How to find the next DNA

For those of you who followed my original Stock of the Day page will remember that among my candidates in early March was DNA, perhaps the best performer in the group. Having selected DNA early on, when it was just $55 would have been a blessing, since it now surpassed $88. Now, why don't you enter the suggested trade, like I did with September $55 long calls and 1/2 the April and rolling over the same number of shorts for every month thereafter?

Genentech, DNA

You would remember that I selected DNA as a bullish trade among several candidates with a daily volume spike and a substantial increase in price (%) over the previous day. Candidates for this approach can be easily found using Platinum. It is very important that one reads the content of the news for the day and establishes whether there is a long-term catalyst in the news.

It may appear that market conditions are improving, so it may be the time to look for bullish positions. As the DNA trade shows, though, even poor market conditions cannot stop a good momentum stock. First, go to Platinum and locate the stocks that have increased in volume (volume spikers) over the last week or so. Do this by going to the Site Map, and locate the Stock Rankers list:



If you do NOT have Optionetics platinum, you could probably get the same information for free by looking at their Market Data tab on a daily basis and identify stocks that have increased in value more than 5%. Going to Yahoo Financial will assist you in locating stocks that have a significant increase in volume along with the spike in price and that have associated news (more on this below).

With the ranker, you can easily obtain a list of stocks that have had the highest % change in volume over the last week. Here is what I use, but feel free to experiment with your own variations.



Once you have ranked stocks this way, you can save them as a list for further selection. I saved them under a list named "200% volume increase"



Volume increase per se can lead us to both bullish and bearish trades. Since I am intermediate term bullish now, I take a look at some bullish trades by selecting stocks that increase in price significantly this week.



Let's take a look at the top 4 stocks, AMLN, MLNM, SWKS and ESLR. Use the Yahoo Financial for the fundamentals and StockCharts.com for the technical analysis on these 4 candidates.

Yahoo Financial

The four candidates appear to show good long-term catalysts, in my view.

1. Amylin has launched a new Diabetes drug, Byetta that regulates glucose levels. Analysts expect sales of $1B a year, which puts it into Block buster category. Piper Jaffray maintained an "outperform" rating and $32 price. On the downside, the drug in injectable, and MRK has an oral competitor. Nevertheless, I expect the 52 week high of $31 to be exceeded in the next few months.

AMLN StockCharts

2. Millenum has had good news for their oncology drug: The FDA approved Velcade in 2003 for the treatment of the cancer multiple myeloma. The NEJM study showed the drug was more effective in treating multiple myeloma than other standard medications in patients who had relapsed. This news may suggest that an increase in revenues my result. At less than $10/share, the stock may be undervalued. Watch for a possible increase on earnings estimates.

MLNM StockCharts

3. Skyworks (SWKS) has settled a patent litigation with Qualcomm in what appears to be favorable terms. SWSK will share on QCOM's revenues, not bad for a 1.25B company. Watch Jim Cramer's Mad Money, he has been pumping this stock, which may increase its market cap, but also its volatility.

SWKS StockCharts

4. ESLR has been added to the Russell 2000 and Russell 3000 indexed, which may have cause the buying reaction. This is not a change in the fundamentals of the company, and thus not a strong catalyst.

ESLR StockCharts

I have entered a trade on both AMLN and MLNM.





I am also considering a trade on SWKS. Here is what I would do: