On David Ryan and my new #TC2000 scan for GLB rockets bouncing off up of support: $PLAY

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One of my favorite stock gurus, David Ryan, William O’Neil’s protege, when asked about the types of set-ups he looks for, said:

“I basically simplify it down to two, breakouts and pullbacks. Don’t get confused by all the different formations. You don’t really have to look for cup with handles, or saucers, or “W” formations. You just have to draw a line across the top of where most of the stock’s trading has taken place. Then you buy as it moves through that line. It is as simple as that. I always like to see a very tight price pattern before the stock breaks to new highs. Buying pullbacks are a bit more complicated but offer another entry point to get aboard a leading stock.”

Momentum Masters, Mark Minervini, David Ryan, Dan Zanger and Marl Ritchie II, 2015, p. 72.

Momentum Masters – A Roundtable Interview with Super Traders – Minervini, Ryan, Zanger & Ritchie II

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Momentum Masters  compares  answers to a series of  questions asked of four of the best stock traders ever. I highly recommend it. By the way, David Ryan is doing a webcast for IBD on his current take of the market this week. Click the link or go to investors.com for information to register.

Ryan’s quote above really fits in well with my trading strategy. I draw a green line at a stock’s all time high that has not been surpassed for at least 3 months. I then look for a break above that line (Green Line Break-out, GLB). I set an alert in TC2000 to tell me when the GLB occurs and when it does I then inspect the stock for signs of unusual break-out volume and good fundamentals. Alternatively, and more often, I look for a stock near or just above a recent GLB that has pulled back and become over-sold and started to rise. If I buy it, I place my sell stop close, just below the recent bounce/support. I never know if a bounce will work out, but if it fails, I exit with a small loss. That is the key to  this game–a few large gains and many small losses. Many successful traders say they are right on fewer than 50% of their trades.

This weekend I created a new TC2000 scan that you can run yourself when you get TC2000 (See $25 coupon offer at top of this page). All of the students in my new honors class will learn how to use TC2000. Once on TC2000, join my Club and select this scan: 01292017ATHhipast40daysBLBB. All of my publicly available free scans are described in the Glossary tab for this blog. This new scan looks at all stocks in my ongoing WatchList of about 800 stocks that have recently hit an all-time high (ATH). It finds the subset of them that hit a new high in the past 40 days and that is now bouncing from up from its lower Bollinger Band.  In simple words, the scan finds rocket stocks trading near their ATH that have recently hit their peak and that have since pulled back and started up. I next look to see if the stock is above its last GLB. Many stocks rise after their GLB and then pull back and resume their advance. PLAY is one of the 15 stocks that came up in this scan, which I give as an example.

PLAY gapped up on unusually high volume in December and then traded sideways since. Last Friday it bounced off of its lower 15.2 daily BB and closed near its high of the day. Is this the beginning of a resumption of its rise?  No one knows, but it might be. If on Monday PLAY  trades higher than Friday’s high of 54.88, I might get interested enough to buy some. Unlike a break-out, a bounce does not require higher volume. The low trading volume is a sign that the selling has dried up. Note from the line at the top of this chart that PLAY is due to report earnings on 4/4 and last quarter’s earnings were up +127% according to stats in TC2000. It has a recent short ratio of 7.2 and is up 47% over the past year. It is also on the current IBD50 list with a COMP rating of 93 and EPS rating of 99–not too shabby….

Meanwhile the GMI remains at 6 (of 6).

 

12th day of $QQQ short term up-trend; $QQQ and $CDW have an RWBCount= 12

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For a long time I have thought that my adapted Guppy charts composed of 13 weekly moving averages provide an excellent method for identifying stocks in a significant up-trend. Six of the exponential averages are red (3,5,8,10,12,15) and 6 longer term averages (30,35,40,45,50,60) are blue. When all the red averages are rising above the blue averages such that there is a white space between them, this constitutes a red white and blue (RWB) up-trend. I also add a 13th average (1) as a dotted line which shows the closing price each week. When all 13 averages line up with each shorter average rising above the next one (1>3>5>8……..60) this constitutes a really strong up-trend. I have created a new indicator that counts the number of averages that are rising above each longer average. The indicator, called the RWBCount, goes from 0-12. This indicator can be applied to both ETFs and individual stocks and in the future I will often provide the RWBCount.  Below is a weekly chart of the QQQ, which has an RWBCount=12. Note that each line is above the next one. The RWBCount for DIA=12 and the SPY=12. So right now all 3 indexes are in very strong RWB up-trends.

