Joined Nov 11, 2007
1,458 Blog Posts

High Tight Flag for Thursday

I was surprised, after today’s bull stampede, to find only one high tight flag. I suspect more will turn up if momentum continues.

The hanging man that printed today is not optimal. Still, this is definitely one to keep on the radar.


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10 Cups With Handles for Wednesday

In light of the resolution of the Fecal Cliff, my short setups post may be just right for a quick trade in a market that will be short-term overbought.

However, the following stocks have made cups with handles, and today’s jump may just provide the push they need to breakout. Pick your poison.

While looking at these and other charts, I noticed that Real Estate and Property Management Groups were near breaking out…

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Top 5 Short Setups for Wednesday

If you are following the Fecal Cliff debacle, you are likely aware that the Senate version has been sent to the House but the House may not pass it. If you are not following the Fecal Cliff debacle, good. It is a disheartening display of how awful our government is.

Anyway, should we continue to slide down this cliff, I expect that the opening day of 2013 will not be pretty. It might be handy to have some stocks in mind that recently surged but are in long-term downtrends.

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To all my relations at iBC — Happy New Year!

To your wealth, health, and family, cheers!

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Fecal Cliff – Bounce or Die!

Two measures of breadth that I’ve been following for years are signaling that a bounce is likely. There are probably other measures that are confirming that market breadth is oversold, but I’m a believer in following and trusting in what you know and understand, and these indicators fit that description.

The two indicators are the number of stocks above their 5 day moving averages and a percent-rank of the number of declining stocks.

The Rules:

  • Buy $SPY at the close when the number of stocks above their 5 day moving averages is < 650 and the percent-rank of declining stocks is > 89.
  • Sell $SPY at the close X days later.
  • No commissions or slippage included.
  • All available $SPY history used.

The Results:

So yeah, oversold breadth tends to lead to a bounce. Duh.

Some Additional Stats:

Next Day Winning Percentage: 53.75%
5 Day Winning Percentage: 59.71%
Median Trade After 50 Days: 2.77%
Average Trade After 50 Day: 2.00%
Number of Setups: 160
Number of Trades Held 50 Days: 60

Belows is a chart showing the indicators…Click to enlarge…

I have included trading arrows to demonstrate when both indicators have triggered in tandem. The red down arrows show the sells 50 bars after the buy. There were other times the indicator triggered, but those are not reflected in the chart because it was already in a long trade from a previous trigger. In other words, the system can only be in one trade at a time.

Ignoring technical measures, I’m thinking that the recent selling is likely due to seasonal reasons plus the expectation of the increase in capital gains taxes. If this is true, the selling may continue despite market breadth being oversold.

I’m guessing that good news on the fecal cliff will yield a bounce that may be substantial initially, but may sell-off once the details are better understood.

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