How to Trade Growth Stocks

Every trade has a  Window Of Opportunity  associated with it.  For me, that window is identified by taking into account the general market conditions and weighing all of the variables for positions I'm considering.

When I'm using IBD (Investors Business Daily) CANSLIM system of trading Growth Stocks, the first thing I look for is the momentum of the stock.  How do I determine momentum, you may ask?  I follow 3 simple steps as a part of my routine:

1.) Use The Most Recent Data

For starters, I pull up a 6 month daily and weekly charts on the stock to give me some insight on how institutions are behaving with the stock. 

"Keep in mind that institutions are highly informed and quite well versed in trading so their investment behavior has a significant impact on the value of a particular stock."

I use this same reasoning to help me pinpoint my window of opportunity.  If the chart shows increasing volume over the most recent 30 day period, that means the big dogs are getting behind this stock.  For me, that's a really clear signal that my window of opportunity is approaching.  

Another key data point for me is the Relative Strength (RS) line on IBD charts.  I use a very strict set of criteria on any position I'm considering and for me, the RS line helps me to quickly identify whether a stock is a true leader of the pack.  If I'm seeing a 92 RS rating that's still pretty good but I want to see 95 or above before looking any further into an opportunity.  It's best to stack the odds in your favour.  There is no guarantee that stock will perform well and that is why it's a good idea to keep monitoring the stock for selling volume from the institutions.

2.) Don't Trade On Earnings

When it comes to earnings, there are two schools of thought.  Some people like to trade around earnings and have had a lot of success with it.  It's not something I choose to do, however, because it doesn't fit into my personal trade philosophy.  I think it really just boils down to risk management.  I always trim back the size of my existing position heading into the earnings or utilize  "Collar Trade"  with options to fully protect the very liquid stock in my portfolio.

For me, the reason it's risky to trade around earnings is because you can't predict how institutions will react to the the information.  Even when a report looks good, institutions can react negatively.  I've always struggled to understand the "why" in these situations and since I can't really figure it out, I remove the variable.  I like to wait 2 to 3 sessions to confirm that institutions have really "digested"  and settled down after the earnings release before I decide to take a new position or reestablish the original position. 

Another thing that gives me a level of comfort is looking at other stocks in the industry group I'm researching.  If they're running in the right direction - you better believe I'm paying attention. 

   

3.) Trade During Uptrends

This is probably the most important factor in pin pointing my window of opportunity.  Given that my criteria are so strict, I need to make sure that the biggest market barriers aren't in my way.  Seeing the phrase  "Market in a Confirmed Uptrend"  in my IBD® Market Pulse removes the last barrier for me.  I don't really understand exactly how IBD® uses the data it gets to make such a statement - but I trust it. 

With trading, there are variables all over the place and it's basically impossible to keep track of all of them.  Having a market in a "Confirmed Uptrend"  means that I can settle down, tune out the noise, and get back to business - cultivating my watch list.

Growth Stock Coaching

I have been getting a lot of inquiries from my readers asking for a weekly session on  ZOOM  platform.  Lot of you enjoy and appreciate receiving my Stock Watch List that I post on my blog.  Some of you have asked if I could go over my watch list and share what I see in the stock charts.  I am giving it a lot of thought and would consider offering a weekly session to help you all with trading successfully and profitably.  Please give me your feed back and let me know if such a coaching product would enhance your trading skills.  Market has done so well since  2015  when I started this blog platform.  $QQQ  the leading Growth Stock Index I follow is  +230%  in the last 6 years.  One could have done 2 times better  investing utilizing the  IBD CANSLIM  methodology that I utilize. 

Happy Trading!

Amin (investorspotlight@gmail.com)

Stocks on My Watch List

We are heading into the second week of earnings release for the 1st quarter of 2021.  Stocks tend to be volatile the day before as well as the day of and the days after the earnings release.  No one can predict how the stock is going to perform from an earnings report release.  It's a good idea to lighten up on your stocks that are showing profits when you head into the earnings period.  Having a profitable stock turn into a losing stock from the earnings release is a sin that no trader should ever commit.  Always annotate your stock charts so you are not caught off guard from mitigating the risk associated with the earnings release.

