Joe Fahmy The Next Big Move » HGSI

Just When We Can’t Go Higher…

Joe Fahmy — Mon, 29 Mar 2010 22:22:52 +0000

One of my favorite stock market sayings is: “Just when you think something can’t go higher, it usually does, and just when you think something can’t go lower, it usually does.” A perfect example of this is the price of oil over the past few years. When oil went from $40 to $100, many market participants said it couldn’t go any higher and it eventually climbed to around $146. On the way down, when oil fell from $146 to $90, many thought the price would stabilize around $80 to $100, only to see it fall to $35!

This example applies to today’s stock market. Many people are expecting this rally to end any day now, but I wouldn’t be surprised to see the market “fool the majority” and continue higher over the next 3-6 months (with corrections along the way, of course). I’m not only basing this on psychology, but also on the strong market internals. I continue to observe a large number of stocks that are acting well. Specifically, stocks breaking out on strong volume and consolidating on lighter volume.

What amazes me is vast number of sectors represented by these stocks. Examples include: Semiconductors $CREE $AIXG $VECO, Restaurants $CMG $PNRA, Retail $LULU $DECK $SHOO, Machinery $DE $CMI $BUCY, China $BIDU $CTRP, Big Caps $AAPL $PCLN $AMZN, Biotech $DNDN $HGSI $JAZZ, Natural Gas $CLNE $WPRT. The scary thing is that I could keep giving more examples.

Bottom line: I still see healthy signs overall and I continue to recommend being invested in this market. Don’t forget to take profits on the way up keep and, as always, look to cut losses on your weakest performing stocks.

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Healthy Signs

Joe Fahmy — Thu, 04 Mar 2010 05:32:03 +0000

After two big volume accumulation days on Monday and Tuesday, it was nice to see the market consolidate on low volume Wednesday. I always find it constructive when indexes make strong progress and barely give any of their gains back. Hopefully, you were able to take advantage of the abundance of breakouts the past few days, many of which were highlighted recently on this blog: $GMCR $CMG $NETL $ATHR $CAAS $ISRG $CTRP $CAGC $IPXL $HGSI.

Another positive sign is that many of the stocks listed above broke out on strong volume and pulled back today on lighter volume. If you missed some of these breakouts, I feel you can buy them on pullbacks to logical support areas such as their 10-day or 20-day moving averages.

My advice remains the same: If you are not invested in this market, SLOWLY get back in by buying 2 or 3 stocks. If you are invested, SLOWLY increase your market exposure by adding to your positions. The key is to do this SLOWLY! Why? Because if you jump back into the market all at once and chase extended stocks, you increase your chances of getting stopped out of your positions. In fact, I wouldn’t be surprised to see the market pullback over the next day or two. If this happens, I plan to take advantage of the opportunity by increasing my investment levels. Why? Because I’m currently finding a large number of stocks that meet my technical and fundamental investment criteria and these stocks could propel the market higher over the next 2-6 weeks.

I also suggest keeping a watch list of strong fundamental companies that are building sound technical bases. Some examples on my watch list include: $CLNE $JAZZ $VPRT $GMCR $MLNX $SHOO $HGSI $SOA.

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!

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Market Continues to Strengthen

Joe Fahmy — Tue, 02 Mar 2010 01:37:02 +0000

On February 11th, I wrote that the market pullback of late Jan/early February had the feel of an 8-12% intermediate-term correction rather than an overall top (click here to read). Since then, I recommended to SLOWLY get back into the market and increase your investment levels as you begin to see a profit. Assuming you followed this advice, IT IS NOW TIME TO INCREASE YOUR MARKET EXPOSURE ON THE LONG SIDE.

Here is my reasoning and some observations over the past few weeks:

1) The most important criteria I use to gauge the market’s health is the action of its leading stocks. Right now, THERE ARE TONS OF SOLID FUNDAMENTAL COMPANIES BUILDING AND BREAKING OUT OF STRONG TECHNICAL BASES!

2) Market Resilience: On Thursday, February 18th, the Fed raised the Discount Rate by 50 basis points but the market shrugged off the news and finished higher the next day. On Thursday, February 25th, the market ignored poor US economic data and fears about Greece’s debt problems to once again rally and close near the highs of the day. The market’s ability to rally in the face of bad news is a “subtle tell” that it wants to go higher.

3) Sentiment indicators shifted from extremely bullish in mid-January to extremely bearish in mid-February. The recent heavy put buying shows there is still plenty of doubt out there.

4) The major market indexes are back above their 50-day moving averages, a sign of health from a technical perspective.

