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Those of you who have followed my posts know that I trade consistent with the general market’s trend. My GMI (table below)  keeps me on the right side of the market. I avoided the 2000 and 2008 debacles. With the QQQ short term down-trend in its 4th day, I have pulled back from the market and gone mainly to cash and hold a little SQQQ in my trading IRA. I was prepared to refrain from making new purchases and to tell you this weekend how weak the market looks. It has been too easy to make money trading the past few months and too many of my students inform me about how well their trading is going. These are indicators of a frothy, extended market.

But then I ran a few scans this weekend and was surprised to find so many stocks with good technical action. These were not the stocks that have already skyrocketed and gone to lofty levels. The market may have experienced only a dead cat bounce last week and may still take out last week’s lows. (See the GMI discussion below.) However, so many promising companies had weekly green bars (WBG) last week that I had to reconsider. My WGB indicator, see formulas below, paints a weekly bar green if a  stock is in an up-trend and has just bounced up off of its rising 4 week moving average. Two other averages must also line up, as described below, and the 4 week average must be rising. I applied my WGB scan to stocks that have been on several  IBD or MarketSmith Growth 250 stock lists over the past few months.  I then looked at the monthly chart of each of the the 47 out of 401 stocks in this watchlist  that passed the scan and made sure they were above their last green line top. I only am interested in stocks trading above their last green line tops.

One of these stocks that impressed me the most was TWTR, and I am going to illustrate my approach with this stock. So many people are tweeting these days and I have noticed that my twitter feed has been increasingly filled with “promoted” tweets. It looks to me like twitter may have finally learned how to monetize its site. MarketSmith indicates that TWTR is also expected to become profitable in 2021. Finally, when people start using a company’s product as a verb (xerox, zoom, google) it often signifies huge societal acceptance and a superb investment. These fundamental characteristics also influenced me to focus on TWTR.

This monthly chart shows that TWTR formed a green line top at $74.73 in December, 2013, a month after its IPO. It stayed below its green line top for 8 years and finally had a green line break-out (GLB) in February, 2021. The GLB can be a major sign of technical strength, especially if it occurs in a company that came public in the past few years. IBD’s founder, William O’Neil liked buying companies that have broken out and had come public in the previous 8 years. After the post IPO frenzied buying, TWTR began a multiyear decline that bottomed in 2016 at  $13.73. Since then, TWTR  had to overcome all of the overhead supply of selling for years as people who bought it at higher prices sold as soon as they could get their original investments back. TWTR’s GLB  is therefore evidence of strong buying interest which brought it back to an all-time high (ATH) after 8 years. This is very impressive!

The weekly chart shows TWTR has had 6  consecutive up weeks, with above average trading volume last week when it had a GLB. Notice that last week there was also a WGB (weekly green bar) on above average volume, as required by my scan. The red dotted line is the 4 wk average, purple dotted line = 10 wk, and red solid line = 30 wk. I have noticed that an advancing stock will usually have the pattern: 4wkavg>10wkavg>30wkavg, which is part of my WGB scan.

My TC2000 formulas for the WGB scan are: avgc4>avgc10 and avgc10>avgc30; L<=avgc4 and C>avgc4; C>C1; avgc4>avgc4.1—all set to a weekly time frame. To learn how to color a price bar according to any indicator, check out the TC2000 tutorial videos. When I have previously described the WGB, I said a possible way to minimize risk would be to move up a stop loss just below the low of each succeeding WGB, as seen on a weekly chart. When a stock trades below its most recent weekly green bar it often signals weakness.

Finally, the daily chart shows the  heavy volume on Thursday, the day of the possible GLB. In the weak general market on Thursday, with QQQ down 3.5%, TWTR reversed down from an ATH of $80.75 and closed at $74.59,  $0.14 below its green line—a failed GLB. On Friday, it held above the green line and closed at $77.06, again on above average volume, indicating a successful GLB.

