On David Ryan and my new #TC2000 scan for GLB rockets bouncing off up of support: $PLAY

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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).

 

$QQQ short term up-trend reaches 20th day; GLB: $SHOP; bull markets like sex

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The GMI is at only 5 (of 6) because my 10 day successful new high indicator was negative. Only one third of the stocks that hit a new high 10 days ago closed  higher than they did 10 days ago. When stocks that hit a new high do not continue to rise, it is one sign of potential weakness I track. The QQQ has closed above its 10 week average for 5 weeks but the SPY has done so for 9 weeks. As you know, the tech stocks measured by the QQQ, have just recently revived. In fact, the QQQ last week broke above its high of 120.50 reached in April  2000. The QQQ closed the week at 121.93. So those persons who say they never take a loss because the market eventually comes back are vindicated–if they held on for 16 years! (I wonder how many  of them started out as buy and hope types but panicked  and sold out as the QQQ bottomed at 19.76 in October, 2002 or again at the 2008 bottom at 25.05?)

The fact that the QQQ did close the week above 120.50 is a sign of strength. However, there are a few things about this rally that concern me. I track many statistics each evening after the markets close. I noticed that only 138 of almost 5,000 stocks hit a new high on Friday. This is far below the numbers seen in much of December. On December 5-12, the number of stocks hitting new highs each day ranged from 430-908. The last 5 days the range was 88-306. So while the QQQ may trade at an all-time high, new highs are not keeping up. On Friday, only 39% of all stocks rose, compared to about two thirds of the Nasdaq 100 stocks reflected in the QQQ. So there is tremendous heterogeneity in the way stocks are performing. Maybe, as I wrote last week, it is time for the tech stocks to rally as the other stocks rest. People have made some money and may be more willing to increase their risk to buy the FANG stocks (FB,AMZN,NFLX,GOOGL). Regardless, I must ride the trend until it ends. You know better than to ask me (or anyone else) to predict when that will be. As they say, bull markets are like sex, they feel best just before they end……

Last week a TC2000 alert I had set went off but I did not notice it until this weekend. SHOP convincingly broke above its green line (GLB) to an all-time high, after consolidating about 4 months around its green line. This chart shows a wonderful high volume break-out last week in SHOP,  an IPO from 2015.  SHOP is probably worth looking into as it connects with Amazon. If I bought it I would exit if it returns below its green line.

Here is the GMI table:

New TC2000 Scan yields 4 break-outs from consolidation: $WB, $SINA $HPP $ARCW

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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….

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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.

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And HPP.

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And ARCW.

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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.

Current TC2000 Users, Join my club:

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!

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4th day of $QQQ short term down-trend; mainly in cash; but $SQ not so square!

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The leaders are breaking down. The DIA and SPY have now closed below their 30 week averages.  Only 30 stocks hit a new high while 201 hit new 52 week lows on Wednesday. This is not a market to go long growth stocks near new highs. Time for me to be in cash or short in SQQQ.

However, SQ was one exception to the carnage. It released some good fundamentals and is worthy of monitoring. Note the large black up volume spikes on this daily chart.

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Federal Reserve raising short term interest rates? Stocks ready to rally?

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While the short term down-trend is still in place, a lot of stocks I watch are gaining strength. And surprisingly, short term rates are starting to rise, perhaps in anticipation of a recovery in the economy. First, note that the GMI-R, which is more sensitive to   short term changes, has risen from 1 to 5 (of 10), while the GMI is now back to 2. As the table below shows,

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