PUTTING IT ALL TOGETHER

1. PUTTING IT ALL TOGETHER

2. C-CURRENT EARNINGS-look for acceleration in earnings quarter over quarter A-ANNUAL EARNINGS-look for acceleration in earnings year over year N-NEW-new product, new leadership, innovation, new high in price S-SUPPLY/DEMAND-are the pros buying? Increasing participation by funds. High volume on up days, low volume on down days. Support at 50/200dma 10/40 weekma. L-LEADER OR LAGGARD-buy only the best, top 3 in group. I-INDUSTRY-choose from the top 50 industry groups M-MARKET-uptrend, uptrend under pressure, correction. Know what conditions are before jumping in.

3. BUY ON FUNDAMENTALS • Following CANSLIM criteria will put you in the right stocks in the right market. • Composite rating above 90 • Industry rank above 50 • Accelerating earnings quarterly and annually-look for a big earnings jump 50-100% or greater. Be sure that sales are accelerating as well • ROE at least 17%. Big winners are usually >20%

4. BUY ON FUNDAMENTALS • Debt below 125% • Up/down volume greater than 1.5. Count the buying and selling bars above the 50 ma for volume in past 20 weeks. • RS line above 90 look for RS at new high preceding price high prior to breakout. • Buy breakouts from sound bases in confirmed uptrend, limit buys and additions in uptrend under pressure, raise cash in correction.

5. ALXN C 46% A 52% N Stage 1 base, new high S 1.2/decreased fund ownership L RS above 90 sound base roe 29% L 2 M market in confirmed uptrend

6. C big jump A big jump N stage 1 base new high S accumulation in base, decreased fund ownership L low RS, sound base I 17-up from 41 last week, 192 3 mo ago M market in correction

7. SIGNS OF TOPPING • 5 distribution days any market in 5 weeks or less signals institutional selling. • Stalling is increased volume and little price movement and count as distribution. When this happens at a new high, pay attention. • Divergence in major averages-one index makes new high and the others close down. • More leading stocks down in volume than up in volume for consecutive days. • Heavy distribution on way up. • Climax action leads to huge price movement on highest volume of the entire run. AKA meltup

8. Spx 2014 top into correction

9. Nasdaq 2014 top into correction

10. MARKET TOPS • When distribution is evident in indexes watch the action of the leading stocks • Are the current leaders breaking down on high volume? NUS, CELG, SSYS, QIWI, DDD, TWTR • Are the current leaders staging climax runs? ILMN, DDD, ALXN, KORS, GMCR, YELP • Are laggards and low quality stocks beginning to lead? • Is volatility increasing in price action of stocks, wide and loose bases forming. BIIB, WYNN • Is there an abundance of late stage bases? Choices for watch list waning. • Study the action in the indexes, know your sell signals, check the market pulse daily.

11. NUS top 1/17/14

12. QIWI top 1/10/14

13. SELL RULES • SELL IF: • Stock closes below the 50 or 40 week ma with volume exceeding 50 sma for volume • When stock drops on high volume did it gap down • Does stock fall on high volume and rise on low volume • What is the current market condition • If you can answer YES to 3 of the 4 above questions-taking profit or cutting loss is the best plan.

14. SELL RULES • Sell if your stock goes down 8% below pivot. In market with signs of topping may raise this to 4-5%. This requires strict discipline and prevents catastrophic loss. If breakout is failing, sell half at 4% and the other half at 8%. • Sell if your stock goes up 20-25%. The majority of stocks will correct from this point. Caveat is the 20% hold rule. If your stock goes up 20% in 3 weeks or less hold for 8 weeks as it often will indicate that this may be a big winner. • Sell if your stock pulls a round trip after rising at least 10% • These rules will manage your risk and bring confidence to your trading. Buy and sell only on sound rules so your emotions do not dictate your trading.

15. Break down from cup with handle Gap down, high volume declines, price below 10dma, profit to loss

16. High volume drop below 40 ma, gap down on daily Pivot 62.02 profit target 12 points 74.02 high was 137.8 about 120% Gap down to 108

17. High volume drop below 10 ma

18. Biggest move on highest volume of entire uptrend

19. CHART PATTERNS

20. FLAT BASE Forms during sideways market corrections

21. Double Bottom Forms in choppy markets

22. Ascending base Usually occur halfway through a move. HMIN, CVLT

23. HMIN-ASCENDING BASE

24. CVLT-ASCENDING BASE

25. STOP LOSS • Remember goal is 20% win to 8% loss or in difficult markets 15% win to 5% loss. Winning stocks in a confirmed uptrend rarely ever retrace > 8%. • When trade is placed, compute the profit and loss targets. • Place stop loss in the market to assure that catastrophic loss is not an option. • IBD strategy does not use trailing stops. The rule is take profit at 20% and cut loss at 5-8%, once there is a 10% profit stop can go to breakeven so as not to turn profit to loss. • Each addition made to position carries it’s own risk and stop is set at 5-8% from the entry price of the new pattern for the amount of shares purchased for the new buy. • All sell rules super cede 5-8% loss and decision to close trade is determined by market action and price volume action in stock. • The rules are in place to save to you from yourself and your emotions and to keep you in the winning trades and quickly out of losing trades.

26. WATCHLIST SA IBD • Using everything that we know, let’s build a watch list of leading stocks.