Sunday, December 16, 2012

Update to Leader's Methodology

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For the last several months I've been playing with a new approach to determining market leaders at any given time in preparation of a talk I'm giving in Dallas this week (December 18th).  Essentially, I'm looking for improving quarterly and year over year (YoY) performance in terms of revenues and earnings per share (EPS), and then culling that set of stocks down to a manageable number using technical data.  The result, which I will continue to update weekly, is a listing of stocks to consider given macro market signals.  The chart below shows the recent performance of the group over the past 45 days or so; note the emergence of this group since the signals around the Thanksgiving time period:



Click on the image above to open it in a new tab or window.

The most obvious things are that the slopes of various-length trendlines are all positive, and the price of the group is above the 8d fairly consistently.

So, what are the stocks in the leaders group, and how were they determined?

The list of stocks follows:


SAM
AMT
CPA
PDFS
HFC
CVI
RAX
LGND
ALJ
CVLT
SIRO
SYT
ICUI
EXP
ABCO
BRLI
EME
GEL
HDB
LOPE
MA
MTZ
NSR
NVO
SCS
TU

Here is what my GGT system has to say about the stocks in general:



Again, right-click on the image to open in a new tab or window.

Of significance here is the "green" -- the majority of the list is outperforming historical optimized levels established over the past year.  Further, some of you who have been in private communications with me will recognize many of these stocks -- I hold several of these in my existing accounts.

The methodology of screening of the stocks is the balance of this blog entry.


Let me explain each of the columns, left to right:

  1. MA200:  this is the percentage that the close on Friday, December 14th is above the 200d simple moving average (MA).  I require a positive value.
  2. MA200sl:  this is a binary indicator that counts the number of days that the 200d MA has been in an uptrend.  I require at least 30 consecutive days.
  3. MA150:  this is the percentage that the close on 12/14 is above the 150d MA.  I require a positive value.
  4. 150-200: this is the percentage that the 150d MA is above the 200d MA.  I require a positive value.
  5. 50-150:  this is the percentage that the 50d MA is above the 150d MA.  I require a positive value.
  6. 52wlo+25:  this is the percentage that the close is above the 52 week low + 25% of the 52 week low.  I require a positive value.
  7. 52whi-25:  this is the percentage that the close is below the 52 week high - 25% of the 52 week high. I require a positive value.  Values larger than 25% indicate that a new high was achieved.
  8. RevYoY:  Percent change in revenues.  Total revenues for the current year (4 quarters) minus total revenues for the same period last year, divided by the total revenues for the same period last year.  Right now I've been experimenting with positive values only.
  9. RevQtr-1:  Percent change in revenues this quarter compared to the last quarter.  Looking for a positive value here.
  10. RevQtr-1y:  Percent change in revenues this quarter compared to the same quarter last year.  Looking for a positive value.
  11. QREV:  reported revenues this quarter.  I use this as a sanity check against various other databases, because it seems that VectorVest, Briefing.Com, TradeStation, etc. all have different values.  Briefing.com and TradeStation closely correlate these values (QREV values).
  12. EPSYoY:  Percent change in EPS.  Total EPS for the current year (4 quarters) minus total EPS for the same period last year, divided by the total revnues for the same period last year.  I require positive values only.
  13. EPSQtr-1:  Percent change in EPS this quarter compared to the last quarter.  Positive values only.
  14. EPSQtr-1y:  Percent change in EPS this quarter compared to the same quarter last year.  Looking for a positive value.
  15. QEPS:  reported EPS for this quarter.  Same rationale as in 11 above.
  16. $:  I require that the price be above $1.
  17. V: I require that the volume be above 50,000 shares over a 10d MA.

The next obvious question that should be in your mind is what stocks are good candidates for consideration NOW, e.g., going into markets on Monday, December 17th?  For this I use effective volume, which can be found at www.effectivevolume.com.

If you are not familiar with the concepts of effective volume (EV), let me provide a brief description.  By watching minute pricing data, with corresponding volume, we can draw inferences into the behavior of a stock regarding whether it is being bought or sold.  EV separates volume into large and small transactions, and by summing all the large transactions, and keeping track of price movement, we can see if institutions are net buyers and net sellers of a stock.

One of the most powerful indicators of accumulation by institutions is Large Effective Volume (LEV) growing while price remains constant, or even drops.  Conversely, another powerful indicator of distribution is a price that continues to go upward or remain constant but LEV drops.  I use both to manage my portfolio.

Looking back at the GGT picture of the status of the basket of stocks, you'll see a stock GEL which is a "New Cash", recommending that any open positions be closed.  I have a position in GEL, so let's look at the EV and see if price is artificially dropping (LEV constant or going up) or if LEV is in sync with a dropping price.

GEL has been under significant pressure lately:



The link for this chart is here else you can right-click on the image to open in a new tab or window.

After peaking at the end of November, it has come down to support in the $34 area, and is now only about 1.5% off the 50d MA.  The stock is still in an long-term uptrend, but on a short-term basis GGT has signaled that we should move to cash and I will do so on Monday.

