ChartWatchers Newsletter

Here's The Only ChartList You'll Ever Need And The Five Keys To Trading Success

'Tis the season and I'd first like to wish everyone a happy holiday season.  To health, happiness and prosperity!

Feel free to sing along....

"We've made our (Chart)List 
we've checked it twice
but we won't buy stocks 
at any ole price
market makers will bring the price down"

That's the tune we hum every day at EarningsBeats.com and it's how we post our impressive results day in and day out.  Here are the five principles that we live by:

1.  Do Your Homework

Ok, well we'll do the homework for you.  It starts with the understanding that trading stocks that have exceeded Wall Street's expectations is the first step towards improving your trading results.  Seriously, would you want to buy a company that's been failing to meet their own projections and making excuses about how "we'll turn things around next quarter or next year" or perhaps is out looking to replace their CEO?  Or would you feel better buying one that's just proven to Wall Street that their business plan is being executed to perfection and revenues and earnings are rising even faster than projections?  Don't think too long on this one.  Our first step is to identify those companies that have exceeded expectations in their latest quarter by reviewing thousands of earnings reports.  But we don't stop there because some companies report stellar results and Wall Street doesn't care as their stock price spirals downward.  We want the "1-2 punch" - great results and a technically sound chart.  It limits our stock trading universe to a manageable number of stocks.  That leads us to our next principle.

2.  Establish a ChartList

The tools at StockCharts.com are excellent and include the ability to organize all of the stocks you like in a ChartList.  We have one ChartList and we call it our Candidate Tracker.  Every single trade that we make will be found in that one ChartList.  No exceptions.  We don't go outside our boundaries.  We are not swayed by buyout rumors.  We don't care about the political environment.  We are on a mission and focused solely on those companies that are simply performing better than everyone else.  You'll need to be a StockCharts member in order to establish a ChartList.

3.  Stalk, Stalk, Stalk

They say patience is a virtue and we couldn't agree more.  Consider this analogy.  Imagine that you're an avid golfer and you're standing on the first tee, ready to rip that drive.  Then your playing partner says, "Ummmmm, put away your driver, we want to save you for the 13th hole."  It may not be a great analogy, but the feeling is probably similar.  Many traders that have cash available in their accounts simply cannot wait to make that next trade.  They have an itchy trigger finger and buy without giving it much of a thought.  Change that process.  Stalk your ChartList and wait, wait, wait.  Then wait a little longer.  Look at the charts and decide where a GREAT entry is.  If it doesn't hit, DON'T BUY.  Buy as close to support as possible and "support" can vary.  It might be the rising 20 day moving average.  It might be the trendline support.  It could be a major price support.  Perhaps it's the 50 day moving average.  The point, though, is to buy as close to key support as possible to limit risk (principle #4)

4.  Manage Your Risk

Let me be honest and straight forward.  We will not provide you 40 winners in a row like many services might tout.  That's not our expectation and it shouldn't be yours.  In fact, our past 17 closed trades have resulted in a very modest 9 winners, while we've endured 8 losers.  But here's the secret sauce.  Our 9 winners have produced an average return of 8.13% over an average of 13 calendar days.  Think about that for just a few seconds.  At a time when banks pay you almost nothing to keep your money, we've returned an average of 8.13% on our winning trades and we've done it in less than two weeks.  That can grow your capital quickly.  But we won't ignore the 8 losers, we'll embrace them.  Why?  Because we make no excuses and losers solidify our discipline.  It's as simple as that.  When we identify a trade for our members, we expect that trade to work to our benefit immediately.  That's our mantra.  "Better timing.  Better trades."  If a stock goes against us and violates our tight stop policy, it's gone.  Banished!  And we move on.  So let's talk about those 8 losers.  We lost an average of 1.90% on those trades and our average holding period was 3 days.  They either work or we put them out to pasture.  Again, no excuses.  Big losses kill trading results.  You should have absolutely no patience when it comes to trades that aren't working.  Use your capital elsewhere, right?  Sure, some of those "losers" will turn around right after you get stopped out.  But there'll be some that would turn into large losses and that's what we want to avoid so take the small losses and don't look back.  The winners will more than offset them.

5.  Do NOT Hold Stocks Into Earnings

Repeat Principle #4.  How can you possibly manage risk by playing the earnings roulette wheel?  Will your stock explode higher with a great quarter?  That sure does feel good!  But what if they miss or lower future guidance?  Do you like waking up to a 20% financial haircut?  

If you follow these five principles, I'm convinced you'll see much improved trading results.  

