Stan Weinstein's Stage Analysis

[lplate]

Re: DG

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.

Thanks. I see the problem that although Weinstein says to look for a buy on a pullback to the breakout, which in this case is $48, a pullback by definition means you face a new recent high, in this case at $53, as new resistance. On a weekly chart, with your cautionary notes, it looks plausible, though on a daily it looks less enticing.
I was not thinking of buying this, but would like to see how it works out in reality.

 

[isatrader]

Re: DG

Thanks. I see the problem that although Weinstein says to look for a buy on a pullback to the breakout, which in this case is $48, a pullback by definition means you face a new recent high, in this case at $53, as new resistance. On a weekly chart, with your cautionary notes, it looks plausible, though on a daily it looks less enticing.
I was not thinking of buying this, but would like to see how it works out in reality.

I've done a quick markup of where I see the A and B buying points. You could also say the pullback at the end of July was enough to get in then as point B, and in which case it could have been stopped out if the stop loss position wasn't a good distance below the breakout level.

You might also have chosen the early May breakout as point A, but that was the week that the broad market indicators gave sell signals, so you probably would have dumped it quickly as a false move, but could also have sat through it as the logical stop position below 45 wasn't violated (I have attached the alternate weekly chart as well).

If you look at breakout point A on the first weekly chart there was a volume surge the day before and the relative strength was outperforming. The risk was roughly 3 x ATR as the trader stop would have gone below the 46.45 swing low a few days earlier. The breakout then made a 6 to 7x ATR move to the 56.04 high which is an excellent trader gain as anything above 3x is good imo as that is the max risk I tolerate.

The B pullback point would have got you in at 50.07 with a stop loss below the 48.19 swing low, so roughly 2x ATR risk. And the current 52.51 would have given you roughly a 2.5x ATR move so far.

So the next point to consider is what is the C breakout point. Is it a good close above 53 or the highs at 56. Again a breakout above 53 would give you the opportunity of a 3x ATR move up to retest the 56 highs, but you'd have to have a tighter stop loss below the 50 day MA and recent small swing high to 51 to get a reasonable risk reward imo.

 

[isatrader]

I had a look through tonight's high relative strength stock scans that have broken out and Bank Mutual (BKMU) looked a good example of a continuation move still early in it's Stage 2 trend. It pulled back today on light volume along with the broad market after a good volume surge last week before the breakout of more than double the last 4 weeks average. Relative performance versus the S&P 500 is trending higher as the zero line (52 week MA) is rising and the RS is above it and close to breaking out to new short term highs also. So this is one for the watchlist for the next few days imo, if the market can turn around that is.

 

[sall]

What a great thread - I've come back to this forum after a number of years and having read Stan's work so long ago this thread is a real treat and a refresher for me . Isatrader just a quick question how much data on a chart would you consider for analysis with the 30ma, i feel it's about 8 months to a year if it's a weekly chart?

Secondly i wonder if you've ever tried this indicator intra day, i have indeed tried a number of years ago on a 3 minute time frame and the results were astounding especially when looking to trade only in prime time on indicies. I didn't actually apply the method to real money - however i am back and looking at ideas to apply on intra day on liquid instruments such as dax,ftse,dow. Any thoughts please - appreciate and thanks in advance

 

[isatrader]

What a great thread - I've come back to this forum after a number of years and having read Stan's work so long ago this thread is a real treat and a refresher for me. Isatrader just a quick question how much data on a chart would you consider for analysis with the 30ma, i feel it's about 8 months to a year if it's a weekly chart?

Thanks, I appreciate it, especially after someone gave the thread a less than generous 1 star rating the other day. Clearly not a fan of Weinstein's method!

I would say that a minimum of 8 months data for a weekly chart, but we generally stick to two year charts on the weeklies as that's normally still got support and resistance levels within memory for people, which is an important part the of the method that is often overlooked.

Secondly i wonder if you've ever tried this indicator intra day, i have indeed tried a number of years ago on a 3 minute time frame and the results were astounding especially when looking to trade only in prime time on indicies. I didn't actually apply the method to real money - however i am back and looking at ideas to apply on intra day on liquid instruments such as dax,ftse,dow. Any thoughts please - appreciate and thanks in advance

I have only had a brief look at it on intra-day time frames personally, as the goal for me over the last few years has been to study it and apply it as Weinstein suggests in the book and his GTA report on the weekly and the daily charts.

I can see the stages on the intra-day charts though, and it does look to have merit visually; so I'd be interested to see some trading results of an application of it. But as I said it's not something I've attempted personally.

If you want to try it intra-day on liquid instruments then the S&P 500 (ES) is the most liquid I believe of the major indicies.

