[isatrader]

Apologies for being late again, I can't seem to subscribe to the thread so missed this opportunity; but apart from seeing the logic in the answers the question as to whether the sector is in a stage 2 or stage 3 would depend on whether we could have been shorting this
Don't sell in a strong sector are the words
So our analysis has be on the sector chart and as Malcolm says, its stage 2 or a very early stage 3, but there's no indication of a flattening MA to suggest a 3 yet
Would we still be shorting this stock in this case?

No, this was not a good shorting candidate at the time, as although it was forming a Stage 3 top. It still had some resistance down to the $23 area, which can be seen clearer with the ichimoku cloud overlaid, but could also be seen just using the price from the mid 2012 consolidation range. As remember this stock had had a very strong but orderly Stage 2 advance over the previous year and a half and so would need a more time to work through the support before being shortable, as remember you only want to short the weakest stocks in the weakest sectors. AVD as you noted had a sector in a late Stage 2B / potential early Stage 3 phase, as it had made a lower swing high but still had a rising 30 week MA, and the market was also still reasonably strong in Stage 2B. So my point with this example was that even though it's in Stage 3B, it's not a good shorting candidate, and that investors that were still holding onto good gains from the Stage 2 advance would be very close to their stop loss if it hadn't already been hit on the earlier move into Stage 3A if they'd tightened up on the second lower high and so they should be considering exiting, as the risk of a breakdown was growing.

[MalcolmSm1th]

Malaguti, personally I wouldn't have shorted it at this stage (we're discussing the sector here). The sector price is still higher than the MA and the MA is still rising.

So, for me this means NO SHORTING. Howerver, on the buying side of things the sector looks as if it's come to the end of Stage 2 or is about to if it doesn't break out. From the sector chart I would say we're in a NO BUY situation until we know more but, more to the point we're in a NO SHORT.

Some people like the idea of being in a stock, if one isn't long then we're short. I don't subscribe to that because if a stock is in a stage 1 or stage 3 then we're forever coming in and out and getting mullered by the commissions and the spreads. So, the same applies here: we have three states in our holdings: LONG, SHORT and OUT.

This to me is a stock which says very loudly REMAIN OUT and if I were long then I would be selling now though I hope that I would have already sold.

This is only my point of view. The one thing that I am learning with Weinstein is that one has to be a lot more careful and conservative going in than I used to me.

- Malc

---

Malaguti, on the gold question.

I understand what you're saying and I have got charts here which have the same sort of shape and have had to get out. I have drawn some trend lines like yours and thought that they trumped the Recent High and, boy, was I wrong.

Now, a similar stock was STY.L which did have a trendline going down but the breakout (Sept 2013) didn't take it above the high of the spring of that year. The thing fell back a little and then took off properly in January 2014.

I still think that the same rules apply but not only does the trend line have to be broken but so does the recent high.

Again my view and I may be utterly wrong about it. But I think that STY.L is a good example of a stage 2 breakout which almost doubled in a month.

- Malc

[isatrader]

On another topic, this is in relation to page 16/17 where he says that the MOST bullish scenario is where a long term trend has been breached to the upside followed within days of breaking the MA
Here is Gold, would this classify as an example? trend line has been going for a year, with numerous touches and MA (weighted) broken immediately

and does anyone actually use this method, or rather wait for a more "classic" basing pattern? Interestingly the MA on the breakout turns up immediately.
There is of course the added benefit of a large double bottom playing out after 1400 of course

   

Hi malaguti, I think you've misinterpreted what it was saying in the book:

From the last line of page 15 onwards in the Trendline section of text...

Conversely, the steeper the angle of descent of a declining trendline (Chart 1-10) the less bullish it's implications are when it's overcome. All it may mean (especially if the stock is below it's long term MA) is that the stock is now going to decline at a slower rate of descent.

   

However, the closer to horizontal the trendline is when it's broken to the upside (Chart 1-11), the more bullish the implications are. The most bullish signals are given when a very important trendline is broken on the upside, and within a matter of days the long term MA is also overcome on the upside.

   

So as you can see your Gold example looks more like the less bullish example in Chart 1-10, as the descent of a declining trendline is quite steep on it. So I'll repeat what it said in the book quote above: "The most bullish signals are given when a very important trendline is broken on the upside, and within a matter of days the long term MA is also overcome on the upside". So lets say that in a different way. The most bullish signals are given when a horizontal trendline is broken that has been tested multiple times and then it breaks above it's 30 week MA as well or is already above it on the breakout. i.e. the bigger the base, the more bullish the breakout.

This in my opinion is one of the most important things to learn, as it will stop you bottom fishing and getting into stocks in early Stage 1 when they have not yet gone through a proper basing process, and hence have a much higher failure rate. You will get the odd winner, but you are increasing your risk of failure and can also tie up your capital for months or even a year or more in some cases while the Stage 1 base develops. Re-read the text on "Opportunity Costs" at the bottom of page 97, as it will help you understand the point of maximizing your resources into only the very best candidates with A+ potential.

