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).

 

 

 

Nicolas Darvas, on the value of studying one’s trading losses; RWB stocks, COST, RVBD

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I am reprinting below some of my writings from a few years ago in order to give my new students some understanding of my approach to the market.

“it is utterly useless for us on the outside, who buy and sell comparatively small blocks of stock, to conjecture about what “they” are doing.   We cannot know what the insiders intend to do, but we can see their orders on the tape when they execute them.   That is why my plea is for everyone of us to have no mere opinions of his own, but to allow the actions of the market to tell him what is passing.”

(Humphrey B. Neill, Tape Reading & Market Tactics, 1931, New York: B.C. Forbes Publishing Company; 14th printing, 2003, Vermont: Fraser Publishing Company)

When Nicolas Darvas was interviewed by Time Magazine in the early 60’s and it came out that he made almost 2 million dollars in the market in 18 months (while he was dancing around the world!), he noted that he read and reread Neill’s book (along with Gerald Loeb’s).   Neill’s book has been reprinted many times and I happened to find it on the shelf of my local Barnes and Noble store.   Neill dedicates his book, “to my losses, with a deep appreciation for the experience and knowledge which each loss has brought me.”

If anyone tells you that the market is different today, refer them to the successful traders from the 1929 post-crash era–Livermore, Baruch, Loeb.   Darvas, who made his fortune in the 60’s, clearly learned something from Neil’s original writings–and so have I.   (See list of books about these people to the lower right of this page.) Livermore used to say that when you have a losing trade, you were paying the tuition required by the market. As a college professor, I sometimes see students who pay tuition (more accurately, their parents pay) but are not focused on learning.   Losses can provide knowledge–but you have to study them.

Perhaps the most important thing I did a few years ago was, after a series of losing transactions, to print out their charts and write down my precise buy and sell points.   It looked like I had followed exceptionally accurate rules that flawlessly led me to buy at the top and sell at the bottom of moves!   So what did I do?   I reversed what I was doing and began to trade profitably.   Every great trader (including IBD publisher William O’Neil) urges us to study our losses.   However, most of us rarely do this important exercise in the market, or in other areas of our lives.

So, one of the major exercises that my class completes during the semester is to trade for nine weeks in a trading simulation   with a pretend $100,000 margin account.   They must keep careful records of all of their transactions and analyze them after the trading simulation ends to determine the technical mistakes behind their losses.   They then revise their rules for entering and exiting positions. We   should all review our transactions at least once per year……..

Meanwhile, the GMI and GMI-R remain at their maximum values. These two sets of indicators keep me on the right side of the market.   Most stocks follow the trend of the general market averages and it is absurd to fight the trend. There were 380 new 52 week highs on Friday in my universe of 4,000 stocks.   Buying stocks at new highs has been a good strategy lately;   79% of the stocks that hit a new high 10 days ago closed higher on Friday than they closed   10 days ago. The QQQQ (Nasdaq 100 Index) has been in a short term up-trend for 53 days.   And the longer term up-trend of the SPY (S&P 500 index ETF) and DIA (Dow 30 index ETF) has lasted for 21 weeks. The Worden T2108 indicator is at 67%, in neutral territory.   45% of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term strength.

It is therefore okay for me to have long (versus short) positions in this market.   My scan of the market has found a number of promising candidates.   Below is the weekly GMMA chart for COST. An RWB stock has all of its short term averages (red) above its rising longer term averages (blue).   This is a pattern of a stock in a strong up-trend. COST closed on Friday at $74.13, very close to its all-time high of $75.23. A close above $75.23 could be a sign of considerable strength for COST.   COST reports earnings on March 2nd.

Another RWB stock with a nice chart pattern is RVBD.   It looks like it bounced off of support recently and is not far from its all-time high.   If I bought RVBD, I would place a stop loss   below its 30 day average, around $34.95. The two “NA’s”on the chart indicate when IBD wrote about this company in its New America column, highlighting promising visionary companies. Next earnings for RVBD come out in April.

By the way, all of my students are required to get a student subscription to IBD and to read the newspaper daily.   IBD provides an abundance of technical and fundamental information about the types of growth stocks I buy.   Furthermore, most of my purchases come from stocks on their prior IBD 100 lists, now superseded by the IBD 50 list.   I never consistently made money trading until I started reading IBD in the 1980’s.

