Manhattan IBD Meetup 4/21/2010
Agenda Announcements and introductions - Avi - 10 mins Sage Session - What I learned from 3 years of IBD meetups - Cynthia Kienzle - 20 mins Sage Session - Continuing the option education - call and bear spreads and cash neutral option positions - Avi Fogel - 20 mins Sage Session - Comparing Darvis and O'Neill - Jim Duggan - 30 mins Hit List - My trading strategy and process - Levi Lauvray - 15 mins Hit List - How I build watchlists - Richard Mc. Kay - 15 mins
SAGE SESSION What I Learned from Three Years of IBD Meetups Cynthia Kienzle , 4/21/2010
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 1/24/07 Dow is only 30 stocks and not growth oriented but important to psychology of mkt Imp at end of day to look at performance of various indices, sectors (dow, s&p, nasdaq, etc. ) If financial sector doing well, chances are mkt is healthy Point & figure charting (columns of x’s and o’s) To get good fundamental stocks… Put can slim stocks into excel Eliminate D’s plus anything under 80 Keep just top 30 Then do a P&F chart (dorsey wright & assoc is one source of p&f charts) Pivot point is when stocks break out and start going up Price patterns: cup with handle, double bottom, support/resistance, moving averages RSI – relative strength index; 50+ = good sign Technicals will give you earlier signal to buy than price/volume IQchart. com explains technical indicators simply Nasdaq peaks before s&p and dow; nasdaq 100 peaks before nasdaq Buy/sell strategy: when the mutual funds, hedge funds and institutions are buying/selling), best to follow their lead; can see a list of activity once a week in ibd on p. B 2 or B 3 April 21, 2010 Presented by Cynthia Kienzle 4
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 2/28/07 Big Chart’s close-hi-lo-close chart = candlestick chart Take low of week before___; subtract from high of week___ divided by 2; subtract from hi = target price for next week Watch oil price when are rising tensions in mideast Patterns repeat themselves b/c humans (greed and fear) are always behind the patterns Get trial subscription of IBD Use rallies to cut your losses Sell when you’ve lost 7%+ Are 15, 000 stocks in U. S. ; goal is to find best 5 -6 and hold for a couple years IBD does not endorse IPOs or foreign stocks (IPOs have short history; no patterns) Stock should have at least 100, 000 volume/day so if you want to sell, there will be a buyer (and bid does not decline) IBD meet-up proposed agenda item: uncover unpopular good stocks April 21, 2010 Presented by Cynthia Kienzle 5
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 4/25/07 Because of weak $, international cos are doing very well because U. S. goods are cheap Market also strong because it is a 3 rd year presidential election Buy on rumor, sell on news S&P 100 – top 100 companies in U. S. WON likes new innovative companies An IPO followed by a nice tight (flat) trading trend (i. e. , not volatile) suggests institutional trading and an eventual breakout Keep an IPO list (IBD has a list of top 100 -200) Stockcharts. com: free area to track your stocks; theory is to keep 23 of your best stocks, sell rest and keep looking for stocks with breakouts Long v. short term momentum v. growth v. value; tech v. fundamental analysts April 21, 2010 Presented by Cynthia Kienzle 6
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 5/28/07 Per Reza Bail when stocks drop 7 -8% Or if you’re comfortable with the stock fundamentals, ride out the correction 30% of S&P = technology 1929 crash (50% drop) 1987 crash (Oct) Not good when stocks keep trying to surpass last high but can’t Per Ed Hornstein What he does each day: Looks at dow, s&p & nasdaq (leading indices); don’t predict, just react Look at action of leading stocks (if they start to come down, probably market will) Look at distribution Find those 1 -2 leaders a year, have conviction, make sure institutions are supporting it Keep buying more shares until it’s 10 -20 -30 -40% (e. g. , 8% + 5% + 3% = 16%; 50 K + 30 K + 20 K = 100 K) of your portfolio (FEED THE WINNERS!); takes years to acquire this skill 70% is fundamentals; good part of that is conviction April 21, 2010 Presented by Cynthia Kienzle 7