5) Oh yeah, did I mention the number of stocks that are breaking out across several sectors??? Semis: $NETL $ATHR, Big Caps: $ISRG $BIDU $PCLN, China: $CAGC $CTRP, Retail: $DECK $ANN $SKX Miscellaneous: $SNDK $CMG $CTSH $RDWR $SMCI.

Here’s my best advice: I would SLOWLY begin to add to your positions (assuming you’re at a profit on new purchases over the past few weeks and that you have a cushion to work with). DON’T CHASE EXTENDED STOCKS and DON’T JUMP BACK INTO THE MARKET ALL AT ONCE! Why? Because you will just get stopped out on any normal pullback. Keep a list of stocks building sound technical bases and buy them as they begin to breakout. Examples of stocks on my watch list include: $ARST $CLNE $DNDN $VPRT $GMCR $PLXS $HGSI. As always, keep your winners and cut your losers.

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Market Resilience

Joe Fahmy — Mon, 22 Feb 2010 05:10:28 +0000

When the futures were down -1% last Thursday night, I mentioned that the market would “shake off” the Fed’s discount rate increase. My reasoning was based on the strong price action of leading stocks and the number of stocks looking to complete the right side of their bases over the next 2-4 weeks. In other words, if the market was going to collapse in response to the Fed’s actions, stocks would not be “setting up” technically and looking like they want to go higher soon.

I must admit that even though I expected the market to be resilient, I didn’t think that the futures would recover by Friday morning and finish positive by Friday’s close. I thought the Fed news would give the market an excuse to sell off over 2-3 days, and then we could look to buy the stocks that held up well during the decline. Instead, THE MARKET’S ABILITY TO SHRUG OFF THE DISCOUNT RATE HIKE COMBINED WITH THE NUMBER OF STOCKS I SEE SETTING UP SHOWS STRONG MARKET RESILIENCE AND TELLS ME THAT WE MIGHT SEE HIGHER PRICES SOON.

I still expect a “choppy” environment over the next few weeks; however, if more stocks breakout of sound bases on strong volume, I would look to increase investment levels. In the meantime, I recommend keeping position sizes light until the market continues to prove itself. Friday’s strong action is a great sign of the market’s improving health. As always, I suggest maintaining a watch list of stocks that are holding up well and forming proper bases.

My current watch list includes: $GMCR $HGSI $ISRG $NFLX $DNDN $CLNE $TSTC $IPXL $RDWR $CTRP $VPRT $NETL $ATHR $PAY.

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Stocks to Watch

Joe Fahmy — Thu, 18 Feb 2010 02:54:25 +0000

As I continue to wait patiently for the market to prove itself, here are some observations:

1) The light positions that I took over the past week have worked out well so far: $NETL $CAGC $ISRG $GMCR $NFLX.

2) I took some profits on $NETL into strength on Tuesday and it pulled back on light volume Wednesday. It’s always a good sign when stocks breakout on strong volume and pullback orderly on lighter volume.

3) The NASDAQ Composite rose on higher volume on Friday 2/12 and Wednesday 2/17. They were not big up days, but still a subtle sign of accumulation.

4) Steady put buying shows me that sentiment remains negative. I always pay attention to investor psychology because “the market tends to fool the majority.”

5) Many stocks are trying to build the right side of their bases. I’m not recommending to buy them now but to keep them on your watch list if they “setup” and offer decent low-risk entry points. Examples include: $V $AAPL $ATHR $CLW $FIRE $ARST $IMAX $INFY $CLNE.

6) My stronger ideas that could breakout soon include: $IPXL $EVVV $HGSI $GMCR $MNRO.

I still suggest to remain patient as the market needs time to carve out proper bases. I wouldn’t be surprised to see a “choppy” environment over the near-term for two reasons. First, the NASDAQ may run into some resistance now that it has rallied back to its 50-day moving average. Second, part of base building involves volatility and shakeouts. That’s why I would rather wait for more stocks to continue to build their bases and buy them at the proper “low-risk entry point” rather than buy them now and possibly get shaken out. My best advice is to continue to keep positions light, cut losses on your weaker performing stocks, and wait for more signs of health before increasing your investment levels.

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The Upcoming Rally

Joe Fahmy — Sat, 19 Dec 2009 05:55:02 +0000

I feel the market will breakout to the upside over the next 3-6 weeks. Here are my reasons and some stocks to watch:

1) Big Caps: I have said all along “watch the action of the Big Caps.” Why? Because the large institutions traffic in this area and watching these stocks usually shows us what they are doing. Last week $GOOG rose on strong volume and $AAPL $ISRG $PCLN $AMZN $BIDU all pulled back on light volume, a sign that the large funds are not selling their shares yet.

