My Favorite Posts

The most difficult decision in trading is when to sell a stock that has advanced after purchase. I like to use modified daily GMMA (Guppy Multiple Moving Averages) charts to guide me when to sell. My modified GMMA consists of 13 exponential moving averages (1, 3,5,8,10,12,15,30,35,40,45,50,60). The “1” period average is a gray dotted line and represents the daily close. The 3-15 shorter averages are red and the longer averages (30+) are in blue. The chart is drawn on a white background. My color scheme is different from Daryl Guppy’s, who invented the GMMA.

A Red White and Blue (RWB) up-trend is when all of the red lines are rising above the blue lines and separated by a white band. The reverse pattern (BWR) is a down-trend. When weekly averages are used it produces longer term trends. For swing trading where I do not want to hold a declining stock very long, I use the daily averages. But I like to focus on stocks that also have a RWB weekly pattern.

The gray dotted line shows the daily close and provides me with an important indicator of a change in trend and a possible time to think of selling. In an up-trend, the gray dotted line will be mainly on top, leading all of the red lines higher. When the gray line closes below all of the red lines it is a sign of weakness and I consider selling or lightening up on my position.

With that description in mind, here are two examples of stocks, SQ and IPGP, that have been in a daily RWB up-trend for months and now show signs that the up-trend may have ended or is at least weakening. A few weeks ago, the dotted line for SQ crossed below all of the red lines. It has not done this since one day in September. Now the white space between the short and longer averages is gone, ending the RWB pattern. Note how long the gray dotted line was above all of the red lines. I try not to sell a stock when the gray dotted line is holding up.

IPGP shows a similar pattern with a signal on 11/29.

MRK is an example of a Dow 30 stock in a daily BWR down-trend. The sell signal came late September when the RWB pattern disappeared.

Some of my rules: Only go long stocks in a daily RWB up-trend, and consider raising stops, selling or reducing my position when the stock closes (preferably 2 consecutive days) below all of the red lines. Sell the entire position when the RWB pattern totally disappears. Daily closes are stressed for signals because stocks often trade below the red lines during the day but recover to close back above them. I therefore like to trade near the market’s close so I know how the stock will likely close..

So what pattern is the SPY in now? Not too shabby!!!…

The QQQ just closed back above its red lines. We will see if it holds…

And the GMI, which measures short and long term trends, is 5 (of 6).

Given my renewed interest in yellowband stocks, I created a simple scan that looks for stocks up at least 70% from their 50 week low, are within 20% of their 20 week high, are in a yellow band pattern and have regained their 10 week average last week. One of the interesting stocks to satisfy these criteria is UCTT. This weekly chart shows that UCTT rose on above average volume last week, is above its last green line top, and may be emerging from a cup and handle base. Note also from the statistics at the top of this chart that its most recent earnings were up +2850% with revenue up +76% and that the stock has already quadrupled over the past 12 months. Its next earnings are to be released on 10/25/2017.

This weekly yellowband chart shows UCTT was in a multi-month yellowband pattern with the stock closing (solid line) above its 10 week average (dotted line), which was above its rising 30 week average (red line). The purple dots indicate the weekly lows and show that the lows each week tended to be above the 10 week average until the stock formed the recent base.

If I bought UCTT based on its yellowband pattern, I would consider selling or reducing my position if it closed any week (or day) back below its rising 10 week average. Other noteworthy stocks to come up in this scan were: NVDA, FSLR, LOXO, EXEL, HNH, NVMI and CORT.

You can run this scan yourself (09162017yellowband…..)  in TC2000 by joining my club and also get some of my other scans. Just go to www.wishingwealthblog.com/club. The glossary on this blog describes the logic of most of the scans. And follow me on twitter @wishingwealth for intraday alerts–all of this information is for educational purposes only, no guarantees of any kind! Remember, most successful traders are only right on about 50% of their trades.

The GMI  is at 6 (of 6) and the GMI-2 is 8 (of 8). I am watching inflation indicators closely to see if the Fed may tighten sooner than everyone expects. That will kill this bull…