AAPL has been RWB since December and is currently 12/6/6. Note AAPL has not closed below its 6 red lines since December. Why should anyone have sold during this period? Hence the value of the daily RWB strategy–it keeps me in rising stocks.
This daily RWB chart shows that QQQ has regained its 12/6/6 status. It closed above all of its red and blue lines. Furthermore, QQQ came up in my rebound from oversold scan. Possible stop losses are at 130.91 or 130.02. Check out my post from Monday for a description of this method.
Another stock that came up on this scan and is now 12/6/6 is CC which rose on above average volume. QQQ and CC look like replicas of each other!
A lot of my stocks rose nicely on Monday and I was therefore surprised to see that most stocks did not do well. I found more stocks at new lows than new highs and only 49% of U.S. stocks rose. The T2108 was unchanged. So I think we may be seeing the end of quarter mutual fund window dressing when they beef up their portfolios with the strongest stocks. Three of the four FANG stocks rose ( AMZN, NFLX, GOOGL but not FB). If this is window dressing, look for weakness by the end of this week. The dollar (UUP) remains in a BWR decline (1/0/0).
And GLD is in a RWB up-trend (12/6/6). As the dollar declines, it takes more of them to buy an ounce of gold.
Meanwhile, VEEV had a nice GLB on Monday with strong technical readings (12/6/6). (Read my prior post and my glossary to learn what these counts mean.)
Here is its daily RWB chart. Note the triple digit (+114%) earnings last quarter and that VEEV has already doubled over the past year. If I bought VEEV here, my stops would be around 48.13 (lowest red line) or 46.58 (highest blue line). (See my prior post for a description of my strategy.)
I spent a lot of time over spring break last week reviewing the market and my technical approach. I gained a renewed interest in the value of daily RWB charts. RWB charts consist of 12 exponential moving averages (see this blog’s glossary for definitions) plus a simple one day average to show the daily close. Daily RWB charts move more quickly than weekly charts and provide possible exit points for stops that are closer to my entry points. Minimizing losses are critical to trading success.
I developed 3 quantitative measures that help me to characterize a daily RWB chart pattern. The total line count (TLC) is a count of the averages that fall into line with the close and each average higher than the next longer average. A perfect TLC of 12 means that the current price is higher than all the remaining averages that are lined up in order below it. This daily chart shows a TLC=12. The dotted line is the daily close.
The purple dots show each daily low and provide a way of assessing volatility and support for placing stops. The red line count (RLC) counts the number of the 6 red line averages (shorter averages) that the close is above. It goes from 0-6. The blue line count (BLC) counts the number of blue averages that the close is above (0-6). The top line of this chart indicates that CRTO has values of 12/6/6. (TLC/RLC/BLC) which is a perfect score. Note the wide white space between the rising red and blue lines. This is the pattern of a RWB up-trend. I only buy equities that are in an RWB up-trend.
As a stock starts to weaken, the RLC will quickly decline. A possible first exit or place for me to reduce a position is when the stock closes below all of the red lines and RLC=0, But as long as the BLC=6 the stock is above the 6 blue lines and the up-tend may continue. If any red line crosses below a blue line the white space has disappeared and I must sell the stock. The stock must stay in an RWB up-trend for me to buy or hold it. If the stock registers 0/0 (RLC/BLC) it is another warning to exit.
My strategy is to own strong up-trending stocks that have recently rested and are now resuming their advance. I look for stocks in an RWB up-trend which have recent oversold indicators. In addition, the RLC must currently be back to 6 (of 6) and leading all 12 averages higher. The TLC must also be at 12, ensuring that it is an RWB pattern and all averages have lined up perfectly. My TC2000 scan finds such stocks by identifying those that have had a lower Bollinger Band bounce or low stochastics in the last 5 days plus a rising relative strength versus the S&P500.
