Setting Up a Scan

 | Jun 09, 2014 | 11:15 AM EDT
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It certainly is not an explosive start to a Monday, but this slow grind is wearing on not only bears but also on index traders looking for volatility. There are still plenty of moves in individual names, but you either have to be willing to employ a wide scan to find names just setting up for breakouts or be willing to chase. Neither is the easiest thing to do. If you haven't used scans before, then you are left to follow someone else's lead. Sometimes it works and sometimes it doesn't. Unfortunately, when it doesn't, it can be very painful.

One of the other challenges with scans is the sheer number of names popping up when trying to identify breakout scans. With indices at or close to all-time highs, many stocks are showing similar characteristics, so a trader can find themselves left with either a very large number of stocks and charts to examine or the need to tighten parameters. If your scan has been working, this is a tough change to make. The biggest risk is invalidating what worked in previous sessions. Yet, if your scan population is too large, it has to be a consideration, otherwise you are left either sitting out the session, which there is nothing wrong with doing, or spending extra time poring over extra charts. There is no "right" answer. Simply go with what is most comfortable for you.

I tried to tighten my scans and narrowed my breakout watch list to four names this morning: Photronics (PLAB), Essent Group (ESNT), MCG Capital (MCGC) and ANSYS (ANSS). PLAB is the first in the group I bought today. There is a very longstanding double-top that looks ready to break through today. While the money flow has been a little concerning, it doesn't keep me out of the name. The momentum indicators line up with price, which lets me focus solely on price. The volatility squeeze isn't bad either, since it can create an explosive move higher. I will set my stop at $8.65 and look for $10 or more. Did I mention the short interest is in the teens? Add that with the volatility squeeze and you have the makings of a high-risk/high-reward stock. And, yes, I could see this name as a takeover candidate.




MCGC has been the dud chart on the day so far. Under $3.35 and this one is dead, while I wouldn't buy it until it is around $3.55. I don't love the private equity firms that trade in a public space, but the upside is attractive above $3.80. For now, though, it is just one to watch, similar to ESNT.




ESNT has only been on the public markets since Halloween. It's been a tough 2014 for the company as shares are down about 14% year to date. Overall, it still has much left to prove, but after hitting a low a few pennies above $18 at the beginning of May, the tide may be turning. As long as price stays above $19.25, this is worth watching. Momentum has really started to build. I see upside to $24, so around $3.35 per share vs. a stop around $1.40 lower. Overall, it has an attractive risk-reward.




ANSS is another underperformer this year, which looks like it may be starting to turn higher. Overall, the secondary indicators look stronger here with momentum and money flow, which, paired with price, put this second on my list, just behind PLAB. It has been green six straight days, so I am not yet willing to chase. Ideally, I want to see a retest of $75, then a push back higher. Until then, this one just stays high on my radar.




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