My Favorite Posts

My QQQ short term trend indicator could turn down with a couple of more days of weakness in QQQ. The GMI could also flash RED. I am 95% cash in my trading account. With earnings season over, there is very little good news to propel stocks higher. There is often a post earnings season lull in the markets. And interest rates are rising. Look at this short term interest rate indicator. All of the shorter averages (red) are rising above the  longer term averages (blue) in a daily RWB up-trend.

MACD histograms are an interesting indicator I use to identify a likely change in the short term trend. They often move up or down before the change in trend is apparent in the prices.  You can more easily see the histograms gradually gaining or losing strength.  Check themselves out for yourself. The daily MACD histograms of QQQ have turned red, a sign of a developing down-trend. Note how they declined even when prices bounced up a few days ago.  I will watch for these histograms to start rising and to turn black again.

Here is SPY. Note how they rose at the recent bottom before they turned black.

And TSLA is about to turn red. Note how the red bars started to rise in early January before price got going, called positive or bullish divergence. (Thanks to my stock buddy, Judy, for teaching me how to interpret the MACD histogram indicator years ago.)

On February 7, I tweeted that CRDO had had a GLB (green line break-out to an all-time high). The green line was at $18.00. In the 7 days after the GLB  CRDO went sideways and then started moving up and reached $19.46 on Tuesday, see chart.  CRDO then collapsed Tuesday evening when the company announced that a major customer was reducing its purchases and the company reduced future guidance. CRDO opened Wednesday at $10.64 and closed at $10.30, down 46.8%. The highest it traded on Wednesday was $11.89.  Social media was abuzz with people who had been harmed by this steep decline. I too had a very small position and sold out Wednesday morning with a small loss.

As the great Jesse Livermore would say, the market had exacted some “tuition” from me and I felt it important to learn something after paying it. I went back and looked at the technicals and could find no warning, even in hindsight, that I should have seen in advance. At the time of the GLB the stock had already shown strength by doubling, it was a nice IPO break-out pattern, it had shown some higher volume  around the GLB, and it had strong fundamentals. On the weekly chart it had a series of weekly green bars in rising volume, another sign of an upward trend. Potential negatives include not substantially higher volume around the break-out and the stock went sideways rather than shooting up after the GLB. CRDO also was far above its last consolidation when it broke-out.  None of these negatives would have been important enough to deter me from buying a little CRDO after the GLB.

I had told my stock buddy, Judy, about CRDO’s GLB. She looked up the company and told me she would not touch it. Why? Because it was headquartered in the Cayman Islands and that was suspect to her. How many great companies are situated there?  In addition, after the debacle, I looked at several credible financial sites that said CRDO was headquartered in California. If I had researched the company more before buying and seen this discrepancy, maybe I would have not ventured in, but I doubt it.

When I buy a GLB I promise to sell if the stock closes back below the green line. I often use a mental stop, if I can monitor it,  so I will not be sold out automatically if it trades below the green line intraday but closes back above it. EVEN IF I HAD A HARD SELL STOP IN, IT WOULD NOT HAVE PROTECTED ME. I WOULD HAVE BEEN SOLD OUT AT WEDNESDAY’S OPEN, AROUND $10.64! STOPS DO NOT PROVIDE 100% PROTECTION.

So what did  I learn? Perhaps to investigate a company more before I pull the trigger. But more likely, not to buy a very large position at a break-out. Much better to average up once a stock proves itself and the volume confirms. But what CRDO did, suddenly revealing bad news after the market closed, is possible with any company.  So it is important to not concentrate too much in a single stock and to even buy insurance with put options to protect a large gain. I also think that such debacles may be much less likely with larger companies that have more of a track record, and are not situated on an island.

Here are the daily, weekly and monthly charts from which to study and learn.

Those of you who have followed my blog or workshops (available at the tab on this blog) or have taken my course may remember the yellow band concept. These are advancing stocks that have closed each week above their 10 week averages for at least 10 consecutive weeks or more. The 10 week average is rising above the 30 week average so that one could draw a yellow band in the white space between them. These 5 stocks are yellow band stocks and reached an ATH on Monday. Only one, ALGM, is flagged, indicating its presence on my watchlist of stocks recently on a MS or IBD list. Three of them are already twice their low of the past year, see last column.

This weekly chart of BWMN illustrates the yellow band pattern. Note the recent GLB (green line break-out) and the many weekly green bars. In fact, BWMN has closed each week above its rising 4 week average (red dotted line) for 8 straight weeks, another sign of technical strength. I first wrote about BWMN after its GLB.