Trading Ideas/Potential Trades

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Pejman Hamidi

I noticed a lack of a thread focusing exclusively on potential trades. Therefore, I'm starting one. Use this thread to post new trade ideas, discuss existing ideas, get feedback on trades you may be considering, or provide feedback for trades being considered.

Many of us are professional traders and therefore do quite a bit of research. Whenever you see a good looking set-up, share it with the group using this thread. Thank you.
 
Although I mostly stay away from penny stocks, the action over the past couple of weeks in this stock has gotten my attention. The stock gapped up significantly last week after stating that they will reach profitability and are fully funded until they do. This immediately removed the potential for a "thermal short" and now the shorts that were betting on a bankruptcy/de-listing will need to cover their positions.

Because at less than $1, there's not much more potential for gain and the risk to the upside is significant to the bear. The gap has now been closed, which came in at additional key technical levels. Volume action is bullish and supports the formation of a long-term reversal in the stock. The first target appears to be $1.67, where it will meet its 200-day MA. The bottom appears to be in the form of an island reversal, with the gaps on 8/08 and 12/10 forming the island.

There appears to be the skeleton of a reverse H&S pattern. The left shoulder is a double shoulder (Dec '00 and April '01). The head is the island and after a rally to the 200-day MA, the stock should form a right shoulder.

I see 3.30 with relative ease by Q'1 of next year. Ultimately, the upside is huge with relatively little downside.
 
Because ENGA grabbed my attention, I changed some of my filters to include lower priced issues and was surprised as to the number of hits I registered in my scan!!

In an environment where interest rates are below real inflation, which is quite rare and extremely stimulative, the odds of lower priced stocks following through on their reversal patterns increases exponentially, so with that said, I will share some of these stocks that came up on my scan with the group.

Accrue Software has a nice technical set up on the daily. First, take a downtrend line connecting the Jan, May and October '01 highs, and you'll go right through prices on Monday. Additionally, and this is what I like to see, a secondary trendline connecting the June and Oct '01 highs also goes through current prices. This double convergence of key trend lines, with a high volume breakout presents a strong risk/reward profile. the first target again is the 200-day MA, which sits just above the May highs around 1.75-2.00.

Most importantly is volume which validates the breakout this week. The 18- and 50-day MA's converge just below last Thur's low and are both now pointing up. If the stock can hold the breakout and consolidate successfully, we should see a spike to the 1.75 range, which would result in a 350% gain from Tue's close.
 
AKAM: This stock has been on my radar for a couple of months now. In October, there was a blitzkrieg of advertisements from Akamai, with no justification from a business sense. Many times, when companies are engaged in negotiations involving a takeover, they fire up the marketing machine to build brand value and increase brand awareness. When I recognized the flurry of ads, I began to study the potential case for an acquisition of this company. In my studies, I realized this is a prime target for an acquisition and after contacting some of my friends on the street, I discovered that I am not the only one with this opinion.

As technicians like to say, "good news is first evident in the chart". This chart is certainly suggesting something is developing on the positive front. There was a clear bottom between Sep and Nov. The dip early this month tested that bottom and now the stock is advancing on rising volume and a move above the Nov/Dec high would trigger an important breakout. My money's on a takeover by March of next year while the stock is cheap.

One thing I do know is that Akamai is the fastest growing infrastructure company. Strong balance sheet and excellent quantitative and technical readings.
 
MACR registered one of those classic head fakes last week where it broke above major, long-term resistance and the 200-day MA, closed at its high on strong volume, then gapped down below the LOW of the consolidation range prior to the breakout. This was a painful trap but has registered as a solid short on the first rally to resistance, which appears to be underway.

Critical convergence of resistance around 20, including the 50-day MA. I will look to short on a test of the 50-day MA (Exponential), with a target of 13.50-15
 
Sycamore Networks registered a low of 3.50 in September, then rallied to 6.50 in November. Since the Nov. high, the stock has retraced on declining volume to a key trendline. On Tuesday, there was a noticeable surge in volume and the stock managed to post a good gain after gapping up on the open. The gap is important because the stock closed on its low on Monday. The volume and gap combined suggest the retracement to the trendline serves as a valid test of a potential intermediate term reversal, in which case, Monday's low would be the correct entry. Tuesday's action appears to have validated the test and we could see a rally to test the Nov. high. Note that the 18- and 50-day MA's converge at $5, and round number resistance also plays a role there. Therefore, if the price gets through that level, we could see a test of 6.50. A small line at current levels, with an add through 5 or a re-test of the trendline is a suggested strategy.

Additionally, several quantitative buy signals have been registered, and the tendancy for the stock to register volume spikes suggests there is an "elephant in the water".

Pej
 
Great idea Pejman Hamidi, we should all enjoy analysis of trades. Here is my take on the proposed trades. I understand that my money management system may be different than your and so is my time frame, so we may not agree on some of the setups. However, I am offering constructive criticism and not an attack on you or your trading methods.

