Aggressive Stock-Picking, Week 4: How to Trade Off of Unusual Activity

Step 5. On the basis of your analysis in Step 5, choose one buyback stock and one activist situation stock as the best opportunities to buy (or sell) at the open of the next trading day. Note the current closing price in the "Reason for picking" area, as well as your trade recommendation.

Step 6. Before the open of the next trading day, pick four stocks from the most current buybacks stories on TheStreet.com (search "buybacks," samples: "Top 10 Stocks With Big Insider Buying, Buybacks" and "Wednesday's Buybacks: Compuware for $200 Million") and add them to your "Unusual Activity Analysis: [Your Stockpickr Username]" portfolio. Then do the same homework for these new stocks as you did in Steps 3 and 4.

You will now have six stocks to monitor.

Step 7. When the stock market opens the next day, note the opening prices for all six stocks in their related "Reason for picking" boxes.

Step 8. Test your results on paper (see back test ). However with this assignment, you should look more long-term than in previous assignments.

Since stock buybacks and activist shareholder buying don't usually occur in one day, but gradually over a course of months, check back at the end of one week, one month, three months, six months or (if necessary) one year. If you see that the price is starting to break out of its trading range (say, trading above its 200-day moving average ) and heading up, it may be time to buy.

Homework Hints

Search Stockpickr for other portfolios that include the words "buyback" or "activist." You may find both professional and do-it-yourself portfolios. Read the "Reason for picking" boxes in both portfolio types and compare your reasons with those of other investors.

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