Stan Weinstein's Stage Analysis

[isatrader]

Continuation moves

Inspired by kleros question on scanning for stocks I made some custom scans using stockcharts scan builder to look for stocks in the S&P 500, S&P Mid Cap 400, S&P Small Cap 600 and all ETFs that have a StockCharts Technical Rank above 70% and made a double top P&F breakout today. The results weren't too bad and are attached below. XBI looks like a good continuation move, but will need to see some volume come in in the coming weeks if it continues on it's current path.

 

[isatrader]

Re: QCOR another short to add to PCLN

I thought $43 would be enough for this share, but it rose fast and well above $50.
It now looks more like a classic full stage 3 breakdown well down from the top of its volatile stage 3, so, although the current $34 looks fearfully a long way down from $55+ , it is nevertheless a short (or a final close for longs) on a retest of the breakdown line in the $34 area. (There were (too many!) positive articles for this share even right up to yesterday.)

Hi lplate, I wanted to have a look at what the Large players (institutional) and Small players (retail) have been doing in this one, and it's clear from the Effective Volume indicator on the chart below that the Large players have mainly been offloading this stock to the Small players since last November and today one or more of them exited in a big way after a few months of the small players pushing the prices back up for them.

So that's why there were so many positive stories, as it's a classic pump and dump by the institutional traders, so that they can get out of the stock at a much higher price around the 50 level. As they've probably been buying all the way up since it was down at 10 a few years ago and have been gradually offloading stock all year to retail punters.

You've now got a bunch of retail traders sitting on as much as 50% losses or even more in some cases, and so I'm inclined to agree that any rebound back up to the previous 34 area support will then get sold back down, as people try to get out even.

For a contrast look at the Apple chart below, which the Large Players (Institutions) clearly love right now, as have been buying it all year. Whereas the March/April sell off was by small players (retail) and was absorbed by the Institutions looking to get in at lower prices.

 

[theblackmamba]

bought some of these the other day..the monthly chart looks good to me.
boughyt based on dailies, but weekly shows the stage well

 

[isatrader]

bought some of these the other day..the monthly chart looks good to me.
bought based on dailies, but weekly shows the stage well

I remember back in January when you flagged up LEN to me as the the Dow Jones US Home Construction Index (^DJUSHB) had been outperforming the S&P 500 by the most since the October low (and it still is one of the top sectors now) and I did a stage analysis on the monthly and weekly chart of LEN showing that it had moved into early Stage 2 on the monthly chart after a multi year stage 1 base had formed. Here's the link back to the post: http://www.trade2win.com/boards/technical-analysis/134944-stan-weinsteins-stage-analysis-29.html#post1767744

RYL is the same sector and has made very similar moves to LEN since January, but one note of caution now would be the historical resistance from 2006 to 2008 around the 36 area, which could cause some technical selling as people book some profits as it's up 300%+ since the October lows. But it's so old that it's not likely to affect it too much if the institutions want to keep buying the sector, but it is quite extended in the short term and may need another pause, as it has moved up in steps all year and so may pull back towards the recent 27 continuation level.

Attached are the charts of both RYE and LEN

 

[lplate]

Re: QCOR another short to add to PCLN

. . . it's clear from the Effective Volume indicator on the chart below that the Large players have mainly been offloading this stock to the Small players since last November and today one or more of them exited in a big way after a few months of the small players pushing the prices back up for them . . . it's a classic pump and dump by the institutional traders, so that they can get out of the stock at a much higher price around the 50 level. As they've probably been buying all the way up since it was down at 10 a few years ago and have been gradually offloading stock all year to retail punters. . . .
For a contrast look at the Apple chart below, which the Large Players (Institutions) clearly love right now, as have been buying it all year. Whereas the March/April sell off was by small players (retail) and was absorbed by the Institutions looking to get in at lower prices.

Fantastic analysis isatrader.
This is also confirmed with the insider trading over the summer. (QCOR) Insider Trading - NASDAQ.com
Don Bailey clearly likes to sell at the round numbers!

That large and small volume looks to be a very good feature of chartmill, so thanks for the demo. Unfortunately it is yet another thing to be checked, I suppose!
As you suggest, some wild west sectors are better played via ETFs - though the financial and liquidity structure of these need checking also !

 

[isatrader]

Re: QCOR another short to add to PCLN

That large and small volume looks to be a very good feature of chartmill, so thanks for the demo. Unfortunately it is yet another thing to be checked, I suppose!

It's not always as clear as on the QCOR example, but I do like to look at the free broad market ETF volume charts on the creators website each week. As they give a good insite into the volume flows in the QQQ, SPY, IWM and the 2x and 3x ETFs. Go to Effective Volume - ETF Review to see the latest effective volume charts.

