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Rock 3: Buy stocks being heavily bought by big investors.

For a stock to go up 50%, 100% or more, someone has to be buying it and at a continually higher price. And they have to buy a lot...only institutions...have that kind of buying power...focus on stocks being bought heavily by [the big boys, and vice versa when the selling starts].

and they emphasize you can see all this happening in the charts with price and volume – the big institutional investors are too big to hide.

Items from the checklist:

[] increase in number of funds owning stock in recent quarters.
[] Accumulation/Distribution rating of A or B
[] RS of 80 or higher
[] Average daily volume of 400K or more (big boys can't buy tiny stocks, the move them too much


and

Ideally number of funds owning stock has been rising over last 3-4 quarters...look for material increase in funds over last quarter (I guess that means it is finally getting hot.)

If the number is not increasing, or worse decreasing - what does that tell you.


Don't be the first to arrive to the party!

The best stocks have rising institutional sponsorship before the take off (so that is what you are looking for, not guessing at ahead of time).

and
If a stock is not owned by a significant number of funds (50+) it means that at least some of the 10,000 institutional investors out there have studied and and didn't like it (so why would you expect the others to jump in and why would you).

They note that a big fund can take weeks or months to build its full position, (so when multiple institutions are trying to build their position, that is a lot of pressure pushing the stock up - ride that wave). by the time Apple topped in 2012, it was owned by 4300 funds
(so those first few hundred funds did not exactly ruin the party and make it too late.) In the book they give examples of several winners (CMG, ULTA, GMCR, etc) and show how they ownership counts went up before the big move. Here is GMCR example for the 4 Q before the run:
Funds Owning: 149 --> 187--> 201-->227 then it was up 1104% in next 30 months.

The Accumulation/Distribution rating needs to be A or B. This is based on big institutional buying over the last 13 weeks and focuses exclusively on large volume trades that only professionals can make.

Look for an Relative Strength (RS) of 80 or better. (Based on price performance over last 52 weeks.)

85-85 a profitable combo
The have an “85-85 index” that tracks performance of stocks with scores of 85+ for both EPS and RS. They claim that since its inception 9/13/2000 thru 2/5/2013, that it has outperformed the S&P 275% to 12%. Their subscription service provides a screen called “Your Weekly Review” highlight these stocks.

Share price above $15 usually a sign of weakness, so they say avoid. But don’t be afraid of “high priced” stocks. Focus on the CAN SLIM traits, not the stock price.

The imperfect stock
It will be hard to find stocks that are perfect on all criteria, so you must be flexible. Maybe the only flaw is that it is in a weak group, but it still has a strong accumulation rating. That is acceptable. Or maybe there has been a slight drop in fund ownership, but accumulation over last 13 weeks was strong. They say Don’t let the perfect become the enemy of the very good

Be Cautious but on the Hunt During Earnings Season
They prefer to avoid buying a stock right before earnings. If earning are good, it might break out from a proper base and give you the right buying opportunity, but we have all seen stocks plummet 20% after earnings, to don’t poach before earnings. They recently have instituted a new “rule” that if you get a large gap after earnings it is still ok to buy, even if past the 5% range above the pivot point (more later).

Know when the earnings date for stocks you own and the ones on your watch list. Have your buy and sell plans in place ahead of time.
Consider Automatic Triggers especially if you can’t monitor during the day. I have to disagree with this a bit, especially on the sell side. With the recent flash crashes, you can get a lot of stocks sold away from you only to see them bounce back the same day. I personally set alerts to text to my cell phone. For buy points, I have alerts close to the buy point on both sides, then I see it happening pretty well if it is moving quickly.
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