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[investor10122]

Breakout! Who likes em who hates em?

A certain someone asked me a certain question one day so I wrote them back. Now this is not based on science but my own personal experience watching them unfold. There are hundreds of different reasons for a breakout. I just pointed out the biggest ones I have noticed. If anyone finds any flaws or any thign they do not agree with, please post and correct me so that I as well everyone else will have a clearer picture :)


What have I had you looking into over the last few days. What kind of DD? Are you checking ehlers roofing and super smoothing applications with a SMA over 50 with your DMI/ADX measurements to see the reverse momentum of stocks?

No, those are all fine but guess what, everyone else uses them as well which means you are in with the masses. No I have had you checking what?

Remember?

Think hard?

Track your stocks media attention. This is the number one driving force of a stocks push. Why? Because human psychology derived from raw human emotions pushes stocks further and harder than any other measurement out there. A good press release can move a stock by massive gains or a bad one can drop it like a piece of garbage.

Notice how I checked GEVO, what did I check? First thing I did is went to the news source. Found out that it has had good coverage over the last couple weeks. Analyzed the coverage to see how strong it is (valuable).

After that I then look at the historical data to validate the stocks performance. A report of unusual volatility is not necessarily a good press release. It just means there are sudden abrupt changes happening. This should not be considered good press.

The next most powerful aspect is earnings. Remember how I told you about GEVO’s potential. I have been asked multiple times about it actually. If a stock beats expectations there is a good chance for a uptrend for at least the day of the report. If it fails to meet expectations then there is probably a good short opportunity.

Take GEVO for example, EST is (0.15) if it comes in on Tuesday (0.16) or worse most likely GEVO will have a bad day. If it comes in (0.14) or better most likely GEVO will have a good day. You may not think a single penny is a big deal but I have seen strong up and downtrends based on a single penny above or below earnings. Sometimes it doesn’t matter. It all depends on investors sentiment on that stock. However if you want a good chance at GEVO being a TOPS OR SAEX OR MPET, if GEVO comes in 0.01 or better (negative estimate with a positive actual) GEVO has a good chance of going up 100% 200% maybe even 300 or 400 that day. Why? Plain and simple here is a simple break down of what happens at this point.
People who earnings impact the most are the buy and holders. They are typically the first ones to invest or at least the majority of the initial investors. Either buy and holders see a potential in a company that has shown growth in performance and strength. Or current investors who are confident and place more funds within the company. After that you have the day traders who see the buy and holders jumping in so they take advantage of the uptrend. This is usually when other investors who missed it quickly check the news and or earnings or anything else pertinent to the sudden explosion or you have the majority of the investors who see a massive uptrend that is generating triple digit returns in a single day and they jump in blindly thinking they might miss out on that 5 Million Percent that the stock will make today.
They are typically the last in buying at peak. Why is this bad? Because smart money typically has profit margins and they wait with their stop limits and mental stops. They hit their goal and sell out and take profits off the table or. Once the stock gets to their satisfaction they place stop limits and they also have mental stops in their head in case all else fails. So at the first sign of trouble they sell off quick.
As I said human emotions drive stocks more than anything else. Everything else is what sparks human emotions. There are many factors but again this is the basics.

When the earnings report or press release comes out. The initial investors buy in knowing a few things. One the good press means the company is doing well, two the good press is going to drive the masses crazy meaning there is a good chance others will invest based on the news article that just came out.

So they buy in first and wait (this is where the real money is made). After that as the gains start to rise human emotions kick in. Primarily GREED and FEAR. People see that green ticker moving up up up and they think OH NO!!!! I am missing out on this unbelievable opportunity. So they jump in. Depending on timing they could still make out very well but it is much more risky. If you check most stocks that had a HUGE spike that were legit, I am not talking pumps. You will see at the time where the news and earnings came out there is a initial spike. Sometimes small sometimes large but initially there is a spike followed by some increases and some dips but as more and more people catch wind of the stocks performance you will see the spikes getting larger throughout the day. By days end the spikes are enormous and the dips are horrid. The volatility grew not because of the news. The news and the earnings were a spark that lit the fire. It got people moving it’s the base of the momentum. That initial spike you see was caused by the actual news or earnings (there are more but these primarily have the biggest impact) After that initial spike. It is human GREED or FEAR that forces that stock for the rest of the day. The reason the spikes and dips get larger throughout the day is because the bigger the gains and or losses the more investors it attracts. The more people catch wind of it and jump at the opportunity. If you don’t believe me check your accumulation / distribution levels from time of the press release or earnings to the end of the day. Also check your basic volume sold each hour after release.

