stock pick

The Anatomy of a Good Stock Pick

What’s the process for finding a good stock pick?

Chaikin Analytics puts out calls on stocks frequently. This provides our subscribers a heads up that a stock is either ready to go up or is poised for a fall. How are these stock picks chosen? By probing how our experts are using Chaikin Analytics to identify money making opportunities, we can learn some of the advanced techniques that are driving stock picks.

A good example of a recent call was in our Morning Insights newsletter on July 24th, 2017. John Schlitz, the Market Strategist for Chaikin Analytics, called out that Pioneer Natural Resources (PXD) was poised for a fall. He wrote the following call to attention:

Groups/Stocks

Oil – Exploration & Production (Rank: Weak) / Pioneer – PXD (PGR: Very Bearish)

PDX triggered a Relative Strength Sell signal on Friday. The stock also logged an Overbought Sell alert last Wednesday. PXD’s credentials are poor, with Relative Strength negative and the PGR Very Bearish. The stock is also in a weak Industry Group and sports a negative intermediate-term price trend. While the OBOS oscillator appears fully overbought, we’d wait until PXD re-tests upper band resistance to sell (or short) as Money Flow, while anemic, has not turned definitively negative. Also consider a vertical put trade, which is rated 125 by OptionsPlay.

 

Chart from Chaikin Analytics 

You can see from the chart above, this call was prescient. Within a week of the call, PXR dove $30 from $160 to $130, an almost 20% drop.  So let’s break down how John came to make the stock pick: 

1.) The industry is Very Bearish, and Chaikin has consistently called for Energy stocks to drop this year.

2.) The Chaikin Power Gauge stock rating is Very Bearish. The Power Gauge Rating is 85%  fundamental factors and only 15% on technical factors. So PXR had fundamental issues.

3.) John then married technicals into the call. At the time of the call, PXR was looking Overbought, and this married with anemic Chaikin Money Flow told him that there was no further upside momentum. In fact, quite the opposite, with pricing over the Overbought band, and no institutional support, this stock was ripe for a pullback. As such it had triggered several technical alerts within Chaikin Analytics (an Overbought alert and a Relative Strength alert).

As John stated in his call, if you agreed with the information there were two ways to profit from this knowledge. You obviously could sell the stock short. Perhaps more impactfully, you could have deployed Options. In this case, John recommended the vertical put trade. This would have done very well in the next two weeks.

All of this data is available to Chaikin Analytics subscribers, but hearing how John Schlitz, an experienced market veteran, pulled together the pieces is helpful for you whether you use Chaikin Analytics or not. Importantly, John is blending many factors together to find the best stock stock pick.