PRTS, PSDV

Edit: Spotted PRTS when it broke out from a VCP break out 3 days ago.

 

 

This set up is an absolute beauty. I would rate this as a near perfect set up

1. Note the contraction in tightness from left to right.
2. Shakeouts within the base. 14 Jan and 24 March, shakeout within the low of the base and strong close.This weeds out weak investors and is also  a good sign of accumulation.
3. Volume Expansion at breakout

PRTS is now up 20% from the line of least resistance in about 3 days.

PSDV had a breakout reversal. A tennis ball reaction back up would be good.

Revision:

Volatility Contraction Pattern or VCP is a term that Mark Minervini referred in his book as a constructive setup that stocks make before starting to rally, Basically a common characteristic of virtually all constuctive price structures is a contraction of volatility accompanied by specific areas in the base structure where volume contracts significantly. VCP is a signal that the stock is under accumulation. This happens because institutions start to accumulate shares in tight levels and the amount of supply coming to the market starts to reduce or calm down. It carves up a pivot point and  the line of least resistance popularized by Jesse Livermore, when price moves past the pivot, it can move pretty quickly as supply is low.

10DMA

Hi guys, I have decided to start on a clean slate with the blog. Reason being, i have slightly modified my approach and method.

After studying past winners, I formulated an important selling rule. To sell the first close below the 10 Day Moving Average if a stock has not closed below the 10DMA for around 4 weeks.

“When a Superstock moves out of its current base to a new higher base, there’s a good chance that it will bounce higher off its 10 dma along the way”.  IBSS

Stocks that adhere to the 10DMA for about 3-4 weeks almost always have a higher angle of attack than most stocks, subsequently breaking their 10DMA after 3-4 weeks. Due to their high angle of attack, some of these stocks tend to have deeper pullbacks when they consolidate. I have attached and annotated several stocks. By selling on the first close on the 10DMA, I am almost certainly able to lock in good gains in a short period of time and able to reenter the stock if it sets up nicely for a BLT entry near the magic line.

Stocks

Entry

Days

Sold

Percent

Entered

Sold

Sell Rule

NPTN	B/O FB	3.9		6.43	64%	4-Mar	1-Apr		10DMA
NPTN	reentry	6.2		10.51	59%	7-May	19-June

FLWS

9.04

12.5

38.20%

2-Feb

17-Mar

10DMA

GMAN

B/O CwH

4.36

8.44

93%

19-Mar

23-Apr

10DMA

CRIS

1.68

2.4

42%

22-Jan

24-Feb

10DMA

MFLX

11.5

18.74

62.90%

13-Jan

10-Mar

MMSI

16.72

19.51

16.60%

2-Feb

6-Mar

10DMA

YRD superstock

Additional stuff I like :

nice shakeout under the 10wma that may have potentially shake out the weaker investors.

-increasing institutional firms buying

Great theme: online marketplace connection borrowers and lenders

I’m very bullish. This one could really fly in the coming months

STS 35% profit.

STS is perhaps my biggest success and best decision i made this month

Buying is however only one side of the equation. The question of when to sell is perhaps considered by many to be even harder.

I would have to watch the stock’s price action and volume carefully, but i would likely sell at the end of 8 weeks ( from the breakout). In this choppy market environment, it would be best to take smaller gains and sell into strength.

On a side note, cant wait for mark minervini’s new book where he will talk about his selling rules.

STUDY: Missed Trade

I missed out on a superb technical set up (probably one of the best i have seen this year)

This was how CYBE looked liked on the weekly chart.

Despite two tight weekly closing prices since the breakout week, volume was high for both and thus it does not count as a BLT set up. Thus, i concluded that there was no low risk entry for me to enter

However, upon looking at the daily chart today, I realised that it would have been possible to get an entry off the pullback to the 10 day moving average on light volume with this method commonly used by dan zanger.

With such a strong breakout, I should have at least monitored the stock on both the daily and weekly chart. Volume on breakout day was 1000% up, and weekly volume was 400% up, signalling that the investment community is paying much more attention to the stock.

Fundamentals of CYBE are SUPERB. (brief summary)

EARNINGS WINNER

• CyberOptics reported earnings of $2.3 million or $0.33 per diluted share in the first quarter of 2016, compared to the loss of $781,000 or $0.12 per share in the year-earlier period.

• First quarter sales totaled $19.1 million, double the $9.5 million reported in the first quarter of 2015. This strong growth, which included sales of approximately $2.5 million from the year-end 2015 backlog of MX600 memory module inspection systems, was driven by robust demand for new 3D inspection systems and sensors.

INCREASING BACKLOG

Kulkarni concluded: “We ended the first quarter with a backlog of $17.7 million, up from $15.0 million at the end of 2015, making us confident CyberOptics should post strong year-over-year sales growth and profitability in this year’s second quarter

HIGH OPERATING LEVERAGE

While revenue increased from $9545(000) to $19114(000), SGA expenses merely increased from 3381(000) to 3506(000). This suggests that Cyberoptics has a high operating leverage, i.e high fixed cost to variable ratio.

As revenue starts to increase, we will see a rapid increase in margins and EPS.

ELMD Superstock Scan

ELMD showing superior technical characteristics based on my chart scans.

Long Boring Base prior to breakout.

This boring trading activity tends to weed out the emotionally-charged shortterm
traders. The only shareholders left are the long-term fundamentally-biased shareholders
who have no intention of selling their shares any time.

Overwhelming Breakout Volume on breakout week

Volume was 2.8 million as compared to 50k to 150k volume on average weeks, signalling institutional demand. It should be abundantly clear from the volume
pattern that the investment community is showing much more interest in the stock

Stock has found dynamic support on the 10WMA and confluence of  two tight weekly closes presents a low risk entry from quiet trading.

Low Float

ELMD has just 5.4 million shares in the float. This can potentially make it move higher in a short period of time when demand returns. (Big Demand > Small Supply = Big Price move)

EARNINGS WINNER ( and great earnings headline)

The Company reported net income of $1.07 million, or $0.13 per basic and diluted share, for the second quarter of fiscal 2016, compared to $0.42 million, or $0.05 per basic and diluted share, for the same period of fiscal 2015.

Source : Home care sales, which accounted for nearly 88% of revenues, increased due to a higher number of approvals, a higher conversion rate of referrals to approvals, and a higher average selling price from third party payers, such as insurance companies, Medicare and Medicaid, for the Companys SmartVest^® products.

High Operating leverage and increasing margins

ELMD has low variable cost relative to fixed cost.

Quoting the press release “We believe we have raised the range on the level of net revenues we can generate quarterly. This should, in turn, result in stronger operating income as we expect our revenues will grow more quickly than our expense base”.

“Gross margins in the second quarter of fiscal 2016 were 78.2%, up from 69.7% in the second quarter of fiscal 2015.”

As revenue starts to exceed fixed costs, you can see an explosion in net income and thus a significant expansion of gross margins and earnings per share.

Easy Earnings Comparison for the upcoming quarter and Sustainable Earnings.

Earnings Sustainability:

Market for our SmartVest will likely continue to grow, driven by an aging population, improved diagnostic procedures

Earnings Comparison

for fiscal 2015 Q3, ELMD reported 0.00 EPS, when ELMD reports it’s next earnings, it would likely be a A blockbuster earnings headline like this that will spread throughout the investment community.

We ideally want to hold stocks that are posting substantial year-over-year earnings growth.