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Slam Plays

The Slam screen looks for stocks experiencing a significant drop in price. Playing Slams requires constant vigilance and quick response time. There are a number of ways Slams can be played: Short Term Bounce, Continuation, Pullback with Support, and Recovery. All Slam plays have more than average risk, but the Pullback with Support and Continuation plays are less risky.

The common screening criteria among the four plays are a price drop. For all but the Pullback play, you'll want to screen for at least an 8% drop. Slam days also have abnormally high volume. To ensure that you're looking at stocks with good liquidity, screen for more than your normal volume requirement.

Possible Reasons for Slams:

• Pre-announce lower than expected earnings
• Missing earnings estimates
• Bad news for a company in the industry or for the overall sector
• Lower projected demand for company's goods and services
• Overreaction to bad news for the broader markets
• Analyst downgrade
• Reaction to a quick, unsustainable upside move
• Perception that stock will be affected by foreign market actions
• Sometimes just about any reason or no reason at all

Potential Entry and Exit Points for Continuation Slam Play

The continuation Slams that just keep going and going are good downside moves. They have two common traits: after the initial Slam, their price drops are typically more gradual and consistent, and they typically have greater difficulty rising above their 10-Day Moving Average (MA) line. Some of the best Continuation Plays start as mild Slams - one-day losses of 8% or less.

Potential Entry Points
Screen for stocks crossing down through their 10-Day MA line with a one-day price change of at least -8%, and average volume of at least 100,000. Notice how much of the bar (the trading day's range) is below the 10-Day MA line on the day it crosses down. If 80% or more of the bar is still above the line, you may want to wait one more day to confirm the move down to avoid a short play on a stock that might bounce up off its 10-Day MA.

Potential Exit Points
As always, "if you've made enough, get out" is a simple rule to follow. But sometimes you can leave a lot on the table or lose a lot of money quickly. So if you want to consider a more mechanical and less subjective exit, consider using the reverse of what got you into the play: a cross up through the 10-Day MA line. Again look at what percentage of the bar is above the line on the day it makes its bullish crossover. You don't want to get wiggled out of a position prematurely. Consider creating a 10-Day MA bullish crossover Alert to be prompted for your exit.

Charting Example for Continuation Slam Play

As just described, the best Continuation Slams are typically "mild" first day Slams, but they just keep going. Notice how Abacus Direct (ABDR) plays down a bit more every day and never can seriously challenge its 10-Day Moving Average line. During the period shown, ABDR gave up $14 or 31% in a month, and continued to move down.

Entry and Exit Points for the Pullback with Support Play

The Pullback play is essentially a reversal play on a smaller Slam. These are typically strong stocks that are either pulling back and resting before a further move up, or pulling back on some poorly received news or other market condition. The support part of the equation is the 10-Day Moving Average (MA) line, which may act as a springboard for the stock as it pulls back to this support level.

Potential Entry Points
Screen for stocks crossing down through their 10-Day MA line with a one-day price change of at least -8%, and average volume of at least 100,000. Notice how much of the bar is below the 10-Day MA line on the day it crosses down. This play is a reversal of the Slam, so the smaller the amount of the bar below the line the better. To ensure you consider only the strongest candidates, you may want to add a "MACD Bull is equal to Yes" to your screen. Consider confirming the reversal by waiting for at least one day's action completely above the 10-Day MA line before you take a long position - you can also automate the process by creating an Alert.

Potential Exit Points
As always, "when you've made enough, get out" is a simple rule to follow. But sometimes you can leave a lot on the table or lose a lot of money quickly. So if you want to consider a more mechanical and less subjective exit, create a 10-Day MA crossing down Alert as a prompt for your exit. You could also use a trailing stop loss order as your exit, based on your risk tolerance.

Charting Example for the Pullback with Support Play

The Pullback play can be a good "value" play as you are typically picking up a relatively strong issue on a dip. At the time of this writing, Yahoo! (YHOO) could be considered a good candidate for the Pullback play. It closed just touching its 10-Day Moving Average (MA) line. The 10-Day MA has proved to be a very reliable support for YHOO all year as it has bounced back every time it touched the line.