This is the checklist that I go through everyday when deciding whether or not to initiate any new long positions. They are in no particular order and I only buy when all of them are checked off.
- Is the $SPXEW (The S&P500 Equal Weighted Index) above its 20DSMA? : Yes
- Is the slope of the $SPXEW ‘s 20DSMA positively sloped? : Yes 0.18%
- In my universe of stocks which is comprised of stocks that have an average daily volume of at least 100k shares, trade above $5, and have positive sales growth versus the year ago quarter, is the ratio of new 52w highs to the sum of new highs + new lows 80% or greater? : Yes 92.56%
- Of the S&P500 stocks is the ratio of new 52w highs to the sum of new highs + new lows, known as the $RHSPX, 80% or greater? : Yes 96.97%
- Have you read at the last 10 press releases that the company you are looking at has issued?
- Does the company you are looking at have a CQGR of 3.75% or higher in their Sales, roughly equating to a 15% or higher yearly growth rate?
- Does the company you are looking at have a CQGR of 3.75% or higher in their Earnings, roughly equating to a 15% or higher yearly growth rate? (However, I am not dogmatic on this one, as sometimes stocks with negative earnings can still rip higher on the expectations of future profits)
- Have you listened to the company’s latest earnings conference call? Do you know what was/is their guidance for the next quarter?
- Do you know when the company you are looking at will report their next quarterly earnings?
- Can you name at least one, but preferably 2, of the company’s peers? For example Nike, Under Armor, Lululemon. Do you know when your company’s peers report earnings?
- Have you checked if this company history of beating analyst’s estimates? You can check here by typing in the ticker you want.
- Do you know what the short interest is on this stock? Both the number of days to cover and the percentage of the float.
- Do you know how many analysts cover the stock? How many are a buy, sell, or hold? Are there enough negative analysts to have future upgrades serve as positive catalysts?
Because John Boehner, the Republicans, and the TeaParty walked away from negotiations with the President on Friday afternoon, we could see the market drop 5% points or more right at the open of trading on Monday. After opening down huge, we will probably fall even further throughout the day.
Instead of falling victim to “Panic Selling” of my favorite stocks, I am just going to buy a some $SDS and $SPXU to hedge my longs. If the market crashes hard $SDS and $SPXU will increase in value and make up for what I’ll lose on the long side holding my stocks.