Weekend Strategy Review Part II – Feb 16th, 2013

Feb 19, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’.
AIQ will be hosting a full day seminar with ‘The Professor’, March 9, 2013 in Orlando, FL. More info CLICK HERE

 
The Dow started the week at 13,992. On Friday, it closed at 13,981 for a weekly gain of 11 points. Three weeks ago, the Dow was trading at 13,895. So for the past three weeks, the Dow has been in a trading range of about 100 points. This won’t last!
 
Trading ranges are consolidation areas, where the market takes a breather. When the market breaks out of a trading range, it usually does so in the direction it enters the trading range. And in this case, the direction was up. Trading ranges form the Blades of our Hockey Stick Pattern and act as compressed springs to propel prices higher. They give stocks the energy to hit their targets.
 
During its three-week consolidation, the Dow has remained in an Up trend. All of the PT indicators remain positive.
 
The Dean’s List remains long, strong and positive. And the Coach (Money Flow) was especially strong on Friday.
 
But there is one thing that happened on Friday that should be noted. The 2-period RSI Wilder on the Dow (DIA) finally became oversold. It finished the day with a reading of 14.91. Hmmm?
 
As you learned in Class, whenever a stock is in an Up trend, with all of the PT indicators positive, and the 2-period RSI Wilder pulls back into oversold territory (below 30) it’s time to get out the rifle and go hunting. In this case, because it’s the Dow (DIA) it’s more like time to bring out the shotgun…or a cannon!. There could be lots of things to shoot!
The same conditions exist on the Nasdaq, where the 2-period RSI Wilder on the QQQ finished the week with an oversold reading of 26.28. The SPY did not finish oversold as it remains in a strong up trend.
 
So what to do?
 
Assuming that what we have been seeing for the past 3 weeks is the development of a wave 4 consolidation Blade, there is a good chance that the market will start to move higher next week. And given that both the Dow and Nasdaq are currently oversold, they might be the best places to look for bargains. So that’s where I’m gonna start with my shopping list.
 
One obvious place to look is the indexes themselves, with DIA (hand grenade) and DDM (atom bomb). If the Dow starts to move higher, both should do nicely. Same for the QQQ and QLD if the Nasdaq comes to life.
 
Right now, Emeritus is only highlighting two stocks for the Honor Roll, PFE and AGN. From the feedback I received during the week, some of his stocks were very good to many of you. However as we have seen in the past, Honor Roll stocks not only tend to give us an initial pop, especially when they have tight Bands, but they tend to perform well even after being triggered. Remember, CNI caught my eye back in early January by being an Honor Roll stock. So all of the stocks that were listed this past week remain in play. Stocks like GE and HPQ are Dow components. CVX and XOM are the two energy components of the Dow. PFE, one of the stocks currently being highlighted by Emeritus, is also a Dow component.
 
IBM is another Dow component with an interesting Pattern. The stock popped 8.6 points reaching a high of 208.58 on 20 January, and has been pulling back ever since. The January pop was a ‘rope jump’, meaning that the current pullback could be a wave 2. IBM is currently RED on the 60s. It should be watched IF it turns GREEN, especially if it starts to move above 202.09.
 
Many of you had a lot of fun with SLB on Thursday, but as expected, the stock pulled back on Friday. It’s not a rifle trade yet, because the 2-period RSI is still not oversold. But IF SLB continues to pull back early next week; you know what I’m doing.
 
Anyhow, I’m seeing a lot of stocks with attractive patterns. And now, the major indexes appear to be finishing their three-week corrective pattern and have now become oversold.
Big Picture Strategy: It’s time to go hunting. If I’m right, wave 5 up should be starting very soon. If one of your favorite stocks on the MWL has pulled back during the past week or so, you might want to think about adding a few shares. Or IF your favorite stock has moved up during the rally, and you decided to take some or all of your position off the table, this might be a time to re-establish a new position.
 
