How To Recognize Great Performing Stocks >>

[Pages:16]How To Recognize Great Performing Stocks >>

Your guide to spot the cup-with-handle chart pattern.

#1 in a Series of 5

How To Recognize Great Performing Stocks

When you read this simple 16-page booklet, you have in your hands the first step to your becoming financially independent for the rest of your life! The freedom and opportunities in America are unlimited.

Contrary to a negative national news media, America is the most productive, successful country in the world...and it makes no difference where you come from, what you look like, old or young, rich or poor...you can make it and become financially successful if you have the drive, desire, and determination to work at it and never give up.

Why? Because entrepreneurs, innovators, and inventors are the key driving force behind every U.S. economic cycle. There are dozens of new Apples and Googles every cycle. They create the vast majority of our new jobs, products, and new super stock market winners...not our big older companies that are downsizing and losing market share.

Now, the most incredible secret is that while half of all Americans invest in the stock market in one way or another, few have any idea how to recognize or benefit from the next Apple or Google. That's what we will show you how to do in the rest of these pages.

To begin with, exceptional stock selection is all about vital facts, never personal opinions which can easily be wrong. It's also about human nature and psychology. You need to learn the things you think you know about buying stocks that you must stop doing, and the historically proven new rules and principles you need to start using to materially improve your results.

Next, you must look for the very best stock in a better-performing industry. It will be the stock with the best--and typically accelerating--percentage increases in its recent quarterly earnings per share and sales plus, either a high return on equity or pretax profit margin and it will have either a superior new product in broad demand, a significant improvement in its industry conditions or new management.

But, here is the real secret that only one in every hundred or so investors understand and use with any skill. You must learn how to read and interpret daily, weekly and monthly price and volume charts

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that can tell you if a stock is behaving properly or not and if it is under accumulation (institutional buying) or not. Charts measure the actual supply and demand for a stock in the real marketplace and the best, least risky time to begin your buying and the worst, most risky times to buy or continue holding a stock. This is an enormous advantage when you combine it with a stock's superior fundamentals like strong earnings and sales.

Charts, to a smart investor, are just like MRIs to a doctor who wants to see the true facts of what's really going on rather than relying solely on opinions or guesses. Or, when you drive across the country, you want a road map to make sure you know where you're going, right?

The Cup-with-Handle Pattern

The most common highly successful chart pattern we have is named the Cup-with-Handle, because it looks like a teacup if viewed from the side. You will find hundreds of these in every new bull market, so study these patterns carefully until you have their similar images deeply imbedded in your mind.

Cup-with-Handle Traits

Buy point occurs when a stock moves up through the handle's high on heavier than normal volume, at least a 50% increase above the stock's average daily volume.

Old high

Handle should form in upper half of the cup, and within 15% of old high.

Prior price uptrend of at least 30% - Depth % -

Base Length - base should occur over at least 7 weeks, but can last much longer.

The stock usually corrects 20-30% from the peak (left side of the cup), but can be as deep as 50% in bear markets.

The handle lasts one week or more and drifts downward 8 to 12% along its lows but as much as 20-30% in bear markets. Volume may dry up in low area of handle.

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The cup-with-handle is a great way to spot leading stocks at the beginning of every major new market uptrend, which usually occur a few times every year. Leaders tend to break out of sound chart patterns like the cup-with-handle in the early days and weeks of each new uptrend. Therefore, it is vitally important to know when the market begins a new uptrend or correction since 75% of all stocks follow the general market trend. It takes a while to spot these patterns, so study this booklet closely. See more charts in Investor's Corner in IBD. Plus, visit our web site, to view more samples in the education section and video examples in the Daily Stock Analysis. It is key to understand that over 90% of all successful bases are formed during corrections in the general market. So, a correction is actually a good thing, since it sets up winning stocks for the next uptrend. But, it is also the time when media coverage will be negative so you have to learn to read what the market itself is telling you and be prepared to buy when the market starts a confirmed new uptrend. The chart at the right gives you definitions of key features included in IBD chart examples. You can use this as an additional reference as you go through this booklet. We look forward to helping you become a more successful investor!

William J. O'Neil

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Chrysler Increased 353% in 98 Weeks

Weekly Chart

Thick black line means stock closed at a higher price than prior week's close

Thin gray line means stock closed at a lower price than prior week's close

S&P 500 correction

S&P 500 Index

High Close

Low

Buy point

Weekly volume bars

Cup-with-handle

Average weekly volume line

10-week moving average line

200-day moving average line

Relative Price Strength Line vs. S&P 500. Uptrending line means stock is outperforming S&P 500.

Stock splits

Copyright ? 2008 Investor's Business Daily, Inc. All rights reserved

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Apple Increased 1534% in 99 Weeks

This stock was found just by going through a once a week chart book on 2/27/04.

Company has new product: iPod

At the buy point: ? Current quarterly Earnings Per Share (EPS): +433% ? Prior quarter EPS: +300% ? Last 3 quarters sales accelerated:

+8%, +19%, to +36%

The P/E ratio was 72 before it increased 1534% (so much for the myth that you should only buy low P/E stocks). The quarterly earnings were the vital factor not the P/E ratio.

20-week cup-with-handle pattern with: ? 6 weeks on the left side of base ? 4 weeks along the bottom of the cup ? 3 weeks up on the right side of cup ? 7 weeks sideways in handle

Buy point

Ultimate top $202.96 Buy point Cup-with-handle

Cup-with-handle

Handle area has 6 weeks in a row with prices closing in a tight range (closing prices shown by horizontal slash marks). This is a sign of accumulation (professional buying).

Breakout week's volume was 82% above avg. weekly volume

Copyright ? 2008 Investor's Business Daily, Inc. All rights reserved

Wal-Mart Stores Increased 967% in 163 Weeks

Wal-Mart put discount stores in small towns where there was no competition. When did you first shop in a Wal-Mart?

Wal-Mart ultimately went up another 4,712% for a total of 51,240% from the initial buy point.

Market correction

? EPS accelerated in March 1980 quarter up +48% from +29% in prior quarter

? Annual EPS Growth was +36% ? Sales were up +36% ? Return on Equity was 26%

Note similarity of Wal-Mart and Chrysler cupwith-handles. The more history you know, the more you will improve your stock selection. Recognizing sound chart patterns and insisting on big earnings and sales increases can improve your results.

Buy point

Cup-with-handle

Handle has 4 weeks in a row of tight closing prices.

Big volume clue

Many other chart patterns formed on the way up until Wal-Mart's peak in December 1999.

Copyright ? 2008 Investor's Business Daily, Inc. All rights reserved

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Redman Industries Increased 849% in 49 Weeks

At the buy point: Mobile Home industry sales were up 25% per year Current quarterly EPS $0.12 vs. $0.04: +200%

Charts just give you the facts of what's happening - no opinions.

I was shaken out of the stock in this market correction and learned a valuable lesson.

Up 20% in 1st week out of base signals strength of a big winner.

Buy point

Note similarity to in 2007; one corrected 30%, the other 27% with same fast run up and handles.

Cup-with-handle

Big volume demand like in 2007.

Note huge volume on prior uptrend to cup-with-handle.

Copyright ? 2008 Investor's Business Daily, Inc. All rights reserved

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