Chris — Page 12

Climax Top in TZOO

April 6, 2011 by Chris 3 Comments

How can you tell when a market is exhausted from a long term up-trend?

The current market leaders will start to form climax tops after huge gains over the past 6, 12 or 18+ months.

So, how do we identify a climax top?

The following characteristics are typically found in a stock that is forming a climax top:

A quick run-up or accelerating gains over a short period of time after a long term up-trend. The gains will be much larger during this short term run, proportionally, than the entire up-trend.
A large gap-up after several months of a steady up-trend. Investor’s Business Daily (IBD) calls this an “exhaustion gap”.
The largest daily and/or weekly volume of the entire up-trend.
A large single day point gain, the largest of the entire up-trend.
An intraday move to new highs on above average volume but a close that results in a loss.
A stock that is trading 100% above it’s 200-day moving average. IBD states that a stock trading 70% above its 200-day moving average is showing exhaution.

Take a look at the $TZOO Travelzoo charts (daily and weekly).

As you can see, TZOO has confirmed the following red flags for a climax top formation:

10 of the past 13 days have been up days.
A 68% gain over the past 13 trading days and a 100% move over the past month. Stock is up 900%+ since March of 2009.
The largest daily and weekly volume of the entire run.
A new high intraday with a close that resulted in a loss (today: a new high with a reversal to close down 3.69% on volume 485% larger than the average).
The stock is trading more than 130% above its 200-day moving average.

With all that said – what should you do? I suggest that gains are locked in, at least a portion of your position 1/3 or 1/2 at a minimum.

In addition to locking in individual gains (in examples like TZOO), I highly suggest that you start to watch all market leaders and the general market indices for red flags.

Filed Under: Selling, Technical Analysis

Stocks to Watch: April 3, 2011

April 3, 2011 by Chris 2 Comments

This post contains weekly charts of several interesting stocks that I am following personally and on twitter (disclosure: I own shares in more than one). Each of the following stocks have been trending higher on above average volume.

$LOGM – 46.08
$MOBI – 12.85
$NXPI – 30.59
$SODA – 46.80
$SVN – 21.83
$MMYT – 30.99

Let’s see if the $DJIA and $COMPQ will cooperate by maintaining the up-trend. Both are showing some signs of exhausting but we’ll trade what the charts are doing, not what we think they may or should be doing.

Filed Under: Stock Screens, Stocks to Watch 2011

Why Major Stock Market Trends are so Profitable

March 27, 2011 by Chris Leave a Comment

The month was March and the year was 2009, that’s when I joined Twitter and started to post up stocks making strong price and volume moves to the up-side during the newly established up-trend. The up-trend or bull market as some like to call it began in March 2009 (I joined 3/31/09 but have been blogging since January 2005).

From March to August, I posted up 56 stock positions that I liked on the buy side (Note: several stocks made multiple tweets at multiple prices and different dates so their tickers do repeat).

Of those 56 stock positions, 44 of them are still showing a profit, nearly two years after the start of the new bull market. This observation is based purely on a buy and hold scenario (clearly not the way I trade or recommend anyone to trade). However, for purposes of this blog post, we will use the “simplest” form of explanation to drive home the powerful point of buying and selling with the major market trend.

The best performer was CXO, listed multiple times from April to August with a top gain of 282% (as of the close on Friday, March 25, 2011). CXO was targeted as it traded in the $27 range and then again in the low to mid $30’s; it closed Friday at $105.86. In total, 14 stocks are currently showing a gain of 100% or more with six of the positions larger than 200%.

The 200%+ tickers include: $CXO, $RAX, $VMW, $ARST
The 100%+ tickers include: $MELI, $RVBD, $HMIN

Note: ARST was bought by HPQ for the share prices used in this blog ($43.50 from $16.96) .

On the flip side, 12 stocks are currently showing a loss with FRPT leading the way, down over 30% from $7.09 to $4.96. Please note that several of the “losing stocks” listed went on to make gains of 5%, 10% or 20% but then collapsed. For example, CISG went from $18.25 to a high of $28.33 before closing Friday at $13.54, showing a 26% loss. But, the “buy and hold” hypothetical scenario will cancel out the true losses from the true gains (not all winners would have been held the full two years for maximum gain).

