Thursday's Prospects

On Wednesday, Sept. 18:

Of 2,339 stocks and exchange-traded funds in this week's analytical universe, 233 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 230 to the upside and three to the downside.

Twenty-six symbols traded over the counter broke out, all to the upside.

Within my analytical universe, 11.4% of symbols gave bull or bear signals, compared to 4.3% the prior trading day.

The ratio of bull to bear signals was 85.3:1, reflecting the markets' bullish bias, up from 9.1:1 the prior trading day. It was the strongest bullish bias since July 11, when the ratio was 133.5:1.

I don't normally second guess the numbers. That activity is about a fruitful as talking to the wind or, like King Cnut, ordering back the tide. But nearly all of the symbols that produced signals on Wednesday did so at a magnitude that suggests a response to the surprise Federal Reserve decision to continue stimulating the economy at the present pace.

What happened on Wednesday is covered by one of my trading rules:

Symbols that break out the day of or immediately following a major news announcement may optionally be excluded from trading on those grounds. The decision to trade or not will be based on a judgement of the degree to which continued price movement is likely, a highly subjective call.

I shall be applying that rule liberally on Thursday as I try to weed my way through this particular thicket in dealing with the survivors of my initial analysis.

I shall also be strengthening my requirements in order to reduce the field. Odds must be better than even (rather than even or better), and the combined odds and  yield score must be 7% or greater (rather than 5% or greater).

Thirty-two symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. They are AEE, AMAT, ANDE, BLK, COLB, CRI, CSH, CTXS, DWRE, ECPG, EGP, ELN, FIG, GK, HRL, HURN, JJSF, MDP, NPO, NXST, OI, PEB, RDN, RHI, SCOR, SPR, SVU, TAM, TNA, TTEC, VIPS and WEX.

Two symbols traded over the counter survived initial screening, both having broken out to the upside. They are DNZOY and FIATY.

The next round of earnings begins on Oct. 8, coming within the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that increasing numbers of symbols will be removed from my prospective trades list during initial screening.

I shall do further analysis on Thursday, Sept. 19.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• greater than even odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 7% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.