Stocks to watch tomorrow.

DTG (A Long), PCLN (B Long), CMG (A Long), AKAM (A long) and PWER (A long). AMRC and BORN are still buyable.

Broken leaders?

Al three stocks were members of the IBD 100 at some point in the Bull Market that started in March 09. Now all three of them are breaking down from head and shoulders topping patterns on heavy volume mean while the overall markets are also acting rather weak. Potential shorts? I am waiting for some sort of "feeble" bounce in the markets to short these stocks in the vicinity of their 50 day MA's as well as major overhead resistance.

Bearish day!

The two IPO's I had on my watch list today triggered but only AMRC managed to closed positive while BORN closed below its opening price. BORN although negative on the day and AMRC are both far away from their pivot lows (and suggested stop out points). So if you are long of them I would suggest holding them until they violate these levels or until the Russell 2000 closes below the 590 level on volume. Please note, I did not enter any positions today.

Although all in all today was rather bearish, I do not believe that this one day should worry anyone long too much expect for perhaps taking a piece of their position off. I still believe that the markets are due a decent bounce at these levels.

Further adjustments needed...

In the past, I have had a tendency to not do my homework and stop searching or even ignoring stocks I saw setting up whenever my account has been fully invested. I have realized that this has caused me to miss out on some big performers.

I have decided that I need to make an adjustment to my trading in this regard. What I will do is to make sure that I maintain the same intensity with my "homework". Then instead of ignoring new setups, I will evaluate the quality of the potential trades against the ones I am currently in. This information I will then use to decided whether or not to swap some of the under performing trades for set ups that may out perform. Instead of blinding ignoring new trades because I am fully invested.

Importance of stock selection!

Both of these stocks bottomed out at the same time along with the overall markets around the start of July. However, where as DTG is only up about 17% from the bottom, JKS is up over 150% from the bottom (yellow arrows). I entered DTG after its first pullback at $46.00 and got out just below $50.00 for a decent profit relative to risk since my stop loss was at $45.00. Although JKS had shown it self to be a far superior stock to DTG and offered three seperate entry opportunities (all of which went on to outperform the entire move in DTG) ; I passed on all of them and missed out on serious profits.

This is one area of my trading that I have been thinking deeply about and battling with ever since I first started trading. The tendency to pass on the true leading stocks which "appear overbought" in favour of the substandard leaders that have not yet begun to move and "appear to have a lot of upside in them". This has cost me a lot in the past 9 months and I am working to improve this.

Getting better at trading requires one to accept that they will never be perfect and hence that constant self evaluation is needed. This process has helped me to become a profitable trader for the first time this year and will help me to become even better (example, the lesson learnt above and in the post "In this market...hit singles not home runs!"

Trade management and expectation for follow through.

I recall how during May and June, CRUS set up beautifully (high volume thrust with low volume pause close to 20 day MA) several times. I was afraid to trade CRUS because of the overall down trend in the markets and rightly so! However, I do know from my few years of trading experience that it is also OK to be a bull in a bear market if you know what you are doing!

Every time I enter a trade I am always looking for a 50% to 100% up move. In fact, I have entered several stocks at the start of such moves but never caught more than a 30% move in any single trade. But this is a different issue as this delves into my pre-trade planning (including an exit strategy that will catch the big waves), sticking with my plan during the trade (which I suck at horribly) and repeating hundreds of times consistently (I suck at this too but I have still managed to make money....makes me wonder how much I will make when I get more disciplined...can you say MILLIONS!!!). There would certainly be a few 100% plus moves scattered some where in there.

However, what I wanted to focus on was market conditions and expectations for follow through. Had I been looking at the set ups in CRUS in a bull market then I would certainly have traded them aggressively and would have likely made money. However, because I was a in a bear market I passed. What I have realized in retrospect is that I should have taken these trades but with a much lower expectation for profit and consequently adjusted my take profit strategy!

I have already outlined my plans for when I have low expectations for follow through in the post entitled "

In this market...hit singles not home runs!

". Had I used this trade management strategy I would have made money in CRUS, CSTR and the handful of other stocks that had met my long set up criteria during the sell off.

Now I am very bullish on the markets for reasons outlined in the post "

My stance on the markets and trade ideas for next week".

Although one can reasonable argue that since we are below the 200 day MA, my expectation for follow through should still be low; I do not believe so. The markets were declining violently on heavy volume as was the case for much of May and June but now they have settled nicely with lots of stocks (like RDWR, PAY and SPRD) currently forming and breaking out of well formed bases on huge volume. We have already seen one monster stock: JKS increase over 100% in under two months since the market bottom in early July. I am of the belief that others like BORN, ARMC, PWER, RDWR and PAY will follow its lead. Not only am I seeing alot of bullish price action, I am seeing very few stocks break support and follow through! This is what happens in a bear market and was what I had expected to see after the markets broke down from a wedge and sold off hard on the 13th of August.

So having taken all these factors into consideration, I have decided that I will trade BORN and ARMC aggressively if I get triggered tomorrow. That is, instead of following the conservative method I outlined in the post highlighted above ( in this market...hit singles not home runs!); I will hold onto my initial position and look to pyramid on subsequent set ups in the stocks since I now have moderate to high expectations for follow through as opposed to very low expectations as was the case for May and much of June.

I hope you find this post useful in your own trading.

Good luck and good trading!

Interesting set up in AMRC...

At a potential inflection point in the markets, AMRC appears poised to bounce a few dollars in exchange for about $0.50 risk. Nice set up in a new hot IPO. I would definitely rank this as an A trade and put on max. risk for a swing trade exiting 75% at 3x risk and holding the remainder until it violates either the initial stop or a take profit stop (as outlined in previous post).

Good luck and good trading!