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StockAlerts

Timing Is the Essence of Smart Investing

Last Weekly Issue Was No. 157

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Last Date for Weekly Publication Was April 16, 2010

StockAlerts will be issued daily beginning 4/19/10. Subscriptions are $165 per year. If you opt to pay by check, make the check payable to Stock Disciplines, LLC. No subscription will be transferred without subscriber's consent.

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For Subscribers to All Alerts Lists

Go to Explanations Daily Alert Lists
Depending on the length of the lists, the alerts page may take a little time to load.
Remember that algorithms are not perfect. Undoubtedly, you will find some stocks here
that are not "interesting." The algorithms cannot "see" as a human sees.

IMPORTANT NOTICE

The data in the tables is not derived through security analysis on our part. The parameters, variables, and algorithms of the models that generate the data published herein may undergo change at any time as a result of our ongoing research and development endeavors. Though the information provided herein is derived from sources and/or data believed to be reliable, accuracy is not guaranteed, and responsibility will not be assumed for errors or for the results obtained from its use.

^{Technical Measurements and Indications

The signals generated in this publication are not recommendations to buy or sell. We simply report the output of the various search algorithms. These are only alerts that certain conditions have been satisfied.  The reader will have to evaluate the signals generated with regard to their context (overall chart pattern, news related to the company, etc.) An indicator may be triggered but an analysis of the chart may reveal significant resistance just above the current price. Only "UP" alerts are defined below. "DN" alerts mean the opposite conditions prevail (but not with volume). There are no "DN" alerts for HIGH DN & UP.

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Notes & Cautions

Always review a 1-year and a 3-year chart for any security of interest. Look for zones of resistance above the current price level. For example, gaps may simply be a reaction to a greatly oversold condition and triggered by a short-term market elation caused by some news event. After our initial screening, the more than 2500 stocks that remain (at our last count) are filtered for minimum price requirements and then scanned to determine if certain "setups" have occurred. A "setup" is a stock pattern of price and/or volume behavior that is believed by many traders to precede a significant upward or downward move (with a relatively high level of reliability).
On a very strong market day, many alerts may be triggered. If there has been a recent market decline, there may be considerable resistance above current prices despite the alert. The long-term chart helps you see the context of the move.

If our scanning system identifies a stock completing one of these patterns, it will generate an alert and identify the suspected pattern. The signals generated are not recommendations to buy or sell. We simply report the output of various search algorithms.  The reader will have to evaluate the signals generated with regard to their context (overall chart pattern, news related to the company, etc.). Even if an alert is triggered, a careful analysis of the chart may reveal that there is significant resistance just above the current price. If there is no strong resistance that must be overcome, stocks generating an alert signal can be considered for inclusion in a "watch list" and monitored to see if an appropriate follow-through signal occurs.
The "UP" and "DN" alerts described below do not necessarily indicate that a stock has started to rise...yet. For example, an "UP" signal is an ALERT that a rise has begun or that there is a high probability of a rise soon. In other words, it is merely intended to be an attention grabber that draws your focus to a potential move and the probable direction of that move. The letters "MA" mean "moving average."

There is a wide range of alerts here. You best approach will probably be to concentrate on those alerts that fit your strategy. For example, the "Dn" alerts would be of more interest to short sellers. Some alerts may be far too "busy" with all the signals they generate (the most sensitive systems tend to generate the most false signals), and others may be too "quiet," slow, or selective. Find the alerts that suit you or that work best for you and don't worry about the others. Plan your stop loss placement to match the probability of "fakeouts." If you are a beginner, go slow at first.  Never place a large percentage of your portfolio in a single position.  The most critical goal, in our opinion, should be to stay in the game long enough to begin making money with some consistency.  Control your emotions and your losses. Don't let small losses psych you out. Losses are to be expected. They are one of the costs of doing business, but keep them small.

During a bear market or when volatility is very high, the failure rate of setups is higher. As the market begins to calm down and develops some directionality, they become much more reliable. Always study the context of a setup. If you are a beginner, begin by being especially cautious about the conditions under which you purchase (or sell short) and also about the amount you commit to a single position.  For beginners, there is a tendency (when a stock begins to move to be transfixed by the stock's rise (picture a deer caught in an oncoming car's headlights at night). Remember that stocks do not go up forever. Use trailing stop losses (ratchet up the stop loss as the stock rises).

