Introducing BOS alerts for my tweets; GMI at 6 (of 6); a Dr. Wish Favorite Post; BOS: $RTN

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The primary trading approach from my course on technical analysis that I teach undergraduates is contained in the following quote from yours truly:

ClasssloganI have for years been stressing the  break-out strategy at the end of this quote. (Who quotes himself?) Buying stocks breaking out of a base and through resistance is highlighted in the works of successful traders I have emulated, like Nicolas Darvas, Jesse Livermore and William O’Neil. (Their exceptional books are listed on this blog.) Each trader defines a base somewhat differently, however. For me, it is defined by a green line breakout (GLB).  I draw a green line on a monthly chart at a stock’s all-time high that has not been penetrated for 3 or more months. This defines an advancing stock that has rested or consolidated. I then become interested in the stock the moment it exceeds its green line top, preferably on unusually high trading volume. I set alerts on TC2000 to signal me when a GLB occurs. I have recently taken to tweeting GLB alerts intraday.  The major problem with GLBs is they often fail and equally important, it is not really easy to define in advance a price at which I think will indicate the break-out has failed and I should exit. I usually try to exit if the stock that has a GLB closes back below its green line. So many of the GLBs occur when the stock is overextended and it soon retraces and I get (rightly or wrongly) scared out.

Over the past couple of years I have developed an alternative set-up for buys that seems to work very well for me in an advancing market (GMI on a Buy signal or QQQ short term trend is up).  I actually like this strategy better than trading GLBs. As the first part of the quote above states, in an advancing market, I find a strong rocket stock that has become oversold and/or is on support. I programmed TC2000 to alert me when a stock meets my criteria (rocket stock and not extended)  if the stock trades up. (This set-up I label Bounce on Support, BOS.)  If I like the stock, I buy it and place an immediate sell stop order in below the bounce or the support level. I really like this approach because my stop or exit level is typically quite close to where I entered, so I likely risk little. I know that a good percentage of these entries will fail, but the name of the game is to lose very little when it fails, to exit quickly,  and to retain stocks that behave. I do not know in advance which BOS position will succeed. No one really knows that. So I take an unemotional and detached attitude, making my purchase, setting an immediate sell stop, and then letting the market decide whether I will profit or lose. This really is a succinct summary of where I come out after a 50 year journey of trading stocks.

I have newly embraced tweeting some of my stock alerts intraday. (If I begin tweeting, this mode of communication must have peaked!) You can sign up to receive my intraday tweets here: @WishingWealth.  My goal, as always, is to teach people how I systematically trade stocks and manage risk and not to make trading recommendations or to sell anything. I often have already researched a GLB or BOS stock long before I receive an alert. So I am ready to act. Many of my stocks come from the IBD 50 list. Everyone must design their own set-ups that are consistent with their tolerance for risk and financial situation. My tweets appear each day on my blog site, www.wishingwealthblog.com, but they come much quicker and directly to people who have signed up to follow me on twitter. So last week I tweeted that I bought RTN and placed a sell stop to exit if the stock traded back below 129. Take a look at the daily chart of RTN. RTN never looked back–yet…  Can you guess why it is a BOS?

Screen Shot 2016-06-05 at 3.14.20 PMI define support or oversold levels on the basis of a few criteria which I will not specify here. (Ask my undergraduate students!)  Just keep in mind that not every BOS will work out. When I tweet a BOS alert, I will also specify the price at which I think it would have failed and where I would place my stop loss order. When a BOS position succeeds, I must then decide where to raise my sell stop to. Sometimes I may not raise it at all, if I want to try and ride a strong stock that I have been waiting for an entry for, or to avoid being whipsawed. Other times I might raise my sell stop to a level that will likely prevent a gain from turning into a loss. This is where science ends and the art of the trade begins….

Friday was the 7th day of the new $QQQ short term up-trend and the General Market Index (GMI) remains at 6 (of 6). As long as my market indicators stay positive I will tweet some of my alerts for GLBs and BOS. By the way, you can check out the performance of selected recent GLB alert stocks on the right of my blog page. Many are doing well, as the market is in an up-trend.