NVDA has an RWBCount=12 and has been 11 or more for months. Note how weekly price leads all of the averages up.

There is no way to know when an RWB pattern will end. I strive to  hop on  stocks with an RWBCount=11 or12 when they bounce up off of support and ride them until the trend ends. By the way, 60% of the Dow 30 stocks have an RWBCount=12. The current Dow dogs are: PFE (5), WMT (5), KO (3) NKE (2). Here is what a “2” looks like.

And a stock not in the Dow, GILD= “0”

Get the picture–I call such stocks BWR or submarine stocks and consider them for shorting…

CDW is an example of a stock with an RWBCount=12 that bounced off of support last Friday. I took a position and placed my stop right below Friday’s low. If for any reason CDW declines on Monday so that I am sold out, I will take my small loss–no emotion. (A stock does not have to rise just because I think it should!) On the other hand, if CDW holds Friday’s low, I will ride it as long as its RWBCount remains high (11 or 12). My goal will be to ride the strong up-trend until it ends and not to try to hop off the first time it shows signs of weakness. Why sell a stock in a strong up-trend? If CDW should rise a few percent, I will move my stop up to break-even. Small losses and large gains–that is the way to succeed in this game. The daily chart of CDW is below. Note the recent green line break-out (GLB) to an all-time high and Friday’s bounce up off of the 30 day average (red line) and its lower 15.2 daily Bollinger Band. Earnings are set for release on 2/14/2017.

Here is the RWB chart for CDW. In the near future I will publish a scan for finding stocks with IRBCount of 11 or 12 that are bouncing off of support. You can sign up for access to my free TC2000 scans at wishingwealthblog.com/club.

The GMI remains at 5 (of 6).

 

 

 

New TC2000 Scan yields 4 break-outs from consolidation: $WB, $SINA $HPP $ARCW

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I wrote a post last week about the benefits of focusing on weekly charts. Weekly charts, unlike daily charts,  more clearly show me the trend and are less likely to make me exit a strong stock too soon. I spent some time this weekend trying to write a scan for TC2000 that would bring up growth stocks emerging from a multi-week consolidation. The scan required a minimum amount of weekly volume and the stock must have shown above average weekly trading volume on the week of the break-out. The company must also have shown an increase in the latest quarterly earnings of at least  +50%. Four stocks out of approximately 4900 US stocks were selected by this scan.  Given the strong market environment, many stocks have already broken out. After running a scan like this  I can then research the stocks for possible entry, looking at both technicals and fundamentals.

This weekly chart of one of the four stocks,  WB, is fully annotated so you can see how I have set up my charts to quickly show other critical information contained in the TC2000 database. Arrow A shows that WB had  latest quarterly earnings up 500%.  Arrow B shows the latest short interest ratio was 3.6 (This means that it would take about 3.6 days to cover all of the shares speculators have sold short, at the stock’s recent average daily trading volume. The higher the number, the greater the buying pressure from a break-out.) Arrow C shows that the stock price is currently 2.64 times its price 250 days ago. (I like to buy stocks that have already doubled in the past year. Stocks, like people, tend to repeat their past behavior.) Arrow D shows WB’s projected next earnings reporting date, a new feature in Version 16 of TC2000. The green oval shows last week’s break-out above a declining trend (purple line) on above average weekly volume. In fact, this was the highest weekly volume for WB since September 2014! It could signify the resumption of the up-trend or it could mean nothing….

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Another stock that came out of this scan was SINA. I did not annotate the remaining stocks. If you have read this far I know you can interpret the remaining weekly charts using the above example.

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And HPP.

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And ARCW.

