new highs

One of my favorite stock gurus, David Ryan, William O’Neil’s protege, when asked about the types of set-ups he looks for, said:

“I basically simplify it down to two, breakouts and pullbacks. Don’t get confused by all the different formations. You don’t really have to look for cup with handles, or saucers, or “W” formations. You just have to draw a line across the top of where most of the stock’s trading has taken place. Then you buy as it moves through that line. It is as simple as that. I always like to see a very tight price pattern before the stock breaks to new highs. Buying pullbacks are a bit more complicated but offer another entry point to get aboard a leading stock.”

Momentum Masters, Mark Minervini, David Ryan, Dan Zanger and Marl Ritchie II, 2015, p. 72.

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Momentum Masters  compares  answers to a series of  questions asked of four of the best stock traders ever. I highly recommend it. By the way, David Ryan is doing a webcast for IBD on his current take of the market this week. Click the link or go to investors.com for information to register.

Ryan’s quote above really fits in well with my trading strategy. I draw a green line at a stock’s all time high that has not been surpassed for at least 3 months. I then look for a break above that line (Green Line Break-out, GLB). I set an alert in TC2000 to tell me when the GLB occurs and when it does I then inspect the stock for signs of unusual break-out volume and good fundamentals. Alternatively, and more often, I look for a stock near or just above a recent GLB that has pulled back and become over-sold and started to rise. If I buy it, I place my sell stop close, just below the recent bounce/support. I never know if a bounce will work out, but if it fails, I exit with a small loss. That is the key to  this game–a few large gains and many small losses. Many successful traders say they are right on fewer than 50% of their trades.

This weekend I created a new TC2000 scan that you can run yourself when you get TC2000 (See $25 coupon offer at top of this page). All of the students in my new honors class will learn how to use TC2000. Once on TC2000, join my Club and select this scan: 01292017ATHhipast40daysBLBB. All of my publicly available free scans are described in the Glossary tab for this blog. This new scan looks at all stocks in my ongoing WatchList of about 800 stocks that have recently hit an all-time high (ATH). It finds the subset of them that hit a new high in the past 40 days and that is now bouncing from up from its lower Bollinger Band.  In simple words, the scan finds rocket stocks trading near their ATH that have recently hit their peak and that have since pulled back and started up. I next look to see if the stock is above its last GLB. Many stocks rise after their GLB and then pull back and resume their advance. PLAY is one of the 15 stocks that came up in this scan, which I give as an example.

PLAY gapped up on unusually high volume in December and then traded sideways since. Last Friday it bounced off of its lower 15.2 daily BB and closed near its high of the day. Is this the beginning of a resumption of its rise?  No one knows, but it might be. If on Monday PLAY  trades higher than Friday’s high of 54.88, I might get interested enough to buy some. Unlike a break-out, a bounce does not require higher volume. The low trading volume is a sign that the selling has dried up. Note from the line at the top of this chart that PLAY is due to report earnings on 4/4 and last quarter’s earnings were up +127% according to stats in TC2000. It has a recent short ratio of 7.2 and is up 47% over the past year. It is also on the current IBD50 list with a COMP rating of 93 and EPS rating of 99–not too shabby….

Meanwhile the GMI remains at 6 (of 6).

 

I wrote a post last week about the benefits of focusing on weekly charts. Weekly charts, unlike daily charts,  more clearly show me the trend and are less likely to make me exit a strong stock too soon. I spent some time this weekend trying to write a scan for TC2000 that would bring up growth stocks emerging from a multi-week consolidation. The scan required a minimum amount of weekly volume and the stock must have shown above average weekly trading volume on the week of the break-out. The company must also have shown an increase in the latest quarterly earnings of at least  +50%. Four stocks out of approximately 4900 US stocks were selected by this scan.  Given the strong market environment, many stocks have already broken out. After running a scan like this  I can then research the stocks for possible entry, looking at both technicals and fundamentals.

This weekly chart of one of the four stocks,  WB, is fully annotated so you can see how I have set up my charts to quickly show other critical information contained in the TC2000 database. Arrow A shows that WB had  latest quarterly earnings up 500%.  Arrow B shows the latest short interest ratio was 3.6 (This means that it would take about 3.6 days to cover all of the shares speculators have sold short, at the stock’s recent average daily trading volume. The higher the number, the greater the buying pressure from a break-out.) Arrow C shows that the stock price is currently 2.64 times its price 250 days ago. (I like to buy stocks that have already doubled in the past year. Stocks, like people, tend to repeat their past behavior.) Arrow D shows WB’s projected next earnings reporting date, a new feature in Version 16 of TC2000. The green oval shows last week’s break-out above a declining trend (purple line) on above average weekly volume. In fact, this was the highest weekly volume for WB since September 2014! It could signify the resumption of the up-trend or it could mean nothing….

Another stock that came out of this scan was SINA. I did not annotate the remaining stocks. If you have read this far I know you can interpret the remaining weekly charts using the above example.

And HPP.

And ARCW.

I do not know if any of these stocks will keep rising. But the market has been strong and many stocks have already broken out to new highs. Only WB and HPP are flirting with their all-time highs, a valuable characteristic. Both are above recent Green Line Break-outs (GLB). I like to buy stocks that have advanced a lot, then rested for a few weeks, and then break out of their consolidation on unusually high volume.

If you have TC2000, I have started making some of my scans and watchlists available to my students  in a TC2000 library (Club, Dr. Wish). If you want access to my library, provide your name and email below and receive the free link in your email.

If you do not already subscribe to TC2000, you can get a $25 discount (new subscribers only) by clicking here or going to: http://www.tc2000.com/bonus/WWB  (Additionally, your sign-up will generate a small commission for us to keep the lights on, so, thank you.)

You might also attend one of the many Worden TC2000 free training workshops when they come to a city near you. Ask them for a schedule at support@worden.com. That is how I began learning how to use TC2000 the past 20+ years. They also now post many video TC2000 tutorials on their site. If you follow me on Twitter I often tweet out interesting stocks intraday: @wishingwealth  (no guarantees, of course, stocks I tweet about are for readers’ own education, further research and consideration).

Meanwhile the market remains strong with the GMI at 6 (of 6) and the GMI-2 at 7 (of 8). And the new QQQ short term up-trend has now reached its critical 5th day.  According to my analysis of QQQ short term trends over the past 10 years, once a new up-trend lasts 5 days, it has a 75% chance of reaching 11-88 days. Take a look at the GLB tracker to the right of this page to see how well GLB stocks have been doing in this strong market up-trend. Nothing like a strong market to make everyone look like a genius!