GREED and FEAR are always there and they are always waiting and they are the biggest force of stock movement. However they are always dormant until something wakes them up. The louder the bang the quicker they jump up.

So lets get back on topic.

A single news release can have a strong impact but its hard to predict that a great news article will come out randomly. Instead if you have been watching your watch lists and take note on stocks that consistently been moving up over time. These are the ones to watch for.
For news:

Look at it this way, this is a very good indicator of something big.
Example:

MEDIA

April 20 2016

XYZ company announces new dynamic product development that will revolutionize the market bringing in a whole new industry (yeah I know it’s a lot, it doesn’t have to be this big at all but keep following).

May 14th 2016

XYZ company reports that ABC product is below budget, and ahead of schedule.

June 22nd 2016

XYZ company has begun marketing its new innovative ABC product to popular merchants such as (pick some of your big companies like I dunno Walmart, JC pennies, MACEYS, for you pot stock heads The Gonja shop or 4:20 time zone head shops).
July 8th 2016

XYZ has now started production of ABC product and is expected to begin distribution within the month. Expected sales for the rest of the fiscal year are predicted to amount to 212 million in revenue.
August 4th 2016

XYZ company announces distribution of abc product with actual sales destroying the previous estimates. Abc product is currently sold out with a backlist of 6 months. People are waiting around the corner to have a chance to buy abc product. The projected budget to research and develop this project was 106 million however xyz reports it was completed at 92 million. The estimated sales projection of 212 million is now expected to be 377 million based on current demand of the product. Xyz is now building more manufacturing plants to keep up with the demand but still realistically states that the product will be sold out until at least February of next year. (This is a marketing ploy, you think apple can’t make enough Iphones to keep up with demand? Of course they can but they the supply rises and demand falls dropping the overall price of the Iphone lowering revenue and income dropping their financials scaring investors droping share prices etc etc. It is a big balancing act)

This is how you find a big one. It can happen suddenly of course but if you find a few stocks receiving good media coverage following their products or services etc. Then when the final news comes out about the product (follow my time line) that is going to be the explosion. Now keep in mind this was all positive. From start to finish of that example you might have already enjoyed 100 or 200% in gains as people see the strength and potential in this stock. You bought xyz when it was only .25 a share. You bought up 100,000 shares cause you saw the potential. Just before the good news about distribution your .25 could already be .5 or .75. Then on the big day like today for SAEX you could go from .5 to (Saex hit 400% at one point btw) to $2 if you sold at the right time, or .75 to $3. So 100k X .25 is $25,000 initial.

100k X $2 = 200k
100k X $3 = 300k

With a company like that it could go to $10 very easily based on past performance and credibility. This is how you make real money on a break out, not the ones who jump in on the day of at peak price. The people that actually really make the money unfortunately get it from the people who lose at the top. I won’t be surprised to see SAEX either take a nose dive down to around 250% for the day as it stabilizes from OB. Or finishes today only to see a big decline in the next couple of days. Don’t believe me. TOPS had a 157% the other day. I think it peaked at 200+ Since it has been declining about 10% a day.

Following media is one of the best ways to spot a breakout. However a single news article can do this as well. In that case you have to be quick and see the news before anyone else. Once the general public catches wind its already over bought.

Earnings is the same way. Find your companies that you believe are potentials and pick through their financials. An easy Quarterly and annual report based on Asset to Debt, Cash flow, revenue, income, liabilities and EPS will indicate where and what will happen. Look over 4 or 5 years through both annual and quarterly. Has it been increasing or decreasing? How much has it changed quarter to quarter and year to year? How has it managed these changes and adjust and adapted? These things are what analysts are looking at when they make their estimates. This will give you an idea of what to look for prior to the earnings call. You won’t find much out about last years performance until after the call which will be after its too late to really take advantage of the opportunity. The buy and holders already know this information and probably have their trade screen open and ready to take action the second the report goes public. They are the initial spark.
If you know that in 2015 GEVO (this is an example not real) had over the last 3 years:
This will be going from longest year back to most current date:

Asset to Debt ratio EPS Positive Cash Flow Total Debt Total Assets
2013 (23M) (0.92) (11M) (37M) 14M
2014 (17M) (0.76) (4M) (33M) 16M
2015 (7M) (0.32) 2M (27M) 20M

Alright first, I just wrote those numbers out (I am posting this on my board to) so if anyone goes what the heck is this guy smoking, he needs to lay off the pot stocks. Well it is just for illustration and example. Pull real financials and they look somewhat kinda maybe similar lol. However the important thing to take away is the fact the company has grown in assets and cash flow while reducing debt. This is the major component that people look for.