The EV picture with GEL shows a mixed bag too:


The chart shows a combined 20-day EV lookback for GEL and the resulting price chart.  LEV is in GREEN, and Small EV (SEV) is in RED.

It's fairly clear that LEV accumulation started around the 21st of November, driving prices up but also showing a growing LEV -- this is normal.  As shares are accumulated they become more scarce, driving prices upward.  Prices peaked on the 29th and EV continued to march upward until the 5th, but just beyond the 5th prices started to waiver.  We repeaked on the 11th and it's not been a good sign since then.  There was a sharp drop in LEV on the 12th of December, and prices started to fall with the distribution.  Note though that LEV has remained constant over the last day (Dec 14).  This latter point is encouraging, but not enough for me to stay in the stock.  When GGT indicates that I sell, I must sell in order to follow my rules, and there is nothing here compelling me to do otherwise.

We are on a macro "Long" signal within the GGT world, so I'm always on the hunt for other opportunities.  A number of the candidates off the list above look attractive from an EV perspective -- they all look attractive from a fundamentals point of view.  Here's my short list that I'm working with:

SCS
LOPE
SAM
EME
MTZ
SIRO
NVO


The EV chart for SCS is shown above.  What is most striking is that prices have been dropping the last few days while LEV has been increasing.  This "stealthy" accumulation on lower prices can often mean that the stock is poised to move higher -- but this is not a guarantee.  

The next chart is SCS, but taken from TradeStation:


Click on the image to open in a new tab or window.

Four presentations are shown above.  From top to bottom we have prices/VWAP/20d MA of prices, short term EV, long term EV, then volume.  Of significance in the presentation above is that SCS has been under longer-term (LT) accumulation as evidenced in the third graph by the the 20d separation between the LEV and SmEV, and the very positive LEV values.  Note too that in the second short-term EV graph that we have the same divergence of LEV and SmEV, showing short-term accumulation.  Finally, note in the top price graph that prices have been weaker, but LEV has not -- the stock is being accumulated.

In terms of moving forward, note that the 52 week high is $11.83 for SCS.  This, and another level just below it ($11.80) have been touched several times in the last couple of weeks so a natural buy point would be if SCS moves above $11.90 or $11.93 and we do not see a distribution of volume.  Ideally, buying it on much higher volume when it clears $11.93 would be ideal. 

SCS is a GGT "Long" going into Monday, December 17th.

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This next candidate is of LOPE.  I own a position in LOPE, so let's have the same look as we did above for SCS:


LOPE has also been experiencing short-term accumulation, as you can see above, and it also has shown some price weakness the past few days.  Despite this weakness, LEV has remained strong, and I see nothing wrong with LOPE in terms of price/EV action.


The figure above is my view of LOPE from TradeStation.  You see the same characteristic short-term accumulation in the second graph, and the third graph shows longer-termed accumulation, which I consider positive.

Note on the top pricing graph that LOPE touches the intra-day VWAP multiple times during the day -- either on the buying side or the selling side.  This tells me that LOPE is heavily under control of institutional buying/selling, which is what I like to see in a stock.

LOPE has a 52-week high right at $25.00, so we have a double whammy of resistance here.  I would be a buyer of LOPE above $25.10 on higher volume, as long as LEV continues to stay at the same levels or show further accumulation.

LOPE is a GGT "Long" going into action on Monday, December 17th.

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SAM is another candidate.  SAM recently offered significantly improved guidance, causing the price to jump nearly $15 per share, ending Friday at $132 and change.



SAM was already under long-term accumulation, and then on 12/5, a buyer stepped in and bought EXACTLY 50K shares, driving LEV upward as is shown above.  Improved guidance came on 12/13, and it's been off to the races since.

Of interest to me are two things with SAM:  First, institutionals are buying, because intraday VWAP keeps forming a line of support.  Only institutionals have the ability to move in like this.  Second, I continue to see short-term accumulation of SAM on top of LT accumulation, telling me that the big boys are not dumping now that SAM has jumped 12% or so.

I would not be surprised if SAM tested the previous highs of $118.27 and filled the gap in the coming weeks.  I note that the 20d MA ($115.xx) is a good distance below the present price so there may be a technical attractor to digest the present gains.  I note too that $128.05 was the previous 52-week high, and is now a support floor, so a purchase below $130 with a stop loss below this level could be a good trade.

SAM is a GGT "Long" rated stock.  Note that it fired "New Long" one day before earnings were released --  something was cooking with SAM before release and GGT triggered on it.  Oh well, I didn't, so I'm not holding the gains that the 50K buyer on 12/5 is ....

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So there is the process I use which combines fundamentals, technicals, and EV analysis.  The remaining stocks are for you to evaluate.  Go to www.effectivevolume.com, get a trial membership (tell Pascal you read about EV from Paul D.), and ask questions.  The learning curve is long but it can be useful and a confidence builder.

Remember, you are responsible for your own investment decisions, and I am not.  Do you own diligence, and please take ownership for your actions.

Regards,

pgd