The Dean’s List is telling us that a lot of sectors are very strong now. But the energy sector appears to be the strongest. Energy related ETFs currently represent 4 out of the top 7 on the List. So I need to be thinking about energy. But I’m not interested in all energy stocks now. Just the ones with nice Blades. I’m looking for stocks that have risen with the market, and have taken a breather. Stocks with low RSIs like HERO (29.09), MRO (31.94) and ATW (34.18).
 
All are rifle trades on the 60s.
 
On a different energy tack, you might consider something like uranium miner, CCJ, which has a beautiful HS Pattern in place. China alone has 16 nuclear power reactors in operation, with 30 more under construction. They currently plan a 5-6-fold increase in nuclear capacity by 2020. And even though construction of new plants in the US has been on a 30-year hold, 45 new countries are either constructing or have plans to construct nuclear power plants in the near future. They are going to have to get their uranium from somewhere. CCJ is on MWL, and has quietly started an Up trend three days ago when the 50 moved above the 200. It has a recent Blade high of 22.05. On Friday, it closed at 21.61. If it moves above 22.05, I’m a buyer.
 
Have a great weekend and remember to polish up that rifle.
 
That’s what I’m doing,
h
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

Weekend Strategy Review Part II – Sun, Feb 10th, 2013

Feb 11, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’.
AIQ will be hosting a full day seminar with ‘The Professor’, March 9, 2013 in Orlando, FL. More info CLICK HERE

Earlier this morning, I had some time to run a few algorithms that I don’t ordinarily check on a daily basis. With the Dow looking like it wants to test the all-time high this week, I was searching for clues that might tell me how high it could go IF the October 2007 highs were broken.

That’s pretty tough to tell at the moment, but I did notice something that could shed some light on the issue.
The past two weeks of sideways trading has served to develop all sorts of Blades on most of the stocks I watch. As a matter of fact, most of the stocks on the Member’s Watch List have this Pattern. But there’s something missing from most of them: Narrow Bollinger Bands.

There’s no toothpaste to squeeze out of the tube. As you recall from Class, one of the things that I like to see when I buy a stock is a Band Squeeze. When I see a stock pull back and develop the Blade of a Hockey Stick, I always look for a nice tight set of Bollinger Bands to form around the Blade.

Right now, I’m seeing a lot of positive Hockey Stick Patterns, but the Bands are anything but tight.

To give you an example of what I mean about ‘tight bands’, take a look at Wyndham Worldwide, WYN, last week’s Big winner. Notice how the Bollinger Bands tightened for 4 days just before the earnings announcement. That squeeze enabled the stock to pop 4 points. It was an easy trade if you placed a Buy Stop just above the recent high.

Same for CNI in early January. Look at the Band Squeeze. This is what enabled the stock pop and propel it to its target of 97.

But now, although I’m seeing a lot of stocks with HS Patterns, the Bands are a lot wider. This doesn’t mean that stock prices can’t push higher …they can, and most likely will. But they probably won’t pop higher. And pops are always a good sign for even higher prices.

Last week I told you how I plan to trade during the next few weeks as the market tests its old highs. I’m doing it mostly with stocks from the Honor Roll that have developed nice HS Patterns with tight bands.

On Friday, I highlighted a few of them for you. They included HERO, VALE, VRTX and SLV. I also added HPQ this weekend. On Friday, HERO moved past its recent high of 7 and triggered an entry.

The Bands on VALE, VRTX and HPQ remain tight as the HS Pattern continues to develop. If any of these stocks start to move above their recent ‘Blade Highs’,they could see a nice moves.

Same for the silver stocks and ETFs. This week, I will be watching SLV for a move above 31.41. IF SLV starts to pop, I’ll look to see if my favorite silver rabbit, Silver Wheaton, SLW, trades above 37.58. IF it does, I’ll do some initial buying, to be followed with additional Buy stops on the rest of the colony. Remember, we need to see silver pop here. With a BANG, not a whimper. If I’m correct about the wave count, silver should be ready to start a Major Wave 3 up. Wave 3s are impulse waves. They start with a BANG!!! And the tight Bollinger Bands could certainly help produce that initial BANG.

