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Blog Post: Day 9 of $QQQ short term down-trend; GLBs often fail in market down-trends–$CALM is a prime example we can learn from

@ 9:48 pm
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I have often taught that the same set-ups that work beautifully for me in a rising market can fail miserably in a declining market. Model books of rising stocks can be very misleading because, by definition, most set-ups worked for these winners. With these model stocks that rise for months one could just buy every Monday or every x day and make money. There is nothing special about the set-ups. The authors never tell you how often the highlighted set-ups can fail. Here is a fine example.

Last Friday I saw that CALM had a GLB (green line break-out) to an ATH. Its green line peak was established in October, 2015. CALM was one of just 5 stocks trading Friday at an ATH. CALM closed Friday near the day’s high. On Tuesday it traded above its upper 15.2 daily Bollinger Band and reversed to close down for the day. On Wednesday it closed back below its green line. And on Thursday, after an earnings miss, the stock closed down 14.5%.  So how should one have played this GLB? First, one must sell immediately if a stock closes back below its green line. That is a failed break-out. Second, without a large gain to protect against a possible decline, one should never hold through earnings.

GLBs can be great set-ups. But during a declining market, one should be very cautious when buying stocks breaking out to ATHs. It takes an established advancing market for traders to feel confident to buy break-outs and to hold them for a sustained rise. NEVER fight the general market’s trend.

Blog Post: Day 15 of $QQQ short term up-trend; Time for me to buy? See my TC2000 scan for finding stocks gapping up on extreme volume, $TMDX and $TMUS are examples, see charts

@ 6:31 pm
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I know my readers realize that I have been learning to trade and invest since the 1960s. Having survived many of the vicious declines ( I missed the one in 1962, but I remember the significant declines in 1987, 2000, 2007, 2020 and 2022). I have learned a few things. First, get out when the market peaks and ignore the media pundits and those telling me to stay the course. Second, after a prolonged decline, people first buy the big caps and big names until they feel more confident. Once they have profitable trades they take chances on the the riskier growth stocks.  This may explain why the Dow has outperformed other stocks recently.

Too often we drive with our hands on the rear review mirror instead of looking forward holding the steering wheel. We focus on the prior decline and are skeptical of any signs of strength. The market does climb a wall of worry and with so many people fearing inflation and a recession, this may be the time the market bottoms and moves up. I am seeing news headlines this weekend saying one should just buy dividend stocks! That makes me feel more confident that we may have bottomed. So with the major indexes retaking their critical moving averages, I am slowly buying stocks and index ETFs. This is a good time to do so with stocks being so close to these critical averages. That is because if they should fall back below them I can exit with minimal losses…..

I am always seeking new ways to find promising stocks and I have developed a new scan that I shared with my students on Friday. Next Friday is the last class of this semester! I know many traders are aware that some stocks begin major advances with a large gap up on unusually high trading volume. Sometimes the gap day occurs after earnings have been released or after another positive announcement. Not having my eyes glued to the market most days, I cannot jump on such stocks on  the day of the gap. However, I can buy them after they consolidate and begin another rise days or weeks after the gap day.

I therefore have developed a very simple scan using TC2000 that alerts me to such promising stocks. The scan looks for stocks that had a gap up day with the highest trading volume during the 20 days preceding the gap. I also want the high of the gap day to reach the highest price in the past 10 days. I could easily use this logic to find stocks having  a high volume gap up on the current day. The trick is to tell TC2000 to look for any stock that had such a gap day within the past 25 days. (You can set this number to any time period to look back.) Once I have such a list of stocks I can review them to find any consolidating post gap and appearing ready to resume their up-trends. The huge volume gap up tells me that some big institutions probably saw a bargain and something worth owning.

The above logic is so easy to build in TC2000. That is why I like this software. Just right click on any column to create a new column in your watchlist and use the following instructions:

  1. Set condition timeframe  to daily and type this formula: L>H1 and V=maxv20 and H=MaxH10. (Low today greater than yesterday’s high on the highest volume in the past 20 days and the day’s high is the highest high reached within the past 10 days.)

  2. The trick is to change this condition from being true now to true within the last 25 bars, here days.

  3. In the properties tab, give the column a name and tell it to update automatically and tell it to show a check when the condition is true.

  4. Save it with a name and save the column.

There you have it. Now open any watchlist you want and sort by this column. Here is a picture of the TC2000 set-up.

 

You can see that I also apply additional filters (not shown) to require a bounce up off of support or other set-ups.  You can find the day that triggered the scan by looking for a day with volume that was larger than the 20 preceding days. You can then look for the gap. Here are two stocks that passed this scan, TMDX and TMUS. I put in arrows to show the extreme volume and the gap on the day that met the conditions. I LOVE this scan……

TMDX had a recent GLB and TMUS is in the midst of one. Both bounced Friday off of their daily 8 exp moving averages (dotted line). I hope you like this scan and can try them out. I use it to find promising stocks to review that institutions are likely buying. Remember, however, that a huge gap up can signal the end of a large move rather than the beginning. One must evaluate each stock’s chart and trend carefully….

 

The GMI remains at 6 (of 6) and key Index ETFs have closed above their 10 and 30 week averages. 

Blog Post: Day 25 of $QQQ short term down-trend; See my new way to scan for stocks near their recent ATH and GLB: $DGII

@ 7:12 pm
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If you check out my TraderLion 2022 presentation you will find that I made the case that most of the stocks that Bill O’Neil graphed as among his greatest winners were stocks that had bases at or approaching their all-time-highs (ATH). If you want to ride a stock to the moon one needs to get on a launched rocket that is hitting a series of ATHs. I recently developed a column scan on TC2000 that helps me to find such stocks. I sought to locate stocks that are within 5% of their recent ATH. In that way I find stocks that have already had a GLB (green line break-out) or those that are somewhat below their recent ATH. I can then look at their individual charts, draw in the green lines and look for opportunities.

I create a column I call <5% below a recent ATH.  My  first filter is a condition built into TC2000 called Price New High. I select that condition and set it to monthly, 500 bar high within the last 3 bars or months. (I am content to look over the past 41 years.) My second filter is set to daily with the formula: h>.95*maxh60 (today’s high price is greater than 95% of the maximum high in the last 60 days). ( I am looking for a stock that hit a 500 month high in the last 3 months and for today’s high to be within 5% of that peak high price.) To get rid of junk, I add the conditions C>30 and V>10000. That means I only find stocks with these conditions that are today >$30 and traded >10000 shares today. Of course there is nothing sacred about these values and one may change them as s/he sees fit.

When I sort this column on my MS/IBD watchlist of  894 stocks I get 24 surviving stocks. I next looked at each on a monthly chart and drew in a green line at a monthly bar at an ATH that has not been surpassed for at least 3 months. With the green lines drawn I next look at weekly and daily charts for possible bases and break-outs. I also look at those stocks that went up today on above average volume. That is how I found DGII. DGII had a GLB in August and formed a base. Today it broke out of that base on above average volume. It still needs to surpass the high reached 15 days ago. DGII has great fundamentals on MarketSmith: EPS=98, Comp=99, RS=99. It will be interesting to see if DGII can continue higher or if the market keeps it down.  It is already up 70% from a year ago. DGII is worth watching to see if it qualifies as one of those beach balls being held under water by the market which will explode upwards when the pressure comes off.