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I do not know if any of these stocks will keep rising. But the market has been strong and many stocks have already broken out to new highs. Only WB and HPP are flirting with their all-time highs, a valuable characteristic. Both are above recent Green Line Break-outs (GLB). I like to buy stocks that have advanced a lot, then rested for a few weeks, and then break out of their consolidation on unusually high volume.

If you have TC2000, I have started making some of my scans and watchlists available to my students  in a TC2000 library (Club, Dr. Wish). If you want access to my library, provide your name and email below and receive the free link in your email.

Current TC2000 Users, Join my club:

If you do not already subscribe to TC2000, you can get a $25 discount (new subscribers only) by clicking here or going to: http://www.tc2000.com/bonus/WWB  (Additionally, your sign-up will generate a small commission for us to keep the lights on, so, thank you.)

You might also attend one of the many Worden TC2000 free training workshops when they come to a city near you. Ask them for a schedule at support@worden.com. That is how I began learning how to use TC2000 the past 20+ years. They also now post many video TC2000 tutorials on their site. If you follow me on Twitter I often tweet out interesting stocks intraday: @wishingwealth  (no guarantees, of course, stocks I tweet about are for readers’ own education, further research and consideration).

Meanwhile the market remains strong with the GMI at 6 (of 6) and the GMI-2 at 7 (of 8). And the new QQQ short term up-trend has now reached its critical 5th day.  According to my analysis of QQQ short term trends over the past 10 years, once a new up-trend lasts 5 days, it has a 75% chance of reaching 11-88 days. Take a look at the GLB tracker to the right of this page to see how well GLB stocks have been doing in this strong market up-trend. Nothing like a strong market to make everyone look like a genius!

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Short and long term trends now up; On using weekly charts to stay in a growth stock: $NTES

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The DIA, SPY and QQQ index ETFs are all above their 10 week averages again! Stocks are breaking out everywhere. But how to ride them to big proftis? If you are like me, you often hop on a growth stock, only to sell out prematurely on weakness that you spotted on a daily chart, and the stock continues to climb much higher without you. The great gurus I follow say that the key to making big money trading is that when the rare pick starts to really work out, stay with it until it shows genuine signs of weakening. Jesse Livermore, the consummate trader,  would often say that he hated to lose his position in a rising stock because he had sold out too quickly. In this new day of instant financial data feeds, I suspect one of the enemies of staying with a good stock (at least for swing traders)  is focusing on charts with daily and shorter time periods to signal an exit. I am told that the great William ONeil, founder of IBD, used only weekly charts because they more clearly revealed to him the meaningful stock trends. If I checked my blood pressure or cholesterol daily or hourly, I suspect I might see  a lot of noise and volatility that would make it harder to obtain a valid assessment of my longer term status.

As a solution to this problem, I have found it very helpful to focus on weekly charts using three simple moving averages: 4wk, 10wk and 30wk. An advancing growth stock will have a pattern of the 4wk>10wk>30wk for long periods of time, in addition to being near an all-time high. During a strong advance the stock will go many weeks without ever closing below its 4wk average. Once the stock closes below its 4wk it is a potential sign of weakening at which point I might raise my stops or sell a little. A weekly close below the 10week is a call for me to exit my position immediately. Growth stocks should not close the week below their 10 week average.

A weekly chart is worth a 1,000 words, so it will be easier to demonstrate this strategy with an example. NTES showed the 4>10>30 pattern from June, 2016 through November, or for about 21 weeks (4wk=red dotted line, 10wk=blue dotted, 3o wk=red solid). During that time the stock rose over 40%.  During this period, NTES closed  the week below its 4wk average only 3 times. I say closed the week because a stock often trades intraweek below its 4wk average only to find support and close the week back above it. This strategy therefore works well for part-time traders like me who are able to review their stocks over the weekend or near Friday’s close. I am looking for weekly closes below the 4wk after several weeks of closing above it and for any close below the 10 wk average. In early November, NTES closed below its 4wk and then its 10week, a clear signal for me to exit (if I had owned it). Note that NTES is still in a Stage 2 advance, above its rising 30 week average, and I would consider purchasing it with a weekly close back above the 10 week average.

