What makes a stock go up 25% plus in a month

gravitar easyguru - 1:14PM Nov 2

 

As many of you know, everyday I study stocks up 25% plus in month. The idea of the study is to find what factor can lead to stock making a 25% plus kind of move in a short period of time like say a month. If we can understand that then we can scan for stocks like that and try and capture part of the move.

This is an ongoing project and every month I update the criteria list in terms of importance. Here is the latest version.

What matters in order of importance:

  1. Prior neglect. This is the single most important criteria. Unknown stocks make big moves.Stocks with prior neglect/sideways move/consolidation prior to breakout make big move. Neglect comes in various forms.
    1. Financial neglect: A long period of time where stock had no growth. Longer the better.
    2. Price Neglect: A long period of time where stock had no meaningful price rally.
    3. Volume/liquidity neglect: Long period of time where stock had below average daily volume.
    4. News/attention neglect: No analyst coverage. No major news for months /years.
    5. Ownership: low funds ownership
  2. News catalyst. Most 25% plus kind of moves start with some news or new information. News on neglected stock precipitates the move.
  3. Sector. This is the second most important criteria.  Most of the time a sector will catch fire and many stocks in the sector will burst out with great force. Rare earth mineral is one recent example. Cloud computing was another theme few months ago. Solar sector was another recent theme. Currently Communication equipment and Oil and gas sector is in play with some big moves in sector. Sectors often remain hot for few weeks to months and then go in to correction or reverse. Sector moves happen very quickly and by the time most people can recognise it the move might be over or the big movers in that sector would have peaked. After lot of research on this factor I figured out the exact time frame one must use to spot a sector trend. That learning is factored in to the Bluefin Sector50 and Emerging50 list.  
  4. Range expansion. All 25% plus in a month start with a range expansion. Most of the time this range expansion is 4% plus and is accompanied by volume surge. This is the foundation of the Stockbee breakout method and over 10 years of studying this list this has remained my constant finding.
  5. Stocks with float below 100 million dominate the list. 65% or more of the stocks which make big move in a month will have  less than 30 million float. Probability of a stock with 100 million plus float stock making explosive move is low.
  6. Stocks priced below 20 make bigger moves than stock priced above 20. 70 to 75% of the stocks that make 25% plus move in a month tend to be priced below 20.
  7. Bulk of the 25% move in a month happens only in 4 or 5 days. What it means is if a stock makes 25% move in a month out of that almost 20% move will happen in 3 to 5 days. Stock breakout and have 3-4 days of big price surge and then the momentum slows down or there is a pullback. This has clear implications for setting your exit strategy.
  8. At the beginning of 25% move stocks breakout above 105 trend intensity readings and remain above the readings for the entire duration of the move.
  9. Large gaps are not good. Stocks which have large gaps do not move much post their gap. Stocks with gaps below 10% or no gap are better stocks to focus on if you want to find stocks with 25% plus potential.

What does not matter:
  1. Earnings
  2. Sales growth
  3. Margin
  4. IBD ratings
  5. P/E
  6. Distance from 52 week high

The factors that are important for a stock making 25% plus move in a month are different from factors that make stock make 100% plus move in a year.

Similar to the study on stocks up 25% plus in a month I do a study of stocks that double in a year. Stocks that make big moves on the yearly time frame have different dynamics driving their move. In next few weeks I will be studying 500 stocks up 100% plus this year and will let you know of my updated study on the same.

Recently I attended the Mark Minervini Master Trader Program and in that I learned the importance of building a pattern library based on historical precedent analysis. Currently I am in the process of developing such Pattern Library. Skytrader is working with me on building a large pattern library where I intend to document a large number of such stocks and their patterns.

Comments

  • gravitar
    brooklyntradr commented on November 02, 2010

    Pradeep from your learnings it appears that at the inception of 25% move the stock crosses above TI 105. Given this, would it make sense to monitor stocks in the TI 95-105 range? I would also be interested to hear what your theory is on the proper entry into sector trends.

  • gravitar
    easyguru commented on November 02, 2010

    The way Trend Intensity works is that it is not like say stock has 95 trend intensity and then it will go to 100 and then 105. Trend intensity can climb to 120 directly from 95 depending on how the stock breaks out. By monitoring 95 to 100 you are going to find ranges but it does not mean those stocks will breakout. Besides that how many stocks will you monitor. The entire idea of buying b/o is it acts as a signal to focus on a stock.

    Proper entry in to Sector is by buying stocks with Stockbee Trend Intensity b/o. Sector is composite of individual moves in component stocks. If individual stocks breakout then sector Trend Intensity will improve. But it will always be lagging individual moves.

    Best way to play sector is by using Bluefin Sector 50 and Emerging 50

  • gravitar
    BlueSky commented on November 02, 2010

    Guru, looking forward to reading your study on stocks that go up 100% plus in a year. Also, the entry method for 100% plus stocks is probably more like Dave Landry's pullback methods rather than buying on the day of the breakout, correct?

  • gravitar
    easyguru commented on November 02, 2010

    All my entry methods are breakout based.

  • gravitar
    greginmarin commented on November 02, 2010

    re: "..I learned the importance of building a pattern library..."

    I recall in the Kacher/Morales book you recommended [Trade Like an O'Neil Disciple] (http://www.amazon.com/gp/product/0470616539/ "Link to Amazon") , how WON was often pulling out his chart collection of past mega-winners... and compare them with stocks that were currently "on the move"

    This is a great idea and I am looking forward to seeing this library!

  • gravitar
    DojiStar commented on November 02, 2010

    @guru is a pattern library simply a library of chart patterns? Or does this also include fundamental and stock metadata such as trend intensity, mdt, float etc..?

  • gravitar
    easyguru commented on November 02, 2010

    At this stage idea is to keep essential data like float, trend intensity distance from 52 week high and some other key data. But final decision will depend on costs and efforts involved.

  • gravitar
    DC commented on November 03, 2010

    almost half the stocks in Oct had an 8% or greater initial move. I do see how many of them then form a flag and breakout a week or so later.

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