Blog post: For the first time many individual stocks outperformed just holding $TQQQ during a $QQQ short term up-trend; IBD/MarketSmith growth stocks did best while FAANG stocks faltered; $QQQ on support

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For many years I have shown that holding the triple leveraged Nasdaq100 ETF, TQQQ, in an up-trend would have outperformed 90% or more of the individual stocks in the major indexes. This weekend I found unexpected results, presented in the table below. As expected, during the time since I identified the beginning of the current QQQ short term up-trend on 11/5/20, QQQ has gained +5.95% while its 3x leveraged ETF gained an expected +17.6%. (TQQQ is designed to move 3x QQQ but this goal is not always exactly achieved.) This table shows the top 10 performers in 4 groups of individual stocks, Dow30, S&P500, Nasdaq100 and a Growth Stock watchlist I created based on stocks primarily cited in IBD50 and MarketSmith250 growth lists over a number of months.

I began  to trade profitably after I started receiving the IBD newspaper in the mid 1980s. IBD specializes in market timing and identifying the greatest growth stocks.  IBD initially published an IBD100 list of promising growth stocks, which has now become the smaller IBD50 list. Their site, investors.com, also posts lists for IPO Leaders and other groups of stocks.  MarketSmith, the modern growth stock platform also run by IBD, publishes the Growth250 list which contains the results of various scans they run to identify promising stocks. Periodically, I import stocks on these lists to a watchlist in TC2000 so I can analyze them using the many technical indicators and scans I have created over the past 30+ years.

What amazed me today was that I found that about 25% of the Nasdaq100 stocks,  38%  of the S&P500 stocks and 60% of the IBD/MarketSmith Growth Stocks beat just holding TQQQ!  In the past, only about 10% or less of the individual stocks in the major indexes beat TQQQ. I never compared TQQQ to the growth stocks before but I assume they would have outperformed them too. Note also the relatively small gains in the top 10 Dow 30 stocks (+25% to+48%) compared with the top 10 gains in the other indexes. I was surprised to find that the top 10 stocks in the S&P500 (+71% to +126%)  outperformed the top stocks in the Nasdaq100 (+33% to +89%) even though this was a period defined by the QQQ being in a short term up-trend. However, note that SPY (+7.3%) did beat QQQ (+5.9%). The top 10 stocks in my Growth Stock list put the other lists to shame (+125% to +386%). Now I know many readers will say that the larger the list the more chance that one can find 10 outstanding stocks. But note that the median gain in the Growth Stocks was +24%. This means that one half of the stocks in this list advanced more than 24%, far better than the 17.6% one would get by holding TQQQ. Also, most of the Growth Stocks were taken from lists accessed before December.

So maybe picking individual stocks now has a much higher probability as a strategy than formerly when TQQQ would beat 90%+ of individual stocks. Perhaps one can identify the 50% of stocks on the Growth Stock list that will greatly outperform TQQQ. My conclusion is to focus my attention on promising growth stocks as long as I manage the risk with stops and position size. Thanks to the efforts of Mark Minervini, @markinervini, and Irusha Peiris, @IBD_Irusha, my undergraduate students have the opportunity to learn how to use the IBD and MarketSmith platforms to find growth stocks. These experienced traders have even lectured to my students…….

One other unexpected finding I have presented in this table is that all of the FAANG stocks but AAPL have declined during this period. My preferred market gurus (Darvas, O’Neil) have written that the market leaders top before the general market does. So this is one more warning sign for the current market along with the high percentage (63.7%, source investors.com) of newsletter writers currently being bullish.

Nevertheless, the GMI remains Green and at 6 (of 6) but the more sensitive GMI2 is at 4, indicating some short term technical weakness. This chart shows that QQQ is sitting right on the bottom of its up-trend channel and therefore merits monitoring. This is where support has come in multiple times since November.   And note that prior advances  have stalled at the upper channel line.  In addition, after closing above its 4 week average for each of the the prior 10 weeks, QQQ has now closed last week below it. Most strong up-trends have weekly closes above a rising 4 week average. Not using charts is like driving to new places without Waze! I can do it but it is much more difficult and I may get lost.

 

 

 

Blog post: Buying IPOs with Green Line Break-outs (GLB) and a Weekly Green Bar (WGB) signal; $PGNY $TSLA

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One of the best ways to trade a recent IPO is to wait for it to form a green line top (a horizontal line drawn on a monthly chart at a peak price after it has not been exceeded for at least 3 months) and then buy it after it finally closes above that green line, hopefully, on above average trading volume. As soon as I draw the green line, I set an alert on TC2000 to tell me when the stock trades above that line. The alert stays active for one year. The idea is that there is often a lot of euphoria and hype surrounding an IPO when the public may drive the stock to high levels, providing insiders a nice profit. The buying subsides and the stock may then decline and consolidate for months. The time for me to buy is when the stock finally trades above the green line peak at an all time high (a GLB or green line break-out). For example, the monthly chart of Facebook shows it came public in May, 2012 at 42.05. It rose that month to  45.00 when Joe public unfortunately bought it thinking FB must go higher. However, by September, 2012, FB had declined 61% to a low of 17.55 (where Joe public likely gave up and sold it). In September, 2013, 17 months after its IPO, FB traded at a new all-time high (ATH). That was the time I buy. If one bought before the GLB, there was no way of knowing if FB would ever withstand the selling of the persons who had bought earlier at higher prices and then swore that they would sell as soon as they could recoup their losses. When a stock can overcome this overhead barrage of selling and trade at a new ATH, it is providing evidence of huge buying pressure. Trend traders react after the buy signal has triggered, not before.  Buying early, in anticipation of a break-out, can kill you. Note in this monthly chart that FB has had 4 GLBs. I like to only purchase stocks trading above their last green line top.

