March 16th, 2009

Prospecting for Stocks with Potential

More and more “talking heads” are talking about March 9 now being the new low for the 2007-09 Credit Crises Crash. Doug Kass of Seabreeze Partners and Jim Cramer’s theStreet.com went so far as to say that we may have experienced a “generational low” and therefore a once-in-a-lifetime buying opportunity. Along with writing for theStreet.com, Kass also regularly appears on CNBC.

Today, Kass wrote “While each new low was more frightening than the prior one, however, there were improving technical and sentiment signals.” He points out that each no low was traced by fewer new lows on individual stocks. He went on to say that “the combination of Tuesday’s 12:1 ratio of advancing stocks over declining stocks coupled with that day’s 27:1 up-to-down volume ratio has not occurred in almost 65 years.”

I’ve also been monitoring the internal quality of the market through the number of stocks that have been able to cross above various longer-term moving averages since that’s one of the key dynamics for measuring the health of the overall market. And by all measures, the market at it’s current closing S&P Index value of 753.89 is about as good as it was when the Index was at 840 in January or 11% higher:

But enough of the market. You want some ideas of where to look for stocks to be added to your shopping watchlist. In the past, I’ve spoken about the “Golden Cross” stocks, the stocks where that 1) their price is above the 90-day moving average and 2) their 90-day moving average is above the 180-day moving average. But I also like to take a brute force approach and just look at charts.

I look for stocks that are making clean, long-term reversal chart patterns, like double-bottoms, symmetrical triangles and channels. I started listing some these stocks (and included charts as of that date) on March 4 in “Some Chart Reading Magic“. A more complete list of 65 stocks can be found in the following Google Spreadsheet.

Worden Bros. have launched a new Internet-based charting service called BestFreeCharts.com. The charting software they use on the site is extremely legible and closely resembles the charts on the PC-based software. As a example, click on Cheesecake Factory (CAKE) to see the chart. I’m just learning the software to see how I can best incorporate it into these postings. But check out the Google Spreadsheet for a list of some stocks with great chart patterns.

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