The creators book Value In Time explains how to use the Effective Volume. It's not an easy read - a bit more like a textbook, but explains the maths behind it all and how he applies it in his trading models.

I think it not something you need to look at all the time on individual charts as small moves are not significant as can be due to hedging. But, if you've got a prolonged Stage 3 in a stock or a big Stage 1 base and want to see whether the institutional players are in accumulation or distribution mode, then I think it's a big help.

To bring it back to Weinstein's method. I think as one of the key components of the method is volume, that it's important to understand what the straight volume data is telling you and is why I created the cumulative force index for my charts, as like Effective Volume, it interprets the data to help show you what the volume flow is in a particular stock or commodity. Which I find hard personally to decipher from the straight volume data alone.

P.S. For those that like screening for these type of moves. Chartmill also has the facility in it's free screener to look for the Effective Ratio. Which in his book, Pascal defines the Effective Ratio as the total Effective Volume by Large Players divided by the total volume. This results in the percentage of volume that was accumulated or distributed by large players in a specific stock. Here's the link to the explanation of how it works: Effective Volume (explanation) - Are the large players accumulating?

 

[lplate]

Re: QCOR another short to add to PCLN

. . I do like to look at the free broad market ETF volume charts on the creators website each week. . . . I think it not something you need to look at all the time on individual charts as small moves are not significant as can be due to hedging. But, if you've got a prolonged Stage 3 in a stock or a big Stage 1 base and want to see whether the institutional players are in accumulation or distribution mode, then I think it's a big help.

You clearly have read very widely, isatrader! Thanks for that explanation.
Returning to how we got into this, at the time I think we were discussing the role of trendline breaks in Weinstein, as opposed to the usual horizontals, and I found QCOR as a possible trendline break short. Conventional volume seemed to confirm that the up moves tended to be on smaller volume than the down moves.

I think it shows that the Weinstein basics are adequate, and the more extra features of the situation you have time to examine, the better. It should not delay us too long though, as Weinstein says: When all these important factors check off positively, don't walk, RUN to the telephone . . . (p88) !

 

[isatrader]

Re: QCOR another short to add to PCLN

You clearly have read very widely, isatrader! Thanks for that explanation.
Returning to how we got into this, at the time I think we were discussing the role of trendline breaks in Weinstein, as opposed to the usual horizontals, and I found QCOR as a possible trendline break short. Conventional volume seemed to confirm that the up moves tended to be on smaller volume than the down moves.

I think it shows that the Weinstein basics are adequate, and the more extra features of the situation you have time to examine, the better. It should not delay us too long though, as Weinstein says: When all these important factors check off positively, don't walk, RUN to the telephone . . . (p88) !

I do like to read a lot of books, and I know most are not going to offer anything new, but occasionally I find the odd gem. For example Weinstein's book cover really put me off when I first came across it, as it looked so cheesy. But the reviewers changed my mind and I gave it a chance and now a few years later it dominates my trading method.

I agree with what you said above, all the signs were there just from the stage analysis, using the basics of the method and would have got you out if you were long a while ago, and looking to short it on a breakdown below the trend line like you were. So it was a good call and could easily turn into a big stage 4 mess from here as something's clearly not right with that stock.

 

[isatrader]

At the start of the US trading day it looks like there's the chance of a number of Stage 2 continuation moves today, as there's already a few early breakouts in the DAX, GBP/USD, Gold and Silver today, so it will be interesting to see if they can close the day above their breakout levels to give some confirmation to the moves.

[EDIT 10.56 ET] Most have pulled back below the breakout levels again since the US open, so I will be watching to see if this turns around again into the weekly closes tonight.

 

[isatrader]

DigitalGlobe (DGI)

I wanted to do a follow up on lplate's pick of DigitalGlobe (DGI) from last month that he posted here: http://www.trade2win.com/boards/technical-analysis/134944-stan-weinsteins-stage-analysis-54.html#post1939276 as it made a Stage 2 continuation move today despite the major indexes flat to negative day.

It looks in good shape still, close to a new 52 week high if it can break 22.08, and you can see on the P&F chart and on the weekly cumulative volume that volume was light on the pullback to 18 and has continued to build into this current continuation breakout. So the short term 23.5 swing target looks within reach soon, and the longer term 32.5 P&F target is also still valid and looks achievable as the older resistance at the higher levels will have less strength.

Attached is the charts.

 

[isatrader]

Continuation moves - S&P 500

Expedia (EXPE) was the only continuation move in the S&P 500 on Friday with good relative strength after make a new 52 week high at 60.29; the weekly close wasn't above the previous August high of 59.50 though, so it's not a confirmed continuation yet, but is one for the watch list.

