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

‘The Professors’ weekend update 1/27/2013

Jan 28, 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 rose another 70 points on Friday, closing at 13,896. The Dow was up 246 points for the week. The Nasdaq was up 19 points on Friday, and the rise kept the index in the Green for the week, closing up 15 points at 3,150. Volume was right at its 10 day average. There were 347 new highs and only 12 new lows.
Big Picture Strategy: So where are we now? Hmmm? Back in the beginning of January, when all the worrywarts on CNBC were talking about falling off the ‘fiscal cliff’, we talked about how ridiculous this was. I said that it was not gonna happen. On the last trading day of the year, we saw the Dow dip down to the 12,884 level and I mentioned that the Dean’s List was still positive. I said not to worry. That was over 1,000 Dow points ago.
Back then I was talking about a rally that would take the Dow back up to the 14,000 level. And now we’re just about 100 points from that target. How did I get so close to the target? By watching a Hockey Stick develop. By NOT listening to the talking heads.
We saw the rise from the November lows, and then the pullback towards the end of December, when everybody in Washington was ‘cliffing’it. We didn’t care about the ‘cliff’. What we were interested in was the Hockey Stick Pattern that was developing and the Dean’s List. That’s all that mattered to us.
We saw that the November to early December rise was just shy of 900 points, and that if we added it to the low on 31 December, it projected a target just under the 13, 800 level. And that’s where we were on last Thursday. Friday’s 70 point pop was a bonus.
Anyhow, that’s how we got to where we are now. But that’s ancient history. You guys are always interested in what’s next. You always want to know we do we go form here?
But before we talk about this, we need to understand a few things. Remember, this is a teaching web site. I’m not like Lou. I don’t just give you a bunck of stocks on a list, and tell you to buy them. That’s NOT what I do. I try to help you understand why they might go up (or down). I give you my reasons. I try to walk you through a few scenarios, and help you understand why your stocks are performing like they are. And IF you make mistakes along the way, or didn’t sell something when the indicators turned against you, perhaps you’ll learn the next time. Trading is a learning process. It takes time and requires discipline.
You just can’t go to the Lists and buy things. Not from my Lists, not from Lou’s, not from any one’s list. If you just use Lists, you’re gonna lose! You need to pay attention to the SIGN: .The SIGN consists of three things; Lists, Patterns and Indicators. So if I’m going to buy something, it needs to either be on the Dean’s List or the Member’s Watch List. Then I need to see a pattern. No pattern, no trade. We need to see a pattern so it can propel the stock higher. And then finally, we need to see the indicators turn positive. We need all three conditions. You all know the drill.
And IF we’re buying something from the Lists that is pulling back with an overslod 2-period RSI Wilder, we need to know where it is in the original Pattern. That way we’re NOT buying something at the top of the pattern. Like with CNI that I’ll talk more about below. The reason I’m buying CNI on pullbacks now is because I have higher targets. Many of the stocks on the Lists now are getting very close to their projected targets. We’re NOT interested in stocks that are near their projected targets now. If a stock is near its target and completing its HS Pattern, It could be ready to start a decline.
OK, now let’s get back to what we could see happen in the markets next week.
Firstly, there was a small change in the A-D oscillator on Friday. The small change was less than 7 points, so we should see a Big Move within the next 1-2 days.
Also, the rise of the last few weeks has driven all of my oscillators into EXTREME overbought conditions. Can they remain this way? Sure. But odds are high that they will not. The odds favor a pullback now. At least on the Dow. At 13,900, we’re about 100 points above the projected target from the HS pattern. And we know that stocks do not go straight up. They go up in waves. So now that we have reached our target, it would be perfectly normal to see a pullback.