That’s what I’m doing,
h
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

IF a correction has started, I know that it should have multiple legs – The Professor’s perspective

Feb 5, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’.
AIQ will be hosting a full day seminar with ‘The Professor’, March 9, 2013 in Orlando, FL. More info CLICK HERE
The Dow fell 129 points, closing at 13,880. Volume on the NYSE was relatively low on the decline, coming in at only 94 percent of its 10 day average. There were 128 new highs and 11 new lows.
So now we wait. Yesterday’s decline was expected, but now we need to be patient to see how the correction will develop. Chances are that the markets will rally today, forming some type of retracement wave. I wouldn’t get too excited about trying to figure out which wave this is in the wave count. That’s because there is no way to tell.
All we know for sure is that the Dean’s List remains positive and all of the PT indicators are positive. The only cockpit indicator that is negative now is the Coach, our Money Flow indicator.
Also, all four of our breadth indicators are currently negative. The A-D oscillator came in with a reading of -73 last night, telling us that most stocks on the NYSE have started short term declines. In addition, the Summation Index, Hi-Lo Oscillator and the Up-Down oscillator are also negative. So some type of correction is underway. Once these indicators start to turn positive again, they will get my attention.
The question of where the correction will stop and where to re-enter a few trades is now on the table. Hmmm? What to do, what to do?
OK, here’s what I’m looking at. First of all, as I said before, I’m not worried about wave count at this point. That will come later. Right now there is only one wave to count. Yesterday’s decline.
My breadth indicators are telling me that the Dow has started to correct. But the Dean’s List and all of the PT indicators remain positive. Also, the 2-period RSI Wilder is not in oversold territory yet (only -35) so I can’t be looking for Eating Cake.
And IF a correction has started, I know that it should have multiple legs. As a minimum, a wave 2 needs to have three legs. So it’s likely that yesterday’s decline was only the first leg down of any corrective sequence. There needs to be at least one more down wave if it’s a wave 2, and several more if it’s a wave 4.
The other thing I know is that each one of the corrective waves should take the shape of an a-b-c pattern. Yesterday’s decline was almost straight down. So IF we retrace today, the move could be a small ‘b’ wave to be followed by another decline for wave ‘c’. If this happened, I would label it Wave A.
If you’re confused, don’t be. My point in discussing the above is not to confuse, but to help you understand that we will likely see all sorts of choppy trading during the next 1-2 weeks as the market forms the small a-b-c waves. Just be patient and realize that the market needs to do this to move higher. BTW, IF a wave 4 is forming, we’ll see even more a-b-c corrections develop, because we know that most of the time, wave 4s form triangles. And triangles have 5 waves.
Anyhow, be patient. I’m going to watch to see IF we rally today. IF we do, I will be looking at my volume and breadth indicators to measure the strength of the rally. If they lag, chances are the rally is a small ‘b’ wave that would set-up another decline later this week.
That will be the first place where I will look to re-enter a few trades…on the second decline, especially if volume dries up.
BTW, speaking of volume, it was a good sign that yesterday’s decline took place on relatively light volume. Low volume declines after the market hits a target are always nice to see. They tell me that the rally is not over, and to expect more upside once the market takes a breather.
I should also mention that there is a small possibility that the rally from early January is not over, and yesterday’s decline was the wave 4 correction of the first wave up. I don’t believe that it was, but there is a very small possibility that it could be. If this is the case, then the rally that I expect today should exceed Friday’s highs. But don’t get too excited…IF this happens it would only increase the odds that we’ll see another downside correction start next week.
Watching.
That’s what I’m doing,
h
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

The DMI Stochastic

Jan 29, 2013 | Uncategorized

The AIQ code based on Barbara Star’s article in January issue of Stocks & Commodities, “The DMI Stochastic,” is provided at www.TradersEdgeSystems.com/traderstips.htm.