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Note how this strategy would have kept one in NVDA: (I wish I had used it!)

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I often tell my students not to take what I teach them on faith, but to test everything for themselves. Go  out and look at the weekly charts of stocks you are trading and see if this method could have helped you. I have too many times been prematurely shaken out of a stock by focusing on its daily movements, only to see that a glance at its weekly chart could have given me the confidence to ride it higher.  This method slows down my selling. I described this strategy in greater detail  in a 2012 speech to the Houston Worden TC2000 Users group. A link to the archived webinar appears here and to the right of this page.

Meanwhile the GMI is back to 6 (of 6) and the QQQ short term trend is now up (U-1).

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My trading diary entry from William O’Neil’s workshop in 1995; a set-up for buying $LMAT; $HEIA–Cup and handle break-out

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In the 1990’s while I was teaching myself to trade in that roaring bull market, I kept a diary of my trades and reactions to the market and current events. I looked it over this weekend and saw this entry from 11/11/1995 and thought you might be amused by it:

This past week I attended a lecture at the Sheraton by William O’Neil, founder of Investor’s Business Daily and one of my heroes. Most of what he said I already knew from reading his book. The most startling thing that I learned was that contrary to his rules about selecting only stocks with high EPS values, he was advising institutional investors to buy the current fad internet stocks like C-Cube and Netscape. I got the distinct impression that he was saying that volume and price action was more important than demonstrated earnings growth. In fact he did say that a dramatic rise in volume could be the most important factor. His lecture sensitized me to the need to always look for the most dynamic and fastest growing companies. Stocks that are growing 100% in price a year or have 99 Relative Strength seems to be his major criterion. I would have liked to ask him whether he consciously breaks his written rule to also require a high EPS before purchase. (Copyright, Dr. Eric Wish trading diary, 11/11/1995)

I have written 200+ pages about my thoughts while I traded my way to a small fortune during the 90’s. The diary shows how difficult it was for me to trade profitably as I reacted to the market and current events. When one looks at a long term chart of the indexes over that period it looks like it was easy to make money. It was not. I wonder if anyone would want to read my trading diary if I chose to publish it………

The focus of my class for undergraduates is to teach them, “in a rising market buy visionary rocket stocks that are breaking to new all-time highs or bouncing off of support.” They have now completed 5 weeks of classes and are ready to start specifying their set-up for purchases during a trading competition of a virtual 100,000 margin portfolio. I am posting this analysis of LMAT to provide them with an indication of a possible set-up.

LMAT came to my attention because it hit an all-time high on 8/30.  I looked at a monthly chart using TC2000 and drew in a green line top at the last all-time peak that had not been surpassed for at least 3 months. I then looked at its modified Guppy chart of 13 weekly exponential moving averages (six short term and 12 long term averages plus a one week average that shows its weekly closes).

lmatrwbI saw that LMAT  had an RWB pattern with all 6 short term averages (red lines) rising above the rising longer term averages (blue) with a white space between them. Thus, LMAT had an RWB pattern and is a launched rocket stock.  In other words, it was an advancing stock that had rested for at least 3 months (formed a base) and broken to an all-time high.

LMAT closed above its green line 2 times on above average trading volume (see daily chart below). The first time the break-out failed, as it traded back below its green line for 3 days. (I immediately sell failed break-outs.) Then LMAT had a much larger break-out on considerably higher trading volume. If I missed that break-out or had exited after the failure, then I wanted to enter this rocket after a decline to short term support and a likely resumption of the up-trend. That happened on Friday when LMAT bounced up off of its rising 30 day average and its lower daily 15.2 Bollinger Band on increased volume. This is one of my favorite set-ups. If I were to buy LMAT on Monday I would do so and place a sell stop around the low of the bounce, near 19.29. However, I must sell immediately if the bounce I bought on does not hold. One never knows in advance if a particular set-up will be successful. Of course, I would first check LMAT’s news and fundamentals to make sure that it was worthy of my risking capital to purchase it. For example, IBD gives LMAT a composite ranking of 99, the highest possible reading.