 

[lplate]

Re: DG - buying on a pullback

I've done a quick markup of where I see the A and B buying points. . . .
If you look at breakout point A on the first weekly chart there was a volume surge the day before and the relative strength was outperforming. . . .
The B pullback point would have got you in at 50.07 with a stop loss below the 48.19 swing low . . .
So the next point to consider is what is the C breakout point. Is it a good close above 53 or the highs at 56. . . ..

Thank you very much again for your detailed thoughts on this.
I saw the chart as shown on your first chart and am thinking on the lines of the Investor Way on pp 59-61. Weinstein says "close to" the initial breakout on p 34 and p 61. Yes I suppose this fails as the DG price does actually fall back below the breakout level. The question is how much leeway we should allow on this rule, if any.
The other question is about how much time to elapse before the pullback. In this case it is a 2-3 months, which might be more time than Weinstein had in mind, and by which time the stock could have run considerably, as in this case 10%-15% or so.
The other question is what I said before, that during a pullback, by definition, the share is likely to be underperforming the SPX.
It is certainly simpler to buy only on breakouts, but I was just wondering if I was missing the benefits of the pullback set up.

 

[isatrader]

Re: DG - buying on a pullback

Thank you very much again for your detailed thoughts on this.
I saw the chart as shown on your first chart and am thinking on the lines of the Investor Way on pp 59-61. Weinstein says "close to" the initial breakout on p 34 and p 61. Yes I suppose this fails as the DG price does actually fall back below the breakout level. The question is how much leeway we should allow on this rule, if any.

On page 194 he says "If the stock is going to be an A+ trade, it shouldn't drop significantly below the breakout point. So you should set the stop under the closest prior reaction low." i.e. prices don't necessarily have to stay above the breakout level on the pullback, and I've personally observed that they fall back below in a lot of cases as the major support level is normally a bit below the breakout point where the stocks have changed hands the most. Which is why I like to look at the price by volume data on the P&F chart as it gives a much clearer idea of what that level or zone is.

DG isn't really the greatest example as it's in Stage 2B and hence a trader continuation buy, of which Weinstein says you should go all in at point A on page 62 of the book. However, he says that with early Stage 2 investor positions that 80% are followed by a handy pullback. But, that this happens less than 50% of the time with trader continuation buys - which this was. So that was why I showed the three potential trades, as it's already run a long way and showing some fatigue. So it should only be considered for short term trades imo.

I do think that the A, B and C entry points are still workable as long as it continues to satisfy the other requirement of the method such as volume, relative strength and not closing a week below the 30 week MA. So DG would have been borderline as the declining relative strength would have put me off personally.

The other question is about how much time to elapse before the pullback. In this case it is a 2-3 months, which might be more time than Weinstein had in mind, and by which time the stock could have run considerably, as in this case 10%-15% or so.

The amount of time is up for debate as I don't think there is a set amount of time. But, the 30 week MA needs to be rising strongly still and the pullback needs to form above it. My personal opinion would be that if it's run up for 2 to 3 months like this did and made a large percentage gain relative to it's normal average true range then you should be taking profits at least if you intend to hold it, so that the pullback is less bother to your account, and then you always have the option to buy back in at points B or point C as it makes a continuation move. But the more active traders will just want to close the position after a good percentage gain relative to it's normal average true range and move onto the next one, which for me if I'm active trading, is anything above 5x ATR(200) - which DG reached around the 54 level from the point A continuation breakout.

The other question is what I said before, that during a pullback, by definition, the share is likely to be underperforming the SPX.
It is certainly simpler to buy only on breakouts, but I was just wondering if I was missing the benefits of the pullback set up.

Not necessarily. Ideally the stock should still be outperforming the S&P 500 or at least in line. i.e. the only reason it's pulling back should hopefully be it's correlation with the index, which is having a correction itself and taking the stock along for the ride and not anything negative to do with the stock itself.

He says in the book that the pullback to the initial breakout level is the safest place to buy, but you will miss the biggest movers if you only buy at this level, as they never pullback to the initial breakout level. And also remember, that he's not talking about continuation entries, but investor Stage 2A entries when he talks about this.

 

[lplate]

Re: Uptrend break example MUL.L (UK:MUL)

. . . a valid trend line needs to have at least 3 touch points I believe, but it is more of an art than a science, as everyone will draw them slightly different. . . ..

Isatrader, you have advised on trendlines before and on exactly where the breakdown points are, so I recognise there is scope for disagreement on interpreting a chart, but, just as an example, I thought this was interesting, in that, you have 3 potential valid Weinstein entries and each, depending on fulfilling other criteria of course, could be expected to make money.
(Well they would if I had been able to short this share, which of course is not possible as they don't let you do so!)
Mulberry is from the same UK luxury apparel sector as Burberry, which we discussed on page 66.)
Mulberry Group weekly chart - advfn (Excuse the chart not having volume or MRS, but I think you can get the idea.)