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 6/27/07 Per Ted Le. Plante IBD Top 100 don’t always meet CANSLIM checklist 75% of stocks will follow the market, but 25% don’t so chart reading very important Market►Sectors►Industry Groups►Stocks Distribution day = 3 -5 days over 4 -week period Put a stop on a buy Do partial sells as stock goes up You want to be in top 40% of stocks Are 16, 000 banks, institutions, mutual funds buying 10, 000 stocks Develop a watch list of 5 -10 stocks that show up in 3 screens on M-F, etc. Do not assume that a stock is past its buy point if it already shows up on multiple screens and days Now that you’ve developed a watch list, you determine if/when you buy AAII (American Assn of Investors) has followed IBD and gotten 800% return Other investment strategies: Dogs of the Dow, Warren Buffett, Motley Fool, etc. Stocks usually increase 3 bases before turning down The stocks that go up, go up from the bottom When a stock starts to trend, chances are it will continue April 21, 2010 Presented by Cynthia Kienzle 8
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 7/25/07 Per John, Fidelity rep Listen online to Lehman’s weekly wrap-up (global ltr) + (week ahead) Most important to be in the right sector (50%) and have the right market conditions/timing (30%); least important is the right stock (20%) See Research ►Markets & Sectors ►Videos ► podcasts (quarterly state of the market) Don’t believe analysts cause they are working for their clients and are biased towards them Don’t believe 10 K, et al, reports; corp governance/ethics is out the window Fidelity fund managers hold stocks an average of 5 years Buy stocks on pullbacks, not when going up Buy best stocks on worst possible days Stocks move 4 ways: up, down, side, ? Sell death cross; buy iron cross Indicators: price king; volume is 2 nd most important indicator MACD gives you many negatives on daily basis Good time to buy is week between xmas and new years when people sell their losing stocks April 21, 2010 Presented by Cynthia Kienzle 9
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 7/25/07 (cont’d) Per Reza Buying stock is like buying 2 options Bear markets are down for year, but usually up Oct-Dec; same for bull markets Net, net, oct-dec performance can represent a large % of total year performance First 5 days of each new quarter are always up Corrections often happen after DOW goes past 1, 000 increments: 12, 000, 13, 000 etc. 75% of gains happen during option expiration week Buy diamonds, spiders, etc. when you expect market to go up Once people start catching on to patterns, then everybody is on to it, and the pattern stops When company earnings in a sector start going down, others in sector follow suit Expect volatility from now until mid-oct 2007 April 21, 2010 Presented by Cynthia Kienzle 10
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 8/22/07 Per Ed Hornstein, A follow-thru day is a stock that moves up 1. 5% v. day before IBD says only buy on a follow-thru day Are 2 criterion for new bull market 1) follow up day, 2) new crop of leading stocks break out of sound basis If less than 100 mutual funds own a stock, stock not yet discovered How to test the mkt: buy 1 -2 stocks breaking out; use 10 -15% of your portfolio for 1 stock Don’t let lagging or weak financials hold you back from investing New leaders aren’t necessarily in IBD 100 (which he doesn’t rely on); are other leaders not on list Ask yourself: if you could only buy 10 stocks, would you own it? Look for stocks that are tight, don’t go down in a down market IBD rules make sense with the stocks the institutions are buying, those that trade 200, 000 in volume – and not with smaller, more volatile stocks April 21, 2010 Presented by Cynthia Kienzle 11
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 8/22/07 (cont’d) Per Joe Burns Average base should be 7 weeks When looking at a chart, lst look at daily then weekly p/e is mantra of a value investor PEG ratio = p/e divided by growth rate “ 1” ratio is good Be very picky about stocks you buy Average lifecycle of a stock is 1. 5 years; a bull market lasts about 1. 5 years Market psychology is the most important thing Buy pyramid style – put the most $ into a stock lst time around; and smaller amounts as stock goes up Insanity = doing the same things over and over again expecting different results Sell @ 20 -25% profit Sell @ 3 -5% below buy point (IBD says 7%) Don’t let the fear of being wrong paralyze you Better to buy a well known stock that is doing well vs. trying to find an unknown stock Best to consider last couple quarters of earnings Use Russian doll analogy when evaluating a stock; keep peeling away the layers of info April 21, 2010 Presented by Cynthia Kienzle 12
