Sunday, December 30, 2007

Top Stocks of 2007 - TRCR, GHM, CRNT

In the final post of this series, I looked at three small-cap stocks that all made moves of over 200% in a few months time. These stocks started with low-prices and thin volumes, but prove that it pays to pay attention to earnings releases and breakout each day of the year. If you did, these stocks may have popped up early enough on your radar screen to get in for most of these moves. What I noticed when looking at these was some of the same things I saw with FSLR, DRYS, and BIDU. These moves started with huge breakout days, from which they immediately followed-through and continued to move up. When they pulled back, they usually got support at either the 9 or 20 day moving averages. After the stock ran for a while, a more severe pullback to the 50 day moving average was likely. Huge volume and massive down days proved to be the tops of these stocks. If you were able to buy correctly and showed patience, it was possible to make huge gains in any of these stocks. Another common characteristic is that although these were smaller stocks, they still demonstrated tremendous fundamentals. I know that both GHM and CRNT were members of the IBD 100 list, and TRCR was highly rated as well by IBD.

TRCR

GHM

CRNT
Charts from Telechart2007, courtesy of Worden Brothers

So when looking for the big winners of next year, we need to focus on stocks making big, one-day moves, with tremendous fundamentals. If we can find one and get in early, look for early follow-through. If the stock doesn't give back much if any of its big, one-day gain, then you probably have a stock that has a chance to be a real winner. Look for it to get support around the 9 and 20 day moving averages, and later on, when it has made a big move, use the 50 day for support. If it closes below the 50 day, but immediately shows strength and gets above it, don't be scared to get back in. Continue to look at the fundamentals as the move progresses - if they continue to be strong, that should give you some emotional support if you sit through one of the stock's pullbacks.

As for selling, that is always the hard part. By looking at these charts, I noticed that if a stock breaks below 2 or more levels of support (moving averages), then often that was a clue to sell if it was accompained by large volume. Volume near the top usually becomes extremely large, and often the trading at the top gets extremely volatile. There are a few others things to look for as well - how is the market doing in relation to the stock, how far over the 200 day moving average is the stock. As you study these and other stocks, you will begin to develop the skills necessary to recognize tops in these types of stocks. There is also nothing wrong with taking some of your profits on the way up during the move. This is a skill I am getting better at, but I know I still need a more disciplined system to do this.

If you are a Telechart user, one good exercise is to use the slider at the bottom of the chart to move backwards to the start of some of these big moves, and then by clicking on the right arrow of the slider, it will take you forward one day at a time. As you do this, ask yourself what you think will happen next. How would you react at the different points of the move you see? I have found this exercise to be helpful to me.

This past year, I only caught the move of one of these types of stock - CROX - and I did not get as much out of the move as I could have. I had TRCR on my screen early in the move but never jumped in - I don't know why. I was also in several of the other big-move stocks for short periods of time, only to get stopped out due to poor entry or impatience. One of my goals for the upcoming year is to develop the skills to enter one of these big movers properly AND to have the patience to sit through the entire move and reap the rewards of doing so. It is not an easy thing to do, but if I am going to be the trader I want to be, I must learn this skill.

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