Wednesday's TSM Report (06/16/10)New to TSM? Find how I suggest you use it here
and a Note: I've started tweeting again, if you want me to continue that intraday, please click on the above add, as it helps pay for the services. You don't have to buy anything, just click on the link.
TSM Articles of Interest
(Richard Miller) Part II: Drawdown" These TradingMarkets.com articles describe strategies, analytical
indicators (e.g., 2-period RSI) and present results from my own analysis.
TSM's strategy in a nut shell is to identify a group of fundamentally sound
stocks through 15 multiservice screens (IBD, Zacks, Vector Vest,
Morningstar) then concentrate on buying those stocks with value remaining at
their current price (2-yr PEG ratios as they pullback. The 2-period
RSI and TradingMarket's PowerRatings provide measures of pullback strength.
Tuesday, the S&P pushed higher and finished well--both at the top of its range and above its 200-day moving average.. Volume, though slight, was still greater than Monday's. While our market indicator is still bearish, it's close to turning bullish. Today, 129 of 145 (89.0 percent) TSM stocks moved up more than half a percent while 70.6% of the total market did. The $RUT:$SPX line (the relative strength of the Russell 2000 to the S&P) continues up which shows the market's preference for smaller caps. ...(06/15/10)...The following chart shows over the last week money has been flowing into stocks and the Euro and to a smaller extent into the safety of gold, while bonds have faltered a bit.
 John Murphy (StockCharts.com) made a good point in a recent column. Money is flowing into our markets, and the strong dollar is a reflection of that fact. The strong currency reflects a strengthening economy. The net effect is that US stocks become favored over foreign stocks. American investors lose money two ways investing in foreign stocks: stocks falling prices as well as falling currency values. Look at these relationships in the following chart. As the dollar strengthens, our goods sold overseas become more expensive.
Monday (05/06/10), the S&P was up 4.4 percent and Wednesday, another 1.4 percent. You might wonder what's the likelihood that a strong day in the market is followed by a down one. The following chart addresses that question in data taken over the past 593 trading days. For example, when the market had an up day exceeding 4 percent, the next day was up 5 times an average 2.43 percent, but down nearly three times as often (14 times) at a -1.93 percent average. Today's 1.4 percent bullish move has a slightly greater chance (26 to 21) of being up on Thursday ~1 percent.
The S&P closed +0.37 relative to its 20-day moving average. Twenty-six of this week's 145 TSM stocks made a 21-day high (0 other(s) a 21-day low), while 69 of 145 traded within 10 percent of their 52-week high. Earnings reports for Tuesday {06/15/10}. If you haven't read Ken Fisher's latest market report let me tell you, he remains pretty bullish for the coming year. Follow his reasoning: "The early stage of the new bull market was driven primarily by rebounding sentiment and a global wall of liquidity from stimulus programs--unprecedented in their size and coordination. Those forces remain in place, but fundamentals should gain primacy as the year progresses. With that in mind, we explain the following bullish drivers:
The weekly chart below shows the S&P reversed higher this week after testing
it February lows and then finished the week to close just under the
resistance of its 40-week moving average. Likely
areas of support continue to be just above its 38 percent Fib level at its April
low as it continues its retest of it Feb lows...... 06/11/10
This next chart shows the average gain/loss in the S&P 500 presented by day of the month. Performance-wise, it's the tail of two halves. While over the past 41.4 months, the S&P has lost 9.55 percent, days 1 through 20 in the month have lost 26.22 percent, while days 21 through 31 have gained 16.68%. It pays to be in the market during the latter half of the month. Here's how days 21 through 31 have performed, summed over the 41.4 months between 01/03/07 and 06/15/10: 21 (+9.7%), 22 (-15.7%), 23 (+10.2%), 24 (+6.3%), 25 (+5.0%), 26 (-0.1%), 27 (-15.1%), 28 (+14.1%), 29 (-5.0%), 30 (+3.1%), 31 (+4.2%).
Over the past 31 weeks, TSM has picked 557 unique stocks. The following chart shows the TSM life of this group. For example 26.9 percent of the group made the TSM list just once, while 80.3 percent of them made the list from one to nine weeks. Looked at another way, 19.7% of the group were on TSM's list just for ten to 31 weeks. 
Successful day trading is all about finding edges. For me that means getting to know well a few, very liquid, high quality stocks. Ideal candidates have the following characteristics: 
Find a discussion of various edges here and a few examples here. Special Report: "Seven Day-Trading Edges" Recent Examples of a new day-trading strategy used to place money in the market at 20 percent plus annual returns: identifying a market that's stretched in pullback and ready to spring higher; day trading that reversion to its mean until it peters out; exiting the trade writing an in-the-money call ("covered call"). Click chart to enlarge.
Trading TSM StocksTSM Trading Returns have been summarized from the last 25 quarters of forecasted stock picks. A
$35,000 account on 9/15/03 would have grown to $600,306
over these quarters (a 1,751% return over a period the S&P
gained at a +9.47%). On a quarterly basis, TSM trades averaged 101 half-position trades to completion
over 6.1 days/trade, and in only three of the 25 quarters did the S&P outperform the TSM trading returns. Find more details
here.
Note, I don't make every one of these trades myself, though I do make many. Trade results are hypothetical. Think of TSM results as
what's possible from these forecasts. Note, it's highly unlikely that you (or I) will consistently match these results (because one would
have to be sitting in front of a computer screen all day long while the market's open). Having said that, I do actively trade TSM
screened and forecasted stocks for my own accounts (TradeStation).
"Buy Weakness and
Sell Strength
{RSI(2) Pullback Criteria of at Least
Two Days Below 15 - Click to View or a technical pullback}
Long TSM Buys for Tomorrow
(in addition to highlighted purchase)
See my article, "How I Trade Using Both PowerRatings and Fundamentals," describing the benefit of combining PowerRatings with TSM stock qualification. See TradingMarket's description of the product here.
Highlighted TSM Stock Buy for Tomorrow - THOR Company Information: Thoratec Corporation develops, manufactures, and markets proprietary medical devices used for circulatory support. It operates in two divisions, Cardiovascular and International Technidyne Corporation (ITC). Cardiovascular division offers medical devices used for mechanical circulatory support (MCS). Its products include HeartMate II, an implantable left ventricular assist device consisting of a miniature rotary blood pump to provide intermediate and long-term MCS; HeartMate XVE, an implantable device for intermediate and long-term MCS; and Paracorporeal Ventricular Assist Device, an external device approved for bridge-to-transplantation and post-cardiotomy myocardial recovery to provide left, right, and biventricular MCS. This division also offers Implantable Ventricular Assist Device, an implantable device, which provides left, right, and biventricular MCS; CentriMag that provides 6 hours support for patients requiring short-term extracorporeal circulatory support during cardiac surgery, as well as used as a right ventricular assist device for 30 days for patients in cardiogenic shock due to acute right ventricular failure; and Vectra Vascular Access Graft, which is used as a shunt between an artery and a vein. ITC division offers point-of-care diagnostic test systems that monitor blood coagulation, as well as monitor blood gas/electrolytes, oxygenation, and chemistry status. This segment also provides incision products to obtain a patient's blood sample for diagnostic testing and screening for platelet function. It offers its products to hospital point-of-care market; and the alternate site point-of-care market comprising physicians offices, long-term care facilities, clinics, visiting nurse associations, and home healthcare companies. Thoratec Corporation markets its products through direct sales force and distributors in the United States and internationally. The company was founded in 1976 and is headquartered in Pleasanton, California.
Daily Chart | Weekly Chart | Daily Point & Figure Chart Company Fundamentals: THOR is a 2.53 billion market
cap company. Its sector is HEALTH SERVICES - Medical Instruments &
Supplies (151st in performance over past month {21 trading days} of 239 industries and
9th of
79 stocks within its own industry). Zacks ranks THOR a
1 (ranked 1 four weeks ago). PEG ratios of 0.71 and
1.39 for the next two years reflect the value left in the price (read about
the effectiveness of PEG ratios in forecasting value
here), though it has
increased +50.0 percent in value over the past six months
(S&P 500 decreased -1.15 percent).
