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Archive for March, 2010

Posted by MartZee March 17, 2010

DEVRY (DV) searching for the new trade

Last two weeks I have been searching for a stock which would pass my new criteria and I would be able to open a new position. My screener has been shooting many candidates at me, but further screening blocked those stocks from buying them.

Recently I reviewed the following potential candidates for buying:

ACU; AKAM; BIG; BKE; BRCM; CMP; CPO; CSGS; DMND; DV; EDU; EMS; FSC; HGR; KED; MPAA; MWIV; OTEX; PETM; PTNR; TGI; THS; & TNK

All stocks were originally selected by my screener because of high Relative Strength (RS) and increasing institutional accumulation, however the next screening failed those stocks. They weren’t either trending properly or heavy insiders’ selling or didn’t pass screening of EPS, revenue, EPS growth etc.

Finally I was able to find a stock which showed on my screener and passed my further evaluation as a strong candidate: Devry (DV). It failed only in a few criteria such as insider selling, however since DV is a university I do not consider insider selling as a significant issue here. Also most of the selling was an option execution.

After DV passed my screening I calculated potential risk of the portfolio. Because this stock is quite expensive one the risk will be a bit higher initially. Nevertheless I decided to buy 12 shares of this stock as my initial position.

Why I am buying only 12 shares? By limiting the size of the position I am limiting my potential risk if the trade turns against me. If that happens I will lose only 52 dollars and my entire portfolio drops to $1998.26 of liquidation value and that is acceptable for me. I entered a buy order for tomorrow’s opening to buy 12 shares of Devry (DV).

No new trades available

On Saturday I calculated my total portfolio risk based on my adjusted rules:

  • trade must be larger than $800 to lower the cost ratio when buying stocks
  • existing positions must be positive
  • or the total current risk exposure to stop loss must be less than 3%
  • or the total liquidation value of the portfolio must be larger than $2,000

Based on this I could open a new position without risking too much if all open trades turn against me. Previously I calculated the above conditions wrong and when all trades turned against me in January 2010 I lost almost 21% of my portfolio. With these new rules I shouldn’t lose so much anymore.

When calculating new risk I am looking at what my portfolio will look like WITH the new position if all turns against me.

Based on those rules I evaluated the following stocks:

AKAM, BRCM, CPO, HGR, MWIV, OTEX, PTNR, THS,

From the stocks above only Open Text Corp. (OTEX) was barely able to pass my further scanning and meeting criteria. It scored as a moderate buy candidate, creating new highs, however it didn’t pass my other criteria. By buying this stock at this time would increase the risk of my portfolio to almost 6% and drop my total value below $2,000. I decided not to buy at this time and stay aside unless a new candidate shows up. I also will need to save and deposit more money to allow new purchases.