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All World Stock Markets entering BWR Down-trends! I am in cash and monitoring T2108

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I assume that most  U.S. part-time traders, like me, tend to monitor  closely the U.S. stock indexes. I have been writing that the major indexes I follow (DIA, QQQ, SPY and NYSE) appear to be entering major down-trends, showing the RWB pattern I invented by modifying GMMA weekly charts. My charts have 12 exponential weekly moving averages, a band of 6 shorter averages plotted in red, and a band of six longer term averages in blue. A strong up-trend is evident when all of the red lines are well above the rising blue lines such that there is a white band separating them. I call this an RWB pattern, Red/White/Blue. A significant down-trend is evident when the reverse is true, giving a BWR pattern. I also include in my charts a gray dotted line that shows the weekly close of the index being plotted. This more recent price line (gray dotted line) tends to lead the averages.

The past few weeks I have been showing you that the U.S. indexes I follow have been transitioning from a multi-year strong RWB up-trend into a BWR down-trend. This is clearly evident in this weekly chart of the SPY. The NYSE index, composed of large multi-national stocks, is in a fully formed BWR down-trend.

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All of the other U.S. indexes I follow have  patterns  similar to the SPY, although the QQQ, shown below, composed of nonfinancial tech stocks,  is  less far along than the others in forming a BWR pattern. It is clear from these charts that these markets have come out of a  multi-year RWB up-trend. In an RWB the gray dotted line is largely above the red averages, showing that the direction is headed up. In a BWR down-trend the reverse is true. Note that the gray dotted lines in the above two charts are now below all 12 averages, signalling a deepening down-trend. One  sign of a new up-trend would be if the gray dotted line were to close back above all 12 averages, although I prefer to see the full RWB pattern develop before I trade big with a changed trend. My primary conclusion is that the RWB pattern (bull advance) of the lest few years in the U.S. markets  is clearly over and no one  knows when it will come back. Is it too late to sell?  Sorry, no one knows.

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The above discussion would have been my routine analysis of the markets. But given the current market turmoil and the primary cause being ascribed to the market in China, I thought I would look at the chart patterns of markets world-wide. I examined 37 ETFs representing markets across the world. With the exceptions of the markets in Belgium and Ireland, all markets I examined were in well developed BWR down-trends!  Can we legitimately blame all of this on China? I will post just a few representative examples below.

Thailand:

ThailandAustralia:

Australia

Russia:

RussiaSouth Africa:

SouthAfricaUnited Kingdom:

UnitedKingdomGermany:

GermanyHongKong:

HongKongFrance:

FranceChile:

ChileIndia:

IndiaEgypt:

SwedenSweden:

SwedenChina 25:

ChinaI am not an expert on world markets. Maybe one of you can comment on these relationships. Is it really possible that all world markets are going down because of the China market? I suspect not. There is probably another factor driving all of these markets? Deflating commodities?

Did similar relationships occur in 2008? Not all of these ETFs existed in 2008. When I looked back at the patterns across a few countries in 2008 I again saw tremendous similarity across the markets. That does not necessarily mean that we are entering  another crisis like the one  in 2008? Nevertheless, the possible implications of these charts concern me more than a little……..

My GMI remains on a Sell signal with all indicators negative. Where is the bottom? A major past signal of  panic-induced market bottoms that I have noticed is when the Worden T2108 indicator, now 15,  falls into single digits. The monthly chart below shows that T2108 reached 1 at the 2008 bottom,  7 in 2011 and around 6 last August. I post T2108 each day, to the right of this page.

If T2108 goes below 10, I hope to hold my nose and move some cash into an index ETF (SPY or QQQ) or an index mutual fund. I will then only average up if the market continues to recover. I make this promise each time we have a large decline but seldom keep it! At the bottom the market always looks too scary to buy…..

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GMI back to 0 (of 6); Why I heed my General Market Indicator (GMI)

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My QQQ short term trend indicator is back to a down-trend, after only 2 days of an up-trend. This indicator is focused on the very short term trend and is different from the GMI. I have said that I trust a change in my short term trend direction only after it lasts 5 days. Below are daily charts of the QQQ, colored according to the GMI Buy (green) and Sell (red) signals. While not perfect, the GMI gets me out of significant down-trends and back in during up-trends. Note that the GMI has been on a Sell signal since the market close on August 24. I am mainly in cash in all of my accounts. (Click on charts to enlarge.)