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 9/26/07 Per IBD rep Average stock winner runs 18 mos Stocks that double in price have a tendency to do it again Group contributes to 50% of a stock’s success 20 -30% mgt = good ownership ratios April 21, 2010 Presented by Cynthia Kienzle 13
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 10/24/07 A member recommends the IBD home study program for $499 for 4 DVDs Check out “Forums” on IBD website; need to have Daily Graphs? Gary. K. com – free radio show; archived shows Many distribution days = scarey WON says buy point is handle (of cup and handle) + 10¢ WON says insider selling not relevant PERFCHARTS on stockcharts. com (can compare stocks from your watch list, portfolio, etc. 75% fundamentals, 25% tech analysis To avoid IBD fees, evaluate each stock by putting various free charts (from Morningstar, Yahoo, MSN) on a PPT page Most money is made on a small # of stocks that you hold long term; i. e. , best to spend more time researching quality stocks and not so much on trading IBD 100 is just one screen Can buy pullbacks vs. breakouts April 21, 2010 Presented by Cynthia Kienzle 14
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 11/29/07 Per Darren Riva Are about 8 money making strategies; pick one, learn all about it, and stick with it. To develop a watch list, MARKET, GROUP, POSITION, FUNDAMENTALS STORY, TECHNICALS must line up for each prospective stock Darvis boxes are analogous to bases Gary K is an IBD’er Invest on follow thru days (have your watch list ready) IBD avail online for that day @ 8 pm IBD New America stocks usually go up 6 -8% on 3 rd day Per Ed Hornstein 77% of f/u days lead to bull markets Biggest up days in DOW have occurred during bear mkts Most CANSLIM stocks have been coming from NASDAQ Ideally, volume is heavy on follow-thru day; but can be light – look for +1. 7 -2. 0% swing up Look at leaders in base-building process, or with bases of about 3 -4 weeks You want bases of 7 -8 weeks when considering buying Looks for stocks with handle on follow thru day You have the follow-thru day + the next 6 wks or so to buy the stocks April 21, 2010 Presented by Cynthia Kienzle 15
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 12/26/07 Per Milton (used to work for George Soros) You can be 100% sure that you can know about follow thru days You can be 100% sure that you know to be in the market during follow thru days You can only be 72% sure that your investment will make money CANSLIM = 75% fundamentals ADR = American Depository Receipts; essentially stock of a foreign co held by a bank/ trust. Stocks generally break out after 4+ quarters of accelerated earnings (right now, exceptions are fertilizers) April 21, 2010 Presented by Cynthia Kienzle 16
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 3/26/08 Per Frank Belato Invest in CANSLIM stocks now that there has been a f/u day? Price & volume won’t tell you the whole story; 75% is fundamentals Develop watch list during bear market and be ready When do winners break through after a follow thru? Not all winners break out immediately after a follow thru; some can break out up to 12 weeks later April 21, 2010 Presented by Cynthia Kienzle 17
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 3/26/08 (cont’d) Per Ed Hornstein A follow thru just tells you to start looking for signs of a bull market for breakouts 2 components: qualitative, quantitative You most always have time to buy stocks after a follow thru day cause they don’t go up immediately Only buy if stocks break out of bases The same stocks that go up in a bull mkt are the same ones that come down in a bear mkt If good fund mgrs (quality of sponsorship) are buying the stock, it’s a good sign Shake out weeks Follow thru days differ by index See morningstar→insider trading→for list of good fund managers Distribution (in indexes) within first 5 days of a f/u day = low success rate of a rally 3/24 was a f/u day – if no distribution by 3/28, will prob see stocks come out of their bases April 21, 2010 Presented by Cynthia Kienzle 18
