A Year End Review

In the middle of the summer of 2009, I issued a My Favorites Stocks list for my Facebook family, which went on to deliver some very hefty gains over a short four month span. On October 26, I published my Top 15 NASDAQ Stocks for the Rest of the Year list and now it’s time to assess how these little babies fared. Let’s take a look at the list and where they were as of 10/26.

The overall NASDAQ market, as measured by QQQQ, the ETF that represents the NASDAQ 100 Index was trading at $43.00 on 10/26. As of today, QQQQ closed the year at $46.00, for a $3 gain over a two month period. $46.30, it’s high point (the highest price it traded during the time period), was 30 cents more than its closing price. While this seems a bit small for two months, it’s really not small at all, especially given the fact that if your money sat in a savings account, it would have barely broke even over that same period.

Now, let’s see how My Top 15 NASDAQ Stocks list compared over the same period.

As you can see, the 15 stocks I culled out of the 100 which make up the NASDAQ 100 Index performed much, much better in terms of points or dollars gained. From a percentage gains basis, the list performed on par with the index. But what I tend to look at closely is the High Price Gain column, because the sell rules I teach and apply will capture much of the gains you see in that column. There is one key sell or profit taking rule that will ensure this. It’s my 8-MA Sell Rule.
 
The 8-MA Sell Rule
This sell rule is the epitome of simplicity. It simply calls for one to take profits whenever a stock moves a decent distance above the 8-period simple moving average. More specifically, it calls for taking profits whenever the low of a green bar elevated high above the 8-ma is taken out. Here is an example.

Note the three criteria of the sell rule: 1) Stock rises well above the 8ma; 2) Stock forms a green bar or a neutral bar well above the 8ma; 3) Stock breaks the low of the green or neutral bar well above the 8ma. All three of these things constitute a solid reason to sell or at least to take major profits off the table. As you all know, this is precisely the area I took profits for a greater than 700% gain in MNKD.

Now, the last question to be asked is, “what time frame does one apply this on?” I say one should apply this sell rule on all three of the wealth-building time frames: Daily, Weekly and Monthly. Whenever and wherever it materializes, I act.

In Summary
A basket approach applied to a carefully selected smaller list of stocks can greatly outperform a broader basket with no selection process, at least dollar for dollar. This proves that the market is not a “random walk” and can be beat with intelligent analysis, even over longer periods of time.

The New List for 1st Quarter 2010
In the early part of 2010, I will issue a new favorites list to consider. While there is no guarantee that the new list will outperform the overall market, it’s bound to include at least a few stellar stars over the next several months. Stay tuned.