Sunrise Senior Living vs. Hormel Foods: Take the Poll

Every one knows that the elderly and chili do not mix! This volatile combination should make for an interesting battle for this week’s March Madness stock picking tournament.

I just hope that no one’s blood pressure gets elevated and that there are no, ahem, blowouts.

Of course SRZ is my pick whle GYSC (gynecological service company?) has picked HRL. Both charts look fantastic.

What do you good people think of these charts? What are your predictions for which stock will gain the most this week?

[polldaddy poll=4630519]

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Both aggressive models have roughly doubled the return of SPY so far this year.

20% of Equity per Trade

Net % Profit: 9.86%

Annualized: 91.05%

Average Trade: 1.42%

Winning %: 73.53%

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10% of Equity per Trade

Net % Profit: 2.23%

Annualized: 16.42%

Average Trade: 0.38%

Winning %: 70.31%

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ATR Position Sizing

Net % Profit: 7.96%

Annualized: 69.45%

Average Trade: 0.75%

Winning %: 71.74%

.01/share was included for commissions.

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I have been tweaking the candlestick code and it is getting close to being right.

Here are the 3 Morning Stars tonight’s scan found.

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Assuming Libya does not get much worse tomorrow, look for a significant bounce. Today’s high volume doji tells me a reversal is in the works.

Here are 4 great breakouts for tomorrow:

BMO

HSY

PKI

OCR

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The market is no longer boring. It is indeed flashing signs that the low volatility, 45 degree angle uptrend is ending, or at the least, taking a break.

If you got caught long here holding high beta names, don’t be too hard on yourself. There was no way to know with 100% certainty what would happen. The fact is that over the last 6 months or so, the market has handsomely rewarded those who have bought these kinds of dips. The trend is your friend…

While we still have a strong trend here, a sell-off like the past 2 days has not been seen since November of 2010. In fact, the sell-off in November was the only time this rally paused since it began on September 1st, 2010. Will it pause again here? I’m guessing that it will.

However, a pause and a bounce are not mutually exclusive. I ran a test, modeling the last 3 days worth of market behavior, and the results are strongly bullish. It appears that a bounce is likely.

The Rules:

If 2 Days Ago, SPY Closed at a 10 Day High or Higher AND the 2 Day Rate of Change is > -2.5%, Buy SPY at the Close.

Sell X Days Later.

All SPY history used. No commissions or slippage included…

The Results:

There were 44 instances of this setup, and as the graph shows, the results are strongly bullish. A limitation is that I did not add a factor in for the recent explosion of oil prices.

The Avg. % Profit/Loss is on the left axis and peaks around 1.5% gain. The % of Winners is on the right axis and peaks around 75% winners.

My crystal ball is saying that we will bounce and then have some volatility and consolidation. Note though that it is almost impossible to model exogenous events caused by murderous, oil-rich Middle-Eastern tyrants. Add in the possibility of a complete revolution in the Middle-East, and your sample size gets real small, real quick. Because it is impossible to know what will happen, I will stick with my simple market modeling.

PDS has dozens of excellent setups for tomorrow’s open, if you’re interested.

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Here is why I am buying this dip.

• I have looked at all of my overbought/oversold indicators, both the standard ones such as RSI2 and DV2, and some non-standard ob/os indicators. All of them are close to or are signaling buys.
• VIX jumped 26.6% today, closing slightly above where it closed when the Egypt news was breaking.
• SPY closed above the 20 day moving average.
• Breadth indicators, including number of stocks above their 5 day moving average and the decliners indicator, are giving buy signals. (see below).

It is easy to second guess the indicators and other signals that show the possibility of a bounce here. Sure, the unrest in the Middle East is a tad frightening. The problem is that second-guessing can become a bad habit. How many bounces over the last year would you have missed had you second-guessed your favorite indicators or not followed your rules?

As a bonus, here are some PDS picks for tomorrow, but they are not the top-ranked picks. I fully expect 65% or more of these to be closed for gains. If you want the sell signals, you’ll need to subscribe.

BECN
TIBX
SNCR
WYNN
JLL
KNL
CDNS
TWI
ATHN
NATI

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I have the futures down greater than 1% and it looks as if the weakness may actually hold through the night. It is possible that the market may gap down more than 1% on tomorrow’s open.

What happens after the market gaps down 1% or more?

Rules:

Buy the open on SPY if it gaps down 1% or more. Sell the close X days later. No commissions or slippage.

Additional factors:

• 1% Gap Down from 10 Day High
• 1% Gap Down and SPY last closed at a 10 day high.
• 1% Gap Down when the $SPX last closed above the 50 day simple moving average.

Results:

Caveats:

Buying a gap down greater than 1% had a nearly flat edge until the Bear Market of 2007-2009. During the Bear Market, buying a gap down simply did not work. This period of terrible performance skewed the results negatively.

Since 2010, buying a gap down of 1% or more has worked very well.

Based on these results, it is difficult to guess if the pattern that has dominated since 2010 will prevail. If the market does recover from any large gap down, it will likely be at least a week and likely two weeks before the market makes a new high.

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