Market rally over? My refined strategy for timing exits and entries; Recent GLB: $LITE

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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.

 

 

 

 

How I use daily RWB charts to size up the market and individual stocks; run my new scan

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For many years I have been  a fan of Stan Weinstein’s Stage Analysis (see his book on this page). That approach looks at a stock’s price compared to its 30 week moving average. A lot of analysts use this technique. My students all know to only buy or hold stocks that are above a rising 30 week average,  or in a Weinstein Stage II. This is one of the six components I assess in my GMI (see table below).

Another approach I like to use is an adaptation of the 12 exponential moving averages that Australian technical analyst Daryl Guppy uses. His GMMA (Guppy multiple moving averages)  plots the following weekly moving averages (six short averages 3,5,8,10,12,15 and 6 longer term averages 30,35,40,45,50,60).

I have developed  a modified chart using the 12 exponential averages plus a simple average =1 which shows the close each period on the chart. The six shorter averages are red and the six longer term averages are blue. The dotted line on the chart is the close each period. The background is always white. The period depends on the time period of the chart shown.

I have been using the weekly charts to show a RWB (red/white/blue) up-trend when the red averages are rising above the rising blue averages such that there is a white space between them. A BWR down-trend is simply the reverse pattern.

I recently came to the conclusion that the weekly chart is good for showing the longer term trend but not very useful for timing entries and exits. It just takes too long for the weekly averages to show a change in trend. I have therefore decided to focus mainly on RWB daily charts. I also added a plot of the new single day average of the daily lows to show the low price of the equity each day (purple dots). These dots can aid in visualizing support and where to place stops.

This daily chart helps me to immediately determine the short term trend. An advancing equity will have a RWB pattern with the daily price (dotted line) above all 12 lines and leading all of the shorter term (red averages) averages higher. I now compute and show on each chart a count of the number of red averages that the equity is above (RLC or red line count). Thus an advancing equity will have a maximum value of 6 of 6. A value of 0 means the equity is below all of the red averages. This is a signal to me for caution. As long as the stock remains in an RWB pattern it is still advancing, but if the RLC is 0 I might raise my stop. I would definitely sell out my position  if the red lines converge with the blue lines so that the white space between them disappears.

It is much easier to demonstrate the above description with an equity. Here is the daily chart of QQQ.

 

The QQQ has been in an RWB up-trend since last December. There was one day, December 30, when the QQQ closed below its red lines and entered the blue lines. But the RWB pattern never disappeared. For most of the days since then the QQQ (dotted line) closed above all of the red lines. As of Friday, the QQQ closed above only 5 of the 6 red lines. Note the 5 at the end of  the top line of my chart. This is the red line count (RLC). What caught my attention was this daily chart of the SPY.

The RLC=0 for the SPY! While this is not a huge sign of weakness, it is the first time it has happened since January. In those cases the SPY rebounded right away. Will it do so on Monday? The RLC=2  for the DIA and is also showing an RLC rarely seen since this rally began. What really concerned me was this chart of the Dow Jones Transportation Average.

Not only is the RLC=0 but the RWB pattern is totally gone and the DJ-20 has now closed below all of the red and blue averages. This may be significant because one classic way of sizing up the market trend is the Dow Theory, which uses the Industrial and Transportation Indexes. A strong economy and market should show up in strong rails and airlines….

I also find the daily RWB charts very useful for analyzing individual stocks. I use TC2000 to scan for stocks in a steady RWB daily up-trend that have recently been oversold. The RWB chart shows me where I might place my sell stop if I make a purchase. I either want to sell if the stock returns below the lowest rising red line (which will be the 15 day exponential moving average) or if it breaks recent support. I can find these levels easily by looking at the pattern of daily lows (purple dots) or the values of the 15 day exponential average which appears on the second line of each chart in large digits. Here is an example of a stock that came up in my scan for daily RWB stocks that have been oversold and resumed their advance. This is not a recommendation for purchase and is for illustrative purposes only.

AZPN is a strong stock (up 70% this year) that is in an RWB pattern. The RLC=6, indicating that AZPN has closed back above all of its red lines. The value of its lowest red line is 58.51 (second line, big digits after next earnings date) and a conservative place for a sell stop might be just below this level. AZPN has rarely closed below all of its red lines.  However, the purple dots show that the daily lows of AZPN have recently been below all of the red lines. This is to be expected because this scan looks for stocks that were recently oversold (low stochastics). So a more liberal stop might be below its lowest recent daily low, somewhat less than 58. Note also the above average trading volume on Friday’s rise. One thing I do not like about AZPN is its low recent quarterly earnings, up only +9%.

I like this scan a lot. But I suspect that if the averages rest over the next few days, these set-ups will fail. We are approaching the end of first quarter period. Often times there is a brief decline that sets-up end of quarter window dressing by the mutual funds. So I am watching very carefully this week while I am out on spring break.

I ran this scan on my list of stocks that have hit an all-time high since I started informally aggregating them this year. The scan identified  59 stocks. If you want to run this scan, go to my TC2000 Club and access the scan from 03182017. This scan is further described in the glossary to this blog page. Let me know if it works well for you, please.