Analysts check these things prior to making their predictions on EPS. Now if an EPS comes out lower then expected it means the companies financials have gone down showing signs that the company is weakening. If it beats expectations it shows signs of the company strengthening. This is why EPS can cause a break out.

Plus people look at EPS last year was $1 now this year $0.50, oh crap the shares lost 50% value in the last year. I better get out prior to it losing any more. This is the biggest thing. People do not want to lose money so when they see a stock that has lost money over the last year. They get out.

Those are the two biggest things to watch for when trying to find a breakout. These will spark the real power which is GREED and FEAR. Again check any breakout stock over the course of months and track its news and financials and see if you see a pattern. Check its performance the day of press or earnings release. See if you see that initial spike or dip followed by some volatility that grows faster and faster throughout the day the initial was the release, the rest was GREED and FEAR. Now just because something has a breakout doesn’t mean it will stabilize and drop. It depends on the company and the events. The example I gave you, good chance that company will continue to rise. In fact that breakout could last for a few days. Just look at OPTT it went from $2 to hitting a high of $15 (twice) over 2 weeks time despite not selling on of its PB3’s lol.

GREED and FEAR dictated that one. So many people said sell sell sell and yet people bought bought bought because the price went up up up.
Anyways those are your biggest factors but there are more.
Mergers and acquisitions. These have good potential for causing a break out. When a smaller company bought from a larger company for premium price it means the current shareholders will be paid out based on the price of the company. If you own 10% of xyz company that is currently valued at 100M but ABC company sees the potential in their product or in the company its self and wants to buy it at $150M well your 10% of that company is now worth 50% more…

When a company merges this can be good or bad depending on circumstances. It means that the current company will become part of (hopefully) something bigger which will increase performance. However there has been times a merger has dropped a stock badly. You have to look at what company it is merging with and the stats on that company. The management, The financials, the track record, the output. Evaluate and figure out. Does this merger seem positive or negative to future potential of the company?

SEC filings can play a pivotal role in a potential breakout. Companies are required to file every change and adjustment they make with the SEC. The SEC will post these changes on their site or you can find them on the exchange websites for example otcmkt.com has SEC filings on their site which is easy to find and covers all filings with every company they list.

Say you saw a stock that went up yesterday and because it went up you invested into it. Not knowing why just based on the fact that it made 10% yesterday so 20% today will definitely happen. Then someone mentions an SEC filing so you decide to take a look and realize your company FILED Chap 7 BK filings with SEC last week. Yesterday was the effective date, the spike in value was people pumping it real quick before the execution and death of the stock. You didn’t look prior at the last year to see the stock went down 97% Now you panic! You go to sell your stocks and only to find SEC has suspended your stock. Oh NO you go to look at your stock on the internet and read some words like deletion, cancellation. This does happen and people play off this just as much as anything else. That SEC filing could create a HUGE shorting advantage. Opposite is true you get a good SEC filing and it could cause a breakout.

Lets see looking up GEVO to find an example. Oh he… oh.. um… hrm… ruh roh. Looks like GEVO filed chap 7 as of 07-23-2016. SEC states that the debtors are required to liquidate all assets for distribution to the primary lenders to fill all debt obligations. The redistribution of capital will be based on the largest debts on down. Banks and other major lending institutions will receive compensation first. After the primary debts are repaid. The following will receive full or partial reimbursement.

Vendors,

Secondary Lenders (ever heard of a second position note? They get wiped out if the first forecloses and they can’t keep the first up to date)
Service providers,

Now primary share holders. This will be based on a set % of shares a company or individual holds. You have to have a set amount of class A or class B stock in order to be considered.

Finally last and always least with almost no hope of repayment. All other shareholders.

Here is bud…

http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=11504375
This is why you always check SEC filings. It can destroy you if you don’t. Let me know what your thoughts on it are.

If this scares you it should!