Where are we in the market cycle? Riding the up-trend.

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I used my favorite indicators to review the Dow 30 Index’s action since 1915, as this is how far back TC2007 allows me to track this index.   I looked at the monthly chart and the following indicators: 5 and 30 month simple moving averages and the 25.4.4 monthly stochastic. I am posting a chart of the Dow 30 since late 1992. A few patterns leap out at me.   First, notice how the Dow spent most of the time in the roaring 90’s   up-trend above the rising 30 month moving average (red line) and with the 5 month average (dotted line) rising above the 30 month average.   (Click on chart to enlarge.) The stochastic (in the lower window) with two exceptions, spent almost all of the time above the 80% “overbought” level (top parallel line), until it began a steady decline in 1999, foreshadowing the major decline in the Dow. The 5 month average declined below the 30 month average. The bear market bottomed out with the Dow below the declining 30 month average and with the stochastic around oversold territory, near 20% (bottom parallel line). The market turned up, the 5 month average rose above the 30 month average and the stochastic returned to near 80% again.   In 2008, the process repeated itself, with the 5 month turning down below the 30 month average and the stochastic declining until it became very oversold again, around 20%.   The market has now rebounded, the 5 month average is rising nicely above the 30 month average and the stochastic has just returned to overbought territory, an area where it has stayed for years in some previous rising markets.

So where are we in the current cycle?   It looks like we are in a strong up-trend with no sign of any weakening yet.   In fact, the 30 month average has not yet reversed up, but the 5 month average is moving up nicely above it.   Now I have learned in trading   over the past 40 years that patterns are meant to be broken.   The road is littered with the carcasses of Ph.D.’s who wagered heavily and lost, based upon complicated mathematical relationships that worked in the past.   I can tell you that the simple patterns I have discussed below seem to me to have worked well over the past 95 years.   Major bottoms in the Dow have occurred with this stochastic below 50% and the more severe ones, around 20%.   So, I won’t begin to suspect the end of the current up-trend until I see the stochastic turn down and the 5 month average decline below the 30 month average. I’ll let you   know when that happens…….

Meanwhile, my General Market Indicator (GMI) remains at the maximum reading (6 of 6) and the more sensitive GMI-R is at 10 (of 10). Thus, all of my short term and longer term indicators for the   QQQQ (Nadaq 100 tech stocks), and the SPY (S&P 500 stocks) remain positive. The QQQQ and SPY have closed above their critical 10 week averages for 15 straight weeks. However, Friday was only the 15th day of the QQQQ short term up-trend.   The Worden T2108 Indicator is at 63%, in neutral territory. And 68% of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term strength. The weekly GMMA chart below shows that all of the short term averages (red) are above the rising longer term averages (blue), reflecting an established up-trend. So with my more conservative funds, I am adding to my positions in the major index ETF’s like QLD, SPY and DIA, a comfortable way for me to ride the up-trend.

Short term down-trend deepens; QQQQ Guppy chart ominous; In cash

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I started teaching two classes on technical analysis last week and will explain more of my concepts and include informational links, as many students will be new readers.   My General Market Index (GMI) keeps me trading with the general market’s trend.   The GMI is a count of 6 short and long term indicators.     Because I like to trade growth stocks, the GMI focuses largely on the NASDAQ 100 stocks, as measured by the ETF, QQQQ.   The Successful New High Index measures whether stocks that hit a new high 10 days ago have risen since that time.   Since I trade stocks at or near new highs, I also like there to be at least 100 new highs in my stock universe of roughly 4,000 actively traded stocks above $5. My daily QQQQ and SPY indicators measure these indexes’ short term trends. The weekly QQQQ indicator is my measure of the longer term trend.   Weekly charts provide me with a more interpretable and reliable picture of the market’s trend.   Finally, my IBD Mutual Fund Index indicator tells me how well growth funds tracked by IBD are doing.   If   funds that invest in growth stocks   are doing well, I am also more likely to make money trading growth stocks. I subsequently added four more   indicators to   the GMI in the form of the GMI-R (revised). The added indicators count whether there are more   daily new highs than lows, and how the QQQQ has performed in relation to three moving averages.   I become very defensive in my trading portfolio when the GMI is less than 4 and consider going to cash.   When the GMI goes to zero, I also start going to cash in my more conservative university pension account, which allows me to trade its contents only a few times each year.   So, with the GMI currently at 1,

