Stage Analysis Study Guide - Questions and Answers
#9
It's hard to sit through an entire Stage 2 advance, as there are usually a number of significant pullbacks towards the 30 week moving average which try to shake people out of the stock. The following is a breakdown of Fords entire Stage 2 advance from late 2012 until the end of 2013 and I've shown the weekly chart at the lows of each significant pullback, so that you can see what it looks like and what the percentage moves were in this case on each pullback. As holding through the pullbacks is a necessary part of the investor method in order to capture the bulk of the Stage 2 move, but some people find it hard in practice as you often see gains that took months to accumulate wiped out, before it once again moves higher.

So lets start at the beginning of the Stage 2 advance in Ford...

In December 2012 Ford (F) made it's Stage 2A breakout following a small head and shoulders bottom through the summer months, and then a brief Stage 1 consolidation in the Autumn above it's 30 week MA before breaking out on increasing volume in December.

The initial breakout lasted for four weeks in which it made a 20.59% move higher and then pulled back for six weeks to almost the Stage 2A breakout level and so lost -17.8% of it’s initial gains.

   

Price consolidated following the initial pullback and formed the secondary B entry point, but took a few months to begin moving higher again and eventually made it’s first continuation move in early May, rising for a further four weeks to +37.69% from the Stage 2A breakout level.

It then began a three week pullback to just above the continuation breakout level around 14, which took the gains back down to +22.34%, which was -15.35% off the total gains

   

The second continuation move took five weeks to reach it’s high of +51.22% and then pulled back for four weeks to +35.25%, which is a loss of -15.97% of the gains.

Also note that price pulled back below the continuation level this time, and the momentum of the 30 week MA slowed.

   

The third attempted continuation move failed to complete it’s continuation breakout twice and pulled back making higher lows while getting closer to the 30 week MA. At which point the trailing investor stop loss should hve been tighened up below the most recent swing low but above the 30 week MA. Which would have then been hit on the lower low on the 3rd December for roughly a 41% gain.

   

Since the trailing stop was hit back in December it’s had a more significant pullback below the 30 week MA and has been forming a Stage 3 range.

Whether it will breakdown into a Stage 4 decline or make a Stage 2 continuation move higher again is being fought out currently, but you would have been out of the stock in December with the method, and able to put your money to work in new stocks breaking out into Stage 2A or making Stage 2 continuation moves.

   
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.
#10
(03-14-2014, 03:10 PM)isatrader Wrote: Attached is the weekly and daily charts of a mystery stock with a set of questions below for you to answer, and I'd encourage you to elaborate if you can as it helps in analyzing the Stage.
  1. Is price above a flat, rising or declining 30 week MA?
  2. Is price above the 10 week MA?
  3. Is the 10 week MA rising or falling?
  4. What is the volume doing?
  5. Is the relative performance versus the S&P 500 strengthening or weakening?
  6. Is the relative performance versus the S&P 500 above or below the zero line?
  7. Is the relative performance zero line itself down, flattening or rising?
  8. Is there significant near term resistance? If yes, then where?
  9. What is the Stage of this stock?
  10. Should an investor buy the stock? Elaborate.

The mystery chart this time was BSX (Boston Scientific) which was attempting to make a Stage 2A breakout, and had closed the week just above the breakout level. The price was above a flat to slightly rising 30 week MA, and the shorter term 10 week MA had turned up a number of weeks before and was close to crossing the 30 week MA.

However, volume was poor on the breakout week, below average and the relative performance versus the S&P 500 was strengthening, but it was still below a flattening relative performance zero line. But the biggest issue was that there was still significant near term resistance up to around the 6.4 area, which it had failed to clear twice earlier in the 2012 and so although it was technically in Stage 2A, the other technical attributes that we look for in an A+ candidate weren't all present, and so imo it would stay on the watchlist until it cleared the near term resistance and there was improvement in the volume and relative performance versus the S&P 500 as the risk of a failed breakout is increased otherwise.

Below is the marked up weekly chart.

   

So what happened next? Well, in this case the following two weeks saw a decent increase in volume, which helped BSX to sail through it's near term resistance and the relative performance versus the S&P 500 broke above it's zero line strongly, and so BSX now had A+ potential, and hence would have been a strong buy candidate, especially as it also had a strong monthly close above it's 30 month MA for the first time in many years with a strong volume increase as well, which added extra conviction to it.

As you can see in the below chart, it's had a strong Stage 2 advance with numerous consolidations/pullbacks towards the 10 and 30 week MA, and has advanced over 100% so far in just over a year and three months. Currently the 30 week MA momentum is slowing and price is in another consolidation phase and so I'd give it a Stage 2B rating now, as it's late in Stage 2 advance. Below is the weekly and monthly charts.

       
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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