Barry North's  Instablog

At OnlineSPX.com we develop trading strategies for both stocks and ETFs. We use both fundamental and technical analysis to value and time our stock purchases.

For us a stock, or an ETF for that matter, enters into an uptrend phase when the closing price exceeds both its 63 day moving average (dma) and its 200dma. Our website Watchlist Manager identifies these stocks as Up / Up and a 1 appears in the Trend Day column indicating that a possible trend has begun.

We like to buy as close as we can to this happening, usually on the close when we see conditions will be met. The Trend Day column counts the days for both up and down trends. A down trend, identified as X / Dn on our Watchlist Manager, is when the 63dma breaks below the 200dma and the closing price is lower than both.

To build in a wide margin of safety, stocks are bought when they are no more than 50% of our fair value estimate. This is why it is important to pick the trend early, before the price moves ahead of our preferred entry point.

In the past few months we have picked up five stocks using this method and for the most part the results to date have been strong.

Alliance Data Systems Corporation (ADS) +10%, 63% ARR

CF Industries Holdings, Inc. (CF) +25%, 91%ARR

Deluxe Corp. (DLX) +30%, 98% ARR

Scholastic Corporation (SCHL) +6%, 35% ARR

Seagate Technology Public Limited Company (STX) +16%, 75% ARR

Apart from the value and trend requirement, stocks must have an OSPX Safety Rating (SR) of 4 or more. A scale of 1 to 7 is used with 1 being the best and 4 average. Of the five stocks bought to date on this method, all except CF and SCL, which are 3s, rate as a 4. The rating is subjective in that it is based on a stock's consistency of results, price volatility and debt risk.

Disclosure: I am long ADS, CF, DLX, SCHL, STX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.