Lots of stocks are currently performing well with the  $SPY  as well as the  $QQQ  that has reached all time highs.  We are in uncharted territory right now and some of the stocks are a bit extended.  It is perfectly normal if these 2 Indexes retrace  3%  to 5%  since they have been hovering along the faster moving 5 day simple moving average for the last 2 weeks.  That would be healthy for the market and it could provide one with an opportunity to initiate new stock positions or possibly add to existing positions that are profitable.

Stock List:

Prices in parenthesis are support/resistance areas.  Please don't take these as my recommendations.  I am watching and monitoring the progress of the general market as well as the stocks listed below.  These will change as the market makes a progress or it retraces.

  

$ASML   ... $627.30

$ATKR   ... $ 71.29

$BPOP   ... $ 71.49

$CLF      ... $ 17.78

$COOP   ... $ 32.44

$COWN  ... $36.31

$DE        ... $379.50

$ENTG    ... $114.00

$GNRC   ... $330.31

$HOME   ... $ 28.44

$HZO      ... $ 49.67

$INMD     ... $ 77.80

$JEF       ... $ 31.38

$LOGI     ... $111.09

$LSCC    ... $ 50.77

$LOVE    ... $ 66.00

$MRVI    ... $ 35.61

$NVCR   ... $179.88

$PGNY   ... $ 50.25

$PYPL    ... $267.66

$RH        ... $619.52

$RILY     ... $ 64.08

$SCCO   ... $ 71.46

$SF         ... $ 65.24

$SNAP    ... $ 60.88

$SQ         ... $252.50

$WAL       ... $ 92.13

$ZBRA     ... $502.85

Good luck trading this week.

Amin Hemani

investorspotlight@gmail.com

Mitigate  Risk

Every trader looks like a genius when the market supports all of their positions but for me, the smartest traders are those that come up with a system that eliminates their risk variables.  

All too often, traders will focus only on their profit target and overlook properly setting up a contingency plan for when things start moving in the wrong direction.  I believe any trader can benefit from a refresh on the basics so today, we're going to look at some core elements of a good exit plan.  

Work off of the $1 loss to $3 profit ratio

One of the worst mistakes you can make is to think of the profit to loss ratio only from the profit side.  Let's use our imaginary friend, Terry The Trader, to highlight an example.

Terry feels really good about taking a position on a particular stock.  All of the charts look solid and the profit target is clearly defined.  The overall market has been soaring for weeks.  To top it off, recently all of Terry's moves have benefitted from the Midas touch so what's to lose?  Time to pull the trigger and start looking for the next golden goose, right?

Wrong!  

What Terry couldn't anticipate was the upcoming earnings report and how the institutions would react to it.  As a real example that I had to face recently was with  $BBBY.  Earnings was reported April 14th Wednesday.  Stock dropped off  -16.88%  within 2 days between the day before and the day after earnings release.  This is one of the reasons why one must not hold onto the stock through the earnings season.  It's always a good idea to trim the position and harvest some profits prior to earnings release.  Mitigating earnings risk is something that should be a part of the Trade Plan.   

Situations like this have confronted every trader out there but they're completely avoidable if you take the extra steps needed to plan out a loss threshold.  

Stop second guessing your plan

Any time you take a position, you need to place an order for a contingent stop loss right afterwards.  Don't put this off for any amount of time - act immediately before your emotions and biases can enter into the mix.  Just make this a part of your routine for every single position you take.  By the 3rd time, you will have formed a new habit!

It's also important to monitor your position after you've taken it.  In my experience, the 34 day EMA (exponential moving average) can be an early indicator that a stock is going against your profit plan.  If you see a sudden increase in the selling side of the Volume, that's a danger sign as well.  

Focus on emerging opportunities

You can spend days spinning your wheels in analysis paralysis after a position goes against you.  Unfortunately, throwing a pity party sucks up all of your energy and leads to missing the boat on new opportunities.  

When a position goes against you it's important to have your stock watch list on hand.  Building an actionable stock watchlist one needs to make sure to:

• Look at stocks in the same industry group as your profitable positions.
• Avoid stocks that have surpassed their buy point.
• For an early indicator of a stocks momentum, review the 21 day exponential moving average and the relative strength line.  

If you aren't already aware, relative strength line is your best indication of a stocks value against all of the other stocks in that particular industry group.  That's a key metric that you don't want to overlook!

