Mark Minervini: Trade Like A Stock Market Wizard - PursuitOfEdge/books GitHub Wiki

  • Trend Template: in stage 2 uptrend, continuation trades
  • Base Counting: get in base 1-2, get out base 4-5
  • Volume: mostly big green, smaller red
  • Earnings: look for strong quarterly earnings to get in, then an inability to continue sustainaining them to get out
  • concentrated, no more than 8-12 positions, no more than 20-25% position sizes, no more than 1.25-2.5% risk with stop, 2.5% is the max if you are really on top of things with experience, at max you can take a 25% position with the stop no more than 10% away from entry. on average, you should not be risking more than 1.25%
  • no margin, usually less than 50% invested at a time
  • younger stocks, no more than 2 years

  • P/E ratios are useless (41)
  • look for leaders instead of looking for bargains (43)
  • many of the biggest winning stocks in history traded at 30,40x earnings before their biggest advance (44)
  • the top 100 best-performing small-and mid cap stocks of 1996 and 1997 had an average P/E of 40, growing to 87 and median of 65, the SP500 only had 18-20 at the time (47)
  • good companies deliver good earnings faster than the stock appreciates (49)
  • ignore P/E and focus on potential for earnings growth (55) and revenues (59)
  • would never buy a stock declining under the 200 MA (63)
  • stage 1: consolidation (scan for these), stage 2: about to make a run higher (time to buy as this happens), stage 3: the top (time to sell), stage 4: the decline (you should be out) (64)
  • virtually every superperformance stock made its big gain while in stage 2 of its price cycle (65)

stage 1: neglect phase: consolidation

  • uncertain earnings, sales, margins, lackluster, erratic share price, uncertain outlook
  • you should avoid buying here, no matter how tempting, even if the fundamentals look appealing, wait for beginning of stage 2 to buy (66)
  • sideways, ranging with no sustained movement up or down
  • oscillate around 200 MA, dead in the water phase can go on for months or even years
  • the basing stage that occurs after stage 4 happened for several months or more
  • volume contracted and light compared to during previous stage 4 decline
  • don't try to pick the bottom (68)

stage 1->2 transition:

  • may begin with little or no warning, no announcements or news
  • surging significant volume on big days, lighter volume on small pullback days
  • ALWAYS a previous rally of at least 25-30% off the 52-week low
    • gives example of AMGN, which was up 80% of the 52WL, that's when he would START to considering buying it (most people would think it's too high) (69)
  • C > MA150 > MA200
  • transition criteria
    • C > MA150 and C > MA1200
    • MA150 > MA200
    • MA200 turned up
    • higher highs, lower lows, stairstep
    • large u weeks on volume spikes, with low volume pullbacks
    • more up weeks on volume than down weeks on volume

stage 2: advancing phase: accumulation

  • might be ignited by surprise news: beneficial regulatory change, promising new business outlook, new CEO with vision who could improve the company, new company that attracts notice with big earnings surprise that beats estimates
  • buildup in earnings momentum (or even earnings expectations)
  • big up bars with big volume, the down days have small volume
  • the stock has been moving upward in a stair-step pattern of HHs and HLs, share price may have 2x or 3x'd already, but it may only the beginning if they keep delivering strong earnings
  • criteria:
    • C > MA200
    • MA200 uptrend
    • MA150 > MA200
    • clear uptrend, HHs and HLs in a staircase pattern
    • 50MA > 150MA
    • volume spikes on big up days and big up weeks, contrasted by volume contractions during normal price pullbacks
    • more up days and up weeks on above-avg volume than down days and down weeks on above-avg volume

stage 3: topping phase: distribution

  • all good things must come to an end, it can't keep churning out increasing earnings growth percentages
  • the stock may still go higher for a bit, but there is more high volume pullbacks and volatility, erratic price movement
  • changing hands from strong buyers/smart money to weaker hands, the pros are taking profits selling into strength
  • it made to much of a dramatic run and captured headlines, stock has become crowded and too obvious on the long side
  • earnings are too high to beat, EPS momentum starts to slow
  • several quarters of slowing earnings growth
  • criteria:
    • volatility increases, wider looser swings, erratic, major break in price on big volume, largest one day decline since stage 2
    • loses the MA200, rolls over into a downtrend

stage 4: declining phase: capitulation

  • losing EPS momentum, earnings slow down, negative surprise and miss

  • buildup of finished product, declining demand, competition in marketplace

  • higher volume on down days, lower volume on up days

  • criteria:

    • price action below MA200
    • definite MA200 downtrend
    • near or hitting 52WL
    • LLs and LHs, stairstep down
    • short-term MA < long-term MA
    • volume spikes on big down days and big down weeks are contrasted by low-volume rallies
    • more down days ad weeks on above-avg volume than up days/weeks on above-avg volume

  • you clearly want to be involved in stage 2, not interested in getting in early in stage 1, don't want to hang around in stage 3, let alone stage 4

  • hold for 2-3 quarters, but not years

  • stage 4 decline may happen for years

    • 99% of superperformance stocks traded above their 200MA before huge advance, 96% above 50MA (79)

  • apply the trend template to every stock considered, it MUST qualify or he won't trade it, it must fit all 8 criteria to be a confirmed stage 2 uptrend

  • there will be pullbacks of 4-5 weeks, up to a year or more, basing patterns form 5-26 weeks as if catching breath before making next push higher, the sideways price is not to be confused with stage 1

  • the top generally occurs after 3-5 bases, so you want to get in on base 1-2 (come off a market correction and the base time to hop on the trend), base 3 is obvious but still tradeable, get out on base 4-5 where it becomes way too obvious and it's definitely in late stages and failures occur

  • don't want for earnings to dim, the stock is at the top when the earnings are at the top and can't be reasonably exceeded anymore

  • respect price action over the sentiment/fundamentals if it comes down to it (91)