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Tuesday, February 18, 2014

Abnormal Price/Volume Action

Today we are going to talk about price/volume behaviour on pivot points.
Starting from our watchlist of leaders, those unique stocks that have EPS and sales growth above 30%, we need to follow them to have a preview of what the market is going to do next. That's why they are called leaders or growth stocks. 

What we want to see on their charts is base formations: we can see flat bases, bull flags, cup with or w/o handle, 3 tight weeks, etc. The longer the base the more solid is the base. We want to see from this leaders when the overall market starts a new uptrend to breakout from these bases. That is when we know for sure that the uptrend is confirmed. When the big boys with the big bucks start buying these growth stocks.

The key of the reading is the VOLUME when the leaders go through this pivot levels breaking out from their bases. We will use 2 examples from today's action.

$UBNT broke out from an irregular base through the previuos high around 47.60 on INCREASED VOLUME. The more volume above the average, more sure we are that this is a genuine breakout. In this case was almost 4x above average volume, and ended at the round number of 50. Remember round numbers are key psycological levels like in every stock/index.

$GOMO a young IPO formed a cup without handle and broke it around 25 level with 2x above average volume.

Both of this stocks are leaders, that clearly are outperforming the indexes and we can see on the volume that the demand of this stocks is pretty clear. Stocks as well as any product from the retail industry, when demand increases above the supply the price tends to rise by its own nature. The supply/demand theory from economy I from school works very well with stocks. And we can check looking at the big winners from the past. Everyone of them had an abnormal demand from the stock before it starts the big move.

That is were the big bucks are waiting for us. Watch the price/volume action through key levels. Trust the supply/demand theory. But because the market can be tricky sometimes we must always cover our buys with stoplosses to limit our risk.

Have a great week all and as Livermore use to say "ride 'em until they stop moving"

Tuesday, February 11, 2014

Are we back up and running?

After today S&P breakout of 50-day line with accumulation volume and with NASDAQ at almost the same high before the correction starts, we are back up and running.

Gentleman start you engines ! Whoohoo !

This doesn't mean that we need to go "all in" I like to start investing slow and as the stocks move as we expect I gradually increase my positions, but NEVER averaging down. Remember that market will do whatever it wants, we only invest on the best odds, so despite I believe this correction is over we always have to take some precautions and invest gradually to confirm our theory.

I share with you my top wolfie watchlist: $SALE $DATA $FB $UA $EFII $GLOG
Most of them start moving before today's confirmation so they are pretty extended, I started nibbling some $SALE today.

$SALE is a young IPO selling online coupons with impressive sales and earnings results that yesterday broke out from a nice cup without handle base ON VOLUME. Before buying a stock I like watching the product, it's easier when it's an online product because we can check it out in seconds.

I also love $DATA or Tableau products, looking to buy some soon, again based on impressive earnings and sales reports and volume accumulation.

Have a great week wolfies, bite some asses !

Monday, February 3, 2014

How long this correction will last?

As we had forseen in our Sun Jan 26th post, we are under a correction, today it got pretty obvius to everyone. $COMPQ broke 4000 key level, which is a psycological level of support, as well as 1750 in $SPX, also broken. Both major long term support. The most logical path for this market is that we have a lot of downside potential. BUT, we never know, because we don't have a crystal ball.

How long this correction could last? Some studies say that most corrections last at least 8 weeks. That is what the history tell us, but the market is always trying to fool us, so we need to be ready to turn on a dime. But always after volume confirmation shows up. We need to have within a week after a first attempt of run up a day with at least 20% above average volume on the big indexes.

Never try to buy the bottom, because it's almost impossible. There's always another trade, another stock to buy, so we need to be ready to get the right set up and play it at the right time, when most of the conditions are on our side.

We have to learn to welcome this corrections because new fresh set ups will show up, new leaders will lead, and that is when the big green numbers are made, after a correction. Use this time to find solid stocks that are holding up well. They are like helium ballons, waiting to fly up in the aire but because of the wind that is blowing downwards they are not allowed to fly freely and they gain potential, and when the wind start to blow up again they will rocket to the sky.

Have a great week, take a vacation if you can't avoid staying on the sidelines, but wait for the right time. Have a good one wolfies.