Keep in mind that IBD® is a tremendous resource when you're putting together a growth stock watch list.  If your list creation process is solid, you might even be able to identify stocks before they crack the IBD® 50 .  The earlier you can identify an opportunity, the more prepared you can be to pounce when a buy point hits. 

I hope this information helps you get into the habit of establishing a proper loss threshold for a position.  

As always, keep the comments and emails coming!

Amin Hemani

investorspotlight@gmail.com

 

Market  Conditions 

Conditions for Growth Stock investors has improved dramatically over the last 2 weeks.  $NASDAQ  had a  "Follow Thru"  day on Friday March 26th and  $QQQ  went on to attain a gain of over  +6.51%  since that day in 2 weeks.  It rose up from below the 50 day sma(simple moving average) and is now within a spitting distance to all time high that was achieved over 7 weeks ago on Feb 16th.  In my post over the weekend on March 28th, I had alerted the readers to stay focused on the semi conductors, home furnishing and some of the retail names in the retail segments associated with the home building segments of our economy.  That theme has played out very well in the last 2 weeks.  If you had taken some stock position in the stock names that were highlighted in my blog post the last 3 weekends, some of those stocks provided us with the opportunity to add to the existing position and concentrate portfolio into the leading Growth Stocks. 

Mr. Stanley Druckenmiller a very well known and respected money manager, Chairman and CEO of Duquesne Family Office said:

"I strongly believe the only way to make long-term returns in our business that are superior is by being a pig.  I think diversification and all the stuff they're teaching at business school today is probably the most misguided concept anywhere.  And if you look at all the great investors ... they tend to make very, very concentrated bets.  They see something, they bet it, and they bet the ranch on it.  And that's kind of the way my philosophy evolved ... if you really see it, put all your eggs in one basket and then watch the basket very carefully". 

Here is a link of a clip of the remarks that Mr. Druckenmiller made during one of his interviews:

https://youtu.be/lLM5TwxFMCU  

Stock  Watch  List

I am a firm believer of concentrating portfolio to just a handful of names.  If one has a portfolio the size of $500,000 to $1 million, one needs to whittle it down to just a handful of stocks - perhaps 6 to 9 names only.  Anything more than that becomes very hard to manage effectively.  Focus on only those stocks that are making you outsize gains.  Get rid of the losing stocks or stocks that are lagging the performance of the leading Growth Stock Index  $QQQ.  Currently I am focused on Home furnishings, Home builders and construction, Finance and credit card payment processors and the Internet content group.

Stocks:

1. $ADS
2. $ATKR
3. $BBBY
4. $BLDR
5. $EVRI
6. $HOME
7. $HVT
8. $KIRK
9. $LOVE
10. $MHK
11. $PINS
12. $PYPL
13. $RH
14. $SNAP
15. $SQ
16. $TWTR
17. $WSM

We are starting out with the earnings season for the 1st quarter this week.  Be aware that earnings reports can present a risk of a stock gapping down and wiping away all the profits that you may have in a stock.  It's critical to weigh the risk associated with holding the entire stock position through the earnings cycle as well the possible benefits of the stock gapping up for further gains possibly.

Good luck trading this week.

Happy Trading!

Amin

Semi Conductor Sector Took Off

"Seek advice from others in your profession who have been successful and who have achieved the goals that you want.  Talk to those who have been through it and have been successful.  Learn."

By Elgin Baylor, Basketball player.

Market went into retracement Feb 25th when the leading growth Stock index  $QQQ  breached the 50 day sma (simple moving average) line.  Semi conductor sector however was held up above the 34 day ema (exponential moving average).  Some of the stocks in this sector were help up above the 21 day sma.  That is a sign of institutional support.  While the market was retracing towards the latter part of February from the institutions harvesting profits from the technology names, semi conductor sector was being firmly held up.  This is the sector that is powering up our new economy that is being technologically driven.  Covid has speeded up the transformation of our lives as to how we work, play, travel, shop, bank, eat out and educate our children.  Genie is out of the bottle and it's not going to go back.  

