Stan Weinstein Stage Analysis and Market Breadth

(This post was last modified: 05-05-2013, 01:11 AM by isatrader.)

RE: Stan Weinstein's Stage Analysis - Discussion Thread

I am very surprised at his Amazon pick when he asserts on p238 to avoid stocks which may encounter a lot of support or resistance. Plus it's still contained in an upward channel.

   

He's ignoring his own advice to look for a minimum of double volume for trader break outs on AMAT

       

AMD looks good

       

and so does MTOR

       

EXPE does n't look a very good pick to me either for the same reason mentioned above with Amazon. In addition the rally back up to the BD level was on higher than average volume and the price has closed above the 200 dma, but what do I know.

       

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US Industry Sectors Breadth

Another big reversal week for the sector charts with 6 of the 9 sectors reversing back above their 10 week moving averages, which can be seen on the visual diagram of all the sectors has turned the board into a much more positive picture again, after the negativity we saw building two weeks ago. So this looks to have been averted for the time being, but there's been a lot of back and forth over the last few months so it would seem wise to be cautious here and selective.

Utilities and Consumer Staples hold on to the top two spots, with Energy and Basic Materials still at the bottom of the relative performance rankings. However the biggest movers over the last few weeks have been in Technology, Basic Materials, Industrials, Energy and the Consumer Discretionary sectors.

Below is the data table for the Percent of Stocks Above 150 Day Moving Average in each sector which I've ordered by relative strength, with the highest to the lowest percentage in each sector. Also attached is the visual diagram of the 9 sectors and the overall NYSE Percentage of Stocks above their 150 day Moving Averages, plus the 1% P&F chart and line chart of the nine sectors.

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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.
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RE: Stan Weinstein's Stage Analysis - Discussion Thread

(05-05-2013, 12:49 AM)goodtyneguy Wrote: He's ignoring his own advice to look for a minimum of double volume for trader break outs on AMAT

I think that this is a question of whether the first small continuation breakout also needs double volume on the breakout, as I've always believed that the volume rule only applies to the initial Stage 2A breakout and much bigger continuation move patterns like shown in the book, when the stock has gone sideways for a long period and not been able to break a level of resistance and then finally breaking out again.

I don't think in this case it's a big enough consolidation to warrant the volume rule again as the initial Stage 2A did have it just about and the overall cumulative volume shows it's moving in the right direction for the time being still. So I think you might be being a bit too strict, as there are normally many small consolidations in a Stage 2 advance and so each one won't have a volume surge to breakout out further.

   

(05-05-2013, 12:49 AM)goodtyneguy Wrote: EXPE doesn't look a very good pick to me either for the same reason mentioned above with Amazon. In addition the rally back up to the BD level was on higher than average volume and the price has closed above the 200 dma, but what do I know.

I've noticed you are using the exponential 50 and 200 day MAs, which will be different to the simple 200 day MA which the majority look at, so it's actually still just below the 200 dma following Fridays snap back rally on the market breakout to new highs.

I agree with you on this in that there's strong support to get through in the 60-50 zone, but I can see why he might find it interesting as it's made a six month head and shoulders pattern, and recently broke below that and the 200 day MA, which it rallied back up to close right on Friday as the 200 day MA is at 59.09 and the price closed at 59.

Relative performance versus the S&P 500 has broken down below the zero line and has been declining for many months, and the cumulative volume has rolled over and is declining also. The 10 week MA is declining, but the 30 week MA has not yet turned down yet, but did earlier in the week. But overall it's technical attributes are on the lower end of the scale now after being positive for the majority of the last year, as you can see on the attached technical attributes chart I've made up in my software to give a quick view of a stocks strength. As you can see, eight weeks ago it's started turning red after having a score of 8 out of 8 for most of the last year. Whereas now, it only has a score of 2 out of 8 and so I'd personally rate it as Stage 3B with a weekly close below 57 to move into Stage 4A imo.

       

Update: I managed to have a look at the April 26th GTA report that Weinstein does, and this is what he said about Expedia:

Quote:"Expedia (EXPE-OTC-58.56) is tracing out a major Stage 3 top pattern. Do selling on a close below 58 (as that would move EXPE into Stage 4A)." May 2013 Global Trend Alert - 4/26/13

So, it's looks like what I said above was inline with his Stage Analysis of it, although he's got the 4A breakdown point slightly above mine at 58. But it's good to see my analysis of the Stages was close to his at least. Smile

isatrader

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Major Stock Indexes Update

Attached is the updated major equity index charts and relative performance table.

