Thursday, April 7, 2011

4/7 Top Prospects

There are two new stock breakouts today, excluding those whose earnings will be released in the next 30 days.

In my charting I saw tons of stocks pulling back from their highs. After a period of aggressive bullishness, my sense is that we’re again entering one of those little sea changes common to the markets, like waves at the beach.

In ranking potential trades, I give equal weight to volume, the strength of the trend and the recent volatility of the issue.

Using those criteria, I rank today's breakouts as follows:

2. TLB

Clearly, ranking was not an arduous task.

BBBY’s breakout was on a moderately OK earnings surprise, that produced a 10% gap up at the open. It is said that after a huge earnings surprise gap, a stock will continue the movement, although more slowly. So, under that theory, Bed, Bath & Beyond Inc. would be a viable play.

TLB is more like a prairie dog poking his head out of his hole, before drawing back to the top of the 55-day price channel. I’m pretty underwhelmed.

sym phase adx bday blevel stop atr atr%
BBBY   apr7 $50.95 $51.86 1.35 2.7%
TLB   apr7 $6.58 $6.18 0.40 6.1%
Exchange-traded funds are marked with a plus sign (+) after the ticker symbol. My holdings are marked with an asterisk (*).

  • phase: Green for a bull-phase breakout, red for a bear phase.
  • adx: Average direction index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 30 and up but below 40, magenta (light purple) for 20 and up but below 30, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, purple for sunset on the horizon and brown for the earth.)
  • bday: Breakout day, the day the price broke through the upper or lower 55-day price line.
  • blevel: Breakout level, the price level of the line that was broken through.
  • bstop: The stop/loss price calculated on breakout days as the 14-day average true range below the breakout-day low for a bull phase and above thre breakout-day high for a bear phase.
  • atr: The 14-day average true range, in the same currency as the price.
  • atr%: The average true range as a percentage of the breakout level, an indicator of volatility that is comparable for all potential trades.

About channel analysis

Read a detailed explanation of my channel analysis method, including trading rules.

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