Friday, January 4, 2013

The Market has Taken Off, Now What?

For many, going into the New Year's dates without an agreement from a dysfunctional Washington was too much uncertainty and many of you told me you moved to cash before we hit 2013.

So the markets take off on 12/31, 1/2, and perform well on 1/3.  I received a note this morning asking how to enter at this time.

First, start with a quality list of stocks.  My intraday (Jan 4) scan table looks like the following:

Right-click on the image to view in a separate tab or window.

For those of you who are not familiar with the criteria of the columns, you can download a PDF here.

If you had rather not type the list you can download a copy here.

I'm a big fan of Elder, and I've taken his concepts and put them to use.  Using an Elder entry methodology in the present market makes sense.  Here's the overall guide on rules:

  1. The equity must be in a short term and long term uptrend.  To quantify this I use the slope of the 13d EMA, as well as the slope of the 34d EMA.  Both must be positive.
  2. The 13d EMA of the Force Index must be positive.
  3. FOR CONSIDERATION, the 2d EMA of the Force Index MUST BE NEGATIVE.  This is your short-term pullback, e.g., the rubber band created by the 13d and 34d trends being positive.
  4. CONSERVATIVE:  Set a BUY STOP at the high of the previous, full-day range.  I typically add a few pennies to this, e.g., if the high was $21.23 I'll add $0.02; if the high was $123.45 I'll add $0.12.
  5. AGGRESSIVE:  Set a BUY STOP at the CLOSE of the previous, full-day value.  No need to add anything here unless you want to.

Hence, at 11:38 a.m. on 1/4/13, here is what the Elder entry table looks like:

CXW is indicating that all conditions were ripe for entry and that it has surpassed the previous day's high.

Would I enter CXW at the present time?

Generally, yes.  In this case, no.

Someone dumped a good section of shares yesterday (1/3), with little impact on price, so it was quite stealthy.  I know this from reviewing Effective Volume:

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

Note that this is a considerable amount of Large Effective Volume selling -- basically it has wiped out all institutional buying for the last 5 days.  That makes me nervous when I see this, as the dollar mounts are in the millions in a very short period of time.

Further, today's gains in price are WITHOUT institutional support -- basically the small investor (me) is driving price, and I don't like to see SmEV moving up with LEV remaining steady on increasing prices, when LEV is usually the driver of a stock's price.

The only good thing that CXW has going for it (besides solid fundamentals and overall technicals) is that the for the last 20 days it has seen a considerable amount of accumulation by the institutionals.  You can see this in the bottom EV chart -- the LEV is much larger than SmEV, telling us that 225,000 shares have been attributed to the institutional side, and at $35 average price, this accounts for $7MM-$8MM in dollar value being committed to the market.  Small, but significant.

As always, do your own diligence.  The list of Elder entries changes in real time, so you'll have to work to identify candidates.