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July 22, 2012 / redman59

A Favored Stock Going Into July $PPO

One of my favorite scan to run involves Relative Strength (RS) comparing to the Russell 3000 (RUA). I like to use the Russell 3000 as this represents about 98% of the market so it acts as a better barometer of the market of stocks. I then look for stocks that are making new highs with their RS comparing to the RUA over “X” amount of days. Since I believe we have more overall upside in this market with a buy-the-dip mentality I chose to look for stocks hitting new RS highs comparing to when the market made highs on 4/02/2012 (63 bars ago). The scan perimeters were as follows:

  • Option Stocks within the Russell 3000
  • Last Price greater than 30
  • RS making new highs comparing to 63 bars ago

The scan returned 15 results, uploaded to FinViz for viewing.

Out of these one that popped to mind was PPO, Polypore International Inc. I always liked trading this stock and it has fell off the radar since 1/31/2012 when it saw a near 30% drop based on this news with long story short that a customer would be a competitor in the battery separator business. Since then the stock sold off some more but then has been in a long consolidation phase mostly between$35-$40.

So seeing this stock in this scan I decided to investigate further and was quite bullish on what I have scene with several factors lining up:

  • Breakout of range and performance vs. industry
  • “Right” side of trend
  • Seasonality
  • Fundamentals

Notes on the chart below for breakout of range and performance vs. industry:

For the right side of trend I turn to a Renko Mechanical System that I discovered from this (disclaimer: no affiliation). I don’t use this as a buy/sell program but more as a “am I on the right side of the trend?” I have uploaded the link along with a picture of the chart and as you can see, PPO is on a recent buy signal which suggests further upside. It has:

  • Recently crossed the 7 EMA
  • Recently crossed the ParSAR
  • Stochastics recently crossed 20
  • MACD making a positive divergence

For seasonality I turn to the PPT and this stock is seasonally strong for the month of July. Going back 4 data points, since its IPO, it has had a 100% positive return on average being +5.63%.

For fundamentals I look to FinViz and have provided a snapshot below:

As of current data the stock does not seem over-valued and only trades at 13.07x Forward Earnings. Also I like the fact that it has a Short Float of 35.72% with 14.72 days to cover. This tells me that anymore appreciation in price should cause a short squeeze.

Overall: I like the chart, the seasonality stats, and the fundamentals for PPO and would not hesitate to buy on a dip.

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