Blue Plate Specials – The “Hungry Bear” Menu, Market Notes, and Trading Tips

Menu 11-27-09

In today’s final installment in the series of “How to order from the daily Blue Plate Specials” we’ll be looking at the portion of the menu designed for all of you hungry bears namely stocks that are either breaking down or are hitting new lows. But these lists aren’t just for the short-sighted! Most of us have diversified portfolios and if you see a stock in which you have a long position appear on one of these bear lists, then you should probably consider either lightening up your holding (either all or some of it) or protecting it via the use of put options.

So as not to finish off this series on a down note, we’ll also look into the daily Market Notes as well as the Trading Tips selections.

Bear Menu categories

FYI:
* Please note that only stocks trading above $5 are considered. This is because most brokerage houses will not let you short stocks below that.

* Trading volume is not considered on the short side because it doesn’t have the same impact as on the long side.

New Lows
Hot Lists:
These are the stocks appearing on the New Yearly Low hot list that are currently trading above $5.

Selection Criterion:
* Stocks in this category need only to be making a new yearly low. Trading volume isn’t a factor here but one thing you might want to look for is a stock making a new low on extremely high volume and with a long bottoming tail in relation to the body (on a candlestick chart). This means that the supply of sellers has run out and a reversal in trend direction is highly probable.

How to use:
Stocks that make this list stand a good chance of going lower except for those fitting the above mentioned exception. Dr. Kris does not recommend that you run out and short these stocks unless you are experienced in short-selling (or buying put options) and are able to read a chart well enough to discern how far the stock could fall. For example, if there’s a major support level close by, it may not be profitable to take on a short position considering the reward versus the risk.

Example: See chart below.

Breaking Down
Hot Lists: These stocks are principally culled from the following hot lists: Percent and Point Losers, -VWAP, Unusual Volume, and Unfilled Gaps.

Selection Criterion:
*Stocks that are breaking a support level. These can include those issues that have enjoyed a significant run-up but are falling perhaps due to changes in company fundamentals (e.g., lower than expected earnings, lowered guidance, change in management or business focus, analyst downgrade, etc.), sector rotation (institutions moving into another sector because of a perceived change in future economic conditions), or the incompetence of one or more of their competitors thus bringing down the entire industry group. Sometimes there’s no apparent reason for the fall other than investors are losing interest and are finding other places to put their money.

How to use:
Stocks that make this list have the potential to go a lot lower. Shorting stocks is an art in itself and unless you’re experienced with the vagaries of short-selling, please only play with money you don’t care about losing.

Example:

SMTB Chart 11-29-09
Click to enlarge

Other categories: Market Notes & Trading Tips

Market Notes
This section appears at the bottom of the menu. Think of it as your eye on the market and as a crystal ball into future direction. It’s a distillation of internal indicators that are used to interpret current investor sentiment and leading technical indicators that point the way of future direction.

The main indicators used to measure the current market temperature are the Volume Weighted Average Price (VWAP) which is considered to be a measure of institutional buying or selling interest (VWAPs can be both positive and negative), the number of advancing issues versus the number of declining issues, and the Trin (Arms Index).

Indicators of where the overall market may be headed in the future include support and resistance levels of the major indexes especially the S&P 500 (SPX) and the Dow Transports (DTX); divergence in the direction of the Dow Transports compared with the Dow Industrials (Dow Theory); the direction of the Trin; and the direction of the VIX which is a measure of investor fear and uncertainty.

All of these indicators are used to formulate the state of today’s market and to provide an indication of near-term direction. Just one caveat: Lackluster internals cloud the crystal ball so that predictions of near-term movement can’t be made with much accuracy.

Trading Tips
This feature is only included when specific trading opportunities arise. Sometimes trading tips are disguised as “On the Move,” “Heating Up,” or “Cooling Off.” Consider these tips as possible trades that merit further investigation.

Conclusion
Now that you have a glimpse of what constitutes the Blue Plate Specials, I hope you start to use these menu selections as springboards for your own research. Please remember that all of the suggestions and recommendations made in the Blue Specials are just that; it’s up to you how you digest them.

Buon Appetito!

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