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I actually use TC2000 to scan for stocks with this set-up. By the way, the Worden people are presenting a workshop in the DC area next weekend.  Will see you there on Saturday…

I noticed this possible cup and handle break-out from Friday. Note HEIA is above its last green line top–a good sign. It also has a nice RWB pattern (not shown).  I do not like the high volume down day in the handle on Friday, just  before Friday’s bounce, however. IBD composite rating for HEIA= 98. Let’s see if HEIA  holds this break-out on Monday.

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The GMI remains Green. Note the QQQ short term up-trend is now 11 days old. Since that short term signal at the close on 9/16 through Friday’s close, the QQQ has advanced +1.22% and the leveraged 3X bullish ETF, TQQQ, +3.37%.

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How I buy rocket stocks bouncing up off of support (BOS): Examples: $HII and $AWK

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After tradings stocks for over 50 years my trading strategy continues to evolve. I used to ignore indicators like stochastics and Bollinger Bands because I mistakenly believed that such concepts as overbought or oversold were useless. I fortunately  began to re-analyze some of my trades using these indicators and found these indicators to be extremely valuable.

The biggest problem faced by me and my students is buying great stocks that then turn out to be “extended.” These stocks promptly turn around and decline right after what we thought was a perfectly timed purchase. Sound familiar? After listening to some of the expert traders who come to lecture to my students I decided that rather than buying stocks that break to new highs, I should buy strong stocks that have rested and become oversold and then start up again. I do like buying green line break-outs (GLB) but maybe should wait to buy them after the break-out when they subsequently become oversold. The GLB is just evidence of a strong stock that has broken out to an all-time high after a rest of 3 months or more. At the moment of break-out they are rarely over-sold!

I prefer to buy  strong oversold stocks that are bouncing off of support (BOS) and to place a sell stop just below where they have bounced. This means that if the bounce fails I am sold out quickly with a small loss. Since a lot of my purchases will likely fail, it is critical to have very small losses when my trades go awry. When the bounce holds, I can then ride the stock and even add more to my position  so that my relatively few large profits make up for my many small losses. There is nothing more freeing emotionally than to buy a stock and place an immediate GTC stop loss order to sell with a very small loss. My mantra is that each small loss brings me closer to the next big gain–no ego allowed.

I have written a number of scans in TC2000 that can detect strong rising stocks that have become oversold and that are bouncing off of support  (BOS). My primary measure of oversold is a bounce up from the lower  15.2 daily Bollinger Band. Once I find a list of bouncing stocks I  investigate such things as their trading volume, fundamentals, market trend and anything else that can help me decide which stock to buy. But these additional  analyses really do not matter much because in the end it  is impossible to reliably predict which stock’s bounce will hold. By the way, I have used this strategy successfully with all types of stocks and ETFs.

Below is a chart of a BOS stock that bounced on Friday, HII. Each previous bounce from its lower BB is shown with a “B.” The 2 magenta lines show when the major market indexes’ recent mini-corrections ended. Note that even though the decline to Bottom 2, the Grexit decline, was lower and steeper than the decline to Bottom 1, HII managed to show incredible relative strength and resist the declines. HII was actually trading higher at Bottom 2 than Bottom 1! Will HII’s Friday bounce hold? I do not know. But if I wanted to trade it I would buy it on strength (if it trades above Friday’s high) on Monday and place my sell stop below the bounce, perhaps around 167.19. I am presenting this only as an educational example of my technique. I do not own HII.

HIIbouncesWhile I am not showing its chart, my favorite water stock, AWK, showed a similar BOS on Friday.

During the trading day, when TC2000 alerts me to a BOS, I often tweet the symbol to the world. You can receive my tweets intraday at @WishingWealth. Just keep in mind that I tweet only to teach people and to enable them to evaluate any of these stocks using their own criteria. I do not trade all of the stocks I tweet about. I am looking forward to fall semester when I will teach a class of 180 freshmen what I wish someone had taught me at their age.

The GMI remains at 6 (of 6).

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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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