Although I was a bit cautious last week, I’ve said all summer that the NASDAQ Composite is headed to 2400 with sharp, nasty corrections along the way. Don’t get me wrong, I reduce my equity exposure when we have these pullbacks in case the market doesn’t rally back. However, when the NASDAQ bounces nicely off its 50-day moving average and I see stocks like $BIDU $AAPL $FIRE $CDE and $CERN breaking out on strong volume, it’s hard not to feel positive about the market.

Another thing I observed last week was the strong action of Big Cap stocks such as $BIDU $GOOG $GS $AAPL $PCLN and $AMZN. My feeling is that many large institutions are significantly under-performing the major indexes. Since their universe of growth stocks is limited, they have no choice but to “plow into” these stocks when they are “chasing” performance. Combine that with the abundance of liquidity, a Fed that will NOT raise interest rates this year, and zero inflation and you have a recipe for higher prices into the end of the year.

Here are some trading ideas:

Big Caps: $AAPL $BIDU $PCLN $AMZN $GS $GOOG $ISRG. When I highlighted $BIDU last week at $382, I got a reply telling me how “crazy” I was to recommend such an expensive stock. $BIDU finished the week at $427 highlighted by a Citigroup analyst who raised his target to $480. I like being the crazy guy whose stocks go up $45 points in 4 days!!!

Gold stocks: $CDE $IAG $GOLD $AEM and $GLD (the gold ETF). These stocks continue to go up on strong volume and correct on lighter volume, a positive sign. According to Marketwatch.com: “The Hulbert Gold Newsletter Sentiment Index (HGNSI) which reflects the average recommended gold market exposure was unchanged recently at 25.2%. This is important because the HGNSI is nowhere close its record high of 90% and…the HGNSI saw peaks of 64.3% and 60.9% at gold’s highs earlier this year.” (click for article) As I mentioned two weeks ago, Gold could quickly surge to $1,100-$1,200 since many seem to be “doubting” or even ignoring the move. If we do see higher prices, the gold stocks mentioned above should benefit.

China stocks: $EJ $HMIN $CTRP $PWRD $KONG $UTA $DGW $WATG

Internet Security: $BCSI $FIRE $ARST $RAX $SWI. This entire group is strong and worth watching.

Biotech: $DNDN $HGSI

Miscellaneous ideas: $GMCR $GFA $QSII $NEU $PALM $HITK

All of the stocks mentioned above have decent support around their 20-day moving averages. Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

Follow me on Twitter @jfahmy

The proprietary RS Rating measures the price performance of a given stock against the rest of the market for the past 52 weeks. Every stock in the market is assigned a rating from 1 to 99, with 99 being the best. An RS Rating of 99 means that the stock has outperformed 99% of all other companies in terms of price performance.

My personal cutoff when selecting a stock is a RS rating of 90. I almost never buy stocks with a rating below 90. My reasoning is this: Harvard University rarely accepts students who score in the 23rd percentile of the nation’s SAT scores. They take only the best. So when selecting stocks, why should you settle with laggards or weaker-performing stocks? In addition, the key is not to simply buy stocks with the highest ratings. According to William O’Neil, the key is to “buy stocks that are performing better than the general market just as they are beginning to emerge from sound base-building periods.”

I use RS in three ways: short-term, medium-term and long-term.

Short-term: Intra-day RS can be useful when looking for day-trade ideas. For example, if the NASDAQ is down 20 in the morning, and you think it might rally back up, pay attention to stocks that are “holding up” better than the market. I like to look for stocks that are green or barely down on my screen with the theory that if they survived a morning selloff, they will most likely go higher if the market recovers.

The opposite is also true. If you purchase a stock in the morning and it doesn’t move when the market rallies, chances are it will become even weaker if the market fizzles. This is also a good way to look for short ideas intra-day. Again, these concepts can be used for shorter-term or day trading.

Medium-term: The best way to explain how near-term RS can be helpful is to use a real-time example. From 9/23/09 thru 10/2/09, the NASDAQ corrected approximately -5%. If you were looking to enter the market or add to positions near the NASDAQ’s 50-day moving average, the best trading ideas were the stocks that “held up” well during this pullback. For example, if you look at charts of $AAPL $BIDU $FIRE $CDE $EJ you will see how these stocks barely corrected when the market did. As soon as the selling pressure was lifted off the market, these stocks resumed their uptrend towards new highs.

Long-term: When the market emerges from a Bear Market, look for stocks that held up well during the big correction. For example, in the summer of 1998, the NASDAQ corrected approximately -32% during the LTCM collapse and the Russian financial crisis. When the market bottomed in October 1998, stocks such as YHOO CSCO MSFT AOL AMZN and EBAY were trading near their highs. In other words, the correction was like a “spring” holding down or compressing these stocks. As soon as the tension was released…BOOM! These stocks not only exploded to new highs, but also continued to be huge winners through 1999.

