Spotting Stock Bottoms and Tops

Taking a leaf out of Jim Cramer's book:

Spotting Stock Tops (time to sell):

1. Every analyst has buy rating on the stock. Somebody has to be able to bring the bearish sentiment. Let that be you.
2. When you feel you have made a lot of money in a stock and it has had a great rally, get circumspect and think of the top. No stock would keep going on and on in the upward direction. Very few analysts on street talk about tops...they don't want to. That's the behavioral bias...unrealistic optimism.
3. If you follow fundamental analysis and pick a stock with low PE and that stock rallies up and goes to become a high PE, may be it's time not to keep holding but to get off - at least some.
4. Monitor the entire sector and watch out for Competition. Competition can come from anywhere and can destroy stocks. People like Cramer spend an hour studying competition every week.
5. Accounting irregularities = Sell ....no matter what...no exceptions! Numbers are fraud..(option backdating is a compensation issue not an accounting issue..option backdating might be a sign to buy actually)
6. Overexpansion: acquisitions, too many store openings, too much growth that can't be managed. (key word: "Integration Problems")
7. Government Intervention

Spotting a bottom

1. market sentiment must be bad. Front page of NYTime (right top corner) has mail letters from people talking all negative.
2. Wendesdays - investor's intelligent survey of money managers. If there are too many bears there.
3. Mutual funds pulling out of market in a significant way
4. Big bottoms have a catalyst usually ..market sentiment in gutter....you get some bad news in the market that has widespread effect on market. (e.g days before Iraq war..uncertainty is not good for investors and hence market reaches a bottom)

Spotting Sector Rotations

Cyclical: Airlines, Auto, Raw Materials, Consumer Durables (washing machines),

Secular: utlities such as P&G and General Mills

When economy is growing, buy seculars and sell cyclicals. When economy is in gutter, buy cyclcial and sell seculars.

Earnings Revisions

Spot earnings revisions by analysts before they do. Read the news...follow suppliers. If Intel's doing well, AMAT should be expected to do well.