Dr. Wish

I know that most people wish they had purchased AAPL in 2009 and held on for its long run.   I wanted to show you that by plotting its weekly GMMA chart, one might have seen the RWB pattern develop quite early.   As the great Jesse Livermore wrote, the big money   is made by identifying the up-trend (line of least resistance) and staying with it until it ends. Most of us do not have the patience to hang on to a winning stock when it hiccups, especially if we have a large profit at risk.   (Click on chart to enlarge.)

On December 21st when ARMH was at $19.78, I wrote that ARMH was a possible cup-with-handle pattern.   Note the prior up-trend, multi-week base shaped like a cup-with-handle, and the high volume break-out (volume not shown) above the pivot point (top of the handle, shown by the horizontal red line). This is a chart pattern made famous by William O’Neil, the publisher of IBD. I updated the chart I posted in December to show you how ARMH has done since. It is up a little more than 48%. Most people tell me they want to ride a stock to the moon, and yet they refuse to buy stocks trading higher than they have ever traded before!   If you want to get to the moon, better jump on a rocket that is climbing higher and higher into space (as did Livermore and Darvas). Note the “NA” on the chart, indicating that IBD wrote about ARMH in their New America column which describes promising, innovative companies. According to O’Neil, when a winning stock breaks out of a solid pattern, it should not decline 8% from the pivot point.   Therefore, he suggests placing a sell stop (real or mental) 8% below the pivot point.   This is a good way of limiting risk in case the pattern fails.

A word of caution, the Worden T2108 Indicator is now at 70%.   Readings near 80% tend to occur around short term market tops.

This amazing QQQQ short term up-trend reached its 54th day on Monday.   While some recent up-trends have lasted as long as 80 days, we need to remember that the most recent prior up-trend lasted 51 days.   The intervening down-trend lasted only 2 days.   So, while the longer term trends are intact I remain   cautious and am maintaining tight sell stops on my long positions.   I do not know what will propel this market higher in the short term once most 4th quarter earnings have been released. Stocks usually are driven higher   by expectations of higher earnings.

Below is a stock that came up in my scan last night.   It will report earnings today.   It has already doubled since the end of May and it came   public in July, 2009. MDSO is in the business of healthcare information technology. It has good fundamentals, with an ROE of 42.49% and last quarterly earnings were up 201%. 71% of its shares are held by institutions and   3.4% of its float is currently sold short. MDSO has an IBD composite rating of 87. MDSO is an RWB rocket stock that came up on my TC2007 scan because it has bounced off of support after being oversold. It will be interesting to see how it reacts today to earnings.