Long before I was a practitioner of technical analysis, I spent hours building stock screens taking into account a whole host of fundamental data fields. Short as a percentage of float, average volume, P/E Ratio, Free Cash Flow, etc. Once I had my screens built I would pick a few stocks I liked, allocate a specific percentage of my trading capital to each and then hope for the best.
Hoping for the best was a risk management strategy that didn’t serve me well overall. Like with any other stock picking strategy, I had some winners and I had some losers. The issue was, my losers often outweighed my winners as I had no frame of reference as to where I should exit my positions. It was like running into traffic with a blind fold on and my pants around my ankles.
This isn’t to say that fundamentals don’t matter. Of course they do. They just don’t give you the full story. The charts do (price), and I will happily argue this with any one who wants to. The point of this post isn’t to argue which strategy of stock picking “works the best.” Rather, it is to show that you can be knowledgeable with regards to both technicals and fundamentals, and use a blend of the two to extract out sized gains from the market.
This morning I did just that to find a few stocks I am adding to a new watch list. One of them in particular, is Radius Health $RDUS.
I built a screen looking for US Equities with greater than 15% of the float held short (good short squeeze opportunities), that have been trading for at least one year, and that have a high percentage of shares purchased by institutions over the past quarter. Average volume had to be over 500k shares per day also as I wanted to ensure liquidity minimums. The screen returned some impressive results when looking at returns on a percent basis over the past year.
One in particular $RDUS caught my eye from a technical perspective as well. I am always going to give more weight to the technicals when entering and exiting any position. A possible inverted head and shoulders reversal bottom could be in the making…
Typically, the textbooks would tell you to wait for a confirmation to get long. In this case, a break above and hold over the downward sloping neckline indicated by the blue dashed line. That is a good example of a strategy that can get your head blown off in real life. I’d much rather take a shot at a long here and be early.
I’m looking to get long this name soon. Stop under $30, target near $48.
Clear as mud?
OC