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US Stock Indexes

               

European Stock Indexes

       



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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.
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Major Commodities Update and Dollar Index

Attached is the updated major commodities charts, Gold (GC), Copper (HG), West Texas Intermediate Crude (CL) and the Dollar Index (DX)



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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.
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US 10 & 30 Year Treasuries

Attached is the updated US 10 & 30 Year Treasuries charts



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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.
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US Industry Sectors

Attached are the updated US Industry Sector Charts and relative performance table.

All sectors are looking quite positive at the moment, but it looks like there is some rotation occurring if you look at the weekly Mansfield RS moves on the charts. For the last three weeks the defensive sectors that had been leading have started to pullback on the Mansfield charts and Consumer Discretionary, Technology, Industrials, Basic Materials and Energy look to have all been gaining strength, whereas Financials has been quite flat.

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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.
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Stan Weinstein Q&A

Following Stan Weinstein's interview at the weekend on the Financial Sense Newshour I decided I would chance my arm at asking a range of questions that you've asked on here that I haven't been able to answer and some that I have myself. Well I'm glad to say that he replied and so below is our own mini Q&A with Stan Weinstein, that I hope helps everyone that are studying the method like I am.

Quote:Q. The subject of volume comes up time and time again, as to it's importance in the method nowadays considering the rapid growth of Dark Pools, ETFs and Indexing, which all distort the volume data. So can I please ask if the way you view the volume data has changed over the years since the book and if there's anything we should be looking for specifically these days that's different from the books take on volume prior to and following a Stage 2A breakout? And on trader continuation breakouts within Stage 2?

A. Volume on a breakout is still important (although perhaps a bit less so than a few decades ago), and I do want to see volume pick up on a breakout.

Q. The book had a whole section on buy-stop orders, which I presume has been dropped over the years due to false breakouts that you would get these days? As I read your Technically Speaking interview from 1997 in which you were talking about buying a strong close above the breakout level, and also note in the GTA reports I've come across that you always say something like "A breakout (on a closing basis) above that level would be the signal to do buying". So I'm assuming that the buy-stop section from the book is now void, and that we should be looking to buy breakouts near the close of the day if they are above the breakout level and towards the high of the day?

A. Because of the increasing amount of false breakouts, investors should only do buying when they see that the breakout isn’t false (and that it closes above the given level). However, a trader should do at least partial buying on an intraday basis when it breaks out above the given level (using a buy stop order), and then if at the end of the day it turns out to be false and it closes back below the level, then traders should immediately get out. But if not false and it hasn’t run too far, then later in the session, traders too can do additional buying.

Q. Previous interview on Financial Sense Newshour - when did you reverse the bearish view you had in that interview and what were the reasons? As in the interview you were suggesting covering extended shorts and looking to do further shorting on the next rollover - which then began in late December, before the huge whipsaw at the start the year took us back into a Stage 2 again. So what changed your view that the short term bottom in November was actually more significant, as we were hoping that you were going to talk about that in the latest interview?

A. I reversed my bearish stance starting in mid November (moving incrementally as I always do). I first turned short term bullish on November 16th when there was a “key reversal day” on good volume. Then in early December, we turned positive on the intermediate term trend too when the SPX cash, etc. moved above their respective 50 day moving averages (and there was a significant improvement in my S&P and Secondary Surveys). Finally, in early January we turned long term bullish also when the market broke out above key resistance, and the S&P and Secondary Surveys also turned clearly positive.

Q. Secondary entry point following a Stage 2A breakout - how do you determine the entry point on the pullback? Do you suggest buying while the stock is still correcting, but is close to the original Stage 2A breakout level? Or should we wait until there's a clear reversal on a daily basis, following a test of the breakout level or close to the breakout level? Or something else?

A. I suggest doing secondary buying when a stock pulls back close to the breakout point, and you then see it stabilize near that level.