Last couple of weeks, there was so much talk in the media about the  'Value Stocks'    We were constantly bombarded with the concerns being raised about the rising inflation and how it adversely affects the growth Stocks.  As a Growth Stock investor and a trader, one must not concern themselves too much with  PE  ratios of a stock.  Growth Stocks are valued for their future earnings.  Value stocks were devalued during the pandemic.  Some of these value stocks may have met their demise from the pandemic and may never come back to their glory days.  I grew up with Sears, JC Pennys, Kmart and banks being open only Monday to Friday 9.00 am to 5.00 pm.  All that has changed and now we do all of our shopping online and never ever visit a bank with the ability to do online banking 24/7.  Legal documents are signed online with docu sign too and court cases, conferences and learning is all carried out with zoom platform.  Most of us will be working from home and not spending 2 hours every day commuting.  Lot of these innovative ways that has transformed our lives has been due to the advances made in the semi conductor industry.

One of the hedge fund managers that has the foresight to identify the future trends is Cathie Wood of  ARK  invest fund.  She has been in the lime light lately with some of her bold investment in  $TSLA   and her target of that stock reaching  $3,000.  $AMAT   was a  $20  stock 5 years ago and I distinctly remember highlighting that stock during a meeting at IBD( Investors Business Daily) local meetup group in the Tampa Bay area of Florida.  Today that stock is  $142.90.  Here is a link to hear some of the views of Cathie Wood.  I found it to be very interesting.  

https://youtu.be/G9yciyMZURM

Semi conductor sector has brought us some true market leaders in the past 5 years and continues to present opportunities under current market environment.  There were 8 semiconductor stocks out of the 19 that I had highlighted in my blog post last Sunday March 28th.  They all had broken out on Friday March 26th.  Here are the results of their performance last week:

Stocks:

1. $AMAT   ... +11.09%
2. $ASML   ... + 1.83%
3. $ENTG   ... + 9.15%
4. $ICHR    ... +14.30%
5. $INTT     ... +11.26%
6. $KLAC   ... + 9.39%
7. $LRCX   ... + 9.94%
8. $UCTT   ... +11.68%

Average performance =  +9.83%

These stocks are now extended but there are other stocks in the group that might be worthy of being scrutinized.  They are:

1. $AMKR
2. $ACLS
3. $BRKS
4. $COHU
5. $IPHI
6. $LSCC
7. $MCHP
8. $MKSI
9. $NVMI
10. $NXPI
11. $ON
12. $ONTO
13. $QRVO
14. $TXN

Good luck trading this week.

Happy Trading!

Amin

 

Get Rid of Your Christmas Merchandize 

I was working at JC Pennys as the Merchandizing Manager during my younger years and was very successful at selecting the right merchandize for the store.  Florida has tropical weather and swim wear is in great demand starting out in the month of March when tourists and college kids come for the spring break.  My initial shipment of swimwear has to land at the stores by middle of February.  Merchandize orders for swim wear have to be placed by early December.  Stores are packed full of christmas merchandize in mid December and my money is all tied up with toys and all the holiday trimmings, lights and christmas trees.  As a Merchandize Manager, I have to make sure there is enough $$$ available for new inventory purchase.  Unfortunately I had the store packed full of winter clothing as well as holiday merchandize.  I presented my dilema to my store manager.  I did not want to miss the opportunity of profiting from selling high mark up items of swim wear.  Without missing a beat, the store manager told me:

Mark down your christmas merchandize and get rid of it

I have adhered to this wisdom with my trading of Growth Stocks.  Getting rid of laggards from your portfolio is always a good decision.  Laggards tie up your capital that could possibly be used for a stock that is trending higher.  We had a  'Follow Thru'  day on March 11th but the market has not made much progress since that time.  If your recent buys in stocks are experiencing a loss of -6%,  it is a wise decision to dispose of it and look for something else instead.  Also if the stock has attained gains of +20% to +25%, harvest some of those profits and use that capital to invest in stocks that are making a progress during market correction.

