Friday, April 8, 2011

4/8 Top Prospects

There are seven new exchange-traded-fund breakouts today. I had to scratch hard to get them.

When I was in high school, we were assigned to read Samuel Beckett’s play Waiting for Godot. It was one of the most boring experiences of my youth. I much preferred Capt. Ahab and his pursuit of the great white whale.

Today’s charts are more like Waiting for Godot. Volatility is low, there are few econ reports to motivate traders, everyone is watching the Congressional budget soap opera -- there’s just not much there to produce movement in the markets.

And all of the stock issues that broke out today have earnings within the next 30 days, so they’re off the table under my trading rules.

I changed my universe slightly. I limited my stock analysis to higher volume stocks that are on the CBOE penny-increment list, with average volume of about 5 million or greater. Call it from C down to NFLX in descending volume order.

These are really liquid shares, and that’s what I like in individual stocks.

That shorter list provided an opportunity to dig more deeply into the exchange-traded fund list, those with volumes down to about 100,000 shares on average.

They’re less liquid, obviously, than stocks trading in the millions, but they’re more diversified. And they provided most of the breakouts on today’s list.

There were also a pair of currency breakouts. See my Forex posting from earlier tdoay.

In ranking potential trades, I use the strength of the trend, volume and the recent volatility of the issue, with trend given the most weight and volatility the least.

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

2. EPU
3. EWS
4. XHB
5. UUP
6. PCN
7. UDN

Personally, I find CHIQ -- Global X China Consumer etf -- and EWS -- iShares MSCI Singapore Index Fund -- to be the most interesting of this sorry lot.

sym phase adx bday blevel stop atr atr%
CHIQ   29 apr8 $18.07 $18.05 0.24 1.4%
EPU   30 apr7 $43.50 $44.66 1.16 2.7%
EWS   22 apr8 $14.01 $13.85 0.16 1.1%
PCY   19 apr7 $26.58 $26.51 0.07 0.3%
UDN   18 apr8 $28.37 $28.30 0.14 0.49%
UUP   16 apr8 $21.62 $21.67 0.12 0.5%
XHB   14 apr8 $18.78 $18.52 0.26 1.4%
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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