To test the author’s DMI stochastic indicator, I used the NASDAQ 100 list of stocks and AIQ’s Portfolio Manager. A long-only trading simulation was run with the following capitalization, cost, and exit settings:

  • Maximum of 10 open positions
  • Size each position at 10 % of mark-to-market total capital
  • Take no more than three new positions per day
  • Compute the mark-to-market capital each day
  • Three cents per share was deducted for each round-turn trade
  • Select trades based on the highest ADX reading
  • Exit trades only with a system exit; no loss-stop or profit target stop used.

I coded three similar test systems. The first is the basic system that uses the author’s parameters of 10 (buy signal) and 90 (sell signal) on the DMI stochastic indicator. A stock has a buy signal when it has both a positive DMI oscillator and the DMI stochastic is below the buy level.
In Figure 6, I show the resulting long-only equity curve compared to the S&P 500 index for the basic system with the 10 buy-level parameter. For the period 12/30/1994 to 11/9/2012, the system returned an average internal rate of return of 11.6% with a maximum drawdown of 68.7% on 2/6/2003 and a Sharpe ratio of 0.50.

FIGURE 6: AIQ, BASIC SYSTEM VS. S&P 500. Here is the long-only equity curve (blue) for the basic system compared to the S&P 500 (red) for the test period 12/30/1994 to 11/9/2012 trading the NASDAQ 100 list of stocks.

I also tried increasing the buy-level parameter up to 70, which improved the return somewhat. I added a trend filter using the 50-bar moving average of the S&P 500 index, but it resulted in a reduced return without improving the maximum drawdown very much. The equity curve for this test is not shown. For the period 12/30/1994 to 11/9/2012, this system returned an average internal rate of return of 8.5% with a maximum drawdown of 46.1% on 10/2/1998 and a Sharpe ratio of 0.46.
Finally, I tried adding an ADX filter such that the ADX level had to be above 30 to allow a signal. However, I also left the buy level at the high value of 70. In Figure 7, I show the resulting long-only equity curve for the basic system versus this modified ADX system. For the period 12/30/1994 to 11/9/2012, the system returned an average internal rate of return of 12.1% with a maximum drawdown of 56.1% on 2/6/2003 and a Sharpe ratio of 0.46.

FIGURE 7: AIQ, BASIC SYSTEM VS. MODIFIED SYSTEM. Here, the long-only equity curves are compared for the modified ADX system (blue) versus the basic system (red) for the test period 12/30/1994 to 11/9/2012 trading the NASDAQ 100 list of stocks.

The code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm, and is shown below.