 

[isatrader]

Continuation moves - S&P 400 Mid Caps

Royal Gold (RGLD) was the only stock in the S&P 400 Mid Caps with good relative strength to make a continuation move on Friday after consolidating following last weeks continuation.

 

[isatrader]

It was a fairly quiet week as the majority of markets churned sideways at their respective support and resistance levels and consolidated some of their recent big moves

The Treasuries and Dollar Index had an up week, but the lack of volume is clear in the cumulative volume at the bottom of the charts, which had a divergence with the price action of each showing that there wasn't much conviction in the moves.

Below is the Mansfield Relative Strength rankings for the major charts. The German Dax continues to hold the top spot, followed by the Nasdaq 100 and S&P 100. The Russell 2000 inched back below it's zero line last week after reaching resistance, but it still managed to close above it's March highs, and looks to be consolidating, so is a key one to watch for a continuation move.

The Dollar Index, and 10 and 30 year Treasuries moved off the bottom of the table, with Crude Oil replacing them as it had a really strong down week.

Attached are the major charts for analysis.

 

[lplate]

Re: DigitalGlobe (DGI)

I wanted to do a follow up on lplate's pick of DigitalGlobe (DGI) from last month that he posted here: page 54 as it made a Stage 2 continuation move today despite the major indexes flat to negative day. It looks in good shape still . . .

http://www.trade2win.com/boards/technical-analysis/134944-stan-weinsteins-stage-analysis-69.html
Thanks for your views on this isatrader, and I still hold the position. DGI stockcharts weekly
Have you noticed, though, that many picks have flattened off in relative strength to the SPX S&P500? I was looking down the list of my picks and found the typical outcome you get from several stockpicking methods: one or two have done very well, several have gone up OK but quite slowly, several have stalled, and one or two have fallen badly. Overall, depending on exact entry point, the outcome since the start of August is approx 2%, I make it, but the SPX has risen approx 4%.
This suggest that while stockpicking might be useful for hedging, it may be better (and a lot less time-consuming!) to look only for the breakouts on the main indices, just as you did with the nasdaq, not least because it saves you from the big failuring individual picks.
Thanks for another week of full commentary and chart analysis.

 

[isatrader]

Re: DigitalGlobe (DGI)

http://www.trade2win.com/boards/technical-analysis/134944-stan-weinsteins-stage-analysis-69.html
Thanks for your views on this isatrader, and I still hold the position. DGI stockcharts weekly
Have you noticed, though, that many picks have flattened off in relative strength to the SPX S&P500? I was looking down the list of my picks and found the typical outcome you get from several stock picking methods: one or two have done very well, several have gone up OK but quite slowly, several have stalled, and one or two have fallen badly. Overall, depending on exact entry point, the outcome since the start of August is approx 2%, I make it, but the SPX has risen approx 4%.

It always depends what you are in as the relative strength changes and so you need to re-balance the portfolio at regular intervals. Dorsey for example, does an ETF that focuses on the high relative strength stocks called the PDP, and I think they choose to re-balance that quarterly so that the stocks that fall down the RS table get trimmed and replaced with the new leaders.

I had a similar problem at the start of the year when I was trading individual stocks mainly, as the stocks that I'd got into during November and December had outperformed, as they were mostly in the three defensive sectors, but then the sector rotation occurred in early January as more risk appetite came back, and my stock picks entered a consolidation phase and only made an extra few percent for the account during the first quarter, whereas the S&P 500 gained around 10% or so. So it made me focus a lot more on the relative strength movements as you might have noticed through the year in the thread with the various RS tables I post for the futures, sectors and indexes every week. As I think rotation is an important part of the method that isn't really talked about in the book, but obviously is dealt with in the monthly GTA report when Stan talks about whats going on. But as we don't have access to that as small investors, it's up to us to work it out for ourselves in order to stay ahead of the game.

...This suggests that while stock picking might be useful for hedging, it may be better (and a lot less time-consuming!) to look only for the breakouts on the main indices, just as you did with the nasdaq, not least because it saves you from the big failuring individual picks.
Thanks for another week of full commentary and chart analysis.

My CFD provider changed their charging structure for stocks. So I was forced out of the individual stock positions as you now have to pay a minimum charge of £9 plus the spread on each side of a stock trade. Whereas, on the indexes, currencies and commodities there's no min charge and you get paid dividends etc still. So as I like to see my cash position rise each day, instead be drained by fees - my focus has been on the indexes, currencies and commodities, as minimising fees is crucial imo, especially for someone trading a small account size.