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Is worst of stock market decline over? I’m not betting on it…..

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Wouldn’t you know that the extreme market action would occur just after I went on vacation? I was not surprised by the down market last Monday. When stocks have a bad week and end on a down note on Friday, people get scared over the weekend and sell on Monday morning.   The depth of the Monday flash crash was very scary, however,   and will probably affect the market for some time. It is interesting to me how few commentators are stressing the utter failure of the exchanges to have an orderly market open on Monday morning! Fortunately, as my readers should know, I have been exiting the market for weeks. I have been 90%+ in cash and am now 100% in cash in my trading accounts.

I listened to the CNBC market pundits occasionally for entertainment, not to follow their advice. I discovered this   neat site while looking for the famous quote in October 1929 by the economist of the day who said the market had reached a permanent high plateau, just before the   October 1929 great crash! In searching for the quote, I found this site which shows graphically how wrong the economists, businessmen and politicians   at the time were about the future impact of the October 1929 decline on business and the stock market. Note the assertions similar to those we heard this week,   that business was good and would not be affected by the market action. Note also that the October 1929 crash was only the first leg down of a multiyear decline that bottomed out in 1932 with the Dow below 50 during the Great Depression. I show my students a more recent example of the sagacity of market pundits during Enron’s dissent from $90 to 0.   The great Wall Street stock firms kept recommending that their clients buy or hold Enron stock as it fell to nothing. After seeing that example, my students have a healthy skepticism for   most brokers’ advice. As I warn them, their broker will make them broker. So it did not surprise me when I listened to the CNBC pundits in recent days saying that the market decline had nothing to do with business conditions, which look just fine to them now. History does not exactly repeat it just rhymes…

The huge Boomer bulge in the population has driven cultural events all of my life, from turning our parents to read Dr. Spock for child rearing advice, to the hippie culture of the 60’s,   the boom in college enrollment, and to the huge economic boom of the 80’s and 90’s as the Boomers reached peak earning power grew their families. Now we Boomers are heading toward retirement. Most have mainly Social Security and 401 (K) earnings to sustain us. What do you think the Boomers are going to do with their pension investments after last week’s market action? I suggest many will reduce their exposure to stocks, and cut spending on luxuries and big ticket items. Money protected in low yielding CDs and even savings accounts is safer and more attractive than money invested in stocks and even ETFs. So, right or wrong, I suspect that we will see Boomers exiting the market, especially if the indexes retrace a little more of this vicious decline and they can get out near their recent account balance highs. If the markets start to fall again and break last week’s lows, I fear we will see a   protracted decline that will extend for months and thousands of Dow points. Bear markets used to last 10 months.

While all of my trading accounts are in cash, I am less able to time the market in my pension mutual funds in my 401 (K). However, I will likely transfer even these funds into money market funds in the coming days or weeks. I would rather miss a further 5-10% rise than sit through a possible 20-40% decline. The GMI has now been 0 (of 6) for the past 5 days. The last time the GMI was zero for so many days was last October. That decline ended and a nice rally began that lasted thorough this summer. But compare the depth of the QQQ’s decline last October to the debacle that just occurred. The technical break-down is far greater (no, this weekly chart is not wrong). I therefore would not expect a quick resumption of the up-trend, although as we know, anything is possible when it comes to the market. If the QQQ fails to retake its 30 week moving average (red solid line) like it did quickly last October, the recent decline could be just the beginning of something nasty.   Being in the seasonally weak part of the year for the market (September/October) and with the Fed   likely to start raising rates by year end, I think this is not the time for me to be bravely in the market on the long side. I hope I am wrong, but I am a chicken when it comes to my investments.

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10th day of $QQQ short term up-trend; $AAPL leading market higher; 5 GLB stocks; GLB in IPOs

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With AAPL showing strength, it looks like this market will move higher. Check out AAPL’s daily chart.

AAPL05222015And its strong RWB pattern.

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Stocks are breaking through their green line tops to all-time highs. Like SYNA

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And IMAX

IMAX05222015And MGA

MGA05222015And TCX

TCX05222015And CTRP

CTRP05222015I like to hold stocks that break up through their green line tops (GLB) as long as they stay above their green lines.

