Friday, May 13, 2011

Market Commentary - Posted Friday May 13, 2011 @ 2:09PM/EST

While the Dow intraday is flirting with its recent pullback low, the broader NYSE Composite Index has already taken out its low. The recent 3-day "snap-back" rally was anemic and unimpressive. On May 5, 2011 our risk model moved to a sell signal. Until we see improved market action along with participation among leading names, we suggest the following steps:

10 Steps to Take to Reduce Portfolio Risk
1. Get off margin immediately
2. Raise at least 25-50% cash
3. If you choose to trade, take smaller than normal position sizes
4. Reduce overexposure in any one industry group and diversify more broadly
5. Reduce exposure to high beta stocks
6. Avoid laggard stocks (even if they look cheap)
7. Nail down profits when you have them (be less greedy)
8. Tighten up your stop-losses (be less forgiving)
9. Sell all stocks that break down in price (especially if they can’t rally)
10.Upgrade in quality and reduce exposure to low priced stocks

Mark Minervini


"I attended Mark's seminar last year… It was a life changing seminar."

Pradeep Bonde
Founder of StockBee


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Learn more at www.4traders.info
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6 comments:

  1. Hi Mike,

    The performance of your students is impressive. I am considering your premium service because I may not be able to attend the seminar. What is the performance of your premium service trades year to date?

    Thanks,
    David

    ReplyDelete

  2. If you contact Bob Weissman during regular business hours at 646-416-6998 he will be happy to answer any questions you may have. Look forward to seeing you on the MPA platform.

    -MM

    ReplyDelete

  3. Mark, In the day to day running of the MPA platform,do you present the SEPA methodology tutorials in a structured way, ie at fixed times, or do you do them whenever you are in the room?

    In other words is it possible to join and know, in advance for scheduling purposes, when you will be presenting an educational webinar etc?

    ReplyDelete

  4. BlakeG2560,
    I generally go into the trading room for discussions and tutorials around 10:30am/est 2-3 times per week. I also go in as maket conditions dictate. Of course, you have access to our real-time stream throughout the trading day. In addition, we monitor the live trading room all day and answer questions as needed. So, you basically have access to us all day long. Hope to see you in the trading room.
    MM

    ReplyDelete

  5. Mark,
    Ive noted in previous posts than when your risk model goes to sell mode that you go to cash and consider entering shorts. Are you short any notable names at this point?
    Also, can you provide some hints on what fundamental or technica or other traits you look for in a good short. Do you somewhat reverse you buy methodology when looking for shorts?
    Many thanks
    RW

    ReplyDelete

  6. RW,
    My only position currently is SH (inverse S&P 500 ETF) which I bought on 5/6/11.
    -MM

    ReplyDelete

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Blog Archive - Read Mark's Past Posts

MARK MINERVINI'S STOCK SELECTION STRATEGY

Specific Entry Point Analysis® -SEPA®

Specific Entry Point Analysis® - SEPA® was developed by Mark Minervini. The methodology’s foundation is built upon historical precedent analysis of past stock market “SUPER PERFORMERS.” To determine what characteristics make a stock likely to advance significantly, historical models of top price performers and industry leaders are archived in the Minervini confidential database. These models are based upon sets of characteristics prevalent in exceptional winning stocks.

PATTERNS OF EXCELLENCE
On-going efforts are focused on identifying in detail the characteristics of the most successful performers of the past to determine what makes a stock likely to outperform its peers in the future. Based on these attributes, current investment candidates can be compared and scrutinized for criteria in-line with our proprietary Leadership Profile®. This success blueprint is the fundamental basis for our stock selection. The database and profile is continually updated to account for market dynamics and new available data. The SEPA® model takes into account thousands of historic company profiles going back over many market cycles spanning numerous decades. In order to find rapidly growing companies with the ability to sustain above average appreciation, a unique combination of quantitative screening, fundamental research and qualitative analysis serve as core selection criteria for the SEPA® investment process.

