The concept of "Firework Stocks" was introduced two weeks ago. You may recall that this moniker was inspired by the Fourth of July holiday. So a "Firework Stock" is a low-priced stock whose price flat-lined for a substantial period of time, then broke-out on high volume to double, triple or quadruple in a matter of weeks or months. In that essay I described how to identify these stocks and in last week's essay I wrote about how to find them.

Unfortunately, there is some work involved in going through this process. But you don't have to worry about it. VectorVest has done the work for you. We have provided you with a new WatchList Group called, "Firework Stocks - 2005," which contains the following WatchLists: FWS 2005 Cumulative, FWS Weekly Matches and FWS Favorites.

FWS 2005 Cumulative is made up of the top 50 stocks found each week by using a search called, "Finding Firework Stocks," located in the Delta Searches-Stocks Group in UniSearch. Thanks to the programming wizardry of our Product Development geniuses, this WatchList shows only the stocks that were in the WatchList as of the date you select. For example, on January 7, there were 50 stocks in the WatchList. On January 14, 75 stocks were in the WatchList. This means that 25 stocks were found by the search on both 01/07 and 01/14. The matching stocks were excluded from the Cumulative WatchList but they were put into a new WatchList each week called, "FWS Weekly Matches."

This arrangement allows us to see which stocks broke-out each week, and to keep a running log of the stocks that broke-out during the year. I look at graphs of the FWS Weekly Matches WatchList as my primary source of new stock selections. It contains the lower-priced up-and-comers and offers more upside potential. However, I also look at stocks in the Cumulative WatchList to find good candidates for purchase that didn't make it into the Weekly Matches WatchList. The selection process is simple, but takes some training.

Let's look at the stocks in the 01/14/05 FWS Weekly WatchList, for example. Open the WatchList and set the Date to 01/14/05. You should see Innovo Group at the top of the list. Now highlight all the stocks and click on Graph in the Local Toolbar. Customize the graph to show only the data from 01/14/04 to 01/14/05. This step is necessary to avoid being influenced by the stock's performance since 01/14/05. Make sure to show Volume in the lower portion of your screen. Now you're ready to judge these stocks.

Here's what to look for:
1. Has the stock's historical price pattern been relatively smooth?
2. Has the stock's price been flat or rising for the past several months?
3. Has Price broken-out on high volume, i.e., well above average, over the past
week or so?
4. Is AvgVol greater than 10,000?
5. Has the stock been hitting higher price highs?

Given these guidelines, I would have bet my money on the following stocks: ISAC, RICK, NWMV, ASTM, CEIW. Note that I picked only five of the 25 stocks in the WatchList. When I close the graphs and re-open them, I see that I could have made money on INNO, QMRK, SHOE, and SPSC, but didn't because I didn't pick them for one reason or another. QMRK and SHOE had nice price patterns, but AvgVol was too low. Of the five I did pick, three would have been winners. In hindsight, I shouldn't have picked RICK and ASTM because they were pulling back after a big rise in price. I'll try not to do that anymore.

Of course, you also could go through the same exercise each week with the Cumulative WatchList and find some good winners. But that is even more work. So, we created a third WatchList to save you time and help you make better choices. This WatchList contains the stocks that comply with the five criteria shown above and contains the Firework stocks that we would buy right now. All you need to do with this WatchList is open it, look at the graphs and make your choices. I call it my FWS Favorites.

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