The case for a gold rally

Gold is looking bullish.

The chart above is 10yr chart with monthly candles. Note that price is sitting on strong support – an ascending trendline and a previous high. Also notice that volume has tapered off substantially in the past 1-2 years, a good sign indicating that selling pressure is waning.

The next chart, a 5yr weekly chart, shows that gold is completing wave-5 of an ending diagonal. Historically, these patterns are terminal and are followed by an explosive move in the opposite direction. Wave-3 of the ending diagonal should never be the shortest wave; thus Wave-5 should go no further than 1050, or else the pattern is invalid.

  Finally, note that commercial traders are more net-long now than at any point in the past 10 years!

Combining all the evidence above with the bullish seasonality factor of August, I feel comfortable buying gold at these levels with a stop below 1050.

CANSLIM Stock: WAB – Westinghouse Airbrake Technologies

This is another CANSLIM stock that I’ve been monitoring since Dec, 2014. It just broke out of a “double-bottom” pattern, so I’ve gone long.

I’ve included the CANSLIM criteria below. Note that this stock meets the criteria on almost all counts.

Criteria	Target	Actual
YoY Net Income Growth Rate	20%	22%
YoY Sales Growth Rate	25%	26%
EPS Growing past 3 years?	Yes	Yes
EPS Estimate Higher than last year?	Yes	Yes
3yr EPS Growth Rate	25%	33%
Return on Equity (5-year average)	17%	19%
Within 10% of High	Yes	Yes
New Product, Management, etc?	Yes	Several acquisitions (Aug/Sept), and again in Feb, 2015
12-month relative strength percentile	80%	61%

Let’s take a look at the chart, which shows a breakout of a decent double-bottom.

Note that price broke above point “b” on Friday, accompanied by high volume (80% higher than average). This indicates informed demand.

Strategy: Long @ $89.71 (just above point “b”) with a target of 20-25% gain (~$108). Stop loss is at –8% loss, or $82.60.

CANSLIM Stock: HFF, Inc (HF)

I’ve known about the CANSLIM method for picking stocks since 2007/08. Back then, I used MSN Money’s stock screener to find suitable stocks, but that has since been discontinued. About a year ago, I created an Excel file that uses the RCH Stock Market Functions Excel add-in to pull data from public sources and calculate my own metrics to find stocks that meet the CANSLIM criteria.
I’m currently looking at HFF, Inc (HF) as it meets almost all of the CANSLIM criteria and is sporting a very nice cup & handle pattern.

CANSLIM Criteria	Target	Actual
YoY Net Income Growth Rate	20%	35%
YoY Sales Growth Rate	25%	26%
EPS Growing past 3 years?	Yes	Yes
EPS Estimate Higher than last year?	Yes	Yes
3yr EPS Growth Rate	25%	50%
Net Income Growth Rate (5-Year Average) OPTIONAL	25%	150%
Return on Equity (5-year average)	17%	30%
Within 10% of High	Yes	Yes
New Product, Management, etc?	Yes	Lots of closed deals in Dec, 2014
Insider Ownership	10%	13%
12-month relative strength percentile	80%	54%
6-month relative strength percentile	80%	34%
3-month relative strength percentile	80%	85%
Institutional Ownership	5%-35%	76%
Notes		Financial/property management

Chart

The Cup & Handle is well formed with declining volume in the handle.

My strategy is to buy at $37.25 if volume is 25-50% higher than average on the breakout day. My stop will be @ $34.64 (7%) and my limit is $44.70 unless the stock reaches that target within a couple of weeks, in which case I will hold longer.