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My post from the bear market bottom; weak TJX; GMMA shows QQQQ in strong up-trend

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“Last week, a person who knows nothing about the market asked me how to short stocks.   This is reminiscent of the  stories of the shoeshine boys providing stock tips, near the roaring 20’s market’s top.   The sentiment is just too negative right now.   Does this mean the market has to turn up?   Not necessarily, but the market is always an assessment of competing probabilities.  â€œ (Post on 3/8/2009, GMI: 0, T2108: 7%)

I wrote the above words last March, which turned out to be just as the market successfully tested its bear market lows and   began the current rise.   The Worden T2108 indicator was   in single digits, a rare screaming oversold buy signal.   When people around me who never traded asked me how to short stocks it turned out to be a key contrary signal that the market decline was near an end.   Similarly, I remember when a friend who knows little about the market asked me if he should refinance his house to invest in the market–back in 2000 near that market’s top………

I have noticed that the pundits have been saying that TJX , the discount retailer chain, is a good buy. I therefore was struck by the GMMA daily chart below, which is flashing warning signals. With the short term averages (black lines) now below the longer term averages (red), this is not a stock I would want to own.   It may even be a good short play.   You do know that analysts sometimes tout a stock so that their big clients can unload their long positions to the unsuspecting public. (The “NA” on the chart shows when IBD wrote about TJX in its New America column.) Another stock with similarly weak technicals is PWRD.

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Meanwhile, the GMI and GMI-R

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Some new rocket stocks to watch

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I used TC2007 to scan the market for stocks that meet my most stringent fundamental and technical criteria for rockets.   These stocks have great fundamentals and technicals, have already doubled their price a year ago and are near 5 year or all-time highs.   I have listed in this table the 11 stocks out of 4,000 in my stock universe that met these criteria.  Rocketstocks1218 All of these stocks had last quarterly earnings up at least 100%.   Coincidentally, all but 4 of the 11 are in my records as having appeared on the IBD100 and/or IBD New America lists during the past year. I have also noted in this table where I might place long term or short term stop losses on each long position.   The most conservative stop loss is the short term support level.   With a growth stock I rarely retain   a long position if the stock closes below its short term support level.   However, if I bought near long term support I might use the LT support level as my exit strategy.   I will return to these 11 stocks in a future post to show you how they behaved.   These stocks have already proven themselves as being in strong up-trends, but one never knows when an up-trend will end.   That is why I immediately enter a sell stop or buy a put option for insurance, after buying one of these high momentum stocks. I currently own 3 of these stocks.

Below is a Guppy Multiple Moving Averages (GMMA) weekly chart (click on chart to enlarge) of one of these rocket stocks, RDY. Note how all of the shorter term averages (black lines) are well above the rising long term averages (red lines). This is the type of technical strength I seek in a potential rocket stock.

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Meanwhile, the GMI and GMI-R remain at their maximum levels.  

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AAPL at critical point today

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Since I posted a few days ago a Guppy chart showing short term weakness in AAPL, the stock declined and then bounced on Wednesday.   The stock did reach a very low level on its daily stochastics (10,4,4) indicator and a   reversal of the short term down-trend is still possible.   However, I am waiting for a close back above its critical 30 day average to go long on the stock. The daily chart below shows that the 30 day average (in red) is curving down and for the first time since the rise began last March the 10 day average (dotted line) is below its 30 day average.   Both of these short term indicators are   bearish.   A close above 198.11 today would turn me bullish on the stock.   A bounce down off of the 30 day average and a close below 198.11 would make me very cautious on the stock. If the stock starts down today, it could have formed a short term double top, having met strong resistance around 208.   If/when it closes above 208-209, the up-trend will have likely resumed. Remember though, AAPL remains in a longer term Stage 2 weekly up-trend.

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