Finally, keep a record of your trades and print charts of the stocks you buy. Mark your point of purchase on the chart along with detailed notes describing why you did what you did. A month or two later print another chart of the same stock.  Analyze the chart and your comments to see if there was anything you missed that might have improved the outcome. Add new notes or observations. Keep these notes and review them occasionally to see if there are any patterns of behavior that you need to address. These records can be an extremely important resource in your development as a trader or investor.
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EXPLANATIONS

^.Currently, the following alert signals are included in a StockAlerts subscription. The signals generated are not recommendations to buy or sell. We simply report the output of various search algorithms. Even if an alert is triggered, a careful analysis of the chart may reveal that there is significant resistance just above the current price. If there is no strong resistance that must be overcome, stocks highlighted with an alert signal can be considered for inclusion in a "watch list" and monitored to see if an appropriate follow-through signal occurs.
The "UP" and "DN" alerts described below do not necessarily indicate that a stock has started to rise...yet. For example, an "UP" signal is an ALERT that a rise has begun or that the setup is nearly complete that could result in a rise soon. In other words, it is merely intended to be an attention grabber that draws your focus to a potential move and the probable direction of that move. Our system currently generates the following information and alerts (The dark red parentheses to the right of the headings contain the labels used to identify the alerts on the lists page).
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GAP System (Gap Up). If a stock gaps or makes an aggressive move so that its low for the day is at least .25 above the previous day's high and if volume rises at least 50%, then an "UP" alert is generated.  We had been requiring a .15 gap and a smaller volume surge. However, market conditions were such that too many meaningless gaps were signaled. The reverse conditions will trigger a "DN" alert. Look for a little pullback or consolidation after this move. Wait for a resumption of the uptrend. Also, be wary of overhead resistance nearby. "Walk away" if doubtful.

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NEAR 50-Day (50-day Up). If the stock’s 50-day SMA (simple moving average) is rising at a good rate (we measure the daily rate of change for the average) and the stock was near it within the last 3 days and is now rising (but was recently declining), an "UP" signal is generated. Institutional investors tend to be buyers of a stock when it declines to its 50-day moving average. Therefore, the 50-day SMA will often offer support for a stock. Traders monitor such stocks to see if they begin to climb again when they touch or come close to this average. If the stock "jumps" on increasing volume, traders consider it a buy signal. If it does not rise after touching this average, the stock is not getting the expected support. This is a warning of possible trouble ahead. The reverse conditions will trigger a "DN" alert. Here, the declining 50-day SMA may act as resistance that turns a rising stock down again. Extensive testing has shown that the SMA (simple moving average) is at least as effective as the EMA (exponential moving average).
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BOLLINGER BAND SQUEEZE (BB Up). A period of low volatility often precedes a strong move by a stock. The ensuing move may be a downward thrust or an upward thrust. Traders monitor stocks that have a Bollinger Band squeeze (showing that the stock is experiencing a period of low volatility), waiting to see if the expected breakout is to the upside or downside. A "squeeze" is taking place when the upper and lower Bollinger Bands are close to each other relative to their recent separation. After a squeeze, a thrust above the upper Bollinger Band is seen as bullish and a thrust below the lower Bollinger Band is seen as bearish. If the stock thrusts above the upper Bollinger Band, the "UP" signal is generated. If the stock thrusts below the lower Bollinger Band, the "DN" alert is generated. Because what constitutes a good Bollinger Band squeeze is relatively subjective, we add the following notes.

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HIGH DN & UP System (StepsDn Up). If a stock is at a new recent high (for example, if it hasn't been as high in 6 months) and then "stair-steps" its way down with each successive high lower than the previous high, an alert is generated when a high occurs that is higher than the previous day's high. See if volume declined as the stock fell and increased on its rise. Declining volume on the price decline shows that it is probably only some profit taking rather than panic selling. The thinking behind this alert is that the stock has been strong and climbing to new highs. Then a wave of profit-taking set in that caused the stock to decline. After that, new buyers take positions and the stock resumes its climb as the demand for the stock once again overwhelms the supply provided by the sellers. Certain additional screens may prevent an alert being triggered for some stocks that show this general pattern. No "DN" alerts are generated.
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1. Sometimes, our way of looking at a chart convinces us that a squeeze has not taken place even though it has. For example, we tend to view magnitude of separation by noting distance along a perpendicular to the trend of a rising channel rather than perpendicular to a horizontal line.