The GMI is at 5 (of 6)  and the GMI-2 is 6 (of 8), but note that the two negative components in the GMI-2 (stochastics and MACD) are the most sensitive ones and the first to weaken if the QQQ is ending its up-trend. My up-trend count is now U-68, closing in on the longest short term up-trend since 2006 (88 days).

 

$QQQ in a perfect up-trend; GMI and $QLD rock! GLB $SHOP $FUN $WIX resuming up-trends?

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This daily Guppy chart of the QQQ shows that all 12 moving averages are lined up perfectly with the closing prices (gray dotted line) leading them all higher. Note the GLB to an all-time high in January. As long as the RWB pattern persists it is still time for me to be long growth stocks. If you want to see how following the GMI to trade QLD beats all other strategies this year, click here.

SHOP recently resumed its up-trend and so I jumped on.

 

FUN may also be getting ready to resume its up-trend after consolidating post GLB.

And also WIX.

The GMI is back to 5 (of 6). The QQQ short term up-trend is now 63 days old.

58th day of $QQQ short term up-trend; GLB: $PEN $DERM $OLED $SHOP; $NVDA flashing market top? Thanks to SMT and recording

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I ran a scan (Scan: 11132016ATHweeklygainhivol available free at my TC2000 club) to look for stocks from my all-time high list that were up last week on above average  weekly volume and then looked among them for those that had a GLB last week. Both PEN and DERM met these criteria. DERM has good recent earnings (+85%) but PEN does not (-233%). But PEN was an IPO in September 2015 and has more than doubled since its lows. So someone thinks it  worthy of accumulating PEN. Note last week’s volume spikes in the weekly charts of each of these stocks. These stocks merit further research.

OLED had a GLB 2 weeks ago and looks very strong to me but may be too extended for me to buy right now. It is floating way above its 4 week average (red dotted line). I will wait patiently for an entry.

But SHOP had a GLB in the first week of January.  I missed seeing my TC2000 alert and thought I had missed the break-out. I should have bought it on one of the subsequent bounces off of its rising 4 week average.

The weakening of the market leader NVDA,is perhaps flashing a warning of a tired bull. Note the heavy volume down weeks (red spikes) and that for 6 of the last 10 weeks NVDA closed down. Double top?

The GMI is at 5 (of 6), because there were fewer than 100 new highs (87) on Friday. The GMI-2 is at 6 (of 8) with its two most sensitive components having turned negative. I am concerned that the analysts do not appear to fear a rate hike in March. When the pundits start to think that the Fed’s raising rates does not matter, the market often contradicts them.

 

Last Thursday I presented a lecture before the local Society of Market Technicians. A gentleman came up to me and gave me a gift for my webmaster son in gratitude for his helping me to run this site. While I, unfortunately, did not take his name, my son sends his warmest thanks. SMT will be posting a recording of my talk for members on their site.

 

Too many failed break-outs; GLB: $VAC $OLED $SP

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One of the signals of a possibly weakening market is that stocks that have broken out fail and return below their break-out points. Among the stocks that did so recently are PJC, AMZN, GS and WB. And while it was not a GLB to an ATH, TSLA also faltered last week. Sure there are still plenty of successful break-outs, but we need to heed when the leaders can’t surge higher. I also remain concerned that the major indexes are floating above their 4 week averages. This weekly chart of SPY provides an example. The red dotted line is the 4 week average. Usually the index will return to at least kiss its 4 wk average.

Nevertheless, among the stocks that came up in my scan for stocks up on high weekly volume and that also proved to be GLB, were VAC, OLED and SP. Check out these weekly charts and their unusually high volume. All have good recent earnings and may be worthy of further research. You can run this scan (11252016……) yourself by joining my TC2000 club: www.wishingwealthblog.com/club. But we must be vigilant for failed break-outs……

The GMI remains at 6 (of 6).

 

New TC2000 Scan finds GLB and possible cup with handle break-out $PJC; next post Tuesday night

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I created a scan in TC2000 that  looks for  strong stocks hitting a 100 day high that did not hit a 100 day high the prior day (I want a stock to be just breaking out), that is up significantly from a year ago and that traded an above average number of shares that day. This scan identified 19 stocks, of which PJC is one.

I like the the technicals and fundamentals of PJC. It also has a Composite Rating in IBD=95.  You can access this scan in my TC2000 Club at www.wishingwealthblog.com/club. The scan is also described in my blog’s glossary above. I use the results of my scans as a starting point to identify strong stocks that I must then research for other technical and fundamental attributes. I like to run this scan during the last hour of the trading day (I do not want a stock that breaks out early only to reverse by the end of the day) to find stocks breaking out on above average volume. If I find one I like, I might buy an initial position and place a sell stop below the day’s low. Here are some charts on PJC. This weekly chart indicates a GLB (Green Line Break-out to an all-time high, see Glossary for definition).

The daily chart shows the increased volume on Friday. This might be also be considered a cup with handle break-out.

The weekly chart shows an established RWB rocket pattern and a break-out from a base.

 

The GMI remains at 6 (of 6).