Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Archive for April 2007

How to Play with Fire

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A question came up the other day at the Investor’s Business Daily Meetup: How should I invest in stocks that are screaming ahead?

Let’s call it what it is: playing with fire. Well, maybe that’s not entirely accurate since there’s no real upside when playing with fire, but there can be upside when investing in stocks that are screaming ahead.

I do not suggestion “buying on the dips.” A stock that has just advanced 25% may be ripe for a pullback, but after it has slipped a few bucks, the short term trend is against you. It can keep going down.

Instead – if you want to play with fire – wait for the stock to drift sideways for a few day especially if it meet resistance against a certain price point. The idea is to wait (keeping capital safe) until the stocks resumes its move upward.

I strongly suggest keeping a rolling stop loss order underneath your entry price. Keep it tight – just a percent or two. If the stock reverses from the breakout, protect your capital. As the stock advances, keep your stop loss trailing upward, but give the stock a bit more wiggle room.

Here is a visual reference and example. Click on the chart to make it larger.

dril-quip-drq.jpg

Trade away.

Written by heyercapital

April 30, 2007 at 8:05 am

Using Investor’s Business Daily to watch big moves

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One of the most powerful screening tools (for even non-subscribers) is the “Stocks on the Move” prominently displayed on the http://www.investors.com website. It is updated throughout the day showing stocks with strong earnings growth and relative strength moving at least $.50 up or down on increasing volume compared to the typical volume at that time of day for that stocks.

Think about that for a second. Rather than compare it to the daily average volume total, the IBD goes the next step and compares it to the typical trading volume at that time of day. If a stock is trading 200% more shares in the first hour of trading, and up $1, there’s some buying pressure behind that move, and it deserves your interest.

Watch for a post here on the blog for ideas on how to trade a typical big move.

Written by heyercapital

April 25, 2007 at 3:32 pm

Bondholders’ appetite for risk?

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For the life of me I can’t find the “list of bonds that yield the same” that I read today. That author’s point is that bond investors worldwide have overlooked risk for so long, there’s a surprising list of global investments that yield the same as the US Treasury. In other words, if a ‘safe’ US Treasury bond gives a yield of x%, why try to chase something exotic to get the same yield? I’ll keep my eyes open for it, dear reader, as it was very revealing.

Every bond owner (and CD investor) should read this article below on how Uncle Sam abuses the inflation numbers. http://www.whiskeyandgunpowder.com/Archives/2007/20070420.html. I’ll post an analysis soon.

Written by heyercapital

April 24, 2007 at 7:21 pm

Posted in Business/Econ

doing homework

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As I lead the local Investor’s Business Daily Meetup Q&A, probably the most common question I get is: how do you find stocks ready to move?

There’s no substitute for homework. For me that means looking at many, many charts. I’m a visual person. For you, it may mean sifting through tables and screens of fundamental data.

If you do not get the Investor’s Business Daily, I suggest you get the April 19 edition and review the “IBD’s Top 200 Composite Stocks” table on page B5. Review each stock listed. There’s a reason Bill O’Neil puts that data together…trust his guidance. It is not a “buy” list; just a good place to start prospecting.

Written by heyercapital

April 18, 2007 at 7:45 pm

Curious divergence

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It seems there’s been a lack of broad strength as the market has rallied. What caught my eye today was the very few stocks in the Investor’s Business Daily’s “Stocks on the Move” tables. Their table shows fundamentally strong stocks moving on higher volume. (Volume is the key to validating a stock’s move.) At one point today, only eight stocks were shown that meet the IBD’s criteria. To my eye, when the market is making new highs, you should have a full table of them with a minimum of 100% volume gain to get on the list.

Balance that with the sell off at the end of the day, pushing the Nasdaw lower, and I’m going to count this as a distribution day. A few more days of selling on increasing volume can take the starch out of a rally.

Days like today re-emphasize the importance of investing at proper buy points, i.e. staying in the sidelines and waiting to pounce when a stock starts moving in your direction. Be patient. When we get a solid rally, there will be many buying opportunities.

The indexes are at “C” or “B” Accumulation/Distribution ratings, indicating at least a balance of buying pressure lately, which is an improvement over last month’s “E” and “D” ratings.

From investors.com: Click, then click “learn more” in the Stocks on the Move table.

The qualification criteria for listing in ‘Stocks On The Move’:
Stocks must trade on the Nasdaq or New York Stock Exchange.
Stock price must be at least $20.00 ($16.00 for Nasdaq).
Stocks must have a price change of 1/2 point or more.
50-day Average Volume must be a minimum of 60,000 shares.
For stocks up in price only, the Earnings Per Share (EPS) and Relative Price Strength (RS) Ratings must each be a minimum of 70, Accumulation/Distribution Rating must be D+ or better and next year’s earnings estimate must be 15% or higher from the previous year’s earnings. (Stocks without earnings estimates are included.)

Written by heyercapital

April 18, 2007 at 7:38 pm

Posted in stock ideas

another lesson on the 200 day average

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Thank you Yahoo for giving folks another lesson on the 200 day moving average. Yahoo fell 11% this morning and opened way down near its 200 day average. The lesson? Don’t listen when people say moving averages are meaningless, frivolous, and always irrelevant.

I would not be a buyer at these levels, but that’s just me. Tens of millions of shares are changing hands today, so somebody is buying. The trend has changed lower as I see it, and the PE is still precarious for a stock with trouble growing quickly enough.

Yahoo

Written by heyercapital

April 18, 2007 at 11:22 am

Posted in charting

A very useful lesson

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Below is a link to a very useful lesson on chart reading, particularly how resistance and support are formed. It is worth your time, but only if you have (or plan to have) more than $4.16 invested in the market in your lifetime.

http://www.minyanville.com/articles/support-resistance-uptrends-downtrends/index/a/12615

Written by heyercapital

April 17, 2007 at 4:29 pm

Posted in charting