Two Dow stocks meet these criteria now, MCD and MSFT. I will just show MCD as an example, never as a recommendation. MCD is a 12/6/6 (TLC/RLC/BLC) but had low stochastics within the last 5 days (not shown). If I bought MCD on Monday, likely around 129,34, my first partial exit could be at the lowest red line (currently 128.39, on second line in above chart). A close below its top blue line (127.45) would be a greater sign of weakness. If a red line declines into the blue lines, the RWB disappears entirely and I must exit. What I really like about this approach is that my exit/stop points can be quite close to my purchase price. Note that MCD has not closed even once below all of its red lines since late January! The purple dots show a few times where the daily low closed in the white space but the stock always closed back within the red lines. It may therefore be preferable to avoid such whipsaws by employing mental stops and assessing each position for a signal near the close each day.
AAPL has also never closed below its red lines since January, but it has weakened a little to a 11/4/6. For now, its RWB pattern remains very much intact.
Recent GLB, LITE, has a rebounding 12/6/6 RWB pattern after retesting its green line. My scan would have picked it up lower, below $50.
GS provides an example of how a stock’s up-trend turns into a down-trend. GS is now a 5/0/0. This method might have gotten me out around 246 when the RWB pattern disappeared, or earlier, around 250, when the white space was first encroached by the daily close. Note also the entry set-up last February when RLC=6 after weakness.
This technique also works well for me to analyze ETFs and market indexes. The current readings for the major indexes are: SPY 6/0/3, DIA 6/0/4 and QQQ 9/1/6. Thus the SPY and DIA have both closed below all of their red lines but are still above 3 or 4 of their blue lines. Their RWB advance is over for now. The QQQ is above 1 red line and all of its blue lines and still has a RWB pattern. Below is SPY and QQQ.
So the QQQ remains in an RWB up-trend pattern, though it has weakened. Note that it closed above all red lines much of the time since February. The SPY (and DIA) are wounded and if their BLC turns 0, it will suggest at least a likely short term decline. A BWR decline pattern could suggest much more weakness………
Because of its focus heavily on the QQQ, the GMI remains Green. The QQQ short term trend count is U-73, and approaching the longest such up-trend since 2006, which ended at 88 days (U-88). The end of this QQQ short term up-trend is likely imminent, but it is better to react to a technical signal than to try to act in advance.
The GMI remains at 3 and would have to be below 3 for 2 consecutive days to turn Red. The QQQ remains in short and longer term up-trends. End of quarter window dressing may begin tomorrow, as the futures look strong tonight. Then on to earnings and to “Sell in May.”
The QQQ short term up-trend has held. But note that the RWB pattern has ended for the SPY on this daily chart.This is the first time since the beginning of this rally in November that the RWB pattern has failed.
The SPY closed (dotted line) among the longer term averages (blue lines) and is leading the shorter averages (red lines) down to converge with them, making the white space in between them disappear. This is important technical weakness. If the RWB pattern does not reassert itself and a BWR pattern emerges, the decline will be larger and longer. I still suspect a snap back rally this week into the end of the quarter when the mutual funds dress up their quarterly portfolio reports with the strongest stocks. Or you can attribute it to the vote….
This modest decline has not reached over-sold levels yet. I went to cash and gold in my trading accounts yesterday. Plenty of time to get back on board when my stocks look strong again with RLCs=6. I would not be surprised if we get a sharp snap back rally into the end of the quarter mutual fund window dressing at the end of this week. Media pundits are becoming hysterical about this decline. Don’t people know that the market goes in both directions and this has been a rare uninterrupted advance? The longest QQQ short term up-trend (by my definition) since 2006 was 88 days and this one just turned 70. The put/call ratio is 1.04 and T2108 is 36. Daily 10.4 stochastics for QQQ=57. Bounces usually come after more extreme numbers than these. Meanwhile the RLC (red line count) for these symbols: QQQ=0, SPY=0, UUP=0 buy TLT=6, GLD=6. So stocks and dollar down but bonds and gold up. This daily chart of QQQ shows the high volume distribution day yesterday.