A green line top occurs when a stock reaches an all-time high that it does not exceed for at least 3 months. By definition, an IPO may not have existed long enough to rest for 3 months. I rediscovered what Jesse Livermore once wrote. If an IPO opens strong and then recedes from its peak for a few weeks, buy it when it breaks to a new high.   As Jesse said, it means something has changed. FB did this quite a while ago, although it took it almost two years until 2013 (monthly chart) to hit a new high.

FB05222015SHAK flashed the buy signal much more quickly, after 12 weeks (weekly chart). It pays to watch the IPOs for this truncated GLB pattern.

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The GMI remains at 6 (of 6).

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An important limitation of the GMI signals

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I have found that since 2006, the GMI has done a good job of keeping me on the side of the general market trend. It is my cardinal rule to trade consistent with the market trend.   While the GMI has helped me to exit the market in prior major declines, I have discovered an important limitation while examining GMMA charts. From the GMMA chart of the QQQ below, I can see that since early 2014, the GMI has issued 7 separate Sell signals (red arrows) followed by 7 Buy signals (green arrows). However, during this entire time the QQQ has remained in a strong RWB up-trend, with all of the shorter term averages (red) above the rising longer term averages (blue)!

QQQGMMA02202015It is clear to me that a GMI Sell signal should only be used by me   for short term trading decisions. Last week I posted that prior major market tops have been signaled when the shorter averages declined below the longer term averages. I should therefore probably remain invested long term in the market (at least in my university pension account) as long as the RWB pattern is in place, even when the GMI signals Sell. I am reinvesting my pension funds back into mutual funds. In the future I will use the GMI signals only to guide my shorter term trading in my more speculative accounts. I will heed the GMMA chart for longer term trends. One must never stop learning and adapting when it comes to the markets….

The GMI remains at 6 (of 6).

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6th day of $QQQ short term down-trend; 11 Biotechs with green line break-outs: $ARDX,$VRTX,$AGIO,$UTHR,$RCPT,$ESPR,$OVAS,$PTCT,$CMRX,$BSTC,$TTPH

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The GMI remains on a Sell signal and I remain largely in cash and hedged.   I do hold a few biotech stocks, see discussion below. This market is rebounding from a high volume decline. It remains to be seen whether this rebound will retake prior peaks or falter somewhere before. This week is very critical for determining the significance of this bounce. I would want to see the QQQ close the week above 99.30.   The QQQ is now below its 10 week average and I cannot make money on the long side when this is so.   There were 50 52-week highs and 134 new lows on Friday.   One possible sign of a meaningful bounce was the fact that the Worden T2108 hit an intraday low of 13% on Thursday.   That is a very oversold level. Put/call ratios were also over 1.0, signalling extreme bearishness among option traders. IBD sees the market in a correction. However, it is just impossible to know in advance whether we have a “dead cat bounce” or a meaningful bottom. I will start to buy the TQQQ when and if the QQQ short term trend turns up….

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Meanwhile, my readers know that I have been focusing on the bio-tech area.   There are so many discoveries occurring in   drug research that this is one area that can buck the market trend. I have been scanning bio-techs each day for high volume break-outs.   I then look at monthly charts to see whether each is near a “green line break-out” to an all-time high. When a stock breaks above a high multi-month (at least 3 month) base, it often means something important is occurring within the company. Here are some weekly graphs of biotech stocks that have come to my attention.   Somewhere among these may be a company with the next new cure for a major disease. These companies are worthy of further research ( a review of recent news stories often explains why the stock surged) and monitoring for possible purchase. If any of these decline below their green line, I   become less interested in them. One approach I like is to buy a few shares (up to 25) of each just to keep them on my radar screen.   I   then slowly add more to those that prove themselves and exit those that fail. I am looking for multi-month or year long moves, not for a short bounce. Click on a chart to enlarge.

ARDXwkly VRTXwkly AGIOwkly UTHRwkly RCPTwkly ESPRwkly OVASwkly PTCTwkly CMRXwkly BSTCwkly TTPHwkly

When a stock breaks out of a monthly, green line top to an all-time high it can be the beginning of a huge move.   As an example, look at this monthly chart of AMGN in 2012. Note also what happened after a failed green line break-out in 2006. When a stock comes back below its green line, it is a sign for caution. But a stock can fail, find support at the break-out, and then resume its rise.

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