8-19-2016 comment

[Mike]

For me, the story of the current market is ACIA. ACIA has traits of a real leader; the price movement is evident. ACIA is a leader in the optical-interconnect industrial space which is seeing a secular surge in demand. ACIA was on my June watch lists before its move. I had to buy it twice as I got stopped out of the June 16 breakout from its IPO base. I repurchased as it made new highs on 7 July. Now, I have to decide if I want to cash out with 150%+ gains or hold for the longer term. I did a study of some prior big winning stocks, and I am focussing on MSFT, not the MSFT you know today, the MSFT of 1986 which went up 256% in eight months; MSFT was supported by the 10-week moving average all the way up. Along the way, MSFT pulled back from 9% to 14.5% five times. MSFT, at that point, was in the middle of the secular move in personal computer systems. MSFT as such is my yardstick for monitoring the action of ACIA.

The median growth stock pulls back 17% along its upward trajectory that lasts about a year, so a pullback this far could easily happen, but the worrying starts at 15% based on the MSFT precedent. From here, ACIA could form a High-Tight Flag, carve out a standard base or just continue up. A High-Tight flag represents a buying opportunity, the strongest of all patterns. We are probably a couple of weeks before a proper HTF could form. An HTF rises 100% or more in eight weeks or less and then forms a tight (<-20%) pullback over two to five weeks. The buy point is as the stock moves to a new all-time high. ACIA is showing a tendency not to wait around to form a proper base so that it could do anything from here.

Usually, when I see a stock create its first first-stage base, I compute a future price target based on the history of prior leading growth stocks. History shows that leading stocks can expand their PE ratio 130% from the PE ratio existing at the breakout. My price target is $210. However, it still hasn't formed its first stage base; I used the IPO base for the calculation

The image below is an update of the system buying growth stocks that exhibit breakout strength of volume at least 100% above average and using just six sell rules. You can see that the system is holding ten positions. The modeled purchase amount was $10K per purchase with an overall gain now of about $32K. The ten positions are up from 12% to 136%; the longest held position is 25 weeks. There are many more losses however the losses are small.

[Pascal]

For me, the story of the current market is ACIA. ACIA has traits of a real leader; the price movement is evident. ACIA is a leader in the optical-interconnect industrial space which is seeing a secular surge in demand. ACIA was on my June watch lists before its move. I had to buy it twice as I got stopped out of the June 16 breakout from its IPO base. I repurchased as it made new highs on 7 July. Now, I have to decide if I want to cash out with 150%+ gains or hold for the longer term. I did a study of some prior big winning stocks, and I am focussing on MSFT, not the MSFT you know today, the MSFT of 1986 which went up 256% in eight months; MSFT was supported by the 10-week moving average all the way up. Along the way, MSFT pulled back from 9% to 14.5% five times. MSFT, at that point, was in the middle of the secular move in personal computer systems. MSFT as such is my yardstick for monitoring the action of ACIA.

The median growth stock pulls back 17% along its upward trajectory that lasts about a year, so a pullback this far could easily happen, but the worrying starts at 15% based on the MSFT precedent. From here, ACIA could form a High-Tight Flag, carve out a standard base or just continue up. A High-Tight flag represents a buying opportunity, the strongest of all patterns. We are probably a couple of weeks before a proper HTF could form. An HTF rises 100% or more in eight weeks or less and then forms a tight (<-20%) pullback over two to five weeks. The buy point is as the stock moves to a new all-time high. ACIA is showing a tendency not to wait around to form a proper base so that it could do anything from here.

Usually, when I see a stock create its first first-stage base, I compute a future price target based on the history of prior leading growth stocks. History shows that leading stocks can expand their PE ratio 130% from the PE ratio existing at the breakout. My price target is $210. However, it still hasn't formed its first stage base; I used the IPO base for the calculation

The image below is an update of the system buying growth stocks that exhibit breakout strength of volume at least 100% above average and using just six sell rules. You can see that the system is holding ten positions. The modeled purchase amount was $10K per purchase with an overall gain now of about $32K. The ten positions are up from 12% to 136%; the longest held position is 25 weeks. There are many more losses however the losses are small.

Attachment 37493

ACIA had indeed an amazing move. Congratulations!
I hesitated to buy a small pullback at $60...

One question regarding the BO list: what would have been the total gain if all the positions had been held upto today?

Thanks



Pascal

[Mike]

ACIA had indeed an amazing move. Congratulations!
I hesitated to buy a small pullback at $60...

One question regarding the BO list: what would have been the total gain if all the positions had been held upto today?