My current open positions

Longs
S&P 500 (SPX)
Nasdaq 100 (NDX)
Gold (GC_F)
Silver (SI_F)
Russell 2000 Small Caps (RUT)
GBP/USD
EUR/USD

Buy Stop Order
Russell 2000 Small Caps (RUT)

I've got 15% of the account in cash currently as I recently took profits in the Silver and GBP/USD trades and closed the Soybean Meal trade as it hit my stop loss. Whereas, I also closed half my Nasdaq 100 trade as it's short term relative performance had dropped off and so I've now got 15% to put into the Russell 2000 Small Caps if it hits my buy stop order above last weeks highs.

 

[isatrader]

US Industry Sectors

I've changed the order of the US sectors in the charts this week to reflect Sam Stovall's theoretical Sector Rotation Model of the Market and Economic Cycles. As I stumbled across an old blog post on stockcharts that I had read at the start of year http://blogs.stockcharts.com/chartwatchers/2012/01/sector-rotation-review-2011.html?st=sector+risk that shows what sectors tend to outperform during the different stages.

As you can see from the relative performance charts attached, last year in March to December 2011 the Defensive sectors of Consumer Staples, Healthcare and Utilities lead the market, whereas in 2012 the leaders have been Technology, Consumer Discretionary and Financials. Suggesting that the market cycle has moved from "bear market" into the "market bottom" phase, and the next "bull market" phase will give rise to the Industrials, Basic Materials and then Energy sector at the market top theoretically. So I'll be keeping an eye on the Mansfield US Industry Sectors rankings table - which I will post following this - as it will be interesting to see when the bull market sectors of Industrials, Basic Materials and Energy cross the zero line and start to outperform the S&P 500.

 

[isatrader]

US Industry Sectors

As I said in the previous post I thought it would be useful to order my US Industry Sectors charts to match the theoretical market cycle. So the top row has the sectors that outperform as the market bottoms and starts to recover, and the middle row is the sectors that outperform in a bull market; and finally the bottom row is the defensive sectors that outperform during a downturn in the market.

Using Stage Analysis I can see that Consumer Discretionary and Technology are the strongest currently as they have made confirmed Stage 2 continuation moves, whereas Financials, Industrials, Basic Materials and Energy attempted continuation moves, but have fallen slightly back below and their breakout levels - which is not uncommon from my research and they could still breakout in the coming weeks. But in the words of Jesse Livermore "The prudent speculator, however, will carefully observe which way the stock will emerge from this consolidation, and not anticipate."

Consumer Staples, Healthcare and Utilities made Stage 2 continuation moves in June/July, but Utilities has rolled over as the market has risen and last weeks close put it into a new Stage 3A phase. Whereas, Consumer Staples and Healthcare are now in Stage 2B as people continue to buy them, but at a slower pace than some of the recovery sectors.

Below is the rankings tables in order of Mansfield relative strength and attached are the weekly and daily thumbnail charts so that you can see the current stages of the sectors.

 

[lplate]

Re: PNRA

. . . Using Stage Analysis I can see that Consumer Discretionary and Technology are the strongest currently as they have made confirmed Stage 2 continuation moves . . .

Thanks isa for that detailed sector analysis, and which gives more to ponder over.
From Consumer Discretionary is fast food chain PNRA - Panera Bread - StockCharts.com (from sssc on StockTwits ) The rise of this stock has caused cautionary notes on fundamental grounds, so this will be an interesting test of Weinstein's suggestion not to worry about p/es "too high".

DG - Dollar General - weekly- StockCharts.com stores also caught my eye as an interesting pullback entry opportunity from the big rise from $48 after it recently announced increased earnings guidance, though the volume is not right. It has given a strong bounce to $53, so stop now would be only $48 on the 30 wwma line.
See how it underperforms the SPX as it retests, and this is something I had not considered before.

 

[isatrader]

Re: PNRA

DG - Dollar General - weekly- StockCharts.com stores also caught my eye as an interesting pullback entry opportunity from the big rise from $48 after it recently announced increased earnings guidance, though the volume is not right. It has given a strong bounce to $53, so stop now would be only $48 on the 30 wwma line.
See how it underperforms the SPX as it retests, and this is something I had not considered before.

A note of caution on DG that I can see, is that it has yet to break above the three month resistance at 53, which it pulled back from yesterday. So personally I'd want to see a close above that for a continuation as the 50 day MA is still falling and the risk reward isn't great as it's over 5x the 200 day Average True Range to the stop distance.

 

[isatrader]

Attached are yesterdays high relative strength scan results for breakouts in the S&P 500, S&P 400 and S&P 600. CRY looks interesting as it's relative performance has been in a downtrend for four years and has broken fairly convincingly above the zero line in the last month and was upgraded last week as well. It's in the Health Care / Medical Equipment sector and had some good volume pickup in the last few days to breakout.