10-25-2015 Comments

Watchlists are updated in the High Growth Stocks area. The long list shows HW, LOGM, MAS, RH and STZ. MAS reports earnings on Tuesday so caution is advised until after it reports. On the volume trigger alert list, FIT and HW report earnings early next week.

Last week I took profits in LGIH (23%) and smaller profits in QLD. I took large windfall profits in SKX when it crashed on its EPS report. QLD was not a CANSLIM pick just a way to participate in the new uptrend. The strange market internals that I talk about in the next paragraph explains why I decided to take the money and run on the gap up.

Will the market follow-up to its power move on Friday? What bothered me about the action is that running a screen in MarketSmith on stocks with CANSLIM traits I show 135 stocks up on high volume and stocks 189 down on high volume. This tells me that the indexes are showing the effects of the movement in mega-caps and that internally it was a mixed day. Changing focus to stocks like GOOGL, V, FB, W, and SBUX might produce better in this environment than my own list of watch list stocks.

If you take a look at the following chart from IBD page A10, tomorrow's edition you will see evidence that suggests that since June funds focussing on large cap growth are outperforming and that the value-oriented funds are vastly underperforming. The short list of stocks above would fit this market observation.

[ATTACH=CONFIG]32947[/ATTACH]

When a market that I think could have possibly topped rallies into major resistance areas I will often take a short position. Essentially I make an educated guess as to what the market or a stock is going to do, act on that guess and then reverse the trade if the hypothesis gets violated. On 10/13 when the NASDAQ looked like it might be stalling at the 50-day, I took a short position in QIHU. As soon as the NASDAQ moved back up above the 50-day I knew my hypothesis about a stalling market was wrong, so I covered the trade at a penny per share profit. I did the same thing as the NASDAQ approached the 200-day with ROST. I shorted on 10/21 and covered the next day. In this case, the hypothesis that got violated on Thursday was I assumed ROST was going to stall at the 200-day and was proved wrong when it began to move north. These are low-risk trades in an attempt to position the portfolio to what may prove to be correct possibilities. One of these days I will get this right.