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Picking Winners In The Present Market

07/25/08 09:56:07 AM
by Koos van der Merwe

There are many programs in the marketplace that are designed to pick winners. Some work, others don't, but the expense outlay can be worth it. Below are three companies that could be winners.

Security:   CPRT,DRI,SDS
Position:   Accumulate

In a bear market, as the US may be currently experiencing, we should trade the market as a bear, but there are many traders who find it difficult to change from a bull to a bear, so they continue to look for shares that are moving contrary to the trend. But how successful is this?

The first company that the system I use chose for me is Copart (CPRT) (Figure 1). Copart is a company that provides a range of remarketing services to process and sell vehicles over the Internet to vehicle suppliers. Figure 1 shows the buy and sell signals triggered by the formula, where I took the SVAPO formula and altered it to calculate the rapid relative strength index (RSI). (Readers may email me for the formula.) The chart is at present showing a buy signal, and a lookback at the chart shows that the signals have been very accurate.

FIGURE 1: CPRT. A chart of Copart shows buy and sell signals as suggested by the indicator.
Graphic provided by: MetaStock.
The second company is Darden Restaurants (Figure 2). Now, we might think that with the US economy tanking, and in a recession and the price of food rising, people would eat at home and not support a restaurant. We would be wrong. Darden Restaurants (DRI), headquartered in Orlando, FL, is the world's largest company-owned and operated full-service restaurant company with almost $6.7 billion in annual sales and approximately 180,000 employees. The company owns and operates more than 1,700 restaurants. The buy signal was given by the strategy I am using on OmniTrader. Figure 2 shows the following:

a. The stock price as candlesticks with a morning doji star pattern suggesting a buy signal on July 15 at $29.04.
b. A strong support at one of the Fibonacci pivot point levels at the lower end of the doji star.
c. Carter squeeze indicator moving positive (turning green), suggesting a buy signal.
d. Stochastic RSI cycle eight-period, which gave a buy signal (shown with a green arrow).
e. OmniTrader vote line, which gave a buy signal on July 23, a great deal later than the signals given, but a good confirmation. The strategy used is available to OmniTrader Professional users. It is a conservative strategy but has shown good profits in the present falling market.

FIGURE 2: DRI. A chart of Darden Restaurants shows buy and sell signals of a more conservative strategy.
Graphic provided by: OMNITRADER.
Figure 3 is for those who would rather play the indexes. The ticker for the bear market is Proshares Ultrashort S&P 500 (SDS). The chart shows the buy and sell signals, the antithesis to the signals given as the S&P 500 rose and fell. As you can see, the SDS is suggesting that the S&P 500 is rising, although it does appear to have hit a supporting trendline.

FIGURE 3: SDS. Buy and sell signals of Proshares Ultra Short S&P500.
Graphic provided by: AdvancedGET.
The indicators shown are the moving average convergence/divergence (MACD) and the RSI, both of which are still negative. This means that the chart is short-term bullish for the S&P 500.
Whether you as an end of day trader would like to look for the exceptions in a Bear market like the two stocks suggested above, or simply BUY the BEAR, very much depends on your personality. Sir John Templeton, who recently passed away, at the time of the Great Depression, borrowed $10,000 and bought every company that had fallen to less than $1 on the market. One wonders what he may have done had he the Ultra Short ETF's available today.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Vancouver, BC
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Date: 07/29/08Rank: 2Comment: 

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