I do not own TWTR and do not know if the GLB will hold. As Nicolas Darvas and other traders have warned, failing break-outs is a sign of a weakening market. I may take a small position Monday morning. Note, I always sell any stock I purchased after a GLB if it closes back below the green line. This results in a minimal loss if I bought close to the green line.  If the market holds, TWTR could take off. TWTR reports earnings at the end of April…

The GMI has fallen to 1 (of 6) but remains on a Green signal.  A second day below 3 will turn the GMI signal to Red. It is very difficult to make money on the long side when the GMI signal is Red.  The QQQ has now closed the week below its critical 10 week average. My separate, more sensitive QQQ short term trend indicator is in its 4th day of a down-trend.  Time to be very defensive. I may  hold  off  on  TWTR.

I decided to draw a green line on a monthly chart at the highest price bar reached, the all time high (ATH), that was not exceeded for at least 3 subsequent price bars (i.e. 3 months). Conceptually, the green line indicates an equity that has traded at an ATH and then went sideways or down below the ATH for a minimum of 3 months. In other words, the stock formed a peak and then entered a period of consolidation. A green line break-out (GLB) occurs the first time the equity finally closes above the green line. The GLB is most significant if it occurs on above average daily trading volume.

Why should a GLB be a bullish sign? People who bought the stock near the peak price and watched it go down or nowhere for months often only want to get their money back by selling if the stock rises back to near where they purchased it. This constitutes over head supply or selling pressure all the way back up to the green line. If a stock can overcome this overhead  supply and break out to an ATH it is showing considerable buying interest and technical strength. That is why GLBs often prove promising.

GLBs are even more significant if they occur in a recent IPO. The great trader, Jesse Livermore, spoke about the terrific set-up of buying a recent IPO that consolidated and then broke out to an ATH. And Nicolas Darvas wrote that he liked to buy stocks that had already doubled in the past year and that were trading at an ATH. For a very recent IPO, I might draw the green line after only 1-2 months of consolidation. A GLB on an IPO is often bullish because most people are not aware of this new security or many figured they missed it as it consolidated after coming public. As the stock climbs to new highs there will be many new buyers who notice and want to accumulate it.

There are several ways I find GLBs. All involve using the TC2000 software program for analyzing stocks which I have used for over 20 years. All of my students receive academic accounts so they may learn to use TC2000. (You can receive a discount coupon for trying it at the top of this site.) I can scan for stocks hitting a 52 week high with this formula (H=maxh52 on a weekly setting or h=maxh250 on a daily setting) and then review their monthly charts. Many of these stocks may be at a yearly high but remain below their ATH. I do look back 20 or more years because I want only ATHs. I then draw in their green line at the top of the peak monthly bar that has not been surpassed for at least 3 months and then with a simple right click of the mouse on the green line, set an alert to tell me anytime in the next year that the stock trades above the green line. TC2000 sends out alerts on screen, text and email. I can also see if any stocks hitting a new high have just crossed their green line top. Once I draw in the green line it appears on all charts I pull up for the stock.

After I buy a GLB, I must follow it to make sure it closes above the green line. Stocks often retest the break-out and will trade flat above the green line, or even below it. I do not set a stop loss for a GLB to avoid being sold out when a stock trades intraday below the green line only to close the day above it. If near the end of the day it appears that the stock will close below the green line I immediately sell and take a relatively small loss. When any buy set-up fails, I must exit. Most great traders who speak the truth say they are wrong  50% or more of the time but succeed because they sell their losses quickly while they are small and let their gains grow larger. After a loss, I console myself with the thought  that every loss brings me to the next gain.

I sometimes tweet out a new GLB intraday (@WishingWealth) but it is important to remember that it is impossible to know in advance which ones will work out. I also may check the company’s fundamentals on investors.com or MarketSmith before buying. In a strong market up-trend like the present, GLBs often work out. In addition, one of the rules I teach my undergraduate students is to buy only stocks in an up-trend that are trading above their last green line top if they missed the break-out. Here are some weekly charts of examples of recent GLBs.

The GMI remains at 6 (of 6) and on a Green signal. SPY remains in a daily RWB up-trend pattern.