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 3/26/08 (cont’d) Per Ed Hornstein Post analysis important – for stocks u bot and those u didn’t Research by industry group; IBD’ers trained to look for breakouts WON says is 75% fundamentals; used to be 65% 2 criterion for new bull mkt f/u day leading stocks (new crop) break out of sound bases old crop: mastercard (recent good accumulation; see cup ‘n handle); rimm, priceline TITN – base count reset – a base goes lower than an early base If <100 mutual funds own a stock, stock not yet discovered yet Don’t let lagging or weak financials hold you back from investing April 21, 2010 Presented by Cynthia Kienzle 19
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 5/28/08 Per Ed Hornstein Check out gilmoreport. com; gil morales former chief mkt strategist for won & co ($50/mo or $125/qtr) Look into telecharts When he buys on pyramid basis, he buys less and less as time goes on With commodity stocks, sales and earnings often lag When looking at commodities, focus a lot on sponsorship April 21, 2010 Presented by Cynthia Kienzle 20
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 6/25/08 Per Ed Hornstein Purpose of CANSLIM is to help you double/triple your investments in a bull mkt; not to make $4 or $5 on a stock Patience is key; don’t go in and out, in and out; wait for the right time Do not listen to anyone except the market A follow-thru day is when major indexes goes up 1 -2% on attempted rally Nothing to do except wait for new leadership, new sectors to emerge You get bull markets during a recession Great book: Darvas – How I Made $2 Million April 21, 2010 Presented by Cynthia Kienzle 21
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 7/23/08 Per Gil Morales Nano Solar – may be the next First Solar? “Punchbowl of death” patterns Moving averages are guidelines; use whatever works for you; 50 and 200 are good Read “The Panic of 1907” Charts are the footprints of institutional investors Look at weekly charts to follow charts, then use daily charts for buy/sell timing purposes He just follows price and volume, not MACD Recommends an individual portfolio of 3 -5 stocks max April 21, 2010 Presented by Cynthia Kienzle 22
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 8/27/08 Per Joe Burns Market, sector*, industry group, stock satisfies power of 3: all must be in your corner (like a russian doll) Most stocks do not reinvent themselves (exception: apple); av time in limelight is 1. 5 years; e. g. , crocs The 4 horsemen of apocalypse: fear, greed, hope, envy A trader w/a plan is a trader w/an edge Plan your trade – trade your plan Is this stock the best stock that I can own right now? If I could only buy 10 stocks in my lifetime, what would they be? The power of 3: 3 qtrs of acceleration in 1) earnings (or 2 qtrs of triple digit), 2) sales, 3) big money ownership The fundamental EDGE: invention, innovation, development, discovery April 21, 2010 Presented by Cynthia Kienzle 23
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 8/27/08 (cont’d) Per Joe Burns Rimm, apple, lst solar, et al should be on your watch list because they are always reinventing themselves CHANGE! If a co is doing same ole thing, expect its stock to do same thing, or worse. Joe uses telecharts 2000 to view charts A flat base is 5 wks; a ____ base is 7 wks; 5 or 7 wks of going up or 5 or 7 wks of going down A late stage base = everyone already owns the stock The market now is like winter; you aren’t going to get anything to grow; shorting not a good strategy; wait until spring; first 13 weeks of a bull market is when all the money is made Test positions should be 8 -10% of your portfolio; see if it works; add more (+10%) if it works; get out if it doesn’t work Ilona says it’s difficult to screen almost 200 sectors April 21, 2010 Presented by Cynthia Kienzle 24