Our ChartList, or Candidate Tracker, constantly evolves as companies are deleted as they approach their next earnings date....and then replaced by companies that recently reported stellar results.  This past week we were able to take profits in a few companies that hit our targets and we were fortunate to have moved into energy stocks by week's end.  Recently, we had ZERO energy stocks on our Candidate Tracker because few were reporting great quarterly results and even fewer had nice looking charts from a technical perspective.  But stock market rotation has changed that.  Energy stocks have begun to beat estimates and the recent profit taking allowed us to move into three energy stocks on our ChartList:

I am in a festive mood and I'd like to make a special offer to ChartWatchers readers.  I want you to see how we operate and manage risk in real-time.  If you'd like a special three week trial at EarningsBeats.com to include a copy of our ChartList, CLICK HERE. There is no further obligation beyond the three weeks and you can keep the ChartList as our holiday gift to you even if you decide that our service does not fit your trading style.  In other words, we've done steps 1 and 2 ("Do Your Homework" and "Establish A ChartList") for you.

Wishing you a great holiday season and as always, at your service,

John Hopkins, President
EarningsBeats.com

Energy Shares Are Bouncing on Optimism Over OPEC Agreement

Energy shares are finally showing some bounce. The daily bars in the chart below shows the Energy Sector SPDR (XLE) climbing above its 50-day average today. The XLE is bouncing off chart support along its late October low and its 200-day moving average. Those are logical chart points for the XLE to start moving higher. [The 50-day average remains higher than its 200-day line which is also a positive sign]. The gray area (which plots a ratio of the XLE divided by the S&P 500) has been slipping over the last two months. But it's rising today with energy being one of the day's strongest sectors. That's probably based on reports that OPEC has agreed to extend production cuts to the end of 2018. Energy shares have lagged behind rising oil prices which recently hit the highest level in two years. It's time for them to start catching up.

 

Here Are Two Stocks To Consider In December...And One To Avoid

I love to combine bullish seasonality with strong or strengthening technical conditions.  As we move into December, it's important to realize that there has been no better month for the S&P 500 since 1950 than December, which has produced annualized returns of +19.51%.  Also, December has resulted in rising S&P 500 prices 50 of the last 67 years, easily the best such month of the year.  So we know that history is on our side to look for long trades.

Continue reading "Here Are Two Stocks To Consider In December...And One To Avoid" »

Metals - The Calm Before The Storm

One of key principals of a global bull market is the major moves in the sectors as the market expands. As we head into 2018, there are a significant number of charts that suggest we could be on the platform for a significant move in commodities. The Commodities Countdown blog tries to show some of the major themes, including oil off the July lows. One of the major setups now is the metals. The chart of the steel ETF has been consolidating for months. Copper has had a great run this year, and with the love of electric vehicles (EV), looks set for many great years ahead. Along with copper, metals like zinc, cobalt, lithium, nickel, and iron all have uses in the global transition to EV. 

Five global mining companies shown below all look to be pausing on the weekly charts. Teck, Vale and Freeport McMoran have turned up the full stochastics. BHP and Rio Tinto still have declining full stochastics. These companies have all consolidated big moves from 2016 and look set to go on another run. Adding them to your watchlist will help you catch the move.

Teck Resources has moved above 75 on the SCTR which is a fresh entry into the top performing stocks. The full stochastics have turned up. The $26 level is very important, as it marks the 2016 high and a year of consolidation. With the head/shoulders base setting up through 2017, a breakout from here would be very bullish.

Continue reading "Metals - The Calm Before The Storm" »

Financials and Industrials Lead New High Expansion

Chartists can plot High-Low Percent for the nine sectors to identify areas of strength within the stock market. The chart below shows the High-Low Percent ranked by this week's highest value. The finance, industrials and consumer discretionary sectors stand out this week because their High-Low Percent indicators hit the highest levels of the year. High-Low Percent for the finance and industrials exceeded +50%. Assuming virtually no new lows this week, this suggests that more than 50% of the stocks in these sectors hit new highs. XLY High-Low% ($XLYHLP) exceeded 20% the last three days and these are the highest readings since March 2015. 

Continue reading "Financials and Industrials Lead New High Expansion" »

High Yield Bond ETF is Bouncing Sharply Off Support, Telecom Weakest Sector

The recent selloff in high yield junk bonds has attracted a lot of attention in the financial media. My Tuesday message showed the iBoxx High Yield Corporate Bond iShares (HYG) headed down for a test of chart support at its August low and its 200-day moving average. Chart 1 shows the HYG scoring an upside reversal day yesterday after touching its 200-day average (green circle). That positive action is being followed by a gap higher today. Those are encouraging signs that the selloff in high yield bonds may have run its course. The 14-day RSI line (top of chart) also shows that the HYG had fallen into an oversold condition below 30. One encouraging sign for the junk bond market is that most of its recent selling has been contained mainly in one sector. And that's telecom.

