Rule #1 Calculations

I’ve been way too busy over the winter break and didn’t update my blog too often, so I apologize for that, but I’m now going to start blogging more regularly. Over the past several months, I’ve altered my investment approach to help me make my buy/sell decisions based on a number of factors. I still use my Rule 1 formulas and calculations to help screen stocks and the charts are also very helpful. I also watch CNBC throughout the day and also factor in advice from Jim Cramer’s Mad Money and the Fast Five on Fast Money. Basically, with my Slingbox, I tune into CNBC during the day (small window in the background of my desktop) and when I hear some news about a company, I’ll check the Rule1 numbers, view the charts, and then make a decision. Yes, for all you true Rule1 followers, I’m deviating from Phil’s “Don’t Lose Money” mantra, but, quite frankly, not many stocks qualify as a Rule 1 stock and you can still make money on these. Anyway, please let me know if you have any questions or if you’d like me to research some stocks for you. You can do this via the ‘comments’ link after each blog post, but because the spammers have found my site, I had to enable user registration. I know it’s a pain, but I feel it’s worth it to keep the comments on track.

Thanks and I hope all is well,

SteveO

ps. man, I wish I held onto my Crox! Have you seen that run?

When I first mentioned CMX on Dec 6, it was trading at just under $50. Twenty days later on Dec 26, it reached $57. If you bought some and still have it, keep an eye on the chart as it just reached 2 red sell signals. You may want to lock in profits here and sell your holding. I sold mine towards the end of December.

Good Luck!

SteveO

A reader on Phil’s blog asked about his calculations on PPDI. There are a few reader comments on there, all with varying numbers . I ran the number in my spreadsheet and came up with the following (see below). At this time, it’s close to being a Rule #1 contender, but it’s still trading above the MOS of $27.68. The chart, however, looks really good with all 4 green signals. I’ll be watching this one closely.

Hope this helps,

SteveO

Jim Cramer highly recommended Caremark (CMX) the other day and I ran the numbers and it turns out it’s a Rule #1 contender. The chart has recently showed all 3 green, so if you have some funds in your account, consider buying this stock.
SteveO

Hi readers,

Looks like the spammers have found my site as I’ve been getting a lot of comments about online casinos. To help reduce the number of these comments, I’ve turned on the feature to only allow registered users to post comments. I know this is a little inconvenient if you want to post a comment, but hopefully it’ll reduce the number of spam comments I receive.
Thanks,

SteveO

Hi all,

In case you’re paper trading some of the stocks on the (outdated) watchlist, I’ve been checking the charts and I’m getting 3 red (or close to 3 red) indicators for the following stocks:

NTAP, SYK, AKAM

If you’re holding these, you may want to take profits or cut losses and sell these.

SteveO

Reader Jeff was asking about how to get the data from MSN so I thought I’d show links and screenshots on where and what to look for on MSN (and others). Keep in mind that I’ve created a quick shortcut up towards the right called MSN Tools. This tool helps you quickly link to MSN for a given stock symbol.

	Book value and average P/E URL on MSN. Click on the image to see the full size and notice the yellow shaded areas. This is what to look for on this page.
	Sales and EPS: URL on MSN
	Current Earnings per share (EPS): URL on MSN
	Estimated Growth rate: URL on MSN
	Return on investment (ROI): URL on MSN
	Cash flow: URL on Morningstar (free)
	Stockcharts.com chart: Link to chart

There you have it. All the data you need to run the numbers. Let me know if I’ve missed anything or if anyone has questions.

Steve

ps. did anyone catch the Monday night football game? Man, what a disappointment (or thrill if you’re a Bears fan).

I’m getting quite a few people coming from Google search and I’m not sure how many are new to Phil Town’s philosophy or just started reading his book, but if you are, welcome. My blog is here to help you understand and apply what you’re reading and try to calculate some figures on your own. When I first started the blog, I was providing charts, tables, etc. explaining how I obtained the MOS, sticker price, etc. so please feel free to look back in the archives to see these examples. If you have a stock that you’re currently looking at and need help running the numbers, please let me know and I’ll try to post my results here as well.

