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At the risk of oversimplification, the most effective ways to trade stocks is to keep it simple.
One of the best ever at this was Nicholas Darvas.
His method was to put a simple box around a stock’s price consolidation and buy it as the stock came out of the top of the box and either put a stop loss below his trade price (which would be a tight stop if the stock came back into the box) or below the bottom of the box (depending on anyone’s individual risk parameters).
Darvas said he never shorted a stock dropping below the bottom of a box only because he felt he was not psychologically suited to selling short. Still that would be, especially in a bear market, as simple of buying the top of one of his boxes in a bull market.
Darvas’ book “How I Made $2,000,000 In The Stock Market” (this was the 1950s) describes his “Box System”. It is a classic. And timeless – see the chart of RACE below.
I have said before the easiest way to buy or not buy an IPO is to put a box on the high and low of its first day of trading and buy above the top of the box and short below the box. While an IPO’s first day is itself a Darvas box (blue on the chart below) as one can see here there are others also very worthwhile for the trader as well as a longer-term investor.
(Click on chart for a larger view)
The market moved higher again today. This is the fifth day up in a row, and the fourth day of the swing trade from Monday’s open.
A splendid week for the bulls.
Of the three main trade signals — Price, Breadth and Volatility — two remain on buys while short-term breadth turned down today. That’s a signal for swing traders to take some profits – a third off, or more. Breadth, especially after a strong run of five days and especially with significant profits on the table, is often (not always) the sign that an advance has lost its momentum.
In addition, my nifty-50 stock list moved from 43 stocks on buys yesterday to 33 on buys today as 11 of the 34 oversold stocks yesterday clicked down to 23 today.
In other words it will be no surprise if the market dips tomorrow.
This is will not be a time, however, to short but instead an opportunity to buy a dip for more to come going forward (until further notice).
PRICE: Positive. Long on Monday open (Trade Day 4).
SHORT-TERM BREADTH: Negative. A sell for Friday’s open (Trade Day 1).
VOLATILITY: Positive. Long on Monday Open (Trade Day 4).
LONG-TERM BREADTH: Positive (Day 2).
FEAR AND GREED INDEX: (54, rising in neutral).
NIFTY-50 STOCK LIST: 33 Buys, rising; 23 Overbought, 0 Oversold, no buys today, 11 sells.
The rally results so far (four full days):
TQQQ up 6.7 percent.
XIV up 6.5 percent.
UPRO up 3.0 percent.
TNA up 2.7 percent.
The net gain for a basket of the above leveraged ETFs for the trade is 4.7 percent.
In the midst of a four day trade it is probably worth taking a look at 10 familiar stocks on this swing:
(click on chart for a larger view)
The general market moved up again today. Fourth consecutive day up on the Nasdaq. It is the third day of the trade from Monday’s open. A four or more day move is where the money is made in swing trading, particularly with 3x-leveraged ETFs (see table below), or options, or futures.
At the same time, this market is getting wildly overbought. Forty-three of my Nifty-50 stocks are on buys, with 34 overbought. This is a lot.
The Nasdaq composite is more than two standard deviations of an average advance. That puts it on borrowed time for more upside. Needless to say, it can borrow more time. Markets go up until they go down. Simple as that, and this bull market has had an inclination to put on more gains just when one thinks it should stall.
It is time still to let profits run since all principal buy signals remain positive and long-term breadth just turned positive also, making this a market now to buy the dips, any dips.
PRICE: Positive. Long on Monday open (Trade Day 3).
SHORT-TERM BREADTH: Positive. Long on Monday open (Trade Day 3).
VOLATILITY: Positive. Long on Monday Open (Trade Day 3).
LONG-TERM BREADTH: Positive (Day 1).
FEAR AND GREED INDEX: (47, rising back into neutral).
NIFTY-50 STOCK LIST: 43 Buys, rising; 34 Overbought, 0 Oversold.
The rally results so far (three full days):
TQQQ up 6.0 percent.
XIV up 5.4 percent.
UPRO up 2.3 percent.
TNA up 2.8 percent.
The net gain for a basket of the above leverage ETF for the three days in the trade is 4.1 percent.
With BABA at new all time highs, I marked up the chart below mostly for fun, (although over the years it has been useful), and to suggest one could make a living trading just one stock.
(click on chart for a larger view)
TREND TRADE: Up from open, 1/25, possibly whipsawing.
SWING TRADE: Up from open, 1/20.