ENGA - I think DCLK will be a safer play if you are bullish on online banner ads.

ACRU - With a daily average volume of 164K for a 0.50 stock, I would never touch it.

AKAM - We must be looking at a different chart. I see a double top with lower highs and lower lows. The low of 12/3/01 was taken out last week and the bounce met resistance at the 20DMA yesterday setting an indecision candle. I don't see a high probability short-term long trade. And takeover speculation are a gamble.

MACR - I got no opinion on this one. I simply do not like the chart for either long or short.

SCMR - A Bottom Fisher setup. The 4.40 level held, but I don't like the fact that the stock closed below 50% of its trading range on a big volume day. This is what I call a waste of effort! There is someone there willing to sell! Anyhow, if I was forced to take a long position, my stop would be at 4.37.

By the way, when I read your posts, it seemed to me that you have some experience in fundamental analysis and your mention of friends on the street etc. Are you a fund manager? Would you care to tell us all a little bit more about yourself?

Thanks,

Tony
 
Tony;

Think "eGoose", and you'll remember who I am. We've met.

Regarding ENGA: They are no longer in the banner ad business. They sold that and are now exclusively a software company providing eCRM mgmt. software.

AKAM: The double top you pointed out is valid, however, it is a "short-term" correction top. If you pull back your chart by at least 1 year, you will realize it is a double top forming after the measurement of a broader bottom pattern was satisfied. Therefore, the implied target of the small double top actually results in a test of the intermediate-long term bottom that led to the rally resulting in the 2x top.

SCMR: I agree on the weak close. However, in studying the tape during the day, it was clear to me that the weak close was classic chart painting to throw end-of-day technicians off by making them think the stock closed below 50% of the day's range. In fact, the stock was rather strong and the weak close was a smoke screen to throw momentum traders off. The trick here is to observe the action over the next two days, and if the stock starts to take off, it's a clear entry. There is aggressive accumulation taking place. Look at the tape for additional clues.

ACRU: Light volume is an issue, but does not necessarily negate the trade as a potential set up. Berkshire trades very light as well, but it is a blue chip stock. Volume analysis must be done under a "relative" guise.
 
Think "eGoose", and you'll remember who I am. We've met.

Damn, this is the second time I've made this mistake. It won't happen again! How about that beer?

Regarding ENGA: They are no longer in the banner ad business. They sold that and are now exclusively a software company providing eCRM mgmt. software.

Hmmm. I did not know that. Have not followed them in a while. I just compared the two charts based on what I thought I knew ... Anyhow, thanks for correcting me. (Ya got to admit that DCLK chart looks good though)

AKAM: The double top you pointed out is valid, however, it is a "short-term" correction top. If you pull back your chart by at least 1 year, you will realize it is a double top forming after the measurement of a broader bottom pattern was satisfied. Therefore, the implied target of the small double top actually results in a test of the intermediate-long term bottom that led to the rally resulting in the 2x top.

As I said in the beginning of my post, "our time frame may be different" I look at the very short-term chart and the lower low does not look promising, but she can still go higher.

SCMR: I agree on the weak close. However, in studying the tape during the day, it was clear to me that the weak close was classic chart painting to throw end-of-day technicians off by making them think the stock closed below 50% of the day's range. In fact, the stock was rather strong and the weak close was a smoke screen to throw momentum traders off. The trick here is to observe the action over the next two days, and if the stock starts to take off, it's a clear entry. There is aggressive accumulation taking place. Look at the tape for additional clues.

Well, you got the advantage here. I did not see the action on it, so I can't know what you know.

ACRU: Light volume is an issue, but does not necessarily negate the trade as a potential set up. Berkshire trades very light as well, but it is a blue chip stock. Volume analysis must be done under a "relative" guise.

Back to different money management systems have different rules, but if you want to compare apples to apples, BRK trades $35,050,000 on average Vs $82,000 in ACRU. In other words, BRK trades 427 times the dollar amount traded in ACRU.

BTW, congrats on the new book and welcome to the board.

Tony

PS, When giving potential stock plays, it is a lot easier to analyze the potential trade if it has an entry price, stop loss, price target and time frame. I never look beyond two weeks, yet I noticed you had mentioned a price target for next quarter. Anyhow, I thought I'd point that out. I do appreciate your contribution, and I'm sure others do as well. Keep it coming. Time to go to bed.
 
Tony;

Yup, this was the 2nd time you forgot. Maybe I should buy you that beer so that you won't forget. Or was it the beer the first time that led you to lose your memory? Or was it the other thing??.....:p

Anyway, I like the idea of engaging in constructive dialogue with members of the group. I am a new member to the group and certainly hope that I can bring some value.

I've noted the request for trade parameters, and will certainly honor your request and incorporate it into future posts.

Yes, DCLK does look pretty good. Good point on BRK. Touche.

Good night.
 
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