Question #1: Can You Find Better Stocks?

The recommended portfolio exposure to the market is currently set between 40 to 60%, reflecting the indexes’ slight uptrend. The S&P 500 is showing signs of recovery from its recent correction. Its price has moved above the 21-day exponential moving average and has reached the 50-day simple moving average, indicating an upward trend. The market appears to be gaining strength. Similarly, the Nasdaq is mirroring this behavior, positioned right at the 50-day moving average and seemingly poised to cross above it, signaling improving conditions.

In light of these observations, I am increasing my portfolio positions. The growing strength of the market is further supported by more stocks breaking out of their bases. As a standard practice, I initiate investments with a small position. If the initial position proves successful, I incrementally increase my investment to capitalize on the favorable market conditions. This strategy allows for measured exposure while taking advantage of emerging opportunities in the market.

GENERAL STOCK REQUIREMENTS

Choosing the right stocks isn’t a game of chance; it’s a deliberate strategy. This time, with a plethora of options at my fingertips, I could afford to be pickier. So, what were the non-negotiables?

First off, industry leadership was paramount. I zeroed in on stocks from the top echelons—specifically, the TOP 10 out of 197 industries. Why? Because these represent the crème de la crème, the TOP 5% leading the charge. It’s not just about being good; it’s about being outstanding.

Next, the foundation matters. I looked for stocks with base depths signaling strength without overextension—ideally, between 10-20%, stretching up to 35% for those in a cup pattern. It’s a balance between stability and potential, ensuring our picks have solid ground beneath them.

Moreover, the up/down ratio needed to be above 1.0, a clear indicator of upward momentum. Similarly, the trend in institutional ownership couldn’t just be stable; it had to be climbing. These are the signs that savvy investors are not just watching but actively betting on these stocks.

The RS line and rating were the final seals of approval. An uptrend in the RS line and a rating of at least 85 out of 100 ensures we’re backing winners, not just participants.

By setting these stringent criteria, we’re not casting a wide net; we’re spearfishing for the best. In a sea of choices, we’re not looking for just any fish; we’re after the prize catches that promise not just to survive but to thrive.

details at a glance

Williams-Sonoma (WSM)

• • Company Name: Williams-Sonoma
  • Next EPS Date: 22 May
  • Industry Rank (X/197): 10
  • Stage (1-4): 2
  • Base Type: Flat base
  • Base Depth, %: 13
  • Up/Down Ratio: 1.6
  • EPS Trend: Neutral
  • RS Rating: 98
  • RS Trend: Up
  • Institutional Ownership Trend: Up
  • Pros: The RS trend is on the rise, and institutional activity is also pushing it upward. The RS rating stands at 98, indicating that the stock is outperforming 98% of the market, which is a very good sign. The up-and-down ratio is 1.6, which is also favorable. Additionally, the last base was only 13% deep, which is a very positive indicator.
  • Cons: The EPS trend does not meet the CAN SLIM criteria as it is neutral; it should be trending upward. Additionally, the earnings release is scheduled for the 22nd of May, which is quite soon. This proximity adds some risk.
  • Comments: Taking a small position from the 320 level would make sense, as that level is the upper side of the base. However, we also need to keep in mind that the earnings release is approaching, which adds some risk to the trade.
  • Comments (CAN SLIM, SEPA, etc): This does not meet the CAN SLIM criteria because both sales growth and earnings growth are not substantial enough. That being said, the stock is on the verge of breaking out of its base.
  • Maximum position size of a portfolio, %: 5
  • Maximum Favorable buying price: $322.90
  • Stop-loss: $300.30
  • Profit Target: $390.71
  • Position risk, %: 7.00

RxSight (RXST)

• • Company Name: RxSight
  • Next EPS Date: 6 May
  • Industry Rank (X/197): 43
  • Stage (1-4): 2
  • Base Type: Cup with handle
  • Base Depth, %: 22
  • Up/Down Ratio: 1
  • EPS Trend: Up
  • RS Rating: 98
  • RS Trend: Up
  • Institutional Ownership Trend: Up
  • Pros: The stock is clearly under strong accumulation, demonstrating both strength and rising trends in institutional ownership. This means that the stock is popular in the market.
  • Cons: The industry rank is quite low at 43; being in the top 10 or 20 would be much better, which adds some risk. Additionally, the last base was a cup with handle, with a depth of 22%, which is very good. However, the handle part is at the lower parts of the base, which is not a very strong sign.
  • Comments: At the time of this writing, the stock price is slightly out of the buying zone. The highest recommended buying price would be $60.05, but currently, it is a bit too high. Otherwise, it would make sense to take a position on that stock after the earnings release.
  • Comments (CAN SLIM, SEPA, etc): Although earnings and sales are growing rapidly, this is not a CAN SLIM stock because the company is not profitable at the moment. That being said, the company is popular in the market. However, the fundamentals are not very strong right now.
  • Maximum position size of a portfolio, %: 5
  • Maximum Favorable buying price: $60.05
  • Stop-loss: $57.05
  • Profit Target: $69.06
  • Position risk, %: 5.00