If the Dow does start to pullback next week, it would tell me that current wave is likely the first wave up of the 5 wave sequence for Major Wave ‘E’ up. Next would be a wave 2 down. On the other hand, iF we continue to push higher, then we’re likely in the impulse wave or wave 3 up in the sequence. A Big Move to the upside early next week would confirm the wave 3 scenario.
While the Dow has been steadily making new highs, the forgotten Nasdaq has not. Held down by the ’crash’ in Apple, the Nasdaq100 has basically traded sideways for the past month. BTW, did any of you see that Apple traded down to EXACTLY 435 on Friday? EXACTLY!!! I hear that some old geezer with a Hockey Stick pattern was saying 435 several weeks ago. Hmmm?
Anyhow, with Apple likely to bounce from its lows, and the Nasdaq having traded sideways for the past month, it sets up a rather favorable condition for that market. I don’t see money leaving the market now, but with the end of January approaching, the institutions might be looking to shift out of some of the overbought big cap stocks into the smaller sisters. The NDX closed the week at 2737. If the NDX starts to move higher early next week and breaks 2760+, it could lead to a nice rally.in the small caps. The rally could see the index approach the 2850+ level. So watch the small caps and technology next week.
As long as the Dean’ List remains positive, I will remain positive. If we start to pullback, I will view the pullback as a buying opportunity.
The kinds of stocks that I want to be trading now are stocks in well defined Up trends, where the 50 is above the 200, and forming railroad tracks. Stocks that are in the Free Willy Mode. Not the ones ‘In Jail’ being held captive by their moving averages. If the market pulls back, I will be looking to buy these stocks when their 2 period RSI Wilder becomes oversold on the Daily Charts. Once I see this condition, I’ll look to buy them using the shorter term bars. Jut like we did two days ago with CNI. Two days ago, CNI was sitting there at 93.40 with it’s two period RSI Wilder buried in oversold territory. One day later it was trading over 2 points higher. CNI is a Free Willy stock. Just about everybody in the stock has a profit!
BTW, during CNI’s recent pullback, it formed a small ‘Blade’. The low of that Blade was 93.3, so if the 6 point ‘Stick’is added to that low, the stock now projects a target near the 99 level. About a month ago, I mentioned that the transports appeared ready for a breakout, and that the way I planned to play the move was with CNI. So far the move is right on track. So now, the HS patterns on CNI have three targets: 97, 99 and 105. The stock closed at 95.41 on Friday..
Now I’m just using CNI as an example here. There are many stocks in the Free Willy Mode now that should be looked at on pullbacks. Just take a look at the Member’s Watch List.
American Express, AXP, is another example of a Free Willy Stock. Two weeks ago, the stock hit an new high of 61.97. The previous high of 61.42 was made in May of last year. So now almost everyone who owns AXP is a happy camper. In the past week, the stock pulled back to the 59 level, where its 2 period RSI Wilder became oversold. The stock is currently trading less than a point from that oversold condition..
Also at some point last week, I think I mentioned how Green Mountain Coffee Roasters, GMCR, had a nice HS pattern, with narrow Bands. The stock was trading close to 40. Now its 46 and moving higher. Take a look a the ‘stick’ on GMCR and make your own projections.
So basically I’m doing two things now. As I mentioned above, I’m looking to buy stocks in up trends when they pullback, stocks like CNI and AXP. And I’m looking for stocks or ETFs from the Lists that have nice HS Patterns. Stocks like GMCR.
I am NOT looking to buy stocks that are ‘In Jail’. This is NOT the time for ‘Hope’ stocks, project stocks, turn around candidates, or junk. Junk like Apple. No matter how you slice AAPL, right now it’s still JUNK! The 50 is below the 200, and the PT indicators are negative. That’s how I define JUNK!
Have a wonderful weekend.
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 Webinar Room opens in 60 minutes for Hank Swiencinski and AIQ session