DAY/SCALP TRADE: Buying the dips with the trend trade
PRICE TREND: Nasdaq up 1 day, whipsawing.
After giving all the signs of an impending sell down, the market took off again to the upside. This has happened a lot during the later stage of this bull market.
Each time breadth has turned up (which it did again yesterday), the market has had a run so at this point the past of least resistance is again up. See how XIV, the leveraged inverse VIX ETF, has performed with the market behind it on the chart below (the green vertical lines marking each new surge like yesterday).
But the signs for a sell down remain, at least for now, so trading here is tricky and a buy and hold strategy downright scary. Appears the market chop has an upward bias but that is the way it was Tuesday. Today late may be another matter.
Stocks on my nifty-fifty stock list went from 19 on buy signals to 38 in a day. Stocks coming off recent sell downs that might produce at least a swing bounce or scalp trade include the banks JPM, C, GS, BAC and a big cap on the list, DIS.
Should be noted I guess that airlines, ALK and HA, on the list remain oversold and could play catch up in the next couple of days if the market continues yesterday’s bounce.
(right click on the chart for a larger view)
Not confirmed yet but if the market stays down it appears after 45 days of rally, the market may begin to take a tumble today. And if today’s downside trigger follows through, there could be a full-blown correction in the making.
A couple of ifs in there but if they hold, it will be time to look around for stocks to sell if one currently holds them, or to short if one is an aggressive trader.
Case in point – TSLA.
TSLA, like to most stocks, tends to run with the market’s general direction, both up and down.
On the up, Tesla has had a great in run during this rally, roughly from 191 to (at the moment) 227, or 18.5% or so. A profit well worth locking in since the stock can be volatile.
Now for the down. Looking at the chart below, it appears the market may be turning negative (the green and red dots the middle of the chart) and so is Tesla’s stock. When the market and the stock are in sync like this one needs to go with the market until the stock says otherwise.
In short, TSLA is a short. That is if all the ifs above remain true at the end of this day.
Market breadth did not stay negative on yesterday’s close (note the green dot instead of red on the indicator in the middle of the second chart below) so the short signal anticipated here never triggered and instead TSLA, on news (its charging station pricing) and modestly bullish day in the Nasdaq to back it up, had a nice rise today, 3.3% from today’s open. So it goes sometimes.
(right click on the chart for a larger view)
(right click on UPDATED chart for a larger view)
DGI, the one stock giving a buy signal for a day trade today finished down .62%, a small loss and a small price to pay for very fine week. Although the stock indexes were up again – 6 days in a row – there were more signs of a pullback, or at least a pause, in the rally – only 14 of the 50 stocks on my nifty-fifty stock list were up on the day.
The day-trading stocks for today again scored with the market’s continued rally but a stall may be coming Friday.
Today’s basket of stocks from my nifty-fifty list — BBL, NAV, SKYW, BGFV, YRD, MU and FNSR (the leader highlighted on the chart below) — had five winners and one loser for a net gain of 1.8% for the day. That won/loss on stock day trades for the week stays just above 82%.
However, there is a clue to tomorrow’s possible action since there is only one stock – DGI – on the list giving a buy for tomorrow’s open. Forty-one of the fifty stocks on my list are on buys for the current market upswing (down from 42 yesterday). Often when one runs out of new stocks to buy the swing is ready to stall, and maybe fall. That comes with market indexes up 5 days in a row so a pause here will not be surprising.
Been a very good week for the bulls.
(Right click on the charts for a larger view)
As the market breadth continues to climb, stocks on my nifty-fifty list that gave buy signals today for Thursday’s open are BBL, NAV, SKYW, BGFV, YRD, FNSR, MU.
Again, these are intended in my mind to be day trades to be opened on the open and closed on the close and all are for entertainment purposes only and not to be construed as market advice.
A cautionary note: the general market indexes are up 4 days in a row and 42 of the stocks on my nifty-fifty list are on buys (that’s a lot and often leads to a pullback in the general market within a day or two) and given today looked very much like a bear-capitulation day “sideways to down” can be expected at any moment.
If sideways or up, these particular stocks will likely run for at least a day. If down…not so good since most stocks move with the market.
This is an update for yesterday’s post below in which these stocks were suggested as buys on today’s open and sells on today’s close, day trades.
The net gain on the basket was 2.04 percent, led by GPS up 4.8% lagged by HIIQ flat. Nice to have five out of six winners and actually no loser.
(click on the picture for a larger view)