Bullish Special Situations
The 1997 Study
Recent research has gone a long way to solve the problem of deciding when to sell and how best to give the best performing stocks ample time to advance. The solution we propose is to hold our bullish Special Situation stocks 25 trading days (five weeks) and sell them unless they are up at least 25%. If they are up 25% or more after five weeks, we hold them for a gain of at least 100%.
Our December 19th, 1997 PEERLESS FORECASTS published a year-end study of all 148 of the daily Bullish Special Situations recommended between January 2, 1997 and October 31, 1997. The study showed, for example, that 60.1% of the recommendations rose to a subsequent high at least 20% above the point of recommendation. 46.4% of the recommendations rose to a subsequent high in 1997 at least 30% above the point of recommendation. 20.9% rose to a high at least 75% higher. Interestingly, more stocks rose at least 75% than did not rise even 10%.
"The Best Way
"If one had bought every stock at the close the day it was recommended, one would have had a 15% profit as of 12/16/97. This modest gain can greatly be increased by knowing three simple rules: (1) that the most reliable gains are usually made during the first five weeks; (2) that the best and safest trades are made when the PEERLESS (general market timing system) is bullish; and (3) that the stocks that are up at least 25% after five weeks should be held until they rise 75% to 100%."
One simple conclusion emerges from study of the 148 BUY recommendations: "If one had bought every stock and sold it five weeks later, one's average gain would have been 6.0%. Allowing for slippage and commissions, this still compounds to more than 50% per year...The five week average gain would have improved to 8.0% if one had bought these stocks only when PEERLESS showed the DJI to be operating under a major BUY."
How to Get 13%
per Five Weeks:
Since you can't buy all the Bullish Special Situations, we suggest taking advantage of the market's regular monthly cycle. Arthur Merrill's landmark study shows that between 1890 and 1984 the market has shown an important tendency to turn up a few days before the end of the month and turn down around the middle of the month. Thus, the best point to buy if you are planning to hold a stock for five weeks is the period starting about three days before the end of the month through about the third trading day of the month. In this way, your stock enjoys two cycle boosts and only one down cycle.
Below I show all the Special Situation Buy Recommendations between the 28th and the 4th. There were 40 Special Situation BUY recommendations in the first 10 months of 1997. Their average gain was 11.3%. Intriguingly, the five week gain was even higher for stocks bought during the first two trading days of the month. Selling these stocks after five weeks have gained you 13%. The important thing is that these gains quickly add up. If we allow 1% slippage due to commissions and differences between bids and asks, the average gain here would still have been 12% over just five weeks. At this rate, 10 trades - with gains being compounded and profits being reinvested - will triple your original investment. Aggressive investors will want to buy many of these on margin and further enhance their gains.
Page 3: The 1997 Study of Bullish Special Situations