There are several categories of weak and strong stocks that market analyst John Boik features in his newsletter. He discusses why some made the cut, and tells MoneyShow.com why it can be good idea to exit a position ahead of earnings.
Kate Stalter: I’m speaking with John Boik, author of books including Monster Stocks and Lessons from the Greatest Stock Traders of All Time.
John, I’ve read your books, and I’ve followed your work for several years, and I was really interested to see your newsletter, Stock Research Trader. Tell our listeners a little bit about the methodology you’re using, and what kind of stocks you’re tracking in your newsletter.
John Boik: Stock Research Trader basically takes all of the research I’ve done that I used to write the three books, which study the greatest traders, the history of the market going back about 110 years, and then the best stocks in history and how they reacted to the market situation at that time.
All of those, the traders, the market, and the stocks all had certain common characteristics. So, I’m trying to blend now certain aspects of those best traders into one strategy. I’ve spent the last couple of years looking at those, and pulling out pieces from each one of those traders, and making it one comprehensive analysis, which I call Stock Research Trader.
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Research is the key word there, because my book, all the research I did there…I feel that’s a strength of mine.
So what I do is: I then look at the current market—and this comes out every week—and I base it on two categories, basically. There’s a leader list and a weaker list. And depending on where the market is—like for right now, it’s in a nice uptrend—so there are many more stocks under the leader list than the weaker list. But there’s still some usually under each category.
So, it’s real simple. It’s based on those two categories. Then within each category, are three stages of progression. Progression of strength on the leader list, and progression of weakness on the weaker list.
Again, it looks at the stocks. They’re all liquid, institutional quality. I only look at stocks that usually trade an average of about a million shares a day or more, so the big guys are in there moving these stocks.
The categories on the leader list would be “Base Builders and Pullbacks,” because a lot of traders today do look at bases, and bases can mean a whole lot of different things to different people.
I try to combine those into one, and so that would be the first stage. So you have a stock making a base, then let’s say it breaks out of the base.
Depending on how it breaks out, there are certain different types of breakouts as well, and that goes to the second phase [“Recent Breakouts/Bounces off Support”], so that means there’s interest in this stock, now people are putting funds into it, and it starts to ride up.
I use simple moving average lines, which is what a lot of those guys use, and then that will take it to a next stage, which will be “Current Leader/Monster Stock,” which means those are the strongest stocks currently in the market.
Then on the weaker side on the weaker list, there’s a break through the 50-day line on big volume, which suggests a selling signal. Historically, going all the way back 100 years, stocks are still weakened on that kind of first signal of weakness, so it goes into that category [“50-Day Volume Break/Resistance”].
Then a stock could get all the way weaker by breaking through a 200-day line, forming a black cross formation, those basic technical patterns that occur. So each week, those stages in the categories [“50-Day/200-Day Range” and “200-Day Break/Black Cross”] will either add new stocks or take them away, depending on what they do.
So it’s a very straightforward, factual, unbiased look at the market, just like I did on all the research of my three books that I wrote.
Kate Stalter: Let’s take a look then, John, at some of the stocks from the leader list. Tell us about some that you might be watching as potential buy candidates at this time.
|pagebreak|John Boik: Well, on the report that came out last weekend, there were 13 stocks in the Base Builders, and I’ll write a description of each, a short description, and I’ll put in bold what I think the best candidates are.
This last week, Qualcomm (QCOM) was one, and SanDisk (SNDK) was another. Qualcomm today is moving and actually has broken out this week. Coach (COH) was on there over the weekend. That had a huge breakout yesterday, and it’s adding to it again today. So those are two examples right there just in the last three days that worked.
Because we’ve had almost a four-week run uptrend in the markets, in the recent Breakout stage, there were 20 stocks in there. Several, probably ten or 15, were in bold, which I think were the exceptional ones.
Lululemon (LULU) was in there, Expedia (EXPE), F5 Networks (FFIV), Monster Beverage (MNST), and Chicago Bridge (CBI). Those are just four or five that were in bold, and they all jumped again this week.
So when I put it in bold, I say that those stocks are exhibiting the best price and volume behavior and showing strong support at key areas, be it the 21-day moving average line or the 50-day, or the best ones at the ten-day moving average line.
A lot of technical traders use those areas and that’s as complicated as I’ll get technically, but those are widely used, so those are just some examples on the Current Leaders/Monster Stocks.
There were three stocks in there, Fastenal (FAST), Ross Stores (ROST), and Nuance (NUAN), and Fastenal had earnings last week. It kind of pulled back hard, but it’s springing back again this week, so that’s showing an incredibly strong stock.
That stock’s been on my list for over three months now, and I first showed it when it was a Base Builder. Then when it broke out, it moved to the recent breakout category, and then when it really took off, it moved to the Current Leaders, which was over six or seven weeks ago.
It’s been on there every week, and every week it’ll tell you: What is this thing doing now? Is it weakening? Do we think it’s topped? Or is it still finding support and has some room to go?
So that’s kind of what it does. It’s very concise and it’s just factual. What are the stocks doing in the current marketplace?
Kate Stalter: John, speaking of the current market, you mentioned Coach, you mentioned Fastenal, and a couple others that have reported earnings lately. We’re right in the middle of earnings season. Anything particular that our listeners should be aware of, when it comes to companies reporting in the next couple of weeks?
John Boik: Well, on the very front page, I do a quick thing first. It’s called reading the market, which is just a paragraph or two on what happened in the last week and what the indexes look like technically.
Then I have a special note there, and I’ll just read it. It’s only one sentence. It says, “During earnings season, many traders will hold only a small portion of their positions into an announcement if they’re acting well, or not at all, to reduce the great volatility risk associated with those announcements.”
So, because of the books I wrote and the research I do, I know a lot of very successful traders in the market. And a lot of those guys, because of that rule that came out years back, with no advance information, a lot of these guys don’t feel comfortable because of the swings you get.
Look at Google (GOOG) last week and Apple (AAPL) on Tuesday. You don’t know if it’s going up $20 or $30, or down $50, like Google did.
Google did have a little warning signal a few days before, when it sliced down through that 21-day line in huge volume—that was before the announcement. When I saw that, I went, “Hmm, I can’t predict where this thing’s going to go on earnings, but that is not a good sign before an earnings announcement.” So I don’t know if that was a telltale sign or not.
Apple, in its case, just slid back down to its ten-day line. It was just sitting there resting and then earnings came out and off it goes. So sometimes there are subtle clues, but a lot of these guys that are big traders, they pull back and out of a position before an announcement, because you never really know which way that’s going.
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