Ivanhoff Capital

A setup is a combination of factors that need to align in time and space in order to produce a buy or sell signal. Look at it as a checklist. I already stressed out on numerous occasions that when it comes to swing setups, the two main equity selection factors are price and industry group momentum. Everything else is secondary. The purpose is to find quick 5 – 30% moves in 2 to 10 trading days.

How are position setups different?

Their purpose is to enter and ride a trend for as long as possible and as bigger gain as possible. What are some of the most important factors that matter for the equity selection process of position trades? Price momentum, Earnings and sales growth momentum, earnings surprise momentum, guidance are among the most important ones. All of them take a central place in the Stocktwits 50 algorithm.

The best way to show what is a position setup and how it could be managed is through example. Let’s take a look at $CMG

Entry:

– Opening new position: One good entry point could be a 5%+ move to a new 6 month high on above the average 50-day volume. Better risk/reward entries typically take into account 3 month price growth. For example being under 30% signifies that the stock is not too extended.

In the case of $CMG, the stock made a 5.7% move to a new all-time high on September 1st 2010. The volume was more than 2 times the 50-day average. The 3-month return of $CMG before that move on September 1st, was 7%.

There are numerous other entry approaches: a 2% to 52-week high; a 2% move to new all-time high…

– When to add to a position: 3% bounces from the relevant moving average is a good risk/reward entry point. In the case of $CMG, the relevant MA since September 1st has been the 20sma.

Exit

– Partial Exit: Momentum stocks often go parabolic in the last 1/3 of their move; therefore it makes sense to take partial profits when they extend too far from their 50-day MA. For example $CMG was 25% above on Oct 22 and Nov 30th.

– Closing the whole position: when the stock closes below its relevant moving average or its50-day MA or if you are really long-term investor – the 100 day MA. Some people use a new 20-day low as an exit signal or some form of ATR (Average True Range).

 

Last week best performers’ list was dominated by oil related stocks. The front month crude oil futures appreciated by 14% due to an elevated political uncertainty in the oil rich North Africa and Middle East. In short to medium-term perspective, industry-wide move is the most powerful catalyst for the price appreciation of a stock, even bigger than an earnings surprise. The energy related stocks continue to be well represented in the latest edition of the St50.

A large number of the momentum semiconductor stocks managed to bounce from their rising 20-day moving averages. Let’s see if this was the beginning of a new base or just a temporary relief.

The Long-term care centers industry reached another new 52-week high last week. The stock with the highest 6 month RS in the group is $SRZ. Less than two years ago it traded at 30 cents due to fears that it wasn’t able to refinance its debt. On Friday, it traded above $10 per share.

In general, all you need to spot good swing setup ideas is to find stocks that had a noticeable leg up (usually one to 3 months), followed by a consolidation in the upper range of that leg. The consolidation could be anywhere from 2 days to a month. Then you need to isolate the stocks from the currently hot industries and focus primarily on them.  If any of those stocks happen to be featured in either Stocktwits 50 or IBD 50, then you know that besides the price and industry momentum, your trading ideas have other strong catalysts behind. The latter is not critical, but it often helps as it is a testament that more market participants with various investing horizons are interested in the same stock. With other words, the stock is more predictable.

Last weekend I opened the topic about the difference between swing and position setups. I will go into more details later this week and share some entry and exit approaches for position setups, which assume longer holding periods.

Some of the best looking swing setups in the St50 this week are: $BHI $MRO $SFN $ITMN $AREX $ARBA $CAM $BRKS $ROK $FNSR

 

 

 

First, I would like to make a quick distinction between position setups and swing setups. The purpose of the Stocktwits 50 is to find stocks that are likely to trend up for an extended period of time. From my perspective, the idea behind the typical swing setup is to catch a 2-10 day move within an existing trend.

When looking for swing setups, the two most important factors to consider are:

– recent price volume dynamics: most swing setups consist of an uptrend move, followed by consolidation in the upper range of that move. Traders have come up with different names for them: flags, wedges, triangles..; Keep in mind that finding the so called flags and wedges is never a guarantee of success. It is not that easy. There is one more factor that needs to be taken into account: the industry group;
– which industry group is currently hot; Stocks tend to move in groups and being in the right technical setup in the right group could mean the difference between a 5% and 20% move; the difference between a failed breakout and a breakout with continuation. For example, last week I specifically underlined the energy and precious metal stocks on my Stocktwits steam. The best performing stocks for the week came from those groups.

Let’s take a quick look at the forthcoming week and what we can expect.

Oil futures are up after the situation in North Africa and the Middle East has worsened over the weekend. As zerohedge mentioned on the stream: “Don’t worry. Ben Bernanke will print more oil.” We are likely to see some silly moves in oil names, which will be a continuation of last week. On the first glance, the energy stocks look a bit extended, but that does not matter in short term perspective. It matters only in terms of risk management. When you enter extended stocks to monetize on a sector move, it is a good idea to decease the size of your positions.

Gold and silver futures are up too. In the past, geopolitical crises were positive for the dollar. These days, they are positive for gold and silver as they are considered the new safety currencies.

Will the rest of the sectors continue to rise or the market will take into account that rising oil might spark another global recession? The market reaction will tell. In general with zero interest rates and rising inflation, US stocks are still in the sweet spot as an asset class. Of course, don’t forget that even in the best years for the market, there has always been a period of 3-12 week correction. When is it going to happen is anyone’s guess. There are two types of forecasts – lucky and wrong. I rather watch price.

Last weekend I underlined 12 specific names from the Stocktwits 50 list that I liked for swing trades and 10 of them were actually the St50 best performing stocks of the week. I will keep that tradition.

Without further ado, the 10 st50 swing setups that caught my eye this weekend:$BHI $FNSR $AMAT $FXEN $CTSH $EMC $BRKS $CPWM $HON $LULU