Jan 24, 2013 | Uncategorized

DON’T MISS OUT

The Webinar Room opens in 60 minutes for Hank Swiencinski and AIQ
to bring you

“The Professor’s One Minute Guide to Stock Management: The Basics”

We will be starting in less than 90 minutes, at 4:30pm ET

So make sure to reserve your seat now.

Click here to register for the webinar

Today at 4:30pm ET:

The Professor will reveal some of his hallmark strategies that have helped create many successful traders and investors.

“Hank has been an AIQ client for over 25 years. We met over lunch late last year, and I was immediately struck by his erudite approach to trading and investing.

His knowledge of technical analysis and the practical application of wave theory, moving averages, and DMI is impressive.”

Stephen Hill,
President
AIQ Systems



Weekend Strategy Review 01-20-13

Jan 23, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client fro over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’. Later this month Hank will be presenting an AIQ webinar covering some of the techniques he teaches, like cycles and stick patterns.
Hank will be presenting this free AIQ webinar entitled The Professor’s One Minute Guide: The Basics, January 24th, 2013, 4:30 – 5:15pm eastern,
Click on this link to register. Here’s a sample of his Weekend Strategy Review 01-20-13
The Dow rose 53 points on Friday, closing at 13,650. It was up 161 points for the week. The Nasdaq was down 1 point on Friday, but was up 9 points for the week. The Nasdaq is having a tough go of it lately, mostly because of Apple. The characteristics of the company have changed radically in the past month. Apple went into a sustained up trend almost four years ago, on 11 May 2009, at a price of 129.49. During that time, the 50 NEVER once fell below the 200. Pretty amazing! But that is no longer the case. On 2 October of last year, the PT indicators turned negative and then on 19 December, the 50 dropped below the 200. So now, any rally in Apple must be viewed with suspicion. That’s because any rally could be the development of the Blade of a negative Hockey Stick pattern, which could lead to significantly lower prices. And it’s not often that you see a stock that has a potential ‘Stick” of over 200 points, so we need to be careful. Remember, Apple represents a significant portion of the Nasdaq100. And IF Apple continues its downtrend; the Nasdaq will likely continue to experience problems. But let’s not focus on Apple for now. Let’s look at the Big Picture instead.
Big Picture Strategy: The Dean’s List remains strong and the cockpit indicators are positive. I will remain Bullish as long as my Lists and indicators stay positive. The strategy is very simple now. Once we get closer to the 14,000 level, I will re-evaluate the strategy. Not now.
OK, we’re at 13,650, just 450 points from our target of 14,000+. What now? Just a few weeks ago, we were trading under 12,900 and some of the folks on CNBC thought the world was coming to an end. We didn’t. We saw that the Dean’s List was much too strong for Armageddon. We also saw that the decline that occurred since the middle of December looked more like the Blade of a Hockey Stick Pattern than the beginning of any end of the world scenario. Pullbacks after rallies are normal. They are positive, not negative, no matter how the world looks to the folks on CNBC. We also saw that the 50 was still comfortably above the 200, and that the pullback only caused the price to drop back to the 200. The Dow was taking a break. It was resting.
So why am I writing about this today? Well, I want you to take a quick look at the Dow. I want you to once become familiar with the pattern. Get it burned into memory. Specifically, I want you to look at the stick that started on 15 November and completed on 18 December. Note that the November low was 12,472, and the high was 13,366. or a rally of 894 points. So if we add 894 to low of the Blade that completed on 31 December, 12,884, when Congress was trying to keep us from falling off the ‘fiscal cliff’, we get 13,778. Only 222 points from 14,000.
In the Classroom, we talk about how the market moves in waves. We also talk about Ending Diagonals and termination patterns. And the one thing we know about them is that the final waves of these larger patterns should consist of 5 waves. And because the most recent ‘Rope Jump’ that occurred in early December told us that the move was likely a wave 1, which was followed by a retracement, it’s even more likely that what we are seeing now is the impulse wave, or wave 3 of the 5 wave sequence that will eventually complete the Ending Diagonal Pattern.
So assuming that we are in the impulse wave, then we also know that it too should consist of 5 waves, So odds are that the move that started on 31 December still has a lot more to go. We know that the move probably won’t be straight up. That there will be pullbacks along the way, and each of these pullbacks should be viewed as a buying opportunity.
Buying opportunity as in Buy the Cake, Eat the Cake (BTC-ETC). That’s what we’re looking for now.
One of the stocks that I’m currently watching is Green Mountain Coffee Roasters, GMCR. Before you look at Green Mountain on a Daily Chart, I suggest that you take a look at it on a Weekly Chart. That way you’ll have a better feeling for the kind of stock we’re dealing with.
Green Mountain had an incredible ride once the market turned positive in March 09. It rose from relative obscurity to being a 115 stock in 2 ½ years. Then the coffee tree came crashing down and GMCR fell back to earth, once again trading in the teens. Hey…GMCR is a coffee grower not a purveyor of magic potions. Anyhow, for the past few months, GMCR has been appearing on the Member’s Watch List. We saw it jump the ropes in late November, an indication of a possible wave 1. Since then, it has spent the last 6 weeks forming what appears to be a wave 2. The stock is currently in a well defined up trend, and is on MWL with positive PT indicators. More importantly, the Bands are narrowing, which could be telling us that its K-cups could be ready for some serious brewing. If the stock starts to move above 43.79 and push its Bands, it could be headed significantly higher.
On the other hand, on Friday, Bank of America reported fourth-quarter earnings that were 63 percent lower than last year but slightly above expectations. A decrease in revenue and a few costly blunders from their 2008 acquisition of Countrywide and Merrill Lynch were the reasons cited for the decline.
Now, most of you know that I’m not a big fan of bank stocks. I’m not. But I also know that many of you are. But when it comes to stock ownership, the only thing I really care about is patterns, indicators, and Lists. Being a fan of something is for sports, not stocks. And right now, the events leading to BAC’s earnings announcement have created a very interesting situation on its Daily chart.
BAC is currently in a well defined up trend, and when the stock pulled back on Friday, it caused the 2-period RSI Wilder to become oversold. Now I know that a few of you might be looking at BAC and thinking about using the BTC-ETC strategy. But as we know, to use this strategy, the stock must be in an up trend, and have positive indicators. During Friday’s pullback, the DMI and P-vol on BAC turned negative. So right now, BAC is NOT a candidate for my BTC-ETC strategy. The stock was on the MWL recently, but dropped off during the pullback. That’s OK. But to use BTC-ETC Strategy, we still need to see an Up trend, an oversold 2-period RSI Wilder and POSITIVE indicators. So I still say…. NO Banks! Besides, take a look at BAC’s weekly Chart since 2009. It’s been almost 4 years since the stock bottomed, and the chart still looks horrible! Give me Free Willy stocks anytime! I can’t get interested in BAC until I see it ‘Jump the Ropes’ on the Weekly.
Another stock I’m watching is American Express. AXP. It’s on the MWL and has pulled back on the Daily’s. The stock is in a well-defined up trend with positive PT indicators and is a candidate for my BTC-ETC strategy
Also, on Friday, we saw Schlumberger, SLB, pop 3.13 points to 76.50, after being highlighted by Emeritus and placed on the Honor Roll at 73.22 two days before.
After jumping the ropes in mid-September for its wave 1, SLB formed a 2 wave pullback into mid-November. Since that time, it jumped the ropes again for wave 3.1, that was followed by another 2-wave pullback or wave 3.2. The PT indicators turned positive on 4 January at 72, and Friday’s jump appears to confirm that the impulse wave is underway. Take a look at the HS/w Blade Pattern on the Weekly’s.
While you’re at it, you might want to compare SLB to our energy rabbit, GPOR, which continues on its tear. Do you see the massive HSw/Blade pattern that formed on the Weekly chart of GPOR since 2009? That’s what is propelling the stock higher now. Now go back to SLB. See the similarities? For comparison purposes, you might want to look at the chart of Petrobras, PBR. GPOR is Green, having fun in an Up trend, and is now in the Free Willy Mode. PBR is in Jail, constrained by its moving averages, RED indicators, and fighting a downtrend. What’s more fun? Free Willy or Jail?
Remember, it’s mid-January, and March is right around the corner. I always want to look at energy going into March.
So reviewing my Big Picture Strategy, I’m positive and looking to buy stocks from my Lists that have patterns and are either starting an Up trend or are pulling back and resting from a recent move up. For stocks that appear to be completing a wave 2, I’m looking to buy them when the indicators turn positive, especially if they have tight Bands. On those stocks that are already in up trends, I’m looking to buy them if the 2-period RSI Wilder becomes oversold. We’re going higher.
Also, continue to pay attention to Emeritus and the Honor Roll. Remember how he signaled ‘RALLY’ on 2 January by placing a world record 38 new stocks on the Honor Roll? Then added RCL, GILD and CNI. He highlighted SLB on 8 January, then again on 16 January. And PEP on 10 January, just to name a few. Pay attention :>)
Continue to be patient with gold and silver. On Friday, the PT indicators turned positive on SLV after a nice 2-wave pullback since mid-September. The ETF is starting to ‘Jump the Ropes’again. Hmmm? Could Major Wave 3 Up be starting? We’ll see.
I’m also watching the Major Hockey Stick Pattern on physical gold shares, GLD. Gold is also playing with a ‘Rope Jump’on the Daily’s. The DMI and P-vol turned positive on Friday. Now all I need to see is a positive MACD and I’ll go looking for my pick and wheelbarrow.
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.
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