Spotify Technology (SPOT)

• • Company Name: Spotify Technology
  • Next EPS Date: NA
  • Industry Rank (X/197): 23
  • Stage (1-4): 3
  • Base Type: Flat base
  • Base Depth, %: 9
  • Up/Down Ratio: 1.1
  • EPS Trend: Up
  • RS Rating: 97
  • RS Trend: Up
  • Institutional Ownership Trend: Up
  • Pros: Earnings have recently been released, and the market has reacted well. Additionally, the industry ranking is quite high. Although it could be a bit higher, 23 is fairly good. The last base was only 9% deep, which is also a good sign that the stock is not under distribution yet. Furthermore, the EPS trend, RS trend, and institutional ownership trend are all up. Currently, the stock is outperforming 97% of the market.
  • Cons: The uptrend is quite old, and the price has almost doubled since the last breakout from the base, which adds some risk. That being said, there are no clear signs of distribution right now.
  • Comments: At the time of this writing, the stock price is right at the EMA 21 line. Placing the stop loss just under that line and taking a position would make for a fairly low-risk trade.
  • Comments (CAN SLIM, SEPA, etc): This is not a CAN SLIM stock right now because the price is not breaking out of the base, and both sales and earnings growth are not substantial. Even so, the stock is quite strong, and both the company and the stock price are in a steady uptrend.
  • Maximum position size of a portfolio, %: 10
  • Maximum Favorable buying price: $302.00
  • Stop-loss: $292.94
  • Profit Target: $329.18
  • Position risk, %: 3.00

Additional Ideas

The last time I did my research I found some other Ideas. Check these ones also out, maybe you’ll find something interesting:

ERJ, CEG, FIX, BLBD, ALKT, AROC, ARLO, ETN, TXRH, VECO, PHM, LMAT, JPM.

terms and definitions

EMA 21 Calculates the 21-period exponential moving average, highlighting short-term trends.

SMA 50 Averages the price over 50 periods, showing medium-term trends without overemphasizing recent data.

SMA 200 Averages the price over 200 periods, revealing long-term trends by treating all data equally.

Industry Rank Investor’s Business Daily’s system that ranks industries 1 to 197 based on performance. It guides us in CAN SLIM TRADING towards leading sectors.

U/D Ratio Measures stocks closing up versus down. A ratio above 1.0 indicates bullish sentiment, important in CAN SLIM TRADING.

RS Rating Ranks a stock’s performance on a 1 to 99 scale. I look for at least 85, showing strong momentum and growth potential.

RS Line Compares stock price to the market, plotted as a ratio. We seek an uptrend, indicating outperformance and strong momentum.

Volatility Measures how much a security’s price fluctuates over time. High volatility means large price changes, indicating risk and potential reward.

Institutional Ownership Trend indicates whether the stock is under accumulation or distribution by the institutions.

EPS (Earnings Per Share): A financial metric calculated by dividing a company’s net profit by the number of its outstanding shares. It indicates the amount of profit attributed to each share of stock, serving as a key indicator of a company’s profitability.

STAGES OF THE BASES

STAGE 1: BASING OR BOTTOMING STAGE

Definition: A period following a stock’s decline where it starts moving sideways, forming a base. This stage signifies the easing of downward pressure and the beginning of stabilization, indicating that the stock is not in an uptrend yet but is preparing for potential future growth.

STAGE 2: ADVANCING OR UPTREND STAGE

Definition: The phase in which a stock breaks out of its base on significant volume, indicating a strong buying interest and the initiation of a new uptrend. This stage is considered the most opportune time for investors to purchase the stock, as it is expected to achieve substantial gains.

STAGE 3: TOP OR PEAKING STAGE

Definition: A stage characterized by the stock beginning to exhibit signs of losing momentum after its upward movement. The stock may start to move sideways with increased volatility compared to Stage 1. This suggests the stock might be reaching its peak, and the existing uptrend could be weakening.

STAGE 4: DECLINING OR DOWNTREND STAGE

Definition: This final stage occurs when the stock breaks down from its Stage 3 pattern and enters into a downtrend, marked by a sequence of lower lows and lower highs. It signifies that selling pressure has surpassed buying interest, usually serving as a signal for investors to sell the stock to mitigate further losses.