My Favorite Posts

$INGN 2014 GLB moving up after taking a breather

@ 7:47 pm
GMI6/6
GMI-26/9
T210845%

On December 29, 2014 I posted the following about INGN:

“My great stock picker friend, Judy, knows someone who needs to be on oxygen. Judy discovered that there is a product made that is very mobile, light weight and has a great battery. She claims that it beats the competition and makes a huge difference to people who must be on oxygen. So Judy researched the product and identified its manufacturer, INGN. Judy does very well by picking stocks that have a great concept underlying their product. She bought some INGN.

INGN is a recent IPO and is scheduled to make some investor conference presentations in mid-January.   The stock may therefore be volatile in the coming weeks.   Nevertheless, I bought some INGN. By the way, INGN had a green line break-out in November, consolidated, and then moved up. Check out its weekly chart. It has already doubled.”

INGNweekly

This weekend I was watching TV and saw for the first time an ad for INGN’s mobile oxygen unit. It showed one person bogged down because he was connected to a traditional oxygen unit and another going about town with INGN’s portable mobile unit. Judy told me about Inogen’s  great concept 3 years ago. Unfortunately, I rode INGN for only a short time, much less than Judy did. I was shaken out in 2015’s decline. My mistake was to not buy it back when it recovered and had a new green line break-out at $55.98. One must always continue to monitor promising growth stocks that undergo a decline to see if there is  a new GLB. Check out this monthly chart of INGN. At the time of my post in 2014, INGN was at $30.25. INGN closed Friday at $103.05. Maybe their new advertising campaign is going to breathe new life into the stock. A lot of boomers will need to be on oxygen in coming years–or even after a hurricane…

My experience with INGN shows the virtue of investing in companies with innovative products. A company with a great concept and strong technicals is much easier to invest in and hold for the long haul than an investment based on just a good chart.

The GMI remains at 6 (of 6):

 

 

 

 

 

$BGNE: Example of a stock purchase set-up for my new students; GMI: GREEN

@ 9:50 pm
GMI6/6
GMI-28/9
T210850%

Last week I had the first meeting of my class of 120 freshmen who are enrolled in my 14 week semester long course on the stock market. Since many of them  will be looking at this blog for the first time, I am focusing today on helping first time users. Here is a set-up I may use for purchasing a stock. I first make sure that the market trend is up. As long as the GMI is Green I feel that the odds are in favor of owning stocks. I then wait for a stock on my watchlist to show a good set-up. Biotech stocks have been very strong lately because of buy-outs (KITE) and exciting clinical trials. A number of them are also presenting results at conferences this month. A good presentation can propel a stock higher. Biotech stocks are very speculative though because they usually have no earnings and a failed trial or sudden death of a patient in a clinical trial can cause a stock to tank. So one would only invest a small portion of their capital in a biotech stock.

With that caveat, BGNE was on my watch list and showed some good technical qualities. First, a monthly chart shows that BGNE is above its last green line top. (A green line is drawn on a monthly chart at the highest monthly price that has not been exceeded for at least three months or bars). In February, 2017, BGNE broke above its green line top (GLB= green line break-out) and then went sideways for several months. In July, BGNE took off on very high volume when it announced a partnership with Celgene. Note that BGNE came public in 2016. New stocks (IPO) that form a base and then make an all-time high (GLB) are often great candidates for purchase. Also, note that my chart shows that next earnings are expected on 11/9/17 and so there will be no imminent earnings release to affect the stock.

Next I look at the weekly chart. I want the stock to be in a yellowband up-trend. That means that the stock is consistently closing above its 10 week average (blue dotted line) which is rising above its 30 week average (red line). If I can draw a yellow band in the space between the rising 10 and 30 week averages, that stock meets my criteria for a rising “yellowband” stock.

