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|This bulletin was published on Sunday,
Oct 31st, 1999 just for you.
Past Weekly Bulletins
Still waiting to see what the market is going to do? Well, in the mean time Jeff and a few of the RollingStock100’s more experienced Traders have gotten together and produced an exceptional Soap Box article, just for you in this Weekly Update.
This week we lost another five of our Rollers, and didn’t gain a single replacement. Boy, we’re going to have the leanest, meanest bunch of Rollers ever, if this keeps up! I say this, because of the seventy remaining stocks, many are on the upswing.
While you’re looking over the list, I hope you think about all the information available for timing the buys and sells you’re planning on making. If you don’t fully grasp the concept of trading rollers yet, remember that keeping the basics in mind is of the utmost importance. Seriously study the Bollinger Bands, Moving Averages, RSI, MACD, Stochastics, and Volume+, on the various stocks peaking your interest. Also consider why you think these specific stocks stand out. Surely, you’re only interested in the stocks that jump ahead of the dogs. Are you watching the news and using it as a crucial part of your decision making process?
Something I’ve found useful when trying to figure out of what use an indicator is, is to run a chart on a stock with your indicators of choice attached. Go to the www.bigcharts.com web site and run a chart with RSI, Volume+, and Fast Stochastic as its bottom indicators. Make it for a three-month time span, broken down by one-day increments. Sit down and study this chart. It should become very obvious, very fast how the indicators react to what the price of the stock is doing. As a matter of fact, to make it ultra simple, place a straight edge vertically across the chart, on various trading days of the three-month period.
What do you see? What you should be seeing is exactly what you’ve already read about in the Classroom and Rolling Stocks books. You should be seeing that each time the price-changed direction; the bottom’s indicators did too. However, if you are really studying the chart, you’ll see that all of the gibberish you’ve read about indicators (both, lower and upper) is true. They really do tell you in advance that your stock is about to do something, standstill, move up, or move down. By running a chart and checking its past recent history with the help of a straight edge, it all becomes glaringly clear, that indicators really do work. Soon you’ll see that it’s not a matter of whether the indicators work or not, but rather, if you know how to read them. Are indicators perfect? No! But they are of a great value to any trader. In the unpredictable world of trading rollers, upper and lower indicators are one of the more stable tools available to the trader.
Try out the above and you’ll see what a tremendous asset the many indicators are to the lone Trader.
The Soap Box
Hello and sit back…this has been a work in progress for some time. Grab a refill of coffee or whatever keeps you awake. Thanks to Jet and Matt for submitting the questions that provided the extra nudge to get this one done.
Special thanks also to Louis A. Wayadande, Matt Bloom, B. Talent, and Rob Leonard for their contributions on methods to research stock. I have inserted their previous posts into this Soapbox, so I hope they accept my thanks for their time and efforts. Please forgive the length of this but it was hard to keep this one short. Matt’s question was: Would you mind sharing your steps that are involved when you sit down to take a look at the market as a whole, sectors to study, and finally, stocks to begin researching? I have a somewhat complex methodology of researching stocks that involves a lot of technical indicators mixed with some fundamental indicators, however, they have served me well. Any comments would be appreciated...
Any comments…remember you asked for this.
My first stop is Investor’s Business Daily (IBD), if you have time read the first couple of pages. Head towards to the back and find the General Market and Sectors, followed by Industry groups. This section has nice charts showing the NASDAQ composite, S&P; 500, and Dow Jones Industrials. Included in each chart is a 200-day average line so you can get a very general idea of Market direction. Look at the charts to see if there are any patterns that seem to be forming, Reversal, Consolidation, or Gaps (Hint, book by Edwards and MaGee:TECHNICAL ANALYSIS OF STOCK TRENDS). Next is the market sector indexes, it’s nice to track these sectors in a notebook from week to week. I like to find the rising sector, usually it starts with a couple of hot stocks and then slowly spreads across the sector as other issues follow suit. This is just to give me a ‘feeling’ about market conditions in general, let this be a guide and not a roadblock to further analysis.