Now if you read this before panicing and clicking on the link I was just joking. See the fear though. You already for at least a split second felt a nerve start to twitch. How do I get out now without losing everything probably at least started to cross your mind. Now breathe lol sorry I am an ass I know but a lesson that had the element of fear in it usually sticks more effectively than just reading.

That notice just states NASDAQ extending GEVO’s delisting for 180 days giving GEVO 6 months more time to get back to the $1 mark. That’s good news.

Anyways point being any one of these things can start a break out. A breakout is simply an event or situation that sparks enthusiasts with GREED or FEAR. The enthusiasts usually people with specific interest in the company will act based on the event. The rest of the push and drive is based on everyone else seeing the momentum and getting hit with GREED and FEAR which will be the overall strength of the trend.

If you take multiple things into consideration the chance of a breakout increases. Combine solid news releases with a positive EPS and you have a good chance at a breakout. The opposite is true, take that example I wrote about xyz. If the news had been negative all the way up until the distribution article. You would have seen a declining stock over time. Horrible stock over time maybe. Say it was over budget and behind schedule. Complications with development. You would have seen investor confidence drop. However that one article that came out about distribution. Despite 4 or 5 bad press releases if that article said.
Although XYZ experienced many challenges with the development of abc product. It’s launch has been a complete success. Sales have jumped up 32% in the last month alone. You could very well see a break out again.
Had all previous news been positive then the final release was like:
Xyz reports flattened sales of abc product. Sales are 47% lower then expected. XYZ is shutting down one manufacturing plant in order to reduce overhead. BOOM there goes your stock, hope you like shorts.
Its that simple find out what pushes people and get in before they find out. Stocks are extremely difficult to predict when your using Ehlers advanced PHD math. Don’t believe me look at his Aerotechnological mathematical equations to come up with oh I forget the name its suppose to take white noise out of a trend and clean it up to show more accurate numbers. How he developed it I don’t know and I am sure it is absolutely amazing. Thing is, it only tells you about past performance. As does all tools. Your ADX and DMI tools measure past even though that past might have been 1 minute ago its still past.

The stuff I just told you is much more accurate when predicting the future? As I said stocks are hard but people are easy to predict. Don’t believe me?

Tell someone you will pay them $10,000 to do something simple and see the look in their face when they realize your for real. GREED hits them and now you have a new best friend. Flip it, tell someone you are sueing them for $10,000 dollars for something that has a strong case. See the red in their face and the gun they are beginning to pull. You already know the outcome on each situation. The stock market is no different. People are greedy and want more and fearful and panic at loss.

If you understand what drives those two elements you have a much better chance at finding breakouts. Learn how others manipulate stock movement with BID and ASK and you can calculate what is happening with your stock. Watch for the triggers. If you notice when a stock hits a certain price a huge ask or bid order comes up. The price moves and they disappear. The price comes back and magically those same orders are there. Now you know at what points people are pushing the prices. This isn’t always accurate as it could be some goof off trying to get out and doesn’t know supply and demand you will learn how to pin point them later. So now you know at what point people are trying to drive up the price and at what point people are trying to lower it. That is good to know.

Now measure your ticks over 10-15 minutes and the spread between them. I typically use the % change more than actual net change so here.

1% 1.1% 1.3% 1.45% 1.37% 1.31% 1.27% 1.35% 1.42% 1.46% 1.41% 1.38% 1.36% 1.43% 1.48% 1.51%

That right there is a strong uptrend. Your highs and lows are getting higher each time and the difference is pretty good. You also have to take into account the value of shares. These changes wouldn’t be so good on a penny stock where one transaction could literally be 5%. This would be good on say TSLA or BIIB. Or even some of your smaller stocks such as FB. Bring this down to a $20 and now it is questionable. You now have to measure the momentum or time it takes to go from one end to the other. This will be the final indication.

The change indicates up or down trend the timing or momentum will show you the best time to get in or out of a stock. Accompany that with your breakout and you could have an amazing day. Fail to do this and you could end up like most people. Losing a LOT of money on an AMAZING opportunity because of failed TIMING!

Sorry for the long note lol. I want to post this on my board and figured it might help.

If you have read this far it is because of 1 of 2 things. 1. You just wanted to confirm that I really am as crazy as the nice people at Sunnyvale Psychiatric Ward have classified me to be. ;)

Or you saw something of value in this. I am posting a follow up in just a few minutes about the best potential for profiting on a breakout and how we are already on our way there. If you haven't read this far then the next post won't make any sense and you will be completely lost and lose out on it! just kidding :)