To recap:

56 Total Stocks Profiled (March to August 2009 – following new up-trend)
44 Stocks showing a gain
12 Stocks showing a loss
Average gain is 76% (44 total positions)
Average loss is 12% (12 total positions)
The win-loss ratio is 78.6% (winners)
The largest gain is 282% ($CXO)
The largest loss is 30% ($FRPT)

Please note that “true” buy and sell rules would have closed out many of these actual positions as they took 5%-8%+ losses and the winners may have been closed on pullbacks of 15% or more. A pure buy and hold scenario would give you a 57% gain (as of today), buying $1,000 worth of shares in each of the 56 positions.

The point of the post is to show how STRONG and LONG LASTING a MAJOR TREND REVERSAL is in the market. The major trends can last for years before fizzling out, trading sideways and then starting a new trend or reversing in the opposite direction. I didn’t starting showing the possible trades in early March which was the ultimate bottom and I can’t tell you when the “ultimate top” will be but pay attention, this up-trend is in a late stage (vulnerable).

A major market reversal has NOT been confirmed but keep a close eye on your positions. If we move higher, hold tight and even add shares where warranted but start to sell when the NH-NL Ratio confirms any clear distribution and downward movement by the major indicies such as the $INDU or $COMPQ (price and volume).

I am not a buy and hold investor but you can clearly see the huge gains that strong (and young) growth stocks can give to your portfolio – just by spotting a major trend formation. Ride the trend, it’s that simple!

Enjoy and stay tuned as we watch quietly, carefully and patiently for any potential trend reversals.

My complete 2009 stock list (March to August) is below:
[Read more…]

Filed Under: Technical Analysis, Twitter Updates

Market Distribution and Trend Reversals

March 13, 2011 by Chris 8 Comments

The NASDAQ ($COMPQ) has registered 6 distribution days in less than a month and the DOW ($INDU) has flashed 5 distributions days during the same period of time. The NASDAQ has gapped below its 50-d moving average (MA) while the DOW is hanging on to this shorter term support line. Both indices are still above their longer term support, the 200-d moving average, so a trend reversal hasn’t confirmed yet.

However, this clear distribution is giving us a message. What is that message?

Well, just as follow-through days signal the potential start of a new rally (uptrend), five or more distribution days within a few weeks (on above average volume) is starting to hint the rally is coming to an end.

It’s clear that the uptrend has halted its continuous trek to new highs while the odds favor that the market is heading towards a correction.

So, what do you do?

Immediately assess each of you individual holdings and start to lock in gains on stocks churning (no longer making new highs). You don’t have to sell the entire position but it may be a good idea to scale back and definitely get off margin if you are employing leverage.

As mentioned in a previous post, Market Reversal? View the NH-NL Ratio, the NH-NL ratio is the strongest secondary indicator on the market for a major trend reversal. The NYSE registered its first negative reading since November 16, 2010. The NASDAQ has registered its first multi-day negative readings since November 16-17, 2010. The overall 10-day MA differential for both indices is still positive but a move to negative territory will be the major confirmation.

Price and volume tips you off as the main indicator while the NH-NL ratio confirms the longer term trend reversal.

If following items confirm, I highly suggest that you move to cash and avoid the risk of losing recent gains or start to show a loss.

5 or More distribution days on multiple indices within a few weeks
Index price moves below the major moving averages (50-d and 200-d MA)
New High – New Low 10-d MA Diff turns negative
And most important: your individual holdings are making lower lows and lower highs while slicing major moving averages

Nothing is guaranteed in the market but when distribution days pile up (in a short period of time), it’s time to take notice, lock in gains and look to move to cash if all support and confirmation indicators confirm.

Let’s keep an eye on the NASDAQ, DOW and NH-NL ratio.

Filed Under: General Market, NH-NL Ratio

Market Reversal? View the NH-NL Ratio

March 7, 2011 by Chris 12 Comments

Is the market topping? Is it setting up for a reversal?

Let’s ask the NH-NL ratio, considering it has been “spot on” for every major market reversal as far back as the data started to be gathered (decades). Until the NH-NL ratio reverses, don’t consider any reversal sustainable: history speaks for itself.