Updates 17th Sep 2022
Market trend 1st Sept 2022
The General Market
After a gap up, all the major indexes finished weak.
The QQQ formed an inside day andwas down .58% and the NASDAQ had more net new lows. We remain below the 50 SMA.
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The SPY undercut yesterday’s lows and was down .76%. The NYSE also had more net new lows.
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The IWM was down .61% and is right at its 50 SMA.
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The VIX remains above all its moving averages. It did not make new short-term highs.
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The T2106 is still short-term “oversold.”
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Trends (3/4 Down)
Short-term: Down (still below the 5 SMA)
Intermediate-term: Down (below a declining 21 EMA)
Mid-term: Mixed (below 50 SMA but the 50 SMA is increasing)
Long-term: Down (below a declining 200 SMA)
Stocks
Below are some stocks I’m watching to the upside that have been holding up well. Overall Biotech and Solar remain the strongest themes.
AXSM holding the 5 SMA.
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TH continuing to build sideways.
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CSIQ among other solar names holding up well.
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ARRY continues to hold the 21 EMA.
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ENPH holding the range. A break below Monday’s low would not be a good look. FSLR also strong!
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SHLS – want this to tighten.
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TMDX holding up well.
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RYTM – tight action, could break either way.
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KRTX acting well.
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Overall Thoughts
Another negative day as the indexes were rejected at their 50 SMAs. 4 days straight of weakness. Solar and Biotech continue to move sideways as the market pulls back.
The longer-term trends remain downward. Keep watching the leading stocks and the indexes. Be ready for anything!
The lifecycle trade-Kathy Donnelly
How to make money on IPO and fast growth stocks.
Watch the video below to learn more about it.
To to Build and manager a porfolio
How to Build and Manage a Portfolio (2022 Q3)
In this issue of Stock Guide, we’ll be focusing on how to build and manage a portfolio. We’ll go over how many positions you should own at once, how to size them properly and when to add to your best performers.
For our Q&A, we spoke with Kenny Polcari, Founder/CEO of Kace Capital Advisors and frequent financial media commentator. Kenny shared his thoughts about the current market, how investors should be managing their portfolios in different market cycles and much more. And finally, in this issue’s Good Trade / Bad Trade, MarketSmith Coach Sunny Phan gave us the rundown on two of his recent trades.
Green Line Breakout Concept
What is a Green Line Breakout?
A green line breakout is a breakout on above-average volume into a new all-time high after a stock has consolidated for at least 3 months. The higher the volume on the breakout the better.
How do you draw Green Lines?
To draw a green line in advance you want to head over to a monthly chart. Then look for the most recent point where the stock has formed a new all-time high.
MSFT is one of the greatest stocks of all time. You can see how many green line breakouts there were during its run from 86 to 99.
If, after that all-time high, the stock has consolidated for at least 3 monthly bars, you can draw a horizontal green line across at the all-time high.
Almost every big winner from the past had multiple green line breakouts throughout their major advances.
Let’s walk through a quick example using TSLA. Here is a blank monthly chart:
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Starting from left to right we want to draw in every point where you have a new all-time high and then a consolidation for at least three months.
The first green line occurs right after the IPO. You can see how I’ve counted at least 3 months after that new all-time high.
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This one fades right away. Just like any setup, there will always be failures. that is why it’s so important to manage risk using rules and sell stops (we will cover this in the next section)
The second green line also fails quickly.
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Now let’s look at the 3rd Green line breakout
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I’ve added volume back as well now that we’re clear on how to count the # of bars of consolidation.
You can clearly see the enormous volume coming in on this month. From this point the stock advanced over 600% in the next 17 months
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Zooming forward here are now all the green lines drawn in on TSLA.
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The most common mistakes I see when drawing green lines are:
- Not being on a monthly chart when drawing them
- Not waiting for 3 months of consolidation
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Drawing a green line at a high that is not a all-time highs (Below a prior green line)
The last one is probably the most common. Green lines can only be drawn at new all-time highs.
Below the black line may be a line of resistance, but it is not a green line because it was not formed at a new all-time high.
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If a stock is not at all-time highs (Above its last green line) then it has to work through overhead resistance which holds back its potential. When a stock breaks through a green line, everyone who owns the stock is at a profit, and everyone who is short is under pressure.
When should you sell a Green Line Breakout?
A green line breakout should be sold if it closes back below the green line. This is because a GLB is a significant event, and a proper breakout should respect that level at the least and ideally take off right away.
Once you are in a trade from a GLB. you can use your own sell rules relating to moving average such as the 21ema, 50 sma.
A GLB, especially when the market just experienced a significant correction, is often just the start of a major move so you want to ride that for what’s relevant to your goals and timeframe
Historical GLB
MSFT is one of the greatest stocks of all time. You can see how many green line breakouts there were during its run from 86 to 99.
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Then, It went nowhere for over a decade. This is why we focus on stocks that are right at or above their highest green line. When a stock breaks through that green it has the potential for a sustained advance. Below a green line the stock is simply consolidating.
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Executing on a GLB
Although we identify green lines on a monthly chart. After identifying the levels, you can execute on your preferred timeframe.
ZS Monthly:
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On the day of a GLB, you should look to buy the stock as it is breaking through the level on above-average volume. Early in the day, you can use relative volume to see if volume will be above average.
ZS Daily:
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Remember: Always set a stop loss, and if the stock closes below the green line, exit and put the stock back on your watchlist. The best breakouts work right away.
You can use your own short-term trading tactics to enter a stock near or at the Green line. I’ve found moves from consolidations at or just above the green line are extremely effective.
Learn the GLB from Dr. Wish
OXY updates 20 Aug 2022
This Friday, the market was down significantly, pulling back towards its 21 ema.
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However, one stock really stuck out to me and the overall theme Friday suggests a potential short-term character change.
Before we go any further, make sure you are subscribed to Trading engineered so that you don’t miss any future educational posts such as my stock market outlook which will be up later today
Friday, OXY broke out of its handle in a nicely formed base above a rising 200-day moving average. It rose nearly 10% on 3X its daily average volume.
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Oil and Gas / Energy names as a whole showed relative strength Friday although OXY was the standout. This breakout was somewhat news driven with Buffett announcing that they will look to acquire a 50% stake.
OXY has reported fantastic earnings and sales growth over the past few quarters. You also have fidelity increasing their stake.
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Focusing on the setup, OXY formed an excellent 5% deep last contraction within an overall sound 26% deep base. This is exactly what I look for in terms of a VCP. The stock pulled back into the 21ema on well below-average volume.
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On a 65-minute chart, you can see the last contraction in detail
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Here is a 5minute chart of today’s breakout
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Notice the strong action off the open, pullback on lighter volume, and then the push upward on higher volume through the trendline break on the higher timeframe.
Then the stock progressed somewhat before breaking out through an intraday trendline which is when the volume really started to flow in.
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OXY ended up closing extremely strong, especially considering the QQQ and SPY were down over 1%.
If you missed it (like I did) Look for other stocks in the same theme that are set up for a potential move. For instance, EQT is one from my focus list.
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Additionally. If OXY is going to become a huge leader, there will be multiple spots to get in. Maybe even Monday it forms an inside day with a nice intraday setup such as a range breakout. Or it could go sideways for a few days in a short-term flag before a breakout into new all-time highs.
Remember that there will always be another opportunity. On the long side, focus on the strongest stocks in the strongest groups with a proper setup and a logical place to manage risk. Some of the best entries occur when the sector is just starting to regain momentum.