A more recent example is the March 2009 bottom. Stocks such as $GMCR $PEGA $EJ $PCLN and $NTES were all making new highs as the market was emerging from its Bear Market correction. These names went on to have significant gains in the ensuing six months.

So whether you’re a short-term trader or a long-term investor, you can see how relative strength can be used to help increase your success in the stock market.

Follow me on Twitter @jfahmy

The result was a healthy volume accumulation day on Tuesday that saw many leaders breaking out. I especially like the strong volume in the Big Cap growth names: $AAPL $BIDU $AMZN $GS $GOOG $PCLN. These are all institutional quality stocks, which shows me that the big funds are putting money to work. Remember two things: 1) many funds are chasing performance and 2) their universe of growth stocks is limited; so if they have to plow into names, these are prime suspects.

Here are some trading ideas (followed by a bunch of quick notes, so please excuse the grammar):

$BIDU – Weekly chart looks amazing. Great support around 368-370. A big institutional stock. Jesse Livermore used to love trading stocks breaking through round numbers such as 50, 100, 200, etc. because “a fast and straight movement almost invariably occurred after such points were passed.” Therefore, watch for $BIDU to break 400 and possibly take out its all-time high of 429 soon.

$AAPL – Held up extremely well during last week’s decline. With the holiday season coming up and possible announcements that the iPhone will be available on Verizon, T-Mobile or China Telecom’s networks, I am expecting more upside from now until year-end. A “must own” stock for big institutions. Support around 178-180.

$GMCR – Acting phenomenal technically. Great earnings and sales growth. Their traditionally conservative management guided higher last quarter so I am expecting a solid upcoming quarter. Strong support around 65-66. Approx. 32% of the float is short. Shorts will get punished, expecting new highs soon.

China stocks – $PWRD (support in the 44-45 area, one of my favorite China plays) $EJ (great weekly chart, huge support at 20, short interest tripled in the past month -click here for data- looking for further upside soon) $HMIN (huge earnings growth last quarter, I mentioned yesterday that I was looking for a break above 30.40, we got that today on strong volume, could see 35 soon) $DGW (thinly traded, cup w/handle formation with a great shakeout in the handle 3 days ago, support at 33, could breakout soon) $KONG (acting strong, great Weekly chart) $CTRP & $UTA (China online-travel ideas) $NTES (waiting for more volume strength, not buyable yet).

Gold – I read over the weekend how every time gold dips below $1,000/ounce, people seem to forget about it (a very true statement because I’m also guilty). My feeling is that gold might surprise everyone and breakout to $1100-$1200 when no one’s expecting it. Stocks to watch include $CDE $IAG $GOLD $AEM and $GLD (the gold ETF).

Biotech – $DNDN (very strong support in the 24-25 area, major institutional accumulation recently) $HGSI (bouncing nicely off the first test of its 10-week moving average).

Internet Security stocks watch list – $BCSI $FIRE $ARST $RAX $SWI

Miscellaneous ideas – $SXCI (support around 44, major acceleration in earnings the past 4 quarters) $ININ (support near 18, looking for a breakout above 20.5) $GFA (major increase in earnings expected next year, strong technical chart with support near 28) $WFMI (support near 28, highly shorted) $ISRG (support around 240).

Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

Follow me on Twitter @jfahmy

As I mentioned in yesterday’s Market Notes, I came into Monday cautious and wanted to see the market prove itself. A positive sign was that buyers stepped in today and the major indexes lifted off their 50-day moving averages. The major negative sign was the lack of volume (not just in the indexes but in individual stocks). One reason this doesn’t bother me too much is that every market selloff over the past 3 months began its recovery on light volume.

(The following 3 examples are easier to follow if you look at a Nasdaq chart while reading):
1) The pullback in early July was met with buying on 7/9 thru 7/14, but the real volume didn’t show up until a few days after that. 2) Same thing with the decline on 8/17, volume didn’t increase until 8/20-8/21. 3) When looking at 9/1, the recovery started on 9/3 but the real volume didn’t appear until 9/8 thru 9/10. My point is that if we’re going higher, we might not see heavier volume until later in the week.

Here are some trading ideas (followed by a bunch of quick notes, so please excuse the grammar):

$AAPL – Held up extremely well during last week’s decline. With the holiday season coming up and possible announcements that the iPhone will be available on Verizon, T-Mobile or China Telecom’s networks, I am expecting more upside from now until year-end. A “must own” stock for big institutions. Support around 178-180. Looking for a move above 187-190 soon.

$GMCR – Acting phenomenal technically. Great earnings and sales growth. Their traditionally conservative management guided higher last quarter so I am expecting a solid upcoming quarter. Strong support around 65-66. Approx 32% of the float is short. Shorts will get punished, expecting new highs soon.