 

[lplate]

Re: DG - buying on a pullback

On page 194 he says "If the stock is going to be an A+ trade, it shouldn't drop significantly below the breakout point. So you should set the stop under the closest prior reaction low." . . .

Thanks isatrader. That is an Excellent dissection of this tricky subject and I recommend reading this post in full - at least twice! - to all readers of this thread.

 

[isatrader]

Re: Uptrend break example MUL.L (UK:MUL)

Isatrader, you have advised on trendlines before and on exactly where the breakdown points are, so I recognise there is scope for disagreement on interpreting a chart, but, just as an example, I thought this was interesting, in that, you have 3 potential valid Weinstein entries and each, depending on fulfilling other criteria of course, could be expected to make money.
(Well they would if I had been able to short this share, which of course is not possible as they don't let you do so!)
Mulberry is from the same UK luxury apparel sector as Burberry, which we discussed on page 66.)
Mulberry Group weekly chart - advfn (Excuse the chart not having volume or MRS, but I think you can get the idea.)

I downloaded the price data from ADVFN and loaded it into my charts for you. Attached is the weekly and daily charts so you can see the other factors such as relative strength and volume. The move down through the 200 day MA in early June was gap down.

P.S. Thanks for the kind words in the previous post.

 

[isatrader]

Effective Volume

I thought it would be interesting to have a look at the large player/small volume during this pullback in the major indexes and see if it gives any clues. The IWM (Russell 2000 Small Caps) large player volume is the most interesting I think, as the large players pushed the price higher to breakout the other week, but the pullback has been mostly small players so far, with the large player volume staying flat - diverging from the price moves. The SPY and QQQ are less clear, as have shown a lot of small player selling in both, but not so much large player selling in the SPY, which only started to participate in the selling yesterday after diverging for most of last week. So it seems to be suggesting that it's a small player lead pullback so far if I'm interpreting it correctly.

The data was copied from Effective Volume - ETF Review

 

[isatrader]

I was going through the charts tonight and came across Molycorp (MCP) and thought it was a great example of the stages that we don't often focus on which is the topping pattern into Stage 3, which provided the right shoulder of a big head and shoulders pattern in this case.

Note for Stage 3 how first the price made a weekly close below the 30 week weighted moving average in June 2011, and the relative performance line broke below the trend line and began to close below it, losing momentum versus the market. The price made a swing low and then retraced back above the 30 week WMA and started to swing above and below it without managing to breakout higher again. Once the price broke below the head and shoulders pattern trend line you might have been tempted to go short. But if you zoom in a daily chart you'll see that that was the first close below the 200 day MA, and the Stage 4A breakdown point is formed once you get the first swing low below the 200 day MA - which was at 45 in this case.

The initial Stage 4 breakdown didn't manage to retrace to the 45 level on it's first rebound, showing the strength of the move and so gave a number of opportunities to get short.

It made a brief attempt to recover at the end of March this year and got into Stage 1A. But again if you zoom in on the daily chart you'll see that it was still far below a declining 200 day MA and didn't manage to get a close above it's short term resistance and quickly rolled over and back into a Stage 4 continuation for another big move lower to where we are today. Which looks to be attempting to base for the fourth time, but this time on much heavier volume after another 50% down move since the July breakdown, and so could be some short covering imo. But it's got a long way to go yet just to make it back into Stage 1 and so is still currently Stage 4B.

Out of interest I did the swing target from that head and shoulders pattern and it gave a target of 14.

 

[lplate]

Ind.l

I was going through the charts tonight and came across Molycorp (MCP) and thought it was a great example of the stages that we don't often focus on which is the topping pattern into Stage 3, which provided the right shoulder of a big head and shoulders pattern in this case.

Thanks for that isatrader, as I've seen that come up in scans of active stocks and high volume and is a nice chart.
Potential Weinstein b/o on good results for this software company today above 410 which will prob be on high vol. Wkly chart so add the 60p move in your head. IndigoVision Group PLC, UK:IND -wkly - BigCharts.com

 

[isatrader]

Re: Ind.l

Potential Weinstein b/o on good results for this software company today above 410 which will prob be on high vol. Wkly chart so add the 60p move in your head. IndigoVision Group PLC, UK:IND -wkly - BigCharts.com

Look's promising. I've attached the weekly, daily and a longer term monthly chart so you can see the long term down trend line that it's challenging. So if it can close the month above 425 or so, it will be a major trend change.

 

[lplate]

Re: Ind.l

Look's promising. I've attached the weekly, daily and a longer term monthly chart so you can see the long term down trend line that it's challenging. So if it can close the month above 425 or so, it will be a major trend change.

