The Kirk Report: Premarket Strategy Report

The Kirk Report
Today’s Key Factors:
(+) Bank Of Japan Doubles Incentives For Bank Lending
(+) European Auto Sales See 5th Month Of Growth
(+) U.K. Inflation Dips Below Target In January
(+) Natural Gas Rallies As Cold U.S. Weather Persists
(+) M&A: Actavis/Forest Labs & Starr Investment/MultiPlan
(+) Very Large Fed Buy Operation Today
(/) Earnings (BRKR,FLR,HLF,KO,LZB,MDT,PNRA,WM)
(/) Empire State Manufacturing (8:30)
(/) Housing Market Index (10:00)
(/) Wall Street Reacts To Latest 13-F Filings
(-) Japan's GDP Sees Slower Growth
(-) China's Central Bank Drains Liquidity From Markets
(-) German Investor Confidence Falls Sharply
(-) George Soros Doubles A Bearish Bet On The S&P
(-) Airlines See More Flight Cancellations Amid More Storms
Today’s Strategy: Targeting New Highs
Good morning. After the holiday weekend, futures are trading
without much direction ahead of manufacturing and housing data.
Markets in Europe are trading lower in spite of a 3% rally in
Japan.
As we reviewed in last week’s reports as well as the Weekend
Chart Show, we have seen another v-shaped reversal. The next
upside targets include that unfilled gap at S&P 1844 and the prior
January high at S&P 1850. It is important that we see those levels
taken out to avoid any possibility of a larger head and shoulders
type reversal setup following this bounce back.
We do have one bullish cup/handle setup in motion that currently
targets S&P 1859 and, given last week’s bullish follow through,
probabilities are high (now close to 95%) that we will see that
target acquired. Any further advance today, especially on a
closing basis, will only increase those odds.
However, on any weakness we see from here, it is important that
the 50 day moving average (now at S&P 1811) holds. If you
recall, last week that was successfully retaken and held on a
quick throwback retest. That trailing level of support is the pivotal
line of defense between here and those unfilled gaps left below in
the wake of the v-shaped reversal. If the 50 day does not hold,
the trap door could open to move into gap fill mode which would
not be good.
I will be here all day to update you on any important
developments as they occur at my notebook so please drop by if
you have a few free moments today.
Prospector: Five Changes (View)
Following last week’s very strong performance, five changes were
made to the Prospector’s focus list yesterday:
Additions: IRBT, LIOX, PPA, SIL, ZLTQ
Removals: ALXN, BAC, GPRE, IYR, PKB
Most of the prospects are in a strong technical posture after the
bounce either by being in new high breakout mode or testing prior
highs. We want to see this strong participation continue on any
further advance higher.
If you haven’t done so, you may also want to review the charts of
the current focus list, stock watchlist & ETF watchlist for this
coming week.
Today’s Three To Read:
1) Investing Successfully Is Really Hard
2) Finding Opportunity In Beaten Down Stocks
3) The Single-Best Metric: EV/EBITDA
Meditation: Focused Watchlist Management
Last week I made the comparison that managing a portfolio is like
managing a baseball team. Consider each position you have a
player, and your job as manager is to make sure you always have
your best players on the field. Part of that requires you to evaluate
your players, constantly making sure they are working as a team,
and cutting those players who are not playing up to their potential.
That concept is an important one and, consequently, it is one that
I also use when managing my own personal watchlists. The
framework of having a team (which is your portfolio) and then
several benches as a watchlist (ranked by underlying strength
and forward potential) is one I use each and every week.
Early every Sunday morning, I get up at 4AM before everyone in
my house wakes up, to create a brand new watchlist from scratch.
After I run the screens that power the Prospector, I list a number
of stocks and ETFs that interest me based on what I see. Then I
go through and filter them even further, each time asking myself,
is there or will there soon be an actionable low/risk, high/reward
opportunity in this stock or ETF?
If there is an actionable setup, I put it on the
first bench. If there is not an actionable setup
but I think for some reason there may be over
the coming week, I then put it on the second
bench. The third bench is reserved for those
stocks or ETFs I think I should watch for some
reason even though it is not likely there will be
an actionable setup in the week ahead.
To give you a better idea of the organization as well as a look at
my own private watchlist to see how it is organized, I have
included snapshots:
I review these two watchlists three times every day – once after
the first half-hour of trading, again around noon, and once more at
the end of the trading day. Every time I do this I go through each
player (stock or ETF) several times, looking at those setups from
various angles and in multiple time frames. My goal is to eliminate
any I don't like or to move them up or down within the benches so
that I only really have a handful that I need to watch very closely.
Some players will be upgraded and others will be downgraded or
even removed from the watchlist as I do my three reviews daily.
As the week goes on, my watchlist becomes very small as I
eliminate everything that doesn’t fit what I’m looking for. The goal
here is to have a focused list of actionable opportunities to trade.
This helps keep me focused on having a small number of
opportunities to draw from each week and it is how I manage my
trading. If there are specific situations and levels that would
trigger particular trades, I also set price alerts (in TC2000.com) to
notify me when those levels have been crossed so I don't miss
anything important.
How often do you start fresh and build a brand new watchlist? If
you are like most, the answer is almost never. Your watchlist is
either your portfolio now or stocks/ETFs you recently sold or have
been thinking about buying recently. From time to time, you may
add a few new ideas to your watchlist, but not very often.
In my view, most spend way too much time looking at the same
stocks/ETFs day in and day out and fail to expand their search
beyond just a few things they really like for some reason. Others
have non-filtered watchlists that are also just as useless because
they are too big and not focused. That was previously my method
as well, so I know what I’m talking about. I discovered over time
that starting over each week works far better for me for this
reason. It also removes the bias that can develop when you do
nothing but watch the same stocks/ETFs all of the time. The more
you watch something, the more likely you will develop a bias to it
and it is a good idea to avoid that if you can.
Bottom line - you need to keep your watchlist both fresh and
actionable at all times. If you have more than just a few
stocks/ETFs, then you also need to prioritize their relevance to
you in much the way I do so that you can concentrate on those
opportunities as top priority. The system of using three benches in
terms of priority seems to work well for me, but I’m sure you can
develop your own system that would be just as good if not better
with some practice.
The idea here is to have a target rich list of opportunities to focus
on each week – no more really a handful or two. Once you
develop the ability to do this, your trading and investing will really
improve as you will always be focused on the best opportunities
the market currently provides instead of hoping, wishing, and
wanting the same stocks you see all of the time to perform in a
way you always expect.
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