I hope that helps

[MalcolmSm1th]

May I add that if one looks at The Book at pages 132 and 133 (question 12) then the answer dismisses options A and C of the question for a number of reasons. One of these reasons is the steeper descending trendlines.

Now, there is one instance in the book where he's looking at a steep trendline, and that's in the chart 4-31, but that's of the market as a whole.

Throughout the whole of chaper 12 ('Refining The Buying Process') the head and shoulders and the double bottom examples all have a very flat and long trendline.

Hope that this helps. And, by the way, I fell for the same misunderstanding a few times myself. In every instance I regretted it.

- Malc

[Tom]

Still new to Stan's theory, This is a journal on one of my holdings and I would like to know if I can fix/improve it and what would you do differently. Also, I have a question on trendline in the end.

I bought MSO at 3.58 early Dec when it's breaking out. Set initial sell-stop around 2.87. (In retrospect, that's 19% loss which seems to against Stan's rule of 15% loss)

Sold half of my position at 4.76 because there was resistance from 2012 around that level. ( sold the half position two days ago which I thought I should have done on early January)

Now my question of identifying trendline from MSO charts(see screenshots): Looking at MSO from stockchart website, A, B, C, D four points can be connected. However, same chart from yahoo finance website, only connect the B, C, D points. I am wondering why the difference?

If this is a valid trendline, I will set the sell-stop around 3.8 for the rest of position.

   

   

Thanks.

[isatrader]

I bought MSO at 3.58 early Dec when it's breaking out. Set initial sell-stop around 2.87. (In retrospect, that's 19% loss which seems to against Stan's rule of 15% loss)

Sold half of my position at 4.76 because there was resistance from 2012 around that level. ( sold the half position two days ago which I thought I should have done on early January)

Now my question of identifying trendline from MSO charts(see screenshots): Looking at MSO from stockchart website, A, B, C, D four points can be connected. However, same chart from yahoo finance website, only connect the B, C, D points. I am wondering why the difference?

Firstly, well done on an really good pullback entry on MSO in early December. Volume contracted on the pullback towards the 10 week MA in early December and then expanded again as it rebounded to make it's first continuation breakout. So, a very good early Stage 2 secondary entry point.

MSO has made a strong move again this week to make another continuation to two year highs on 3.6x the average weekly volume so far, and so it continues to have an impressive early Stage 2 advance, which isn't showing any signs of slowing down yet, although it's clearly extended. But raising your stop loss now it's made a further continuation is the right thing to do per the methods rules.

To your question regarding the trendline. This is subjective due to stockcharts using adjusted data and Yahoo using unadjusted data, which is why you have the difference. I asked this question of Stan in my Q&A a while back, and he suggested that we should use adjusted data. So favour the stockcharts charts imo.

But either way, a trader stop loss should be placed below the last significant swing low, which would put it just under the February lows, but you could push it up further using your trendline, but single digit midgets like MSO are volatile movers, so is best to give it some room to move until there are other signs that you need to tighten your stop loss more, like volume weakening on up moves and increasing on pullbacks, and relative performance versus the S&P 500 weakening. So far this isn't the case, and so good luck, it looks like you've got a good one.

[musgooo]

Hi there

First post. Thank you for your this forum. It is very useful.

I am learning and I did my first analysis.



I think PLUG is a very good example. It has 2 breakouts. First without pullback and second with it. Third pullback would be after 4.90

What do you think? Thanks

[isatrader]

Hi there

First post. Thank you for your this forum. It is very useful.

I am learning and I did my first analysis.



I think PLUG is a very good example. It has 2 breakouts. First without pullback and second with it. Third pullback would be after 4.90

What do you think? Thanks

Hi musgooo, welcome to the site.

It's a good first analysis, well done. But you missed the Stage 2A breakout point by one, as the first breakout you identified was actually the 1st Stage 2 continuation move, as the Stage 2A breakout point occurred on week ending the 6th September 2013 at 0.6829, however, it was still below some near term resistance due to the length of it's decline and so the initial breakout stalled for three months while it worked through that resistance until it was able to make the first Stage 2 continuation move.

Below is the chart how it looked at the Stage 2A breakout point back in early September 2013.



The reason it's hard to see is that your chart is using standard scaling and PLUG has already moved a long way in a short time of nearly 600%. It's funny, as it's actually one of my positions, as I got in on the 3rd January 2014 at $2.65 just after what you've marked as the second breakout, which was actually the second continuation move. And so, if it breaks and closes above the current swing high of $4.90 then it will be making it's third potential continuation move.

Stage analysis should be done firstly on a weekly chart. So setup your weekly chart with logarithmic scaling and a 30 week MA, and with the relative performance versus the S&P 500 and volume as in the attached example. As having your charts setup in the same way as in the book and this site will help you to be able to compare to what you are seeing with the multiple examples on here, and so will help you learn quicker.

I'm happy to help with any questions that you might have, but if you are interested in learning the method then I'd recommend getting Weinstein's book first and starting there, as then you'll be able to understand the examples and any discussions on the site much easier and as I said I'll be happy to help with any questions that you might have.

Below is the up to date marked up weekly chart.