Stocks  that  are  acting  well

Currently on a weekly chart, the  $SPY  has been staying above the 10 day sma(simple moving average) but the  $QQQ  is the weaker index and staying around the 21 day sma on a weekly chart.  It is sandwiched between the 10 day and the 21 day sma.  Market is definately rotating away from the technology stocks under current environment.  Looking over my stock watch list, I noticed that the semi conductor group, home furnishing group and some of the retail segments are doing very well.  Have a look at some of these stocks.  Most of them are extended but they could provide an opportunity if they retrace to their 10 week moving average or consolidate their gains in the next couple of weeks.  I have indicated the price in parenthesis from where the stock has made the recent progress.  Some of these stocks were mentioned as being on my stock watch list in Feb as well as this month in my blogs :

Stocks:

1. $AMAT   ... $117.82
2. $ASML   ... $608.71
3. $ENTG   ... $103.37
4. $ICHR    ... $ 47.85
5. $INTT     ... $ 10.35
6. $KLAC   ... $301.60
7. $LRCX   ... $560.70
8. $UCTT   ... $ 51.95
9. $AZO     ... $1297.82
10. $BBBY   ... $ 29.39 (Building position since follow thru)
11. $BBY     ... $116.02
12. $GNRC  ... $308.04 (Building position since follow thru)
13. $HOME   ... $28.44
14. $ORLY    ... $496.61
15. $RH        ... $524.22 (My largest position)
16. $SNBR   ... $133.61
17. $TGT      ... $194.22
18. $W          ... $342.99
19. $WSM     ... $151.16 (Gapped up with 8 week hold rule)

Good luck trading this week.  We are heading into our strongest month of the year on Thursday.  Have the capital available to trade new opportunities if the market continues to make the progress like it did on Thursday and Friday.

Happy Trading!

Amin

     

Market  Conditions

Market is still in a   'Confirmed Uptrend'   but it appears the Growth Stocks are not making much progress since the  'Follow Thru Day'  that was declared on March 11th.  Currently the leading Growth Stock index  $QQQ  is residing below the 50 day sma (simple moving average) and closer to the 100 day sma.  That does not bode well for the IBD (Investors Business Daily) style of investing.  We currently have 10   'Distribution Days'   between the  $NADAQ  and  the $SPY.  It's critical now to stop the bleeding and mitigate losses.  Personally I am cutting losses at  -5%  for new starter positions that were initiated during the  'Follow Thru Day'.  There was nothing wrong with the stock selection but the realities are, when the market goes through a corrective phase, 75% of the stocks will follow the general direction of the market.  Raising  CASH  should be the theme for this week and selling stocks into strength ought to be the primary goal of preserving the trading capital one has.

Stocks  to  Monitor

Lots of the market leaders we had last year and this year may not be the ones that will be the leaders again when the market decides to follow it's uptrend.  We have to start looking at the stocks with a fresh pair of eyes and monitor stocks that are residing above the 50 day sma.  Quite a few of the old market leaders are extended 10% or more beyond the rising 50 day sma.  If the market continues to retrace slightly and consolidate, some of these old leading stocks could form a tight base.  That would be ideal.  

Here is a list of stocks that are worth watching this week.  They are trading above the 34 day ema (exponential moving average) and showing institutional support.  I have indicated support/resistance price levels that I shall be monitoring.  Those levels will change however as the stock makes the progress.  

Stocks: 

1. $AMAT   ... $110.88
2. $APHA   ... $ 19.14
3. $ASML   ... $541.33
4. $APPS   ... $ 77.38
5. $BBBY   ... $ 30.08 (Have a position +5.79%))
6. $DKS     ... $ 78.39
7. $ENTG   ... $100.12
8. $ESI       ... $ 19.40
9. $ETSY    ... $211.85
10. $FANG    ... $ 74.60
11. $FRHC   ... $ 51.84
12. $GNRC   ... $293.00 (Have a position -3.90%)
13. $GOOGL ... $2035.00
14. $HI          ... $ 48.85
15. $IAC        ... $235.61
16. $INMD    ... $ 69.75
17. $KLAC    ... $287.34
18. $LGND   ... $154.95
19. $LRCX    ... $541.00
20. $MRVI     ... $178.19
21. $MU        ... $ 89.22
22. $PLT       ... $ 41.46
23. $SBUX   ... $104.86
24. $TDC      ... $ 42.18 (Have a position -0.94%)
25. $TGT      ... $181.11
26. $TLRY    ... $ 24.70 (Have a position +7.22%  Took 1/3 off for +31.80% gain)
27. $TWTR   ... $ 66.02
28. $WAL     ... $ 93.94
29. $YY       ... $115.28

Good luck with the market this week.  Lighten up with your stock positions this week and adhere to your rules for mitigating losses.  

Happy Trading!

Amin