Your #1 Swing Trading Strategy & Stock Pick Site

Here are the eight names that were requested by people on StockTwits Friday and Saturday.

Basic Rules of the Game for Analysis:

Basic Rules of the Game for Analysis:

1) My goal here is to show you what I think will happen based on pattern analysis over the next 5 -15 trading days.

2) The near-free-cash-flow (neare FCF) value calculation is taken from a purchased database, but it is very close to a more complex calculation that I could (or you could) do. I do not want to get hung up in that at this time. What I want you to pay attention to is what effect relative valuation has on stock prices and why despite all the BS you hear from technicians and financial analysts, it should NOT be ignored. Even if it is a little inaccurate, it can still leave red flags. Trust me, I have been burned when I did not ignore this.

3) The pattern analysis is based on a structured interpretation of Fibonacci patterns first written about by H.M. Gartley in the 1920s and 1930s, updated by a 40+ year trading veteran and friend Larry Pesavento. These patterns show up all the time in markets and despite all the fears of models not working once the symmetry has been determined, these patterns, in my estimation, are better than any Elliot Wave analysis you could ever do, because the patterns are QUANTIFIABLE. You can measure them.

4) I do not claim in any way shape form or fashion to have a holy grail. There IS no such thing and any one who tells you they do are not only lying to you, they are lying to themselves. I have as much experience with this methodology as with a strict adherence to a Welles Wilder trading methodology taught by Andrew Cardwell. The main reason I stick with the patterns is that they are very reliable (and if anyone has watched the trade set ups I have used in StockTwits, you have seen this).

 I have considered running a website, but my biggest problem is that I manage my own trading and a couple of other businesses and I simply don't think trading educaton websites are great revenue generators. I prefer to trade and manage my own money than teach it (though I love helping people). I also invest in all different timeframes and with various asset classes.

I also don't care to sit in front of screens all day, so I attempt to "swing trade" these patterns. My most aggressive trading I do in the place where there is no tax consequence, my IRA accounts.

If you want to learn more about what I do (and I will testify in a court of law if necessary that I do not collect a cent from these people), you can learn about Fibonacci pattern trading in a number of ways:

1) You can buy the book "Trade What You See" by Larry Pesavento and Leslie Jouflas.

2) You can go to either Trading Tutor (Larry's website) or Trading Online Live (Leslie's site)

3) Another great choice (because he is a friend and has 13 years of prop trading and system-trading experience) is The Trading Authority run by Todd Brown. Todd teaches a variant of the Fibonacci pattern method that he calls Ratio Trading. Todd has expertise in trading psychology (and it is much more than the psychological theory, but extremely practical application of dealing with NLP concepts. He worked with Tony Robbins for a number of years. 

Again, the only thing I do differently to Fibonacci pattern trading is that I add the statistical probabilities generated by a neural net model of these patterns applied to stocks. It has worked well for me over the years in all kinds of markets. I will delve more into system trading in future blogs. They key thing I look for are the varoius win/loss ratios and % wins calculations. If you want to know if a trading system works or not, that is how you do it. Measuring it takes time, and quite frankly if you do not want to take the time to do it, you should quit trading NOW. Trading is a business and if you are unwilling to hone some kind of an edge, you will fail. It is said that 90% of traders fail. That is true as is true of 90% of ALL BUSINESS OWNERS. If you do not hone and edge, then you cannot win. It has nothing to do with fear bravado or any of that psychological crap (other than the initial fear of trading, in my opinion). Its like driving a car. Once you learn it, you basically can do it and remember it.

Enough of this. Let us look at charts.

RGR Sturm Ruger & Co. Take a look at the daily charts. Near FCF fair value is about $5. The stock is therefore quite expensive even though sales are 40% higher than they were last year. This gunmaker is benefitting from all the hysteria over Obama's potential stricter gun control laws. As you can see from the chart, there is considerable resistance at or right around Friday's close. I do not know where this individual bought the stock, but if I were him or her I would sell a portion of it if it opens near that price and either move the stop for the remainder to just below 9.30 (9.24 perhaps to avoid nickels and round numbers) and let the rest attempt to hit 11.72 the 1.618 Fibonacci extension target. The close is so close to the 1.272 extension that the first target can be said to have been hit.

SWHC Smith and Wesson Take a look at the daily chart also. Near FCF value is 70 cents. Same gun control hysteria affects this stock as RGR. It is likely to run into resistance somewhere between the 1.272 extension at 4.72 and priece resistance at 5.15. Again, I do not know where this individual owns this stock but I would place a stop just under 3.25 (3.23 for example) take half my profits should it reach 4.72 and let the rest ride at break even.

I consider both of these trade set ups high risk speculation, because netiher of these stocks trades at a realistic multiple of its true value. Once the hysteria is over, both are likely to become penny stock laggards again. If you do not trade positions like this with careful stops, sooner or later you will lose a substantial chunk of your capital.

More charts to come.