Sectors can be charted much like an individual stock but since IBD does this for you, most of the work is done. IBD creates these charts on Monday, Wednesday, and Friday; I usually look at them at least once a week. The drawback is how quickly sentiment turns against a particular sector, for example look at the Technology sector on the NASDAQ. One day it’s doom and gloom as a highly visible company misses it’s earnings, the NASDAQ plunges…two days later the next company beats their earnings and the investors come flooding back. Don’t let the sector analysis be a roadblock in your investment decision, but use it as a general indicator. What I am trying to say is don’t invest in the cellar dwelling sectors unless the individual stock has a good story and potential behind it.
The above is what I use for my longer term holdings, the Rolling Stocks are looked at a bit differently. Now that I have been using the Rolling Stock list, I find that the sector analysis is more of a tiebreaker after I narrow down the stocks to watch for the week. The individual stock analysis is a bit more involved so here goes. I use a charting program at home that allows me to scan through my list of stocks in about fifteen minutes (first screen). The first time through I have Bollinger Bands, Relative Strength Index and MACD Histogram as my indicators. I am looking for stocks in which the MACD histogram bars are below the centerline but showing signs of flattening out or starting to rise, these stocks go on my first list. Stocks that are below the Bollinger bands also go on the list.
RSI is looking for stocks below the 30 level. Next I create a new workspace in my charting program with the stocks that passed the first screen. I’ll remove the Bollinger Bands and look at simple Moving Average and change the bottom indicator to Accumulation/Distribution (indicator signifies the more volume that accompanies a price move, the greater the significance of the move). It is important to use indicators that look at different aspects of the stock. Don’t get trapped into using indicators that are based on price alone. After this screen I usually end with 8-15 stocks that are on my list. I then compare the remaining stocks to the suggested entry/exit prices on the list of Rolling Stocks.
Now I skip over to Yahoo.com, plug in my fifteen or so stocks, http://finance.yahoo.com/q?s=anic+axc&d;=3m The stocks in the above are just examples and not a recommendation. This URL will give you a three-month chart, links to news, SEC filings, Profile, Research, and insider trades. I browse the news headlines looking for disappointing earnings news, pending lawsuits, and analyst coverage initiated or changed. Bring up the profile for each stock, I look for Shares outstanding, float, book value and short interest.
Now comes the fun part, drawing the pretty lines on the graphs. Draw your trendlines, the support and resistance lines and retracement levels if the stock is in consolidation. Now is also the time to look for the different patterns such as head and shoulders, flags, channels and gaps (Hint: Edwards and MaGee). Look at past chart history to see if the stock rolls from a corresponding position it is in now. I can not give you a technical term, but if the stock generates any ‘bad’ feelings or questions…throw it out for this week. I realize this last part is not totally subjective, but after running through the charts for awhile you will hopefully develop that sixth sense. If you feel the hairs on your neck stand up, this is that sixth sense warning you about the stock (or you need the kid from the Sixth Sense movie). Additional websites that I use include
I hope this gives you an idea of how I evaluate stocks, the picks that our members send in are put thorough the above steps. I have included the methods that Louis A. Wayadande, Matt Bloom, B. Talent, and Rob Leonard use for comparison and to give you another version how stocks can be screened. There is a follow-up after you read the writings of the four contributors above. It is an answer to Jet that I hope addresses some questions about MACD and Stochastic indicators. Good luck to all, Jeff
If you'd like to view the past Weekly Bulletins, there are a variety of places to go. Take you're pick! You'll find they're easily accessible for your viewing at Delphi Forums, RS100's Premium Board, Yahoo! Clubs, MSN Clubs, The Motley Fool, Lycos Clubs, and The Raging Bull.
I know what your thinking... What idiot?! Would have seven different message boards for their web site and post the identical information on each!? Well the answer is simple...LLH that's who :-0) If you've read this far you're probably expecting to stumble upon my reasoning for this about now? So here it is: each of my message boards are located in popular "communities" catering primarily to the financially minded web surfer. When one of these investing voyagers of the net drift onto one of the RollingStock100 message boards, the inclination is to click over and check out the web site that's sponsoring it...namely this one, RollingStock100.com! It's just a method of attracting future members by giving them a trail of bread crumbs to follow.
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