New Buy:(LFT)

Before addressing my latest trade, I want to spend a few moments on the past week, as it was quite a roller-coaster ride.

I made the mistake a couple of weeks ago buying (TNDM) within a week of it's earnings announcement. I was so enamored with the stock that I just wanted to own it, even with the additional risk involved. I'm not a lucky person, so I need to keep the odds on my side. I lost money on that trade.

I bring this up again because the next stock that really caught my attention was (BWLD). This stock had the ingredients I look for most - strong fundamentals, leading relative strength line, obvious signs of accumulation, and a price near an all-time high. The setup was almost perfect.

Almost.

(BWLD) broke out before earnings day. It did so explosively, advancing 10% past the buy point. It was difficult to sit on the sidelines when I had been targeting this stock, but every rule I have has a good reason behind it and is designed to help me succeed in the long run. As it turned out, (BWLD) disappointed the market with it's earnings report, and promptly gave back the earlier gains. The important thing is that I stuck to my plan.

My next prospective buy was (GMCR), which showed up on my new favorite screen Wednesday night. I want to digress for a moment and talk about this screen.

A few weeks ago my coworker and fellow CAN SLIMer (you can visit his blog here) brought up to me that he had been working with a new screen based on stocks with high relative strength. We had been noticing so many so-called 'leading stocks' lag the broad market that this was idea was brilliant in it's simplicity. This screen got right down to the real leaders, based on their price action (what else matters).

Within another day or two I saw on http://www.investors.com an old statistic that something like 85 to 90% of the greatest performing stocks of all time had an EPS rank of 90 or better and a Relative Strength rank of 95 or better at the time they began their run. At this point I got the message.

I threw together my own very simple screen, adding some basic criteria:

Earnings Per Share (EPS) Rating
From 90 to 99
Relative Price Strength (RS)
Rating
From 95 to 99
% Change in Latest Quarter's EPS vs. Same Quarter
Prior Year
Greater than or equal to: 25
% Change Latest Quarter's Sales
vs. Same Quarter Prior Year
Greater than or equal to: 25
Company's
Industry Group Rank
From 1 to 80
Current Price
Greater than or equal
to: 10.000
Current 50-Day Average Volume(1000)
Greater than or equal to:
300

Out of the thousands of publicly trade companies, this screen has not returned more than six in the few weeks I've been using it. The companies that do make it through this screen are performing very well, almost without exception. Some day I will try to base my mechanical trading system on this screen - but that is a post for another day.

So, I'm very positive on this screen and Wednesday (GMCR) made the cut after being adjusted for the earnings released that day. This setup was just as close to perfect as anything I'd ever seen. The stock was already rallying, earnings and sales were accelerating, the product is booming, the company beat estimates, raised guidance and announced a distribution deal with Walmart. If there ever was a no-brainer, this was it.

The stock had recently cleared a three weeks tight buy point and pulled back during normal trading on Wednesday. After hours it was up 20%, and there was no doubt it would gap up at the open. The buy rule on a break-away gap up open is that you can buy up to 10% beyond the pivot point (normally you don't buy more than 5% beyond this point). I set a buy limit order at $61.

The stock opened at $63 and never looked back. It traded as high as $79 on the day, a gain of 50% from the prior day's close. It was gut-wrenching. I felt as bad missing that buy as any time I can remember investing. I've had my fair share of struggles, I've made so many mistakes, and I've lost money - my family's money - that I intended to make returns on. I badly wanted a success, something positive to build on.

The only way I'm able to come to terms with it is to imagine a big league batter facing the best closer in the game - one he's had no success against. He takes the first pitch - a strike - and now the count is 0-1, he's behind. He flails at the second pitch - now 0-2 - he's further behind and in danger of pressing. Instead though, he calls time and steps out of the batter's box. He gathers himself and remembers his training. He calls upon the hours he's devoted to practicing his art. He shuts out the noise and steps back to the plate. He sees the pitch, and it's like the pitch he waited for his whole life. He connects and the sound and the feel are perfect - it is a home run, there is no question. As he rounds first base, he looks up to see the strong winds carry the ball just outside the foul pole. The home run never was - he heads back to the plate.

How does he respond?

There are going to be many ups and downs in my trading career. The best thing I can do is try to level these out. Bad is never as bad as it feels, and good isn't either. It's a business, and I won't be successful with every outing - that's why I'm building a business plan to make sure I'm successful more often than not.

Which brings me to today's purchase. Last night I scanned my High RS screen again and of the five stocks on the list one was within buy range - (LFT). The stock found support at the 50 dma Wednesday. I thought that I could catch it back near the 21 dma around $23, but it opened above $24 and never looked back. The pivot point was $26.09 and my buy stop was filled at $26.15. The stock made a run to $27 and pulled back to close above the pivot point, up 10% on the day on twice it's normal volume.

(LFT) is a Chinese ADR and could be volatile, but has a lot going for it. It's an IPO public less than two years. The fundamentals are strong, it's already had a 40% advance from an ugly cup pattern, and it shows plenty of signs of accumulation. The overall market is due for a pullback, which gave me pause, but until I can see the future I'll buy good stocks at proper buy points and take my chances with the overall market direction.

(ARST) had a low volume pullback this week. It was a very orderly move, but I'm a bit nervous as it's getting closer to my stop loss order. If it finds support at the 21 dma my position should be secure, but if it pulls back the the 50 dma again I will get stopped out for a loss of 1%.

This weekend I hope to find time to do some more work on my trading plan. The more homework I do the more confident I feel.