(2014-03-26, 11:20 PM)Tryst Wrote: What can cause a false breakout...
Two stocks, which have been posted here, which have showed potential good breakouts. One building a nice saucer bottom and another one, and one showing a potential stage 2 breakout, and then reversing. Both showed good volume on the breakout along with strong Mansfield Relative strength.
My question is, what else could cause these charts to have caused a false breakout and reverse?
The "Forest to the Trees" approach mentioned in the previous question from ChubbyHips2014 is one such reason, as with each stock you need to work through the Forest to the Trees process of looking at the main market trend, and then looking at the stocks sector, and then if they are ok, doing more work on the stock itself.
So in this case one very big reason why both have failed is their sectors, as HAIK.L is a Chinese stock in the Oil & Gas Producers sector, which is currently 33rd out of 39 sectors in the UK market, and SNAK.L is a vending machine company in the Food & Drug Retailers sector which is 38th out of 39 sectors. So both sectors are weak, and hence you would generally avoid any stocks in them as per the method on the long side unless they were showing an exceptional pattern and got a very large volume surge relative to the average on the Stage 2A breakout.
An immediate problem I can see with SNAK.L is that it didn't confirm the Stage 2A breakout attempt that I highlighted on 21st Jan, as the weekly close ended well below the breakout level. So it only managed one day above the breakout level before immediately reversing, and hence failed, as a weekly close above the breakout level is required for a confirmed Stage 2A breakout. Therefore SNAK.L never made a confirmed weekly Stage 2A breakout, and continues to trade in it's Stage 1 range, although I'd give it a minus symbol now as the technical pattern has deteriorated.
HAIK.L did managed to breakout into Stage 2A, but volume only increased mildly and it's quite thinly traded as it's a micro cap, and so the initial pullback has been quite sharp, although it's not necessarily failed yet, as although it's pulled back below the trendline, it's not yet moved below the support from the other lower breakout level around the 22 area, which was the Stage 2A breakout point. And so it's testing the support currently, which if it stabilizes is the secondary entry zone. However, as I said earlier in the post, it's in a very weak group and hence a reversal back up would need to be on exceptional volume for it to be considered now.
So, don't forget to do the sector work when looking at the stocks in the watchlist, as although it might have a good pattern setting up, if the sector is very weak then in most cases you'll want to avoid it, as one of Stan's Don't Commandments is "Don't buy a stock in a negative group" as it increases the odds of a failed breakout and will find it much harder to advance than a stock with a similar pattern in technically strong group. There are always exceptions when a stock has a unique product or service, or other reasons that it stands apart from the sector it's in, so make sure you do the extra work necessary on the company when you see an exceptional technical pattern and a heavy volume increase. But if it doesn't have those, then make sure you remember Stan's Don't Commandments and move on to a better opportunity.
I hope that helps/make sense.
isatrader
Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.
(2014-03-26, 11:20 PM)Tryst Wrote: What can cause a false breakout...
Two stocks, which have been posted here, which have showed potential good breakouts. One building a nice saucer bottom and another one, and one showing a potential stage 2 breakout, and then reversing. Both showed good volume on the breakout along with strong Mansfield Relative strength.
My question is, what else could cause these charts to have caused a false breakout and reverse?
The "Forest to the Trees" approach mentioned in the previous question from ChubbyHips2014 is one such reason, as with each stock you need to work through the Forest to the Trees process of looking at the main market trend, and then looking at the stocks sector, and then if they are ok, doing more work on the stock itself.
So in this case one very big reason why both have failed is their sectors, as HAIK.L is a Chinese stock in the Oil & Gas Producers sector, which is currently 33rd out of 39 sectors in the UK market, and SNAK.L is a vending machine company in the Food & Drug Retailers sector which is 38th out of 39 sectors. So both sectors are weak, and hence you would generally avoid any stocks in them as per the method on the long side unless they were showing an exceptional pattern and got a very large volume surge relative to the average on the Stage 2A breakout.
An immediate problem I can see with SNAK.L is that it didn't confirm the Stage 2A breakout attempt that I highlighted on 21st Jan, as the weekly close ended well below the breakout level. So it only managed one day above the breakout level before immediately reversing, and hence failed, as a weekly close above the breakout level is required for a confirmed Stage 2A breakout. Therefore SNAK.L never made a confirmed weekly Stage 2A breakout, and continues to trade in it's Stage 1 range, although I'd give it a minus symbol now as the technical pattern has deteriorated.
HAIK.L did managed to breakout into Stage 2A, but volume only increased mildly and it's quite thinly traded as it's a micro cap, and so the initial pullback has been quite sharp, although it's not necessarily failed yet, as although it's pulled back below the trendline, it's not yet moved below the support from the other lower breakout level around the 22 area, which was the Stage 2A breakout point. And so it's testing the support currently, which if it stabilizes is the secondary entry zone. However, as I said earlier in the post, it's in a very weak group and hence a reversal back up would need to be on exceptional volume for it to be considered now.
So, don't forget to do the sector work when looking at the stocks in the watchlist, as although it might have a good pattern setting up, if the sector is very weak then in most cases you'll want to avoid it, as one of Stan's Don't Commandments is "Don't buy a stock in a negative group" as it increases the odds of a failed breakout and will find it much harder to advance than a stock with a similar pattern in technically strong group. There are always exceptions when a stock has a unique product or service, or other reasons that it stands apart from the sector it's in, so make sure you do the extra work necessary on the company when you see an exceptional technical pattern and a heavy volume increase. But if it doesn't have those, then make sure you remember Stan's Don't Commandments and move on to a better opportunity.
I hope that helps/make sense.
isatrader
Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.
I have the simplified creation route but when I click on the Mansfield RS indicator I get the message that the Indicator is not within the ProBuilder language. Would I need to code the Mansfield RS indicator myself and then import this into a screener?
I have the simplified creation route but when I click on the Mansfield RS indicator I get the message that the Indicator is not within the ProBuilder language. Would I need to code the Mansfield RS indicator myself and then import this into a screener?
(2014-03-30, 04:17 PM)Tryst Wrote: I have the simplified creation route but when I click on the Mansfield RS indicator I get the message that the Indicator is not within the ProBuilder language. Would I need to coding the Mansfield RS indicator myself and then import this into a screener?
You would need to create a custom version of the Mansfield RS indicator yourself, as you can't use the built in one in the screener. I have tried but failed, as my coding skills aren't that advanced. So if anyone else wants to have a go and is successful at coding it for the screener, then let me know.
isatrader
Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.
(2014-03-30, 04:17 PM)Tryst Wrote: I have the simplified creation route but when I click on the Mansfield RS indicator I get the message that the Indicator is not within the ProBuilder language. Would I need to coding the Mansfield RS indicator myself and then import this into a screener?
You would need to create a custom version of the Mansfield RS indicator yourself, as you can't use the built in one in the screener. I have tried but failed, as my coding skills aren't that advanced. So if anyone else wants to have a go and is successful at coding it for the screener, then let me know.
isatrader
Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.
