Buying Checklist

Check the boxes to make sure your stocks meet these criteria.
Composite Rating 80 or higher EPS Rating of 80 or more EPS growth 25% or higher in recent quarters Accelerating earnings growth EPS growth past three years 25% or higher Sales growth 25% or higher in the most recent quarter ROE 17% or more SMR Rating A or B Among the top-rated stocks in its industry group New products, service or management IPO within the past 15 years In the top 40-50 groups of IBD's 197 industries Group Relative Strength Rating of 80 or higher Price above $15 on Nasdaq, $20 on NYSE Relative Strength Rating 80 or more Accumulation/Distribution Rating A or B Increase in number of funds owning the stock Average daily volume of 300,000 or more Market in confirmed uptrend Breaking out of a sound base (cup, flat, etc.) Volume above-average on breakout More above avg. volume up weeks than down weeks Within 5% of buy point Add shares at pullback to 10-week moving avg. line Special patterns: 3-weeks tight, etc. Downward sloping handle in light volume Relative Strength Line in new high ground First- or second-stage base

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Companys Fundamentals

Companys Star Qualities Industry Group Industry Demand

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Market Direction

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Chart Analysis

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Selling Checklist: Is it time to take your profits or cut your losses?

Sell a stock if it falls 7% - 8% below your purchase price Sell most stocks when they climb 20% - 25% above their ideal buy point Exception: Hold a stock for at least 8 weeks if it goes up 20% or more within three weeks after its breakout. Then evaluate if it should be sold or held even longer.

Warning Signs & Sell Signals in a Chart

Stocks often flash warning signs on their charts before they fall. Here are some to watch for: New price highs on low volume Drop below 50-day moving average line on the heaviest daily volume in months Heavy-volume sell off, particularly if the stock experiences the largest price drop of its run Churning: heavy volume with little price progress Climax Top: Signals stock is near its peak. Signs to look for: Occurs after long price run up of 18 weeks or more 25% to 50% price jump in three weeks or less Largest one-day price gain of entire run Daily volume may also be heaviest of its advance Exhaustion gap: Opens significantly higher than prior day's close Weekly price spread is largest since stock began its run 43
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Chart Patterns: Does the base youre reviewing meet these criteria? Cup-with-Handle

Double Bottom

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Chart Patterns: Does the base youre reviewing meet these criteria?

Flat Base

Base-on-Base

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Base Checklist: Does the stock youre reviewing make the grade?
Yes No Is the market in a confirmed uptrend? Can you identify the type of base (cup with handle, double bottom, etc.)? How long is the base? Start count from first down week in the pattern.
____ At least 4 weeks for a square box base ____ At least 5 weeks for a flat base ____ At least 7 weeks for a cup, cup-with-handle or double-bottom

Does the base have elements of strength?

Example: Gaps UP on volume in daily chart; relative strength line in new high territory; more weeks of accumulation than distribution

Does the base have elements of support?

Example: Base on top of a base; price above 200-day moving average; closes near high of weekly range

Has there been a shakeout (heavy-volume sell-off) near lows of the base? If the base contains a handle area, is it within the upper of the entire base? Does it drift down on lower than average volume? At the ideal buy point, does the stock surge higher on volume at least 40% 50% above average?
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2011 Investors Business Daily. All rights reserved.

Market Direction: Is now the time to be buying or selling?

Always trade in sync with the overall market. Check the Market Pulse in The Big Picture column daily to see if its time to buy or take defensive action.

- Best time to buy stocks - Only buy fundamentally strong stocks breaking out from sound buy points

- Proceed with caution - Be ready to take defensive action if you see warning signs in your stocks

- Dont buy stocks - Lock in gains & cut short any losses

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2011 Investors Business Daily. All rights reserved.