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 9/24/08 Per Ed Hornstein (on bull markets) Don’t listen to analysts in a bear market Must have a sell discipline; staying fully vested is a big mistake; must stay in cash to be ready for the next bull mkt Don’t trade in stocks that go below 50 day m. a. Sell if stocks go down 4. 5% Has his $ in a money market at Ameritrade thru Fidelity Per Joe Burns Best to use buy/sell stops if you are working and can’t watch market all day Best to look at weekly charts v. daily charts so you don’t get so emotional April 21, 2010 Presented by Cynthia Kienzle 25
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 10/22/08 Per Ted Le. Plante Investing is a visual art; you should only be interested in a stock during a rally; but wait until it develops Look for cup ‘n handle; it can be no more than 15% before it’s high; don’t bottom fish Watch “market rep” each day; (what is it? for subscribers only? ) Most mutual funds need 2 economic cycles (8 -14 yrs) to appreciate Are approx 16, 500 institutions You are always 4 - 7 days away from a bull or bear market Every bull mkt starts with a follow thru day; but not every follow thru day is a bull mkt Hold stocks for at least 8 wks; up 20% in first 3 weeks = hold for 8 weeks April 21, 2010 Presented by Cynthia Kienzle 26
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 12/22/08 Per Ed Hornstein F/thru day = 3 days of price not falling below lowest; if day 4 or 5 or 6 of 7, etc. goes up more than 2 ? ? ? breaking out of bases (f/thru day should be a rise of at least 2% in one of major averages accompanied by an increase in volume over the previous day. ) Day trading = not CANSLIM Use stock chart vs. daily graphs? Stocks that go up the most are probably the ones that gap up a lot/out of bases Look for stocks with high RS ratings April 21, 2010 Presented by Cynthia Kienzle 27
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 1/28/09 Per Ed Hornstein First ½ hour 930 -10 am accounts for 13% of day’s trading volume Need big institution quality stocks PLUS follow thru days to signal a rally PLUS good RS Don’t get stuck on past winners – they have grown up – matured – no longer growth stocks Be patient; don’t chase or churn; monster stocks will appear 60 -70% of a stock’s performance is tied to its industry strength Invest in stocks that are crushing the competition; e. g. , google (v. yahoo) Any stock that goes under $5 is dangerous and a borderline penny stock Buy stocks or etf’s that yield high (9%) dividends April 21, 2010 Presented by Cynthia Kienzle 28
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 2/25/09 When market is in correction, go to cash “mkt in confirmed rally” = start looking at stocks (usually day after followthru day) IBD top 100 are growth stocks Podcasts The investor’s edge – garyk. com (can get archives back 7 days) Stockpickbob Dorsey Wright Assoc – wed afternoons Covestor – can track trades on this Best free charts. com Bigcharts. com Inflation = great perm by gold? ? (opp to buy gold? ? ? ) PSI = an oversold undersold indicator J. Paul Getty bought 3 oil stocks in 1930 s – became richest man in world in 1950 s – bot out 3 oil companies which became J. Paul Getty Don’t run away from mkt in down mkt Punch bowl vs. cup ‘n handle Tech stocks do well in inflationary environment Keep eye on stocks with best RSI (85+) April 21, 2010 Presented by Cynthia Kienzle 29
WHAT I LEARNED FROM 3 YEARS OF IBD MEETINGS IBD 3/25/09 Per Ed Hornstein IBD is about riding on the coattail of institutions who buy stocks that break out of their bases. Bear mkt = system gets flushed out; chance to start again CANSLIM = finding the monster stocks Hold winners for 3 -5 months until stocks form new bases; then buy again Wait until earnings to buy stocks that gap up He (Ed) wins 70% of time Holds 9 -10 stocks at a time in a bull mkt Finding the hot stocks is not the challenge; it’s the maintenance Important to separate market from economy Likes 17% return on equity Likes 50% + mgt owned Got to morningstar. com to find out what mutual funds own a stock (ed knows which mutual funds have good managers) A stock is holding its breakout if it’s above 50 day moving average Want to watch stocks that trade in a very narrow range April 21, 2010 Presented by Cynthia Kienzle 30
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