Q. Near term resistance/support - It was noted in the interview that you picked EXPE and AMZN as potential short candidates, but one of the members wanted to know why they were picked out considering the near term resistance they both have on the way down. For example on EXPE there's near term resistance in the 60-50 zone that it's currently in? I can see the other reasons that you might dislike it, in that 10 week MA is declining, the 30 week MA turned down this week also, but Fridays strong reversal turned it back up again; the Mansfield Relative Strength versus the S&P 500 is now below the zero line for the first time for a few years, and the negative volume is picking up. There's also a six month head shoulders pattern forming and so I have it as in Stage 3B at the moment with a breakdown to Stage 4A as a strong weekly close below 57?

A. Although I’m not advocating a lot of short sells with the market so strong, I felt that EXPE was a good Stage 4A example of a stock that you should most definitely not be long, and if you were considering doing shorting, would be interesting on a rally back toward resistance in the 59-60 zone, and note on the latest rally, it’s failing right in that area near its 200 day moving average. As for why I’m so negative on it, it’s below its 50, 150, and 200 day moving averages and has broken significant support and is in Stage 4A.

Q. Earnings - should stocks close to their earnings release be avoided until the data has been digested by the market? Any guidance on this would be welcome as it's a questions on earnings and how to deal with them are often raised.

A. Traders should most definitely stay away from stocks that are coming out with earnings (especially in a market that is so over-reactive, such as this one).

Q. Stock Prices - Adjusted or Unadjusted data? A lot of charting services adjust the stock charts for dividends, stock splits etc. Splits obviously have to be done, but adjusting the charts for dividends distorts the historical support and resistance levels important to the method. So should we use unadjusted charts were possible?

This is also important to know with regards to continuous futures contracts, as for example the US 30 YearTreasuries charts are one of the major charts we follow as I manually copy and paste the price and volume data from the CME each week to get the most accurate chart possible. So I have pure unadjusted data, however, I've noticed some chart services adjust the data to remove the rollover gaps, but I think this distorts the support and resistance levels again?

A. I suggest you use “adjusted” data.

Q. Continuation moves during Stage 2 - relevance of volume on a continuation moves following a small consolidation of only a few months or so? Do you still look for the same requirements, or is it less important as long as the Stage 2A breakout previous to it fulfilled the at least two times the previous fours weeks average volume?

A. Volume is less important on a continuation move in Stage 2 than it is on the original breakout but there should be at least some marginal increase in volume.

Q. In the GTA reports you have short descriptions of all the sub-stages, which weren't in the book. Is there anywhere we can get detailed information on the sub-stages from?

Also, the Stage 1 - Basing Phase. May begin accumulation has raised a few questions also. Like do you recommend someone using the investor method do any buying in Stage 1, and if so how to go about it? And the same question for people using the trader method, as I noticed in one of the interviews you mentioned that you recommended some trader buying even as early as Stage 4B- in some instances?

A. I really don’t have “detailed information” on the “sub stages” that you ask about. It’s somewhat of a “gut feel” (obviously when a stock is first breaking out of a base and moving into Stage 2, I label it “Stage 2A” (early in the advancing phase). And after it’s been in that stage and becomes extended, I label it “Stage 2B” (late in the advancing phase). And if I just put a “Stage 2” rating on the stock, theoretically, I feel that it’s not yet ridiculously extended and is in the middle of its move (but again there are no “hard and fast” rules).

Q. I follow a broad range of market breadth indicators as suggested in the book, like advance decline, momentum index, new highs new lows and many more to try and best replicate you weight of evidence approach with the resources I have and recently also added some economic datasets such as the S&P Case-Shiller Home Prices Index, which I note has just moved into Stage 2A. So my question is, do you think Stage Analysis can be used on economic data such as this?

A. Yes, Stage Analysis can be used with economic data (such as your doing with the Case-Shiller Index), but I don’t suggest that you make that part of your “Weight of the Evidence” as the economic data will usually be “late”.

Okay, David, that’s it. And now I wish you well in what is a very interesting and challenging market, and I hope that this input proves helpful to you, but understand that I can’t do this again as I have a very “heavy” and “tight” schedule.

Best always,

Stan Weinstein

I want to say a big thank you to Stan if he every reads this as there's a lot of good information to digest from the Q&A. So I'm very grateful that he was able to give up his valuable time to reply.

Cheers

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.
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