Part quant, part fundamental, part redneck, all honest, review of stocks, markets, and trading

For the time being, this will be the new format, showing only the basic U.S. stock index momentum, the bullish reversals in ETFs and bullish reversals in stocks. I will periodically comment on major issues at critical times, but during the time I am attempting to build the algorithm required to download signals from almost 1300 stocks that I have built models for using NeuroShell Day Trader Professional, this is what I will leave you with. Most who have commented (and I have received, thankfully lots of comments with great appreciation to readers) want to see the reversals and not necessarily trade signals I generate. That makes life simpler for me, though at some point I will discuss methodology for building your own models. For now, I will present the data with little commentary. I will always respond to readers’ comments. This blog will steadily evolve as the time I have and the technology I use evolves. Thanks for your patience during this transition.

For 09/03/2010:

                                     $INDU      $SPX         $COMPQ    $RUT

Monthly Momentum   Pos            Pos              Pos            Neg

Weekly Momentum     Pos            Pos             Pos             Pos

Daily Momentum        Pos             Pos             Pos            Pos

N means neutral, Neg means negative, Pos means positive (OS) means oversold and (OB) means overbought. The value to price estimate (it is not a guarantee, only a cash flow based estimate) can be defined loosely as a multiplier of price. A number higher than one means the stock is undervalued using this model and a number less than one means the stock is overvalued.

Index and ETF I-shares Bullish Reversals (Note: to look up quotes for the Dow Indexes (starting with DJ or DW, add a dollar sign. No dollar sign is required for the ETFs beginning with other letters.) Today’s list includes only those ETFs with a 50-day moving average of daily volume greater than 100,000 shares:

The stocks listed below are ranked by pattern bullish reversals based on a momentum indicator. Each stock by sector is listed with the cheapest stocks on a near-free-cash-flow value/price basis at the top, and more expensive stocks on that basis farther down each sector list (they are listed alphabetically):

Stocks that almost passed the neural net screens but just missed: SYNA

Note:  U.S. equity markets pushed ahead again on light volume, and awaits the job numbers with bated breath. Note once again that bullish reversals were minimal as the daily momentum approaches overbought conditions. With one exception, the Russell 2000, all momentum indicators are bullish at every level and the Russell is close. I think the most important thing to watch is the weekly momentum after today closes, because we will have a decent snapshot picture as to the strength of any impending rally in September. Yes, history says September is a negative month, but I think it best to understand the precariousness of economic news flow and how that might influence things moving forward. It is probably more important than ever to use charts and not blind statistics to make entry and exit decisions in either direction, short or long. There is a confluence of a potentially near-term weakening dollar, strengthening commodity prices (note the ETF bullish reversal list), and despite the slowdown in economic activity, some energy names that were beaten down earlier this summer. This weekend, with traders interpreting the jobs data and watching the general condition of earnings and the economy, will come back fresh on Tuesday, and we will begin to see the true strength and weakness of sectors and stocks that has been muddled by low summer volume. I hate to be redundant (as I often am), but take that extra day this weekend to sort out your potential long and short candidates and be ready on Tuesday and beyond to act according to the strict dictates of your trading plan.

In the short run, it looks like we are due for a small rally here, but the month of September is young (which is why one might temporarily ignore the monthly momentum indicator in a 3-day-old month). The U.S. equity markets are still teetering on the edge of a pinhead. A strong push in either direction will give us the major theme for the next four months. We need to be patient enough to watch it unfold. Your trading account will respect and love you for your patience.

Take care,

DBB

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