Now, the key is to buy such a stock using a set-up, which if it fails, leaves me with a relatively small loss. One never knows which stock one purchases will fail, so it is critical to plan an exit strategy in advance of purchase. One must have a specific technical price/condition that indicates that the trade has failed. For timing the entry, I usually look at the daily chart. There are a number of set-ups I look for to time entry. One of them is a bounce up off of the 30 or 50 day moving average. BGNE last Friday bounced up off of its 30 day average (red line). The prior day it bounced off of its 50 day average (green dotted line). If I bought BGNE because of the 30 day bounce I would exit if the stock comes back below the low of the bounce of the 30 day average (69.29). I might even sell earlier if BGNE traded back below its 30 day average (71.15), yielding a smaller loss.  The key is to sell out quickly if a stock does not act as predicted when one purchased it.

Given BGNE’s multi-month yellowband pattern, if the stock rises for a while, I might sell out only if the stock closes back below its 10 week average on the weekly chart. Big money is possible in holding a yellowband stock as long as the pattern holds. By focusing on daily gyrations, one is often shaken out of a solid yellowband stock. So before selling I first check out the weekly chart. I often tweet my set-ups intraday as they occur: @wishingwealth

The GMI is back to 6 (of 6) and Green.

 

 

 

Green Line Break-outs (GLB), the sine qua non of rocket stocks; $SHOP, $SQ, $BABA, $Z, $FB, $BZUN

@ 10:33 pm

The book that changed my trading life was the one listed to the lower right by Nicolas Darvas, How I made $2,000,000….. That book, which I discovered in the 1960’s, taught me to abandon buying stocks that were cheap and trading at new lows and instead to focus on stocks at all-time highs. While this strategy seems counterintuitive, we all want bargains, it makes sense with stocks. We all want to buy a stock that goes to the moon. On its way to the moon it must be gaining altitude and repeatedly hitting new highs. In the appendix to his highly popular book, Darvas answered a question from a reader about whether a stock he bought needed to always be at an all-time high–his reply, no exceptions to this criterion. Another little known Darvas criterion was that a stock must have already doubled in the past year. As with human beings, the best predictor of future behavior is past behavior.

So for many years, I have looked for stocks hitting all-time highs. William O’Neil and David Ryan have both mentioned Darvas’ book as one of the few that influenced them. IBD often departs from the all-time high requirement, however. I depart from Darvas’ strategy too. Darvas bought rising stocks breaking out of trading ranges, or boxes,  defined by daily prices. That approach did not work well for me because it led to a lot of whip-sawing of prices. After studying monthly charts in the 80’s, I noticed that many growth stocks hit a new high on a monthly chart, rested a few months, and then when they broke through their former historic peaks often went on to huge gains.

Hence I invented the concept of the green line break-out (GLB). On a monthly chart I draw a horizontal green line at the historic peak that month after the stock has failed to surpass it for at least 3 months (or 3 bars on a monthly bar chart). In other words, the stock has gone up to a new historic high and then rested/consolidated for 3 consecutive months. I maintain a watch list of stocks with green lines drawn in and program TC2000 to alert me immediately when a stock exceeds that line. I only buy a GLB if it occurs with above average trading volume and the stock must go on to close above the green line. If it closes back below the green line at anytime afterwards, I exit. If it retakes the green line I often buy it back. (I do not worry about wash sales in my tax deferred IRA). Stocks often retrace and retest the green line. Of course I consider other technical and fundamental  characteristics to select which GLB stock I want to purchase. But that is what my students learn over a 14 week semester course. I cannot predict which GLBs will succeed. That is why it is critical to exit if the stock closes back below the green line.

Jesse Livermore wrote that if a recent IPO formed a base and then went on to an all-time high that was a screaming buy. I find that is often true if I can find a GLB for a stock that came public in the past few years, rested, and then broke out. Here are some monthly charts of some examples of GLBs.

It even worked for FB in 2013, which went on to several other GLBs.

Will it work for BZUN?

At the side of this blog post is a list of GLB stocks that have worked out. I do not know the percentage of GLBs that succeed, but they do better if the GMI (General Market Index)  is on a Green signal. I often tweet out possible GLBs intraday, follow me at @WishingWealth

And the GMI is at 2 (of 6) and Green could flash Red with a weak day on Monday. The QQQ is now back below its 10 week average (blue dotted line), an ominous sign. And this break occurred on very high down volume.