Sunday, June 10, 2007

Compiling the Watch List

My primary source for compiling the active watch list are stocks that gap up (down) on very high volume, usually be not exclusive, to earnings. These high volume gappers generate momentum and can spawn many follow up trades after consolidating the original gap.

My current watch list includes names such as AAPL, AMZN, CREE, CROX, CWTR, BIDU, CMG, ESRX, FWLT, JCOM, NTRI, RVBD, THE, VRGY, WINN on the gap up side and AMGN, DRIV, NTAP, GROW, SMSI on the gap down side. Since we have been in a bull market for quite some time, many of the gap downs turn into bullish plays shortly after gapping down (eg. AMGN, GROW).

A stock that gaps up or down on 3-4 times average daily volume can be a momentum play for many weeks and months to come. Some of the weaker sectors, however, will not result in as many trades. The semis, for example, have not been able to extend their gap momentum beyond a few days or weeks at most - VSEA, LLTC.

Here is an example using CMG which I traded as a gapper on the day it gapped up and have since traded two more times on NR base breaks as highlighted on the daily chart below. If CMG recaptures its PP at $85.00 it could setup another long daytrade. A break of $82.50 on weakness could setup a short, depending on market conditions.

I look at the daily and 15 minute timeframes of all my watch list stocks every night and set alerts as required if they are well positioned to move.

The rest of my watch list comes from frequent EOD scanning. For long candidates, I look for stocks trading above the 10, 50 and 200 DMAs combined. From a 4 month view, I look for stocks that are basing and ready to break, ideally from NR bars. I'm not interested in perusing lists of more than 100 stocks each for the NASDAQ and the NYSE, so I add filters for volume and momentum (ADX) to reduce the size of the lists as required.

During pre-market, I monitor the watchlist stocks for movement in the direction of the base and break pattern and I look for new gappers trading on heavy pre-market volume.


Bubs said...

Great post. How many stocks on average are looking at everyday?

Jamie said...

Thanks Bubs,

It varies, but on average about 25.

Jim C. said...

Yes, great post. IMO these look good based on how you trade - PLL, XTO, MGM, AGE, BCE (37.50ish). The following have nice NR bars - AV, BKC, LNG, DJ, WNG.

Jamie said...

Thanks Jim.

Yes, most of these look good. BCE is a takeover candidate and AV has an offer. AV looks like it might be fully priced.

Tyro said...

Thanks Jamie, I've often wondered how you came up with your list of candidates. I especially appreciate how you explain the reasoning without getting bogged down into mechanical details.

Jamie said...

Thanks Tyro,

I like to keep things as simple as possible, otherwise I get bogged down and fail to execute.