SteveO

I have NBR on the watch list and it’s a good Rule #1 contender. The MOS I have is $49 and it’s trading at $28. It had a nice jump yesterday on some takeover rumors and I’m getting 3 green (but still waiting for the moving averages to cross). I actually purchased some call options a couple weeks back and today’s pop sure did help my position. I’ll watch this one carefully over the next couple days and hopefully sell it with a nice percentage gain.

SteveO

It’s a good thing I decided to check my blog and run some numbers tonight. We have FCX on our (outdated, sorry) watch list, and the stock is trading below the MOS ($126/$53) and it looks like we have 3 green on the chart. I plan to put in an order tomorrow and we’ll see how this one goes. If you’re paper trading, add this one to your list.

SteveO

Guys, have you see this chart? Holy Cow! I wish I ran the numbers on this one back in June, but I didn’t. Anyway, I saw a TV segment on Infosys over the weekend and how they’re expanding into Bangalore India (the next silicon valley). The company looks SOLID and the stock is trading way below it’s MOS of $78 - it’s currently at $49.21 (which is the all-time high). The indicators on the chart aren’t saying “buy”, but let’s keep an eye on this one to see how it does. It’s been on a nice run and may pull-back, but if it does, watch the indicators and let’s get in when we get 3 green.

SteveO

Hi all,

If you haven’t heard the news, Google today announced they’re buying the widely popular YouTube video site.

This is huge news and they’re spending $1.6 Billion (yes, BILLION) on the 67-person start-up. So, I decided to look at the numbers for Google. Sure, it hasn’t been trading long enough to run the Big 5, but based on 4 years of data, I calculate a MOS of $487 and it’s currently trading at $429. Yes, I’d say this is the most expensive Rule 1 contender to date. Remember, Cramer said he’s back into Google and sees it crossing the $500 mark before year’s end.

So, I know $500 is way expensive, but I’m wondering how many readers are interested in trading in the options market. Sure it’s high risk, but you can use much less capital to make larger %’s. Anyway, I’m exploring the options market for Rule #1 stocks and have been purchasing some to experiment. So far, I’ve had some really good gains, but overall I’m in the red (i’m learning-by-doing). We’ll see how this goes.

Take care,

SteveO

Not sure if you caught Jim mentioning Crocs on yesterday’s Mad Money, but the stock traded up almost 5% today to $33.66. I’ve been in-and-out of this stock a couple times in the past 6 months and made some money. I still think that the company has to be enjoying large profit margins as these shoes can’t cost much to produce - and they’re selling them at a fixed price of $29.99 everywhere you go. Maybe I’ll purchase some more when it pulls back a little.

SteveO

It’s been way too long, but I just wanted to post a cool link I came across today. It’s called a market map and it basically gives you an overall indicator for how the market is performing plus it’s broken down by sectors.

http://smartmoney.com/marketmap/

Be patient as it takes a little while to load, but after it’s up, you can see the green/red shading of a set of stocks within each sector (the greener the greater the gain, the redder the greater the loss) and as you mouseover the blocks, it’ll show the stock. In the little popup window that appears, you can choose to show things like Top 5 gainers/losers, etc.

It’s pretty cool. Let me know what you think,

SteveO

This wasn’t a Rule #1 contender, but I mentioned the stock a few months back and recommended it as the charts looked good. The company recently announced a Disney line of Crocs that will be available for the holiday season. As of today, the stock is up over 21% from my initial purchase price of $23.75. Did anyone else get in on this?

SteveO

After doing my homework (which is basically checking the charts), we can see that UNH has been on a good run lately. I already picked up some of these shares at $47 which is over an 8% increase. Add this one to your paper portfolio as well.

SteveO

Stryker Corp’s 5 day moving average recently crossed above the 20 day exp. moving average giving the stock my 4th green indicator. I still own the stock, but for those who do not, maybe it’s time to add it to your paper portfolio. Here’s the chart I’m looking at.

