These stocks are getting key moving average support near 52-week highs, trader and author Steve Burnstells Moneyshow.com. He describes the averages he typically uses as indicators of strength.
Kate Stalter: I’m on the phone today with Steve Burns, author of New Trader, Rich Trader and How I Made Money Using the Nicolas Darvas System, and both of those of course are available on Amazon. Steve also blogs at NewtraderU.com.
Steve, I was especially eager to talk with you today because you and I have many of the same influences from trend following and growth investing. So I’d like you to just tell us a little bit about a couple of these methodologies and what your trading method is.
Steve Burns: My major three influences were William O’Neil, of course, Michael Covel, and Alexander Elder. I sort of trade with those three systems together to make a method where I use correct psychology, risk management, and a trend-following method to trade the markets. I trade primarily with moving averages as my main signals.
Kate Stalter: Talk about the price and volume, because I know with at least a couple of those methodologies you mentioned, that price and volume indicators play a big role.
Steve Burns: I like to trade stocks that are close to the 52-week highs. I like the strongest in the market.
Currently Apple (AAPL), Google (GOOG), and Atlas Pipeline (APL) are pushing at a 52-week high. I like trading them, either a strong break out of a base or with the sloppy market we have now, I prefer to buy those on pullbacks to at least a ten-day exponential moving average. With a rising moving average, I like to buy them and have trailing stops to know when to lock in my profit.
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My ideal stock is one pushing a 52-week high and staying above its five-day exponential moving average—that’s my favorite trade.
Kate Stalter: Do fundamentals play a role at all in your system, Steve?
Steve Burns: Over the years, I’ve become more of a pure price and volume trader. I think the charts reflect everything that’s known from the fundamentals. I really believe it’s all shown on the charts.
Kate Stalter: What would be your advice for individual investors, many of whom are out there really struggling in this trendless market that we’ve had lately? What’s the best course of action right now?
Steve Burns: I would never risk more than 1% of your total capital on any one trade. I would control position sizing—it’s huge. If you’re confused with the action with our wild swings and our gaps, I would advise do not trade until your methods actually have entries you can follow. Never force a trade; let them come to you.
Kate Stalter: What particular types of stocks are you watching? Do you have any parameters, say, regarding market cap?
Steve Burns: No, I just want the best. I mean we need liquidity so we don’t have crazy bid-ask spreads. The best stocks don’t hide under rocks.
You know Apple, Google—those are wide open, and they’re still showing incredible price strength even in this crazy market.
Chipotle Mexican Grill (CMG) is another one that it’s still pushing out 52-week highs, there’s still plenty of professional interest in those stocks. They have huge volume, and huge option interest, so that you can easily trade options with them. Apple, Google, CMG, they’re all very strong in this market…they’re ones to watch.
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Kate Stalter: Anything else on your watch list? Maybe something that’s forming a consolidation currently that may show some promise as it rises in heavier volume, down the road?
Steve Burns: Atlas Pipeline (APL). Funny, it’s one ticker symbol away from Apple. It’s APL, Atlas Pipeline, but it’s showing incredible strength right at the 52-week high. It’s actually a cup and handle waiting to break out—it’s at new highs right now.
Kate Stalter: Anything with regard to the current market conditions that you might be waiting for? The market, according to a lot of analysts, did go into an uptrend recently, but a lot of the volatility has continued, nonetheless. What are you looking at in terms of market strength right now?
Steve Burns: I think the best indicator for our market is the SPDR S&P 500 (SPY), the exchange traded fund. If we can see a hold above the 200-day moving average, we can hold there and start forming a base, and we could see a break to the upside or the downside. I think that’s what the whole market right now is watching.
Kate Stalter: I know you’re probably not much of a prognosticator, given that you are a trend follower, but we are starting a new year. What would be your words of wisdom for the new traders right now getting into 2012?
Steve Burns: I think we could keep an eye on Apple. Apple is a stock where the chart strength is incredibly strong, and the fundamentals—which I don’t really get into them like I used to—but Apple is one company that continues to change the world.
Nothing on that story has changed. The chart is strong, the fundamentals are still incredibly strong, and they’re picking up on the tablet market also. I would definitely watch Apple in 2012. There is no reason why we couldn’t see it go to $500.
Kate Stalter: Despite a lot of the naysayers out there that think maybe it’s too expensive at this point?
Steve Burns: Yeah, I think that’s even good that we still have some Apple bears running around.
Kate Stalter: Why is that a good thing, in your view?
Steve Burns: There are still people to buy.
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