A quick analysis of 120 stocks on the darkside short blog shows what we've known all along: the picks are fantastic. An astounding 83% of the picks have dropped significantly within 2 days of the target date. Only 7 stocks of my 120 sample (6%) failed to drop significantly after 5 days, and some of those even became tremendous shorts later on (see TUTR). Here is a sample of the analysis (target is the day of watch, +1 is next trading day etc).
But the purpose of this post isn't to simply proclaim how great Muddy is, it is to analyze the data to uncover some patterns and improve my trading. What I have discovered from this quick study is that some of the best shorts are coming off stocks that are +2, in other words two days after they are considered prime candidates. Look at charts from IMMR and NOVS from recent days:
This makes sense of course because many keep running up but I have to admit that I can lose track of some from previous days, not the ones that are running still but the ones just lingering, I tend to ignore them. This exercise has reminded me that I am missing some great opportunities.
Also, don't ignore the ones that have already started to drop. I still view GBRC and CPSS to be great short candidates on Monday off red with much potential downside still in them. Those can be missed on the 8% gain and 15% 2 day gain filters, but will still be caught using 50% gain in 10 days or 100% gain in 20 days filters.
One thing I want to do is clarify some of the nomenclature that comes up with these kinds of plays. The 'red' and 'green' terminology that Muddy uses to describe prices that are above and below the previous close price don't apply when the stocks gap up huge, so I will use 'red on day' to describe stocks that have gapped but are breaking down, similar to shorts off of premarket leaders, no need to wait until it drops below the previous day close although that may still be a safer entry. I will use 'green on day' for stocks like RDN that gapped down but had a huge run up, no need to wait for 'green' on those. For an example of 'red on day' see IMMR chart above, red on day almost the entire day but still 'green' from previous day's close. For an example of 'green on day' see RDN from Friday. I alerted at 9:50 am on the huge bounce from the volume spike (see previous post).
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3 comments:
what should be the safe entry on RDN? when did you see the spike at 9.50. when the sma 10/60 crossed. or when it went green for confirmation.
and on general do you wait for 1% or 2% to confirm an entry to go green or red, like with RDN waiting to confirm it won't pull back to red.
thanks johnnyvento
for me the safest entry is when the stock settles down and decides which way it is going to go, RDN could easily have come back down and made new lods but instead it turned upward at 1:00 and made new hods, at that point it's worth a play (but only with a day trade)
JV..
Great post...I really like this point you made:
"Also, don't ignore the ones that have already started to drop. I still view GBRC and CPSS to be great short candidates on Monday off red with much potential downside still in them. Those can be missed on the 8% gain and 15% 2 day gain filters, but will still be caught using 50% gain in 10 days or 100% gain in 20 days filters."
Because yes you can use 50% in 10 days then just toggle the % and days and may find a few more that are missed.
In fact,the 8% in one day can find a few that aren't picked up by the 15% in days,a few you'll see might be up 50% today BUT maybe down yesterday 40% so one wouldn't see it on the 15%/2 cause it is up only 10% in 2 days.
One must really eyeball the 8%/1day charts well,you can find some nice ones.
"Failures" are great..ones on initial day that hold green that 1st day on scan.
In fact I root for them to run crazy giving us an even better risk/reward after that 2 day run.
I know I put up quite a few watches,15 or more most days but I'm counting on you folks to do some chart work on those.
At first it may seem a little too much work to keep track of these but it gets better over time as you get the hang of it.
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