The weekly bars in Chart 2 show the U.S. Telecommunications iShares (IYZ) falling to the lowest level since the start of 2016. Its relative performance looks even worse. The gray area in Chart 2 shows a ratio of the IYZ divided by the S&P 500 also plunging throughout the year. The telecom sector has lost -16% this year, making it the market's weakest stock sector. When a sector's stocks are under that kind of downside pressure, some of that selling can spill over to bonds issued by those companies. And telecom accounts for about 25% of high yield bonds. That's what's been causing most of the recent selling in high yield bond ETFs. Fixed income analysts are encouraged by the fact that most of the recent selling in high yield bonds has been limited to that one sector. Stock analysts may be encouraged by the fact that telecom has the smallest sector weighting in the S&P 500 (1.8%). That may explain why stocks in general haven't been that negatively effected by weakness in the telecom group and their bonds. In addition, several of those individual telecom stocks look oversold.

Focusing on Solid Earnings can Boost your Risk Adjusted Returns

One by-product of focusing on stocks that beat earnings handily is the opportunity to boost overall returns. I know this for a fact as we studied the performance of almost 40 stocks that were trade alerts to EarningsBeats members over the past six months and found that on a risk adjusted basis, returns were almost 5 times that of the S&P.

For example, when we issue a trade alert to our members we provide them with entry prices, price target and stop loss levels. If a stock hits a price target or stop loss it is moved out of the active category and we can then calculate how it has done. What we found was that the actual number of winning trades barely outpaced the losers. But the average gain on the winners was over 6% while the average loss on the losers was just over 2%. So by allocating capital on an equal basis on all of the stocks, taking profits on the winners and minimizing losses on the losers, the risk adjusted returns were lofty compared to the S&P.

What this points out is traders are attracted to stocks that beat earnings expectations and if you are patient you can put yourself into position to profit. Our formula goes like this: We scan for companies that beat bottom and top line expectations, watch the market reaction, zero in on those that have a strong, positive response, then wait for them to pullback to key price or technical support. So when we issue a trade alert, our stops are going to be based upon levels that should hold, and if they don't, we exit positions while minimizing overall damage.

As an example, we issued a trade alert on IBM early last week. The entry price was $148.89, the price target was $158 and the stop loss was any close below the 50 day moving average. Within two days the stock closed below the stop loss level so was removed as an active alert with a loss of just over 1%. 

On the flip side, we issued a trade alert on PETS on October 31 at an entry price of $34.82 with a price target of $39 and a stop loss of any intra day move below $33.96. So when we issued the alert, we had a reward to risk ratio of about 4 to 1. The stock never hit the stop loss and in fact hit our price target this past week, resulting in a gain of 12%. In fact, if you want to see some more results of recent trade alerts at EarningsBeats, just click here.

Not every stock is going to be a winner but if you key in on the "best of the best", enter near key price or technical support and exit those that go against you quickly, you can minimize your losses. Combined with locking in nice profits on the winners can boost your risk adjusted returns. 

At your service,

John Hopkins
EarningsBeats 

Here Are Five S&P 500 Stocks Poised To Rise Through December

I'm a big historian and a fan of the "history repeats itself" theory.  But I'm a bigger fan of technical analysis where price action simply doesn't lie.  You can listen to all the CNBC "hype" if you'd like, where their "experts" provide their favorite picks.  I look at the charts of some of these "can't-miss" trades, shake my head and change the channel.

Continue reading "Here Are Five S&P 500 Stocks Poised To Rise Through December" »

What Does a Flat Yield Curve Look Like Anyway?

I hear talk that the yield curve is flattening and that this is a problem for the stock market. While it is true that the spread between the 10-yr T-Yield ($UST10Y) and 2-yr T-Yield ($UST2Y) is the lowest since 2007, the yield curve itself is by no means flat. The chart below shows the 10-yr yield in black and the 2-yr yield in red (top window). Notice that the 10-yr yield has been flat since 2012, and I mean really flat. Meanwhile, the 2-yr yield turned up in 2014 and moved to its highest level since 2008. 

Continue reading "What Does a Flat Yield Curve Look Like Anyway?" »