Thanks



Pascal

Pascal, I have not kept track of the BO statistics. I could look at my old watch lists and build a tracking system. I would go back to the beginning of the rally in February.

Mike

[Pascal]

Pascal, I have not kept track of the BO statistics. I could look at my old watch lists and build a tracking system. I would go back to the beginning of the rally in February.

Mike

I meant: does it make sense to calculate the return between the Pivot and the Quote columns, just to see if buying at pivot and keeping the position would have offered on average a better return?

I could do it myself, but I only have the image of your Table.


Pascal

[Mike]

Thank you Pascal,

I misunderstood. Here are the results:

Sell using the six sell rules: Profit = $30,867.38 (unrealized profit minus realized sell (gain/loss).

Keep all positions and not sell at all: Profit = $26,239.55

Both representations assume buying a $10,000 position in all cases.

I think one possible conclusion is buying stocks with substantial earnings, accelerating earnings, emerging from sound bases, that have visible institutional activity leads to stocks going up in the medium term. This kind of analysis ignores draw downs. STMP, for instance, would have been down 40% at one point and is now down 23%. The amount of capital employed is different in the two approaches. Hanging on to losing positions does not free up money to buy new positions. The portfolio was never negative using the sell rules. And ten positions are held vs. 41.

Successful investing requires conviction; this requires being comfortable with the system you are using. Medium to long-term investing is what 'fits my eye". I recognize a shorter term system, turning over the portfolio more rapidly also works. Selling positions that are not working also helps me sleep at night. Modifying my rules to demand visible breakout volume and using a simple set of end-of-day (week) sell rules has also drastically reduced the number of trades I am making. I can watch the open and determine that there will be no trading today because extrapolated end of day volume on my watch list stocks shows that they are all running light volume.

There has been an unintended health consequence of my current approach: I signed up for local Yoga classes offered during the slow part of the investing day.

[Pascal]

Thank you Pascal,

I misunderstood. Here are the results:

Sell using the six sell rules: Profit = $30,867.38 (unrealized profit minus realized sell (gain/loss).

Keep all positions and not sell at all: Profit = $26,239.55

Both representations assume buying a $10,000 position in all cases.

I think one possible conclusion is buying stocks with substantial earnings, accelerating earnings, emerging from sound bases, that have visible institutional activity leads to stocks going up in the medium term. This kind of analysis ignores draw downs. STMP, for instance, would have been down 40% at one point and is now down 23%. The amount of capital employed is different in the two approaches. Hanging on to losing positions does not free up money to buy new positions. The portfolio was never negative using the sell rules. And ten positions are held vs. 41.

Successful investing requires conviction; this requires being comfortable with the system you are using. Medium to long-term investing is what 'fits my eye". I recognize a shorter term system, turning over the portfolio more rapidly also works. Selling positions that are not working also helps me sleep at night. Modifying my rules to demand visible breakout volume and using a simple set of end-of-day (week) sell rules has also drastically reduced the number of trades I am making. I can watch the open and determine that there will be no trading today because extrapolated end of day volume on my watch list stocks shows that they are all running light volume.

There has been an unintended health consequence of my current approach: I signed up for local Yoga classes offered during the slow part of the investing day.

Thanks Mike!

I think that we should all practice Yoga these days!


Pascal

[f35c]

Mike, your break out list indeed includes 41 stocks.

Since you only get into 10 at any one time, and perhaps for some of us it's even less e.g. start with 8 and then try to get down to 3 or 4, is it a matter of break out timing and profits that create your chosen stocks? e.g. Mr Market does the choosing for you?

[Mike]

Mike, your breakout list indeed includes 41 stocks.

Since you only get into 10 at any one time, and perhaps for some of us it's even less e.g. start with 8 and then try to get down to 3 or 4, is it a matter of breakout timing and profits that create your chosen stocks? e.g. Mr. Market does the choosing for you?

You raise an important point; stock selections in the real world are made under capital constraints. The spreadsheet I posted did not live under those limitations. I created the spreadsheet to demonstrate to myself that a simple set of six sell rules will work in the current range-bound market. The rules by their very nature have a long-term investing horizon. In choppy markets, many people move to shorter term trading; my nature is to go longer.

In real stock picking if your capital is full employed you have to make choices. In my portfolio, if I am not fully margined I will usually extend further on margin when I want to enter a new position. If that exposure is too high for my comfort, I will plan to exit a position that is not working as well. If the new position is to be sold because of non-performance, it will usually happen sooner than later. The margin level then self-corrects. If the new position works immediately, then I will pick the worst performing stock in my holdings to sell. If I am all-in, then I need to liquidate first and then buy.

These are deluxe problems to have.