Invest and Trade Profitably with Jon Johnson

Education Center

How can an investor know when the stock looks as though it is recovering, whether it is just a head fake, or a real recovery?

August 30, 2000

Very good question. Try to think of stocks as going through phases of life. There is a larger phase over the years, and then there phases within the larger moves. When a stock is trending higher it tends to follow a routine: base, breakout, run higher until it exhausts the base, then bases again for […]

I have a question about stock when they have a reverse stock split. Is this good for a stock? I have one that I have had forever that I got at $7.00 and now is about 3.85 (this was before your great newsletter, I would now never hold a stock till it was 1/2 the price). Would it be better to sell now before the reverse split goes into affect and hold it and see what happens?

August 30, 2000

Typically it is not a good sign for a stock to announce a reverse stock split. It is usually a defensive move taken to stay listed on an exchange or otherwise generate price stability (at a higher level), something the company has been unable to do on its own. The split itself does not change […]

When you say “excellent 7 to 3 accumulation for 6 months” …What do the numbers mean? Are they stock price?

August 30, 2000

The 6 months would be the length of the base. During the base we look to see whether the stock is being accumulated by big money institutions or are they being quietly sold off. By counting the weeks the stock rises in price (as measured by the close each week versus the prior week close) […]

A question about accumulation days versus distribution days. I know that you consider day where an index closes higher as an accumulation day, and when it closes lower a distribution day. I also know you factor volume into whether the A or D is significant. My question is that when a market gaps higher as all of the indices did Monday, and when they close below the open, is that not distribution, even if they close higher than the prior trading session?

August 30, 2000

You have to look at the volume in conjunction with the price to determine if there is accumulation or distribution. A price gain on rising volume is accumulation. A price gain on lower volume is not technically accumulation, just a continued gain. Now if volume is high already and remains high, it can be a […]

This market does not want to rest. What are the odds of a blow off top here?

August 30, 2000

You have to look at the volume in conjunction with the price to determine if there is accumulation or distribution. A price gain on rising volume is accumulation. A price gain on lower volume is not technically accumulation, just a continued gain. Now if volume is high already and remains high, it can be a […]

I noticed that GNTA has a short ratio of 23. That’s 30% of the float and would take 23 days for the shorts to cover on average daily volume. Doesn’t that make this stock much more volatile? Probably the shorts pushed the price down [Tuesday] as it hit a low of 10.30. Does this high short interest figure into your selection methodology? And if so, how do you use the information?

August 30, 2000

We view short interest on a stock much the same way as we view it on the market as a whole, i.e., a contrary indicator. When short interest is high as it was during September and October before that bottom and then again in January, we view this as setting up the next move higher, […]

I understand the chart patterns, but when it comes to momentum plays, what do you use as the criteria to determine when it will move? It seems that when they pop – they move really fast. Are you anticipating it, or seeing the volume increase in the charts?

August 30, 2000

Great question. Momentum has to come from somewhere, and the momentum plays we are comfortable in buying into typically get their momentum from the breakout and they are then ‘gliding’ up the short term MVA (the 10 and 18 day MVA, sometimes 20 day), using those levels as support on the pullbacks. Armed with the […]

With down side plays are you doing only puts, or short as well, and can the targets and stops you recommend for puts be used for shorts? Also, do you recommend shorting in general and what are the risks in shorting?

August 30, 2000

First we want to say that with the market rising, taking short positions is more difficult. We look for stocks that are in a continuing downtrend or are breaking down through support on volume and preferabley have moved up and failed an attempt to get back over that former support that we are looking to […]

Your preferences for upside stocks are the leading stocks at or near 52 week high. Concerning “big money,” do they also buy in at or near 52 week highs or are they more in tune to get stocks at lower prices (buy low sell high). Or, are there different schools of thought. Can you explain a little concerning how big money works.

August 30, 2000

With respect to institutional buyers, there are value buyers, there are breakout buyers, and there are combinations of the two. We like the breakouts on strong volume because they tend to show that more than just a few institutions want that stock. For example, during a base there may be a few institutions trying to […]

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