SteveO

I once had CTXS on my watch list and raved about how cool their technology was. I ran the numbers and it looked pretty good. Even Cramer was pushing the stock. I dipped in for about 3 weeks but noticed the indicators were trending down so I got out at $38 (limit order). I made a small profit, but I continued to watch the stock to see if it would follow the trend. Well, the stock followed the trends and continued down and today they announced earnings. If you look at after hours trading, their stock is down over 8.5% to $31.81. Ouch! It’s nice to see the chart showing signs to sell, as Phil puts it, when all those institutional investors (the big guys) are getting out.

Chalk one up for the little guys

SteveO

Thanks to reader SkeeDaddy, I’ve modified my stockcharts.com settings to show a Slow Stochastics setting of 21,14 instead of 14,5. This smooths out the curves and makes the indicators more clear. As a reminder, I have a quick link in the upper right corner of my page to get you to my charts.

Thanks,

SteveO

Reader SkeeDaddy mentioned that he’s getting the buy signals for HAL. From running the numbers, it’s a Rule #1 contender (see data below), but according to my charts, I’m only getting 2 of the 3 indicators with the Stochastics almost reaching the buy trigger. I’ll definitely be watching this stock and if the 3rd indicator goes green, I’ll probably be buying some as well.

Perhaps SkeeDaddy can provide a link to his charts or explain his indicators. SkeeDaddy? Here’s the chart I’m looking at: chart.
SteveO

Hi all,

OK, yes, I know my blog has been lacking in posts, but my goal is to now update it at least once a day. For today’s post, I wanted to talk about the downturn in the market (again). If you’ve been doing your daily homework and watching the charts, you’ll notice many are showing sell signs. Network Appliance, for example, showed 3 red indicators near the beginning of July. At that point, I put in my sell order and got out with a modest 4.3% gain. My sold limit order was set at $34.65 and today it closed at $31.47. I put in other limit sell orders, but unfortunately some didn’t hit and now the stock is trading lower. I guess setting a limit order for stock sales is a little greedy and you can fall into the same trap I fell into - perhaps I should just take my profits and/or cut my losses without getting greedy. What I’ll try to do now is set my limit prices the night before the next trading day (this is the time when I do my homework and evaluate the charts) and if the stock doesn’t hit my limit, I’ll convert them to market orders just before the market closes. I’ll update the blog with my stock trades so stay tuned.

SteveO

I’ve updated the watch list with today’s closing prices and we’re seeing more green than red. Did anyone get into HELX? It’s up 26% and still way under its MOS of $91. Check out the watch list.

SteveO

Reader RonHayes posted a link to this site on our discussion board. It’s a web-based MOS creator. You just enter in your ticker, and it’ll spit out the Big 5 and MOS. Check it out:

http://www.emoprop.com/moatchecker.aspx

Correction: after looking at more stocks, it appears that the site is off. There’s no way to contact the person, so hopefully he’s getting feedback from somewhere else to see if he can fix his formulas.
SteveO

I’ve updated the watch list numbers after that big move a couple weeks ago. Had we bought some of these stocks that day, we’d be mostly in the green. Take a look:

SteveO

OK, I still like the Crocs. Yes, I hear Walgreens now sell knock-offs as well as Whole Foods, but I’m going to make a play based on the charts. It has seemed to bottom and has started climbing. I also just saw these:

I know my daughter will love these, especially the ladybug and flower ones. Also, if you haven’t watched Fox over the weekend, they sometimes televise the AVP volleyball tour which is sponsored by Crocs. There are tons of people waving their yellow Crocs ‘air bats’ and (hopefully) buying some shoes. Keep an eye on the chart and get in if you have some spare cash.

SteveO

Update: after posting this, I did some research about Crocs and Jibbitz. From what I can tell, both companies are doing really well and if you do a news search, it looks like Crocs recently settled some patent infringement lawsuits which will keep other companies from copying their design. They’ve also expanded their product line to separate themselves from the knock-offs.

OK, I’m sure some of you are wondering when we’ll look at CHS again. We received 3 green last month and jumped in. At the time, I waited until after it ran up a bit, and limit ordered at $31.40 which makes me 9.1% down   I’m violating the rule.

So, looking at the chart today, we never saw the blue moving average line jump above the red (like can be seen in a bear trap) and it seems as though we’re getting some red signals. MACD is trending down and might just be touching the red curve. Stochastics have hit for the 2nd red signal. RSI is heading down, but gradually. I’m not sure what to do here. I think I’ll watch this one very closely this week, and if those little volume bars in the chart stay pink (meaning the stock is moving down), I may cut my losses and gain a learning experience. That being we should watch the moving averages to avoid bear traps. The only reason why I don’t really like doing this is because if the stock were on a rise, we’d be losing out on those early gains and also increasing our cost-basis (which in turn reduces the potential for higher percentage gains).

Stay tuned…

SteveO

So I’m going through the nightly homework of checking the charts for those stocks on the watch list. Man, I’m not sure how to handle this, but the huge market jump today changed most of the Watching stock status and put them into Buying/bought status. What I ended up doing is moved FCX, SYK, AKAM, PTEN, ASVI, HAL, HELX, and CTXS into the buy section. You’ll notice the little red dots for those rows that have changed, and the one blue dot represents a stock whose moving average lines crossed (in addition to having the green indicators). The others still haven’t crossed, so there is a ‘bear trap’ potential (see below for an explanation on a bear trap).

This is a big day (and this post may go down in history as the start of our riches). If you’re paper trading, get busy and put these stocks in. With so many buying opportunities, I’m not sure which stocks I should buy, but I’ll be buying some of these in the next few days.

I’m open to comments - let’s start making some money!

SteveO

Anyone buying PNRA (one of Phil’s book stocks)? The big 200pt market jump today gave us 3 green indicators on the chart, but I think this may be what I call a ‘dead-cat bounce’. The stock looks like it bottomed out and is starting to climb, but I’ll wait for the moving average crossing point before buying this one.

edit: funny…within a minute of adding this post, Cramer says “Panera is on coming on strong” (i’m watching Mad Money on my Tivo at 11:30 at night). Here’s what I’m going to do. I’m going to move it from the Watching section to the Buy section on our watch list and set the buy price at today’s closing price. We’ll see if this one goes green or red.
SteveO

Hey all,

I’m watching Cowboy Cramer today on Mad Money and his opener is Freeport (FCX). I decide to run the numbers and BooYah!! A Rule #1 contender. Sure, it’s very cyclical (gold, copper, steel) and therefore shouldn’t be considered, but it’s WAY under it’s MOS of $115 (currently at $49.04 - up 7% percent today and another 2% after hours via the Cramer bump), it’s getting some HUGE Big 5 numbers (see below), and we have 3 green indicators on the chart. We’re still not getting the moving average cross, but I’m definitely adding this to our watch list under the Buy section. I plan to buy some either Friday or early next week using the Cramer-recommended limit order.

Here are the numbers:

Link to watch list.

SteveO

There’s a good discussion on Phil’s blog about HELX. I thought I’d run the numbers as well. Based on MSN’s and Morningstar’s data, the company is trading below the MOS of $91.72 (currently trading at $30.67). On Phil’s blog, some are using lower estimated growth rates and are therefore getting lower numbers, but most are still get a MOS above the trading price.

After looking at the chart, it seems as though there were some green indicators around June 1st, and some readers jumped in (paper trading). After looking at the chart today, 2 weeks after those green indicators, it appears as though we might have what Phil calls a Bear Trap. Basically Phil says “the Big Guys can burn you over and over by creating brief bull runs in the stock and then dumping into it”. As you can see in the chart below (click it to see larger chart)

the green vertical line is a point where you’d get your 2nd green indicator. If you bought in here, you may have had a few point gain, but then the stock went down. In a sense, the ‘big guys’ were pushing up the stock, then started selling. This points out the value of my 4th indicator, when the 5 day moving average line (the blue one in the main graph) crosses above the 20 day moving average (the red line). You can see that the blue line started trending up, but never actually crossed the red. Then they both went down as the stock dropped over 6 points. Sure, 20/20 hindsight, but I think this is a good example of the bear trap. Yes, I know, CHS’ chart showed the same pattern and the stock is slightly down since we bought it. Some of my readers pointed this out, which is great, but again, it’s all a learning experience here.

In the end, I’ll add HELX to the watch list and we’ll wait for all green on the chart.

SteveO

ps. for those readers coming over from my post on Phil’s blog, here are my numbers: