I posted this yesterday in The PPT and thought that perhaps undistinguished gentleman may also appreciate:

Momentum – A Proof Of Concept                         Posted by Danny Jul 27, 2010: 1:24 am

Exactly week ago I posted A New Screen From Me To You, which is a relative strength screen designed to find market winners.

I encourage you to read the post again, and all the comments.

The quick gist is that stocks don’t go up multiple hundreds of percent in a year for no reason at all. The reason may not be clear to you, and it frequently is not for me, but my brokerage account is measured in dollars, not opinions, and it really doesn’t matter why some of these companies are going up, just that they are.

[Editor's Note:  Think CROX.  Or JSDA a few years back.  Or AIG after its reverse 1:20 split that took it from a low of 9 to a high of 50.  In fact, there are a lot of examples like this]

These stocks have momentum.  That’s what matters.

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On July 20th, breadth turned positive, which means that momentum setups and breakouts have a higher probability chance of outperforming, ie, continuing to move higher as oppose to mean-reverting.

Given that companies up >100% in a year (an arbitrary threshold I picked that signified clear outperformance) have momentum, lets see how this list has fared over the past week, especially since one of the scan’s criteria is 1 week return.

88% of throwing a dart at this list outperformed the market.  This is not a one-off, luck or chance — this list will consistently kill the market when the conditions are right, and hopefully you’re beginning to get a sense of how momentum and breadth and The PPT can work together.

(note: I don’t specifically condone stock picking via dark throwing, unless totally drunk)

So what do you end up with?

- You have a list of top performing stocks in the market RIGHT NOW

- You know when you will be most rewarded for trading them

Think of the advantage you have over other traders armed with this info!!!  Entries and exits and risk management become a lot simpler when you know these two things.

So at one point the futures were up 8,305% and it looked like the consensus was right, inasmuch that more people voted for more upside, which was contrary to everyone thinking we were already way overbought.

Then we opened and did a gay sashay around unchanged for most of the day.

What’s really funny though, is that when the futures were higher, the voting was skewed positive.  As the fell…so did the results.

Takeaway — Murphy’s Law wins again.

Many commenters here, on twitter, and even one of the great ones himself, Cramer, are positioning for a pullback via selling winners and/or short sales.

This of course, per Murphy’s Law, means we have another egregious day higher tomorrow.

What says ye?

[click to open poll]

Almost a week ago on this very day, Tuesday 7/20, I got bullish on momentum, after some beardom.

Today’s Rally – Good, but good enough?

What does getting bullish on momentum mean?

It means that breakouts and momentum trades that fit certain criteria have a much higher probability of continuing the move higher than otherwise normal.  Good setups and strong stocks that are exhibiting outperformance can continue that move.

One may infer that

BULLISH ON MOMENTUM = should take MOMENTUM TRADES

In Thou Shalt Also Not Ignore Ye Olde Breadth I explained that conditions worsened in the next-day sell-off but were still net positive, and to keep looking for trades.

Then the next day we got a nice pop, and some new longs.

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Fast forward to today.  All the stocks I bought in the last few days, on strength mind you, are up between 0-12% since then.  Some of the ones I didn’t buy are up more (Murphy’s law again).

The idea is that stocks that are rewarding momentum, they can easily go up 10-15 percent in a matter of days.  Identifying WHEN stocks are rewarding that type of momentum gives one a considerable edge in the marketplace.

Which stayed net positive even into yesterday’s decline, because the move wasn’t strong enough to change it.

Remember, the way I look at the indicators is whether a majority are bull/bear.  Yesterday the margin was in favor of bulls by only 1.  Thus the deterioration I mentioned, but hey, margin of + 1 still counts.

Today, however, appears to be RIPPING TO THE FUCKING UPSIDE.

The stats should be interesting.

Technical analysis doesn’t help you trade profitably if you don’t have a pattern or an execution method that you consistently stick too.

link.

Studying price action is absolutely important.  Ditto for knowing technical patterns.  But you have to learn when the apply the patterns and when stocks are responding to them, and getting that feel takes a while.  That’s why I choose my Breadth Indicator, an objective way of viewing the market to make decisions.

Speaking of, breadth is still hanging on to bullish territory for quick trades meaning breakouts have a better chance of working.  That said, conditions deteriorated since yesterday and are not ideal.