!THE DMI STOCHASTIC
!Author: Barbara Star, TASC January 2013
!Coded by: Richard Denning 11/05/12
!www.TradersEdgeSystems.com
!INPUTS:
wLen is 10.
sLen is 3.
buyLvl is 70.
exitBuyLvl is 0.
sellLvl is 55.
exitSellLvl is 0.
!CODING ABREVIATIONS:
H is [high].
L is [low].
C is [close].
C1 is valresult(C,1).
H1 is valresult(H,1).
L1 is valresult(L,1).
! NOTE: Wilder to expontential averaging the formula is:
!  Wilder length * 2 - 1 = exponential averaging length
eLen is wLen * 2 - 1.
!AVERAGE TRUE RANGE: 
TR  is Max(H-L,max(abs(C1-L),abs(C1-H))).
ATR  is expAvg(TR,eLen).
!+DM -DM CODE:
rhigh is (H-H1).
rlow is (L1-L).
DMplus is iff(rhigh > 0 and rhigh > rlow, rhigh, 0).
DMminus is iff(rlow > 0 and rlow >= rhigh, rlow, 0).
AvgPlusDM is expAvg(DMplus,eLen).
AvgMinusDM is expavg(DMminus,eLen).
!DMI CODE:
PlusDMI is (AvgPlusDM/ATR)*100.  
MinusDMI is AvgMinusDM/ATR*100.
!DMI OSCILATOR:
DMIosc is PlusDMI - MinusDMI.   !Plot as historigram
!STOCHASTIC OF DMI:
HH is highresult(DMIosc,wLen).
LL is lowresult(DMIosc,wLen).
DMI_STOCH is (DMIosc - LL) / (HH - LL) * 100.
DMI_STO_SK is simpleavg(DMI_STOCH,sLen).
DMI_STO_SD is simpleavg(DMI_STO_SK,sLen).  !Plot with 90/10 lines   
!SYSTEM TO TEST INDICATOR:
!BASIC SYSTEM WITH AUTHOR'S SUGGESTED PARAMETERS:
Buy if DMIosc > 0 and DMI_STO_SD <= 10.
ExitBuy if DMIosc < 0.
Sell if DMIosc < 0 and DMI_STO_SD <= 90.
ExitSell if DMIosc > 0.
!SYSTEM WITH TREND FILTER AND MODIFIED PARAMETERS (LONG ONLY):  
SPXc is tickerUDF("SPX",C).
SPXma is simpleavg(SPXc,50).
BuyT if DMIosc > exitBuyLvl 
and DMI_STO_SD <= buyLvl 
and SPXma > valresult(SPXma,10).
ExitBuyT if DMIosc < exitBuyLvl or SPXma < valresult(SPXma,10).
!SYSTEM WITH TREND STRENGTH FILTER AND MODIFIED PARAMETERS (LONG ONLY):
BuyADX if DMIosc > exitBuyLvl 
and DMI_STO_SD <= buyLvl 
and ADX > 30.
ExitBuyADX if DMIosc < exitBuyLvl.
!SIGNAL RANKING( use ADX):  
ZERO if PlusDMI = 0 and MinusDMI = 0.
DIsum is PlusDMI + MinusDMI.
DX is iff(ZERO,100,abs(DMIosc)/DIsum*100).
ADX is expavg(DX,eLen).
List if C > 0.
 
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

The DMI Stochastic

Jan 29, 2013 | Uncategorized

The AIQ code based on Barbara Star’s article in January issue of Stocks & Commodities, “The DMI Stochastic,” is provided at www.TradersEdgeSystems.com/traderstips.htm.

To test the author’s DMI stochastic indicator, I used the NASDAQ 100 list of stocks and AIQ’s Portfolio Manager. A long-only trading simulation was run with the following capitalization, cost, and exit settings:

  • Maximum of 10 open positions
  • Size each position at 10 % of mark-to-market total capital
  • Take no more than three new positions per day
  • Compute the mark-to-market capital each day
  • Three cents per share was deducted for each round-turn trade
  • Select trades based on the highest ADX reading
  • Exit trades only with a system exit; no loss-stop or profit target stop used.

I coded three similar test systems. The first is the basic system that uses the author’s parameters of 10 (buy signal) and 90 (sell signal) on the DMI stochastic indicator. A stock has a buy signal when it has both a positive DMI oscillator and the DMI stochastic is below the buy level.
In Figure 6, I show the resulting long-only equity curve compared to the S&P 500 index for the basic system with the 10 buy-level parameter. For the period 12/30/1994 to 11/9/2012, the system returned an average internal rate of return of 11.6% with a maximum drawdown of 68.7% on 2/6/2003 and a Sharpe ratio of 0.50.

FIGURE 6: AIQ, BASIC SYSTEM VS. S&P 500. Here is the long-only equity curve (blue) for the basic system compared to the S&P 500 (red) for the test period 12/30/1994 to 11/9/2012 trading the NASDAQ 100 list of stocks.

I also tried increasing the buy-level parameter up to 70, which improved the return somewhat. I added a trend filter using the 50-bar moving average of the S&P 500 index, but it resulted in a reduced return without improving the maximum drawdown very much. The equity curve for this test is not shown. For the period 12/30/1994 to 11/9/2012, this system returned an average internal rate of return of 8.5% with a maximum drawdown of 46.1% on 10/2/1998 and a Sharpe ratio of 0.46.
Finally, I tried adding an ADX filter such that the ADX level had to be above 30 to allow a signal. However, I also left the buy level at the high value of 70. In Figure 7, I show the resulting long-only equity curve for the basic system versus this modified ADX system. For the period 12/30/1994 to 11/9/2012, the system returned an average internal rate of return of 12.1% with a maximum drawdown of 56.1% on 2/6/2003 and a Sharpe ratio of 0.46.

