How to Follow 500 Stocks

This column was originally published on RealMoney on Dec. 29 at 11:00 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

Yesterday I got a great question from a reader, L.P., about tracking stocks.

"You referenced a couple of weeks ago that you hear from a number of folks who trade while they earn a living doing something else. I am one of those.

"I have been trading for several years, mostly using technical analysis, and tend to do best trading a smaller number of stocks. My problem is that every time I see a new stock referenced in any of the media I follow, I add it to my Qcharts workspace. The workspace grows and grows. Eventually I am trying to follow too many stocks. I spread myself too thin.

"Do you have any suggestions for managing watch lists and developing discipline to say, 'OK, I cannot follow the market all day, I cannot fly through 500 charts every day ... here are the 50 I will check every night and leave at that'?"

That's an issue a lot of folks struggle with. Hey, I struggle with it because of my tendency to "multitask," trying to do too many things during the day. I can only imagine how someone balances trading with a busy job, family obligations and that inconvenient need to sleep every night. But here's a great method that works for me.

First, when you find a stock you want to track, look at the chart and set "action price levels." Identify a high and low price level that would prompt you to act if the stock moved to those levels -- such as just above critical resistance or just below established support. Then write down that information in a separate "action journal" -- not your trading journal -- for taking notes on potential trades.

In this action journal, write the ticker, the actionable levels and your reason for taking action if a price is reached. Failing to write down your plan of action along with the price levels defeats the entire purpose of the journal -- the idea is to make your life easier, not to create memory exercises.

Now that you have your list, price levels and plan of action, simply go to Yahoo! Finance and set up an email alert list. You'll find the option of setting an alert just below the quote box on the Summary page. It doesn't need to be sent to a Yahoo! address. Have it sent to your office, your home, your BlackBerry.

As long as you keep your action journal around, you can easily reference it and answer the all-too-common question, "Why the heck was I watching this stock in the first place?" Add or delete alerts as you see fit. Try this method. You'll see that you can efficiently track a large number of stocks because you are ignoring most of them most of the time. Your attention is drawn only to those that require action.

Let's look at some reader requests.

Baidu.com (BIDU Quote - Cramer on BIDU - Stock Picks) is still just 8% off its recent highs. The pullback has been on declining volume, which is typically indicative of profit-taking rather than out-and-out distribution. Still, the lower-risk move is to simply wait for a breakout above resistance, rather than anticipating it. I'd watch for a breakout day with daily volume above 2.5 million shares as a signal to buy.

Research In Motion (RIMM Quote - Cramer on RIMM - Stock Picks) pulled back around 10% after announcing stellar earnings. However, the stock has attracted substantial buying interest right at the 50-day moving average. Not every stock reacts there; but when a pattern does emerge, it's usually best to heed the signal. If you're long, consider keeping a fairly tight stop on your position -- down in the mid-$120's. That way, it'll only be hit if the 50-day moving average ceases to attract buyers.

I've drawn a horizontal resistance line from the May peak at $80 to illustrate Allegheny Technology's (ATI Quote - Cramer on ATI - Stock Picks) reaction when it returned to that level in October and November. After a $25 retracement, the stock returned to $80, then bumped along for a few weeks before a heavy-volume breakout. From here, I'd expect this metal stock to move higher, and I'd be a buyer on any pullbacks to $80. So long as that level holds, this uptrend is intact.

Corrections Corporation of America (CXW Quote - Cramer on CXW - Stock Picks) has been in jail between $44 and $48 for the past three months. This looks like a top to me, but until support at $44 breaks down, it's only a potential top. Each time the bears push it down to $44, buying pressure halts the decline.

However, the long price-by-volume bar at $46 indicates substantial volume just above the current price level -- so any advance is likely to find lots of sellers. Also, the 50-day moving average is now moving down. This is a lagging indicator (most of them are) -- but a trend reversal in a major moving average grabs a lot of attention. So don't be a hero here; if support breaks down, take the money and run.

Coventry Health Care (CVH Quote - Cramer on CVH - Stock Picks) is stuck in a very narrow range between $50 and $51. That's where the majority of trading volume has occurred, so the resolution of this tight range is likely to be dynamic. A move above $51 is an upside breakout. However, keep in mind that lots of folks were trading the stock at $54 back in August and September. There will be some who bought at those levels and held through the entire pullback to $45. They're still in pain and will be anxious to sell if they can just break even. So the upside is limited on any breakout.

Be careful out there.