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Sunday, May 17, 2009

Updated Swing Signal approach yields three Strong BUYs

I wanted to call readers attention to a new feature that I added to the Alert HQ Swing Signals yesterday afternoon.

As you may know, the TradeRadar Swing Trading Signals are generated by identifying those stocks or ETFs that have exceeded their upper or lower Bollinger Band and then reverse back in within the Bollinger Band envelope. We also use Williams %R to help avoid whipsaw.

What we instituted yesterday afternoon was a simple trend detection method. For example, if our usual analysis generates a BUY signal, we now check to see if the 50-day exponential moving average is at least 1% higher than it was a week ago. If it is, we assume the trend is up-ward and we designate this signal a "Strong BUY"; otherwise, it will be listed as regular "BUY".

Similarly, in the case of SELL signals, we look for a down trend and if we have one we designate the signal a "Strong SELL".

Using this new approach, we expect to be able to separate Strong BUYs from the situation where we are getting a dead cat bounce that may possibly fail at the 20-DMA. For example, a stock can be doing well. Then it announces a bad earnings report and provides poor forward guidance. The stock gets killed, falls below its 50-DMA and the lower Bollinger Band sinks downward. If the stock is suffering a serious decline, the 50-DMA will begin to roll over. Then the stock begins a move back up from a multi-month low. We will still show it as a simple swing trading BUY but it should be interpreted as a more speculative BUY.

In the case of stocks in a downward channel that are beginning to turn up, we will continue to designate these stocks as simple BUYs also. They may move back up to the top of their channel, providing a good swing trading opportunity, but we would have less confidence in the extent of the move.

Our first three Strong BUYS --

This weekend no Strong SELLs were detected but we have three stocks that qualified as Strong BUYs. Here they are:
  • Arc Sight (ARST)
  • The Dress Barn, Inc. (DBTN)
  • Kirkland's Inc. (KIRK)
All are in up-trends, all are small-caps, all are free cash flow positive and all have little or no debt. Of the three, The Dress Barn and Kirkland's seem more attractive as they have modest PEs, trade at low Price to Sales ratios and have PEG and Price to Book ratios that are not excessive.

So keep an eye out for our Strong BUY and Strong SELL signals at the Alert HQ Swing Signals page. Just click the "Signal" table heading and they will pop to the top of the list.

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