 

Of course, not every GLB succeeds and some fail or even re-test their break-out before moving up. If I buy a GLB I must sell it if the stock CLOSES any day below its green line. Often times a stock will trade intraday back below its green line only to close above it. To avoid being shaken out on a false move down, I therefore use a mental stop rather than a hard stop loss below the GLB. If I miss the GLB or want to add more to my position, I have found that a promising signal is my WGB (weekly green bar) signal. A WGB is drawn on a weekly chart if by the end of the week, a stock has traded below its 4 wk average and  retaken its rising 4 wk average, is higher than the prior week’s close,  and its 4wk>10wk>30wk average. Such a situation has just occurred for PGNY. I like PGNY because it is projected to become profitable and it has estimates of growing future earnings, a la MarketSmith. PGNY had a WGB last week, indicating, for me. a possible place to buy, since I did not buy at its GLB 3 weeks ago. If I did buy PGNY on Monday, I would place a stop to sell it if the stock trades below the low of the WGB. I would then keep my stop there until another WGB occurs and then raise the stop to that bar’s weekly low. I have noticed that placing stops at the low of each  WGB can help me catch most of the advance. When the stock trades below the WGB and I am sold out I may buy it back  after the next WGB. Take a look at PGNY’s weekly chart below. The red dotted line is the 4wk average. A strong rising stock will repeatedly close the week above its 4 week average.

I  have marked with arrows the 6 (of 8) WGBs, after a GLB where one could have successfully bought and retained TSLA placing stops according to the above strategy. There is clearly a reason why Bill O’Neil relied mainly on weekly charts to make his fortune.

 

The GMI remains Green and registers 6 (of 6). The GMI keeps me on the right side of the market. All of my indicators remain positive, so the short and longer term trends remain up. Note we have also completed day 35 (U-35) of the current QQQ short term up-trend. Some of these short term up-trends have lasted as long as 80+ days.

 

 

Sector ETFs: A safer way for boomers to invest: $PBW $QCLN $CNRG $PBD $SMOG $ICLN $LIT $IPO $ARKQ $CHIQ $ARKF $XBUY

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As I get closer to retirement and  to withdrawing funds from my trading accounts to live on, I have been reluctant to buy individual growth stocks because of their potential volatility when bad news or earnings are released. But I cannot remain in money market funds because of their dismal returns. So what to do? As ETFs have become more popular, many now concentrate on narrow sectors rather than representing an entire general market index, like the SPY or QQQ. Recently, I have begun experimenting with scans to find the most outperforming ETFs and have found that there are some that have even doubled over the past year. Not too shabby for a basket of stocks. When I looked at the ETFs  yielded by my scans I was amazed to find how clear a picture they paint of the best sectors of the market where the big money is flowing to. These ETFS contained multiple stocks and were less volatile than individual stocks, which results in smaller draw downs.

For example, this weekend I ran this scan of all ETFs listed in TC2000: Hit a 50 week high last week; Volume last week was ge 2×50 week average volume;  closed higher last week than prior week; closed gt $20. I then sorted the results by current close/price a year ago to find out how much the ETF advanced since a year ago. These filters yielded 12 ETFs that have advanced 190% or more: PBW QCLN CNRG PBD SMOG ICLN LIT IPO ARKQ CHIQ ARKF XBUY. The amazing thing to me was what I discovered when I looked at the focus of each of these stellar ETFs. Seven of the 12 were involved with clean energy or environment. The rest were involved with China or online retail or IPOs. (Just beyond these were ETFs on electric vehicles.) Remember, all of these ETFs hit a yearly high last week on more than twice their average weekly volume. Here is where the big money managers are placing their bets. When Jesse Livermore would buy a steel stock, he felt more confident of his judgment if other steel stocks were acting strong. A strong ETF like these implies that similar stocks were also acting right.

When I next looked at the weekly charts of these ETFs, I found they had great technical patterns, all having 4wk>10wk>30wk averages. All held their 10 week averages for long periods. Such ETFs are where I am now willing to invest for the long haul with much less risk than holding individual stocks. I accumulate each ETF in stages. Each purchase must be at a higher price than the previous purchase. When will an up-trend end? No  one knows. But a weekly close below the 10 week average would signal rare weakness and lead me to exit. A close below the 4 week average would make me cautious and a WGB (weekly green bar–bounce up off of the 4wk) might induce me to add to my position. Here are some weekly charts of a few of these ETFs. Note the recent high volume buys and the WGB signals. My students would understand all to be in “yellow band” patterns–the pattern of monster stocks, and now ETFs.

Meanwhile, the GMI remains Green with all components positive. Nice to be swimming in the direction of a rising tide.