China stocks – $BIDU (great support around 368-370, a big institutional stock) $PWRD (support in the 44-45 area, one of my favorite China plays) $EJ (great weekly chart, huge support at 20, large short interest, looking for a move above 23 soon) $HMIN (huge earnings growth last quarter, if it clears 30.40, could see 35 soon, support around 27) $DGW (thinly traded with support at 33) $VIT (thinly traded with support near 16-17) $NTES (waiting for more strength, not buyable yet).

Big Cap watch list – $ISRG $PCLN $GS (all these charts look strong).

Gold – I read over the weekend how every time gold dips below $1,000/ounce, people forget about it (a very true statement because I’m also guilty). My feeling is that gold might surprise everyone and breakout to $1100-$1200 when no one’s expecting it. Stocks to watch include $CDE $IAG $GOLD $AEM and $GLD (the gold ETF)

Biotech – $DNDN (very strong support in the 24-25 area, major institutional accumulation recently) $HGSI (bouncing nicely off its first test of its 10-week moving average) $MNKD (support at 8.5, presenting on Tuesday 10/6, click here for details)

Miscellaneous ideas – $SXCI (support around 44, major acceleration in earnings the past 4 quarters) $ININ (support near 18) $GFA (major increase in earnings expected next year, strong technical chart with support near 28) $PALM (support near 16, approx. 33% of the float is short) $WFMI (support near 28, highly shorted)

Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

Follow me on Twitter @jfahmy

Although the NASDAQ Composite experienced heavier volume today, I don’t consider it a “distribution day” because the market showed incredible resilience and rallied back to nearly even. More importantly, plenty of stocks held up well and were actually positive when the Dow was down over 100 this morning. I also like how the NASDAQ found great support on its 20-day moving average (near 2090).

Here are some stock ideas and quick notes:

1) $GMCR – I mentioned this stock as a potential breakout candidate in my Market Notes (9/27/09). On Monday we saw a nice move from 69-75 on strong volume. I tweeted on Tuesday that the stock could pullback to retest its breakout area of 70-72. I like how it pulled back on Tuesday and Wednesday on lighter and lighter volume, and found support today right around 72. Look for a breakout above 75 soon as I am expecting more upside in the next day or two. The stock’s high short interest could fuel this upside.

2) China ideas – $BIDU is nicely consolidating it’s up move from the week of 9/13/09. I believe it will run to 420-440 soon. $PWRD and $NTES broke out on strong volume on 9/23, pulled back to retest their breakout areas on light volume and are setting up to go higher. I like $PWRD better because it has a higher Relative Strength rating and stronger earnings growth. $HMIN is looking strong and I reported huge earnings growth last quarter. $EJ is building a great base on a Weekly chart and has great support near 20, which is near its 10-week and 50-day moving average. The short interest in $EJ has tripled over the last month (click to view) probably because people expect China to tighten its lending practices soon, but I think rates will continue to be accommodative worldwide and the shorts will get punished.

3) Gold – Many gold stocks broke out on strong volume in early September and pulled back recently on light volume. You will notice this in the charts of $CDE $IAG $GOLD $AEM and $GLD (the Gold ETF). According to Marketwatch.com: “The Hulbert Gold Newsletter Sentiment Index (HGNSI) which reflects the average recommended gold market exposure was unchanged recently at 25.2%. This is important because the HGNSI is nowhere close its record high of 90% and…the HGNSI saw peaks of 64.3% and 60.9% at gold’s highs earlier this year.” (click for article)
Gold has made several attempts to break $1,000/ounce over the last two years. Its recent surge might be sustainable this time since the majority seems to be doubting or even ignoring the move. If we do see higher prices, the gold stocks mentioned above should benefit.

4) Big Caps – $AAPL $GS $PCLN $AMZN $GOOG $BIDU. I mentioned over the weekend how most of these stocks found support last week near their 10 and 20-day averages, a positive sign. I tweeted this morning how $AMZN was holding up well (up +0.20) while the Dow was down –130 and was worth buying if we rallied back on the day. It finished up +1.64. Great example of why (as a trader) watching intra-day relative strength is important.

5) Miscellaneous watch list – Internet Security – My 2 favorite ideas are $ARST (support at 21-22) and $FIRE (support at 20). Biotech – $DNDN (support 24-25) $HGSI (support 17-18) and $MNKD (support at 8-9, the company’s founder Alfred Mann has a history of building successful Biotech companies and selling them). $HITK $PEGA $SXCI (these companies all have very strong earnings and sales growth numbers). $WFMI and $ISRG (also on my watch list).

My best trading ideas for the remainder of this week include: $GMCR $PWRD $HMIN $CDE and $AMZN

Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

Follow me on Twitter @jfahmy