THOR
reports earnings on
Technicals: THOR should pullback to the support of its rising 20-day moving average.. It continues to hold up well in the market' uncertainty (look at the relative strength against the S&P since the end of April). It's also made the TSM list 9 in the last 31 weeks.
Town's Rule 1 Characteristics for
I introduce here, Phil Town's Rule #1 criteria for each TSM pick. The analysis, described in his best selling book, evaluates the long-term potential for a given stock. Of course, the average TSM pick plays out over the next six days (most times sooner). I insist on the TSM fundamentals screens (all long-term based utilizing a combination of IBD, Zacks, Vector Vest, Morningstar and Navellier criteria) because they identify those stocks with quality fundamentals (including short-term PEG ratios add a value metric), and these are the ones that institutions buy (providing us short-term traders a safety net). Note, a 10-year projected EPS (estimated from historic growth rates) combined with a P/E estimate allows one to calculate stock price expected in 10 yrs. That future price in turn can be combined with an assumed IRR rate of growth (Town's 15%) calculation to estimate what today's price should be (sticker price). Town then recommends buying at half that price (MOS - Margin of Safety). Note, I use an Excel program to qualify TSM stocks that was developed by Jerry Erwin. It automatically pulls data from free internet sites and populates an Excel sheet, but beware the calculations are only as good as the free data provided by moneycentral.msn.com. If you would like to purchase your own copy of the program, contact Jerry.
Writing Naked Puts on TSM stocks has proved very successful over the past year (101 winners in 109 forecast picks generating $53,614 in premium). (TSM Puts must meet these requirements: >18% annualized return, >10% downside protection (from 15 to 40 days before expiration and >5% <15 days), high relative volatility (rich premium) level (relative to the volatility experienced over the life of the option) is also a plus. I'll supply these TSM Put candidates each evening (and during the day occasionally through Twitter). Note, starting Monday (06/14/10) I'll forecast Put trade(s) intraday on the TSM twitter account (TSM_rm) and track these trades on the "Open/Closed Put Trades" accessed from the link in the Index box at the top of the page. All TSM Put Positions with
Potential for Tomorrow
Plus Their Fundamentals
Naked Put Orders I'll Place this Evening
I'll Pick TSM Naked Put Intraday Tuesday and Report at Twitter (TSM_rm)
Highlighted In-the-Money Naked Put or Bullish Put Spread
-
Naked Put Strategy: Find an article that I wrote about the benefits of writing naked Puts here--especially if you're trying to allocate money conservatively at a higher rate of return. That's right, writing Naked Puts is a conservative play. Believe it or not, it's even more conservative than buying stocks outright. Envision five market scenarios for a given stock over the next 30 days: stock goes up a lot (>10%), stock goes up a little (to 10%), stock stays the same, stock falls a little (to 10%), stock falls a lot (>10%). Well if you own that stock, you make money with the first two; if instead, however, you had written the 10% Out-of-the-Money Put, you make money in the first four scenarios and don't lose as much in the fifth. Enough said. Each day, I suggest a particular TSM stock and its Naked Put play. If there are 15 or fewer days before expiration (3rd Friday each month), this play will have >5 percent downside protection (make money even if stock falls up to 5 percent over those 15 days). If there are 16 to 40 days left before expiration, this play will have >10 percent downside protection. In either case, I expect an 18 percent annualized return. Those are my three criteria: high quality TSM stock, 5-10 percent downside protection, 18 percent annualized return. One always worries about the impact a catastrophic event might have on your stocks. The Naked Put strategy gives ~10 percent protection, but it will still be susceptible to a further downturn. Hard stops, on the other hand, hurt performance so the question might be: "Just how big a fall might we expect in our stocks with a catastrophic event? From 9/10/01 to 9/21/01 (over 5 trading days following the 9/11 attack on the "Twin Towers") the S&P fell 11.6 percent before rebounding. More importantly, 59.1 percent of 6,530 stocks fell that amount or less, while another 27.2 perfect fell between 11.6 and 25 percent, i.e., 86.3 percent of these stocks fell less than 25 percent. From my perspective the downside protection offered in our Naked Put strategy (used on quality TSM stocks) has more than enough protection.
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