2) $AAPL: After reviewing RIMM’s earnings Thursday night, I don’t see how Apple doesn’t obliterate their upcoming quarter’s earnings. In their last conference call, Apple said they “couldn’t keep up with demand.” In this economy, there are FEW companies who can say that. I think you can trade Apple as a “buy the rumor, sell the news” play. In other words, buy it here at $195 (it should have support in the 186-188 range) and sell it into a potential run to $220 by its earnings in late January.

3) The Dollar rally is over! There is INSANE speculation in the $UUP 23 calls for Dec, Jan and Mar. There’s a reason why the specialists closed it Friday RIGHT ON $23! If you don’t understand this, don’t worry about it. All you need to know is that the market tends to fool the majority. In other words, when the entire world speculates the same way, it almost never happens. I don’t expect the UUP to close above $23 anytime soon. Therefore: Dollar Decline = Stock Market Rally.

4) $CML: Compellent Technologies. Strong technical Daily and Weekly chart, hot sector, 16 quarters of revenue growth…sounds “compelling” to me! The entire Storage sector is strong ($STX $WDC $CAVM). You can buy CML here at 22.50, it should have support in the 20-21 range. I’m expecting the stock to be up 30-50% in the next 12 months.

5) Internet Security: This entire group acted very well this past week. Stocks to watch include: $RAX $ARST $BCSI $FIRE $FTNT (recent IPO).

6) India: Many Indian-related stocks showed great relative strength this week. Ideas include: $WIT $RDY $CTSH $INFY $TTM.

7) China Water/Infrastructure stocks: $RINO $TRIT $HEAT. China plans to more than double its spending on environmental protection in the five years from 2011-2015. They plan to invest $454 billion during this period, compared with the $205 billion allocated for the five years between 2006-2010. I expect this increase in spending to benefit these stocks and I look for continued announcements of government contracts to help their strong earnings and sales growth.

8) Miscellaneous ideas: $HGSI (continues to trade in a very tight range, a sign that institutions are not selling shares) $LULU (46% of its float is short) $SWM (strong chart, added to Goldman’s Conviction Buy List recently).

9) One final note, if I am dead wrong about my call for a market rally, it doesn’t bother me at all. Why? Because I trade with stops and I don’t have an ego when it comes to trading. Remember two VERY IMPORTANT trading rules: “Always cut your losses,” and “Separate your ego from your trading.” The market doesn’t care if you have to provide food for your family or if you have 10 kids to put through college. In other words: respect the market, take what it gives you, and ALWAYS protect your portfolio!

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Market Notes (10/11/09)

Joe Fahmy — Sun, 11 Oct 2009 14:22:48 +0000

For those of you new to my investment blog, the most important criteria I use to judge the health of the stock market is the price action of leading stocks. While reviewing my technical, fundamental and quantitative screens this weekend, I continue to find a large number of stocks “setting up” and looking like they want to go higher. In addition, these stocks represent a broad range of sectors such as Technology, China, Gold, Medical, Biotech, Energy, Gaming and Internet Security.

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!

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Market Notes (10/6/09)

Joe Fahmy — Wed, 07 Oct 2009 05:57:00 +0000

As I mentioned in yesterday’s Market Notes, the only thing I didn’t like about Monday’s action was the lack of volume in the indexes and individual stocks. However, it wasn’t a major concern for two reasons: 1) every market selloff over the past 3 months began its recovery on light volume. For example, the pullbacks in early July, 8/17, and 9/1 all started their recoveries on light volume and eventually climbed higher several days later on heavier volume. 2) After running my stock screens on Monday night, I noticed an increasing number of stocks meeting my fundamental and technical criteria. In other words, there were too many stocks “setting up” that looked like they wanted to go higher, a positive sign.

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).

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Market Notes (10/5/09)

Joe Fahmy — Mon, 05 Oct 2009 23:44:40 +0000

I am going to try and get in the habit of writing “weeknight” Market Notes to summarize the trading day and give some ideas for the following day.

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):

$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)

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Market Notes (9/30/09)

Joe Fahmy — Wed, 30 Sep 2009 22:21:35 +0000

After my last blog post about Finding Big Stock Winners, my friend called me and said “no one cares about the education, just give us some stock picks!” It reminded me of the scene in Wedding Crashers when Vince Vaughn was making balloon animals and the spoiled kid yelled at him “make me a bicycle, clown!” (click to watch)

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

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