Thanks for that analysis. Of course this is another practical issue with implementing Weinstein, that it is not an "end of" system, but to buy as soon as the price breaks, e.g. using a buy stop limit. In this case the early morning high was 430 and it gradually fell back to close 410. Clearly you would not want to buy the top of an exuberant spike, so I think each has to make their own decision, and mine would be to wait a couple of hours to see if it holds above the breakout. What do you think?

 

[lplate]

Idcc

I'm not too tempted, but this software stock, now at $37, from the Stocktiger daytrader scan, qualifies as a Weinstein b/o from a base at 36.50, I think, a rise caused by promotion to S&P 600. IDCC - Interdigital 2 yr wkly 30w ema - StockCharts.com

 

[isatrader]

Re: Ind.l

Thanks for that analysis. Of course this is another practical issue with implementing Weinstein, that it is not an "end of" system, but to buy as soon as the price breaks, e.g. using a buy stop limit. In this case the early morning high was 430 and it gradually fell back to close 410. Clearly you would not want to buy the top of an exuberant spike, so I think each has to make their own decision, and mine would be to wait a couple of hours to see if it holds above the breakout. What do you think?

I'm not sure if the buy stop part of the book is relevant in today's markets as you get frequent spikes above the breakout levels in some cases, that then close below it again and frequently reverse. The key data points to watch imo, is the daily and weekly closing prices. As for a confirmed breakout you need at least a daily close above the breakout level. In the 2nd March GTA report for example, that I managed to get hold of, he talks about "on a closing basis" and "failed to close above" which he highlights in italics. And also in the stock picks section he never mentions buy stops, but instead said for example on AET "...a close above 47.75 would now be the signal to become even more aggressive." on CBS "...additional buying should now be done on a close above 30.60." etc

So it appears that the buy stop part of the method isn't used these days, and so you need to focus on the closing prices and so I think a better method these days is to set an alert in your trading software that gets triggered when a breakout level is breached that you are interested in. Then, in order to make sure you don't get into a false breakout, you could monitor the intra-day price action in the last hour of trading and if it's holding above the breakout and the broad markets are not selling off; then do your buying in the last 15 minutes of the trading day. Or you could wait until the end of the week and do the same thing but for a weekly close - which obviously has more weight than a daily close does.

 

[GrandSupercycle]

Very overextended equity & commodity daily charts will retrace substantially.
They have no other choice.
http://www.trade2win.com/boards/indices/156446-market-analysis.html

 

[isatrader]

Re: Idcc

I'm not too tempted, but this software stock, now at $37, from the Stocktiger daytrader scan, qualifies as a Weinstein b/o from a base at 36.50, I think, a rise caused by promotion to S&P 600. IDCC - Interdigital 2 yr wkly 30w ema - StockCharts.com

It's an early Stage 2A after a fairly hefty fall from over 80 last year, so is more suitable for a longer term investor as it could need time to build a bigger base. My only concerns for a short term trade would be that there's fairly recent resistance to deal with, but no clear major resistance, and the most volume has traded between the 35 and and 50 zone over the last few years. The next near term highs are around the 40 area which only gives a 1.91 x ATR(200) move from the current level, which is a bit a small on the risk reward side of things imo.

 

[isatrader]

Re: Market Breadth

As we don't have access to Weinstein's proprietary S&P and Secondary Surveys (the percentage of stocks in those respective universes that are technically healthy - in Stages 1 & 2), which he considers to be the most important gauge when determining the market health. I instead use the market breadth indicators of the NYSE Bullish Percent Index ($BPNYA), and the NYSE Percent of Stocks Above their 200, 150 and 50 Day Moving Averages in it's place. I find it most useful to look at them all together so you can see the short, medium and long term changes.

However, in relation to Weinstein's method the NYSE Percent of Stocks Above their 150 Day (30 week) Moving Averages is the key chart, as it's a rough way of having a look at what percentage of stocks are trading in Stages 1 & 2. As the majority of stocks in Stages 1 & 2 will be above their 30 week moving averages, and majority of stocks in Stage 3 & 4 will be below their 30 week moving averages. Obviously there will be some overlap as Stage 1 and Stage 3 stocks swing above and below their 30 week moving averages, but it gives a good idea of whats going on below the surface, just as Weinstein's proprietary S&P and Secondary Surveys do.

Anyway, I've updated the breadth charts in the other thread here: http://www.trade2win.com/boards/technical-analysis/147476-market-breadth-8.html#post1977524, but I've also attached the NYSE Percent of Stocks Above their 150 Day (30 week) Moving Averages line chart below, which shows that currently 69.41% of Stocks are above their 150 Day (30 week) Moving Averages, and that the trend continues to be positive despite the current pullback.

NYSE Percent of Stocks Above their 150 Day (30 week) Moving Averages ($NYA150R)