2. The scanner is intended to cut down on the number of stocks we have to review, but we don't want it to do our thinking for us.  The user has an opportunity to examine the squeeze relative to a stock's squeeze pattern and relative to the current context. There are hundreds of stocks that penetrate a band without any squeeze (this is what you get at other Web sites). With this filter, we are provided with a handful of stocks to review (the best candidates) rather than hundreds (most of which are of no interest at all). Of the relatively small list we get we will reject a few because the squeeze or context is not acceptable (for us).

3. Some signals are generated even though the band penetration did not just take place but took place within the last week or so.  If the bands still have narrow separation relative to the average separation before the squeeze, we are still interested in reviewing them.

4. A squeeze does not have to last for a week, a month, or any other set period to mean a squeeze has taken place. If the two bands narrow their separation for even a day, that is a squeeze. Why?  the Bollinger Band equations are based on a 20 day measurement.  When a squeeze is registered, it is based on data covering 20 days and is plotted on a chart relative to the period before that. Some traders consider only squeezes that have lasted for at least one or two weeks to be worth while. Others consider any squeeze to be worth while. Rather than filter out all squeezes that have lasted less than several weeks, we have decided to show even those of short duration so that subscribers can decide for themselves which are actionable.  Our own traders have had great success acting on very short-term squeezes. Of course, the context of a squeeze is extremely important.
5. The standard approach is to look for squeezes in which the band separation is less than at any time in the previous 6 months. We focus more on the amount of squeeze that is taking place rather than how long it has been since band separation has been that small. The latter will flag stocks with the slightest contraction in band separation if the separation between the bands is the narrowest it has been for 6 months.  It is our experience that very good alerts can be based on a significant narrowing of band separation, regardless of how long it has been since the last separation of comparable magnitude. Rather than have the computer automatically eliminate stocks that have had a greater squeeze within the last six months, we want to examine the patterns for ourselves. We really don't care very much if there has been a tighter squeeze within the last 6 months. We have found that sufficiently tight squeezes (regardless of how long it has been since the last tighter one) are well worth our attention.
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5x20 Crossover System (5x20 Up). This is the 5-day and 20-day moving average crossover buy/sell system, a variation of the system popularized by Richard Donchian.  An "UP" alert means the 5-day moving average was recently below the 20-day moving average but it has now crossed above it (indicating a recent positive surge in price). It also means that both moving averages are now rising.  Finally, it means the 3-day moving average of the volume is greater than the 30-day moving average of the volume was before the last 3 days (volume has recently increased over what is "normal" for the stock). This volume requirement detects a one-day surge that may have occurred in any of the last three days. Other filters may also be used in addition to these. The reverse conditions will trigger a "DN" alert.

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5x10x20 Triple Moving Average Crossover System (5x10x20 Up). (a variation on R.C. Allen's 4x9x18 system). This is the 10-day moving average, 20-day moving average, buy/sell system that has been used by successful traders for many years. The inclusion of the 5-day moving average makes it a less likely to generate false signals, because the 5-day MA acts as a kind of confirmation indicator.  An "UP" alert means that the 5-day MA is above both the 10-day MA and the 20-day MA, and that the 10-day MA is also above the 20-day MA. Furthermore, the 10-day MA was recently below the 20-day MA. In addition, this alert means the 5-day, 10-day, and 20-day MAs are all rising. Finally, it means the 3-day moving average of the volume is greater than the 30-day moving average of the volume was before the last 3 days. The reverse conditions will trigger a "DN" alert. Some prefer this system over the 4x9x18 crossover system because it is a little slower, allows more time for momentum to build, and therefore is somewhat less likely to whipsaw. [All systems can be whipsawed by the market] Our tests on thousands of stocks over many years and under a variety of market conditions has convinced us that strictly following this system results in greater gains than strictly following the original 4x9x18 system. That does not mean it was superior for every stock. Sometimes the 4x9x18 was superior. Rather, it means that the accumulated profits on thousands of stocks was greater over a period of many years.

Note: Our lists of alerts also show the 1-day percentage change in volume for all stocks generating an alert, even if the alerts generated have their own volume surge requirements.

This publication is intended to be a useful resource in locating stocks that might warrant further investigation and analysis. It is also intended to be useful in the development of an individualized investment strategy and in maintaining discipline in its implementation. THIS PUBLICATION MAKES NO RECOMMENDATIONS TO BUY OR SELL SPECIFIC SECURITIES. It does not give individual investment advice, and nothing herein should be interpreted as if it does. Readers should seek professional advice regarding their personal investments. Past results or patterns do not guarantee similar future results or patterns.

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