Everyone knows that a stock's price pops every time it gets upgraded. This really bugged us for a long time because we always heard about the upgrade after the stock had popped. It was sure that the brokers were telling their biggest customers about the impending upgrade announcement ahead of time so that they could benefit at the public's expense. The SEC has a rule called "Full Disclosure" which is supposed to help the little guys, but it's done much good. Just look at a RealTime graph of MU. You can see a tremendous spike in volume at 3:58 PM on Wednesday, January 12th with only a 1.5 cent/share increase in price. This shows someone knew something, and two brokers upgraded the stock on the next day.
Nevertheless, MU gapped up 53 cents at the open on tremendous volume. It then began to move lower as the big boys took profits. This move back toward the previous day's close is called "fading the gap." Taking advantage of this phenomenon is where a lot of trader's make their money. It's also the reason why many traders wait until 10:00 before making any moves.
On a broader scale, all 10 stocks gapped higher at the open. In a trading situation such as this, it is good to ride the fastest horses, so the first thing is to sort the WatchList by %PRC Desc. Next, look at the end-of-day, 1 Yr. graphs. It is preferable to buy steadily rising stocks with nice tight price patterns and have written about this technique many times. Checking these graphs didn't take long, so within a matter of minutes, you can eliminate RTEC, MU, AFL and DOX from further consideration.
Next is to check the news on the remaining candidates. There was an article on RSTI entitled, "Is Rofin-Sinar Technologies Going to Burn You?" I didn't like that so RSTI was scratched. The remaining candidates looked OK, so I just waited until 10:00 to see what was going on.
At 10:00 AM, RSTI, RTEC and MU were the biggest gainers and CMG, ONNN and TSO were at the top of my list.
On Friday, CMG is up 5.03% from 10:00 AM while ONNN is up 0.69% and TSO is down 0.99%. Of the three stocks that were flying high at 10:00 AM Thursday, only RTEC held up. RSTI was down 1.94% and MU was about the same. So, you can't complain with this situation.
One thing that can ease the burden of picking the best stocks is to spread your money around, i.e., buy fewer shares of each stock, but buy more different stocks. With seven of the ten stocks showing gains at today's close, it appears that buying the right upgrades at 10:00 AM looks like A Good Way of Making Money.
CHERRY PICKING UPGRADES
OK, so how does one pick the right upgrades to buy? Well, we have enlightened a touch on how we do it, but there's a whole lot more to it than the little bit described here in this article. For example, it is not saying anything about making sure the Industry Group is trending higher. And what about earnings, are they going up? So visit the VectorVest University to see Mr. Todd Shaffer, Manager of Research, review all of these factors and a whole lot more in this week's very instructive "Strategy of the Week" presentation: "Cherry Picking Upgrades."
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