FIGURE 7: AIQ, BASIC SYSTEM VS. MODIFIED SYSTEM. Here, the long-only equity curves are compared for the modified ADX system (blue) versus the basic system (red) for the test period 12/30/1994 to 11/9/2012 trading the NASDAQ 100 list of stocks.

The code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm, and is shown below.

!THE DMI STOCHASTIC
!Author: Barbara Star, TASC January 2013
!Coded by: Richard Denning 11/05/12
!www.TradersEdgeSystems.com
!INPUTS:
wLen is 10.
sLen is 3.
buyLvl is 70.
exitBuyLvl is 0.
sellLvl is 55.
exitSellLvl is 0.
!CODING ABREVIATIONS:
H is [high].
L is [low].
C is [close].
C1 is valresult(C,1).
H1 is valresult(H,1).
L1 is valresult(L,1).
! NOTE: Wilder to expontential averaging the formula is:
!  Wilder length * 2 - 1 = exponential averaging length
eLen is wLen * 2 - 1.
!AVERAGE TRUE RANGE: 
TR  is Max(H-L,max(abs(C1-L),abs(C1-H))).
ATR  is expAvg(TR,eLen).
!+DM -DM CODE:
rhigh is (H-H1).
rlow is (L1-L).
DMplus is iff(rhigh > 0 and rhigh > rlow, rhigh, 0).
DMminus is iff(rlow > 0 and rlow >= rhigh, rlow, 0).
AvgPlusDM is expAvg(DMplus,eLen).
AvgMinusDM is expavg(DMminus,eLen).
!DMI CODE:
PlusDMI is (AvgPlusDM/ATR)*100.  
MinusDMI is AvgMinusDM/ATR*100.
!DMI OSCILATOR:
DMIosc is PlusDMI - MinusDMI.   !Plot as historigram
!STOCHASTIC OF DMI:
HH is highresult(DMIosc,wLen).
LL is lowresult(DMIosc,wLen).
DMI_STOCH is (DMIosc - LL) / (HH - LL) * 100.
DMI_STO_SK is simpleavg(DMI_STOCH,sLen).
DMI_STO_SD is simpleavg(DMI_STO_SK,sLen).  !Plot with 90/10 lines   
!SYSTEM TO TEST INDICATOR:
!BASIC SYSTEM WITH AUTHOR'S SUGGESTED PARAMETERS:
Buy if DMIosc > 0 and DMI_STO_SD <= 10.
ExitBuy if DMIosc < 0.
Sell if DMIosc < 0 and DMI_STO_SD <= 90.
ExitSell if DMIosc > 0.
!SYSTEM WITH TREND FILTER AND MODIFIED PARAMETERS (LONG ONLY):  
SPXc is tickerUDF("SPX",C).
SPXma is simpleavg(SPXc,50).
BuyT if DMIosc > exitBuyLvl 
and DMI_STO_SD <= buyLvl 
and SPXma > valresult(SPXma,10).
ExitBuyT if DMIosc < exitBuyLvl or SPXma < valresult(SPXma,10).
!SYSTEM WITH TREND STRENGTH FILTER AND MODIFIED PARAMETERS (LONG ONLY):
BuyADX if DMIosc > exitBuyLvl 
and DMI_STO_SD <= buyLvl 
and ADX > 30.
ExitBuyADX if DMIosc < exitBuyLvl.
!SIGNAL RANKING( use ADX):  
ZERO if PlusDMI = 0 and MinusDMI = 0.
DIsum is PlusDMI + MinusDMI.
DX is iff(ZERO,100,abs(DMIosc)/DIsum*100).
ADX is expavg(DX,eLen).
List if C > 0.
 
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems
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