Is this the bottom?

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No one knows if the oversold conditions reached on Thursday and Friday are the final lows for this decline. T2108 did briefly reach single digits and the put/call ratio did reach 1.2, indicating very oversold daily conditions. The daily stochastic did fall below 20 and a green dot crossover occurred on Friday. The Friday bounce may therefore have further to go. An ominous sign of weakness is that the recent GLBs of the DIA and SPY have failed–they both closed back below their green line tops.

There are a number of factors which I will monitor to determine when it is really safer for me to go long again. Perhaps the most important is the weekly chart of the QQQ (below).  The QQQ closed right above its 30 week average (red line). The last time the QQQ closed the week below this critical average was last April–for one week. It then retested the average on three separate weeks. A close below the 30 week average is a sign of significant technical weakness for me and if the average turns down it could signal the beginning of a Stage IV decline.  Also note that in a sustained up-trend the 4 week average (red dotted line) remains above the 10 week average (blue dotted line) which in turn is above its 30 week average. This pattern was evident from May until 2 weeks ago. I have written before that I have more chance of profiting on the long side buying growth stocks when the QQQ closes above its 10 week average. It is possible to trade long for a considerable period when the QQQ has the 4w>10wk>30 wk pattern.  Currently, the 4 week average is heading down and is actually below the 10 week average. My preferred buy signal will happen when that pattern comes back. For now, I am content to remain on the sidelines while the bulls and bears battle it out. (In reading this chart, remember that the QQQ might trade below an average intraweek and that the closes in the chart represent the weekly close.) A trend follower acts after the technical signal has occurred, not before.

The GMI= 1, of 6, and remains on a Red signal.

Day 1 of new $QQQ short term down-trend, GMI=1

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After 63 days, the QQQ short term up-trend has ended. Note that since 2006, about 40% of new down-trends have lasted less than 5 days, so a new up-trend could still occur this week. With put/call ratio at 1.06 on Friday, we are not far from very oversold in this contrarian indicator. With the QQQ below its lower 15.2 daily Bollinger Band, we should get at least a regression to the mean soon. The GMI is at 1 and could flash a Red signal with another weak day Monday.

12 stocks at ATH bouncing from 10 week average: $VRS $SQ $CYBR $RP $CBM $BBU $TTWO $SERV $VRTX $KIDS $I $IRDM

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One of the set-ups I am teaching my students this semester is to buy growth stocks above their last green line top (ATH not exceeded for at least 3 months)  that has bounced up off of (or close to) their 10 week average. The 10 week average (blue dotted line) must  be rising above its 30 week average (solid red line). Once buying the stock on this set-up, they must place their initial hard or mental stop loss below the low of the week of the bounce.  The idea is to buy a strong stock and hold it until the 10 week average is violated at a weekly close. Twelve stocks hitting an ATH (all-time high) on Friday met these criteria as of Friday’s close. Here are three of their weekly charts. The first two have recent earnings increases above 100% and all have already at least doubled over the past year–a sign of strength.

A few other stocks that did not reach an ATH on Friday but have doubled the past year and bounced their 10 week average last week include:  TRHC, NSP, ZEN, BJRI, EVBG, LPSN, RNG, SPSC. SPSC hit all of my favorite set-ups, including a green dot, last week. Here is its daily chart:

We came through the typically weakest month of the market, September,  unscathed. There are some warning signs, though. There were  more new lows than highs on Wednesday through Friday and the strong tech stocks are masking the weakness in much of the rest of the market. The health stocks are also surging (CURE (3x ETF), HUM, HIIQ, UNH, MOH, CNC, WCG). But the financial stocks look weak.  In fact, this weekly chart of the financial ETF, XLF,  shows it may be entering a Stage 4 decline–very ominous and worth monitoring. If the hikes in interest rates don’t help the banks to prosper, it may be telegraphing tough times to come.

 

But the GMI remains on a Green signal–for now.

 

 

 

GLB $GTES $RHT Stage 3 or 4

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I looked at the list of stocks at all-time highs (ATH) on Friday and found this recent IPO that looks promising. Any IPO that falls for weeks, forms a bottom, and then rebounds to an ATH is worth my researching. According to TC2000, recent earnings were up +625%.

For my students who are learning stage analysis, I provide this weekly chart of RHT, which looks like it is forming a Stage 3 and maybe Stage  4. RHT has the type of technical pattern one should not trade on the long side. Note the GLB failure and the above average volume on down weeks. RHT was a terrific stock to own while it remained in a Stage 2 up-trend for over a year.

 

$QQQ Stage II Up-trend and nice bounce off of support; $BEAT $ETSY bounce

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I focus a lot of my attention on figuring out the trend of the market as measured by the Nasdaq 100 ETF, QQQ. If the QQQ is in an up-trend I can more often make profitable trades by buying IBD type growth stocks. This weekly chart of the QQQ shows that it has been in a nice up-trend since May, with the 4 week moving average of price (pink dotted line) rising above the rising 10 week average (blue dotted) which is rising above the rising 30 week average (solid red). This is a classic Stage II up-trend. Of note, is that the QQQ last week bounced off of its 10 week average, a key support level. A preferred place for me to buy index ETFs and individual stocks is when such a bounce occurs in an up-trend, as defined above. If I purchase on a bounce, my exit level for my initial stop is just below the low of the week of the bounce. My free Houston TC2000 webinar from 2012, available on this site at the webinars tab, provides a 2 hour tutorial on this strategy.

By concentrating on the weekly chart, I can avoid the noise and whip-saws evident in a daily chart. On the other hand, a daily chart allows a finer place to set entries and stops. Note the green dot signals in this daily chart of the QQQ. You can learn more about my green dot signals in my posts from last week or in my tutorial at my TC2000 club.

Beat is an example of a stock that bounced again off of its 10 week average last week. It had a green line break-out (GLB) in late April and has doubled from a year ago. If I bought BEAT now, my stop would  be at last week’s low, about 55.59. If it holds, I can add more at each subsequent bounce off of the 10 week average and/or move my stop up. Weekly chart:

ETSY is another recent GLB stock that found support at the 10 week average last week:

The GMI remains at 6, of 6, indicating an up-trend in the QQQ.