Additionally, the SEPA® ranking process scores each company based on earnings surprises, estimate revisions and company issued guidance in order to determine the probability for future price performance catalysts. A unique component of the SEPA® process is a focus on “where” a stock is within its earnings maturation cycle. Each day, computers systematically analyze thousands of stocks for specific data items using a proprietary series of absolute, relative and time dimension calculations. The extensive fundamental research ranks each investment candidate for probable earnings surprise.

Specific Entry Point Analysis® focuses on identifying, company-by-company, the precursors of inefficient pricing in order to distinguish appropriate entry points. Utilizing SEPA® Technology, stocks displaying the potential for significant price appreciation are identified and pinpointed. While nothing is perfect, the proven SEPA® Technology consistently highlights many of the best investment ideas and stock market leaders before they’re widely recognized by Wall Street.
The SEPA® screening process can be summarized as follows:

1. Stocks are screened through a series of "filters" based on earnings, sales, profit margins, relative price performance and price trend characteristics. Approximately 95% of all stocks in the market are eliminated in this first screen leaving roughly 1,000 initial contenders.

2. These remaining stocks are scrutinized and ranked for similarity to a proprietary Leadership Profile® in-line with specific fundamental and technical factors exhibited by historic models. This second stage of qualifiers removes most of the remaining companies, leaving a narrowed list of investment ideas for further review and evaluation.

3. The final stage is a comprehensive manual review. The narrowed list of candidates are examined individually and scored according to a “relative prioritizing” ranking process which considers the following characteristics:

- Reported earnings and sales
- Earnings surprise history
- EPS and sales acceleration
- Company issued guidance
- Earnings estimate revisions
- Profit margins (historic & projected)
- Industry and market position
- Potential "catalysts" (new products, services or industry changes)
- Performance compared to other stocks in same sector
- Price momentum, price trend and trading volume analysis
- Liquidity

The SEPA® ranking process is focused on identifying three key elements:

1. The potential for future earnings and sales surprises
2. The potential for institutional volume support
3. The potential for rapid price appreciation based on a supply/demand imbalance

Profiting from the Earnings Cycle

Individual stocks can go through extended periods of underperformance, in some instances for decades – Eastman Kodak’s stock price took twenty-four years (1973-1997) to just break even while the S&P 500 Index advanced 500%. While some stocks languish, companies with superior improving fundamentals can perform exceptionally well.

Large institutional buyers (mutual funds, pension plans, hedge funds, etc.) have the greatest buying power to influence a stock’s share price. So, what do they look for? Earnings and sales surprise and estimate revisions contribute to valuation model changes and thus impact buying and selling pressure. The subsequent buying pressure that comes from an earnings surprise or a company materially raising guidance generally leads to a higher stock price, which in turn attracts momentum buyers.

An understanding of how Wall Street works and identifying what specific characteristic will attract institutional buyers into a stock is our daily focus. The graph below illustrates a typical earnings maturation cycle and where we focus our efforts on buying and selling within the cycle
Summary of the SEPA® Process

HISTORICAL PRECEDENT ANALYSIS
-Study of the best performing stocks over each market cycle
-Characteristics defined and archived in our database
-Blueprint is constructed based on attributes of winners

COMPUTER SURVEILLANCE
-Computers screen 8,000+ stocks daily
-Narrows down the top 1%
-Companies displaying specific characteristics are identified

LEADERSHIP PROFILING
-Data is compared to all stocks
-Results are compared to a Leadership Profile®
-Profile is continually updated to reflect new information

RANKING AND SELECTION
-Candidates are monitored for specific criteria convergence
-Catalyst such as earnings surprise, company issued guidance
-Entry point defined based on risk/reward

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Mark Minervini's financial advice and SEPA® stock selections sold exclusively to institutional investors for $120,000 annually. Get insight, stories and stock picks from the Stock Market Wizard here FREE!