanced Trading Tools" on the home page.

    Be Diligent
    Take Action!

    

    
    
    
    
    

    
    If you have thoughts, suggestions, or comments, we would like to hear about them.
    Your e-mail address:
    
    Your comments:
    
    

    
    

    ---

    COPYRIGHT © 1998-2010 by Pro-fundity (sm). All Rights Reserved. No part of this work may be used or reproduced in any manner whatsoever without the written permission of Pro-fundity(sm). Pro-fundity(sm) is an independent research firm producing research reports based on many sources believed to be reliable. No guarantees are made as to the accuracy and completeness of the information. The information in this report does not constitute an offer nor solicitation to buy or sell securities. Information obtained via the use of this site should be coupled with the individual's personal due diligence in researching individual securities BEFORE purchase and the individual is advised to contact their broker or financial advisor before making any investment decision.

    Linked sites on the Pro-fundity web site, that are not under the control of Pro-fundity, are provided as a convenience only. The inclusion of a link does not imply endorsement of the linked site or its content by Pro-fundity.