Technical Analysis Buying Stocks
Investor method watch list
(1) Price action
Price above a flattening or rising 30 week MA
(2) Relative performance
Above Mansfield zero line (52 week MA)
(3) Volume
2 times the 4 week average or greater on stage 2A breached
(4) Little or no heavy new term resistance (old overhead resistance the better )
(5) 10 days/30 days/10 weeks/6 months/1/2/3/5/10 are moving average
(6) 52 week high / low
(7) Sector wise performance
(8) Buy a stock in ? (75-80% buys) or 2A stage or late 1 stage
As a lone term investor, buy only half of your intended position on initial breakout and the other half if the
stock pulls back close for the breakout price
(9) Buy during bullish months
Nov/Dec/Jan/July/August
(10) Buy during bullish days
Before holidays/Friday/Wednesday
(11) Buy when the trend of the market is positive
(12) Select the stock from the most bullish sector (group) or the 2 most bullish groups
Don’t buy a winner from a sick group
(13) buy a stock whose chart from favorable group must be breaking out in stage ? with a minimum of airhead
resistance
(14) Buy stock which has a positive (rising) relative strength
- If the volume is favorable on breakout and contracts on decline, buy other half of your position on pullback to
original breakout
(15) Buy during head and shoulder bottom formation
(16) Buy during double barreled action formation
(17) A large base can propel a stock higher over an extended period of time
(18) Buy a stock which has a strong volume on breakout
(19) Buy between 6-20 stocks from 2-3 best performing groups
Market champs should have large volumes on breakout
The initial volume should not be short lived
The initial volume surge should be followed by several more weeks of heavy trading
- Stock that have risen some 40-50% or more before breaking out do the best in the months ahead
(20) If the advance decline line moves downward, whist the Nikkei Index moves upwards
This signal troubled market ahead
If this continues to shape over a long period of time (several months), this signifies a big bull market ahead
(21) Market maventum (200 day MA of NYSE advance decline figure)
a Rise from -> ve to +ve territory is a +ve sign (bullish market)
(22) Buy when most of the world markets are up (30 MA)
(23) Buy in following scenario
(24) Never buy a stock on good news
Good news is always deceptive
(25) Buy when the “Real Personal Income” (Purchasing power of consumer) is +ve (increasing)
(26) Buy when the “Industrial Production” is +ve or rigin
(27) In periods of easy money there is more speachative buying and stock market rises
(28) When the interest of the “Bonds and treasury bills” decrease, the stock market becomes bullish
(29) Market is bullish when net free reserves ?
(30) Relationship between the short and long term rates is a good market indicator
Ratio between 3 months treasuring bill and long team corporate bonds
When ration begins represents bullish market
(31) 3rd year of U.S. president term is the most bullish year in the stock market
=Star of sentiment indicators=
(32) Special list short sales indicator
-> Whenever the ratio of specialist short selling to total shorting diminishes to less than 40%, a bottom is made
This sets a climate for low rise buying climate
If this indicator remains in the neutral zone of mid to upper 40% area, it isn’t a buyable bottom yet
(33) Odd lot short ???
Selling indicator
-> A substantial increase in odd lot short selling indicates an imminent bottom
(34) Odd lot short -> Sales
Ratio = Total odd lot selling
Odd lot short selling
If this ratio crosses 2%, if indicates a market bottom
When there is excessive short selling, indicates an important market bottom
This kind of excessive short selling provides evidence that the climate has become comfortable for buying
(35) Call/Put ratio
A bullish market indicates a high call/pit ratio
(36) “Investors Intelligence Advisory service”
(What majority of people are thinking)
If market rises ?, they tend to be bullish ?
(37) Sentiment -> % Bearish
Too much bearishness is a good indicator that you should go ahead and get ready to BUY
Member short selling Indicators
= specialist shorting + off-floor
member trading + on floor trading cinant
Total short selling
(38) Another way of calculating
This indicator is to divide the % of bullish services by the total of bulls & bears
When the ratio is low or below (-ve), this is a good time to BUY
(39) Public Short Seles Ratio
Non member short selling
Total NUSE volume for week
A further sharp spurt to the 2.00 level would add to the signal of a new bottom
Sentiment indicators are not good timing devices
Advisor service bull bear ratio indicator = % of bullish services
Total of bulls + bears
? Start of Market Action Indicators ?
(40) Price should be above the long term moving average in order for the stock to be bullish
(41) Advance Decline Ratio
Advances -> Declines
Eg: 1024 -> 500 = 524 day1
1000 -> 200 = 800 day2
1000 -> 150 = 850 day3
(42) 10 day Advance Decline Ratio Indicator (Overbought/oversold oscillator)
(43) High Low Differential (10 day moving average)
Nos of stocks making a new high
-> Nos of stocks making a new low
-> 47 -> 53 = -6
(Plot this on graph)
(10 days MA)
Divergences in the 10 day
High/low differential indicator which occurs over such prolonged time spans indic
Also, when there are 270 news laws when Nikkei fell to 905 & 195 new lows when Nikkei fell to 895, this is
a buy signal for an imminent rally
Also, if the Nikkei declines sharply but the nos of lows are few, this could indicate short term rall for tracers
(44) Advance Decline Sector Indicator
(10 days/ 30 days moving average)
Nos of sector making new high
-> Nos of sector making a new low
10 -> 2 = 8
(45) Investors Intelligence Service
Maintains an overbought oversold indicator which measures the % of stocks above their 10 week moving
average overbought
When market declines the reading is less than 30 %, this can be said to be oversold
Eg: April 01 ? Value indicator = 20
April 30 ? Value indicator = 13
(Said to be oversold)
April 31 ? Value indicator = 27
(Said to be overbought)
Magee uses different way of calculation
(46) Trendline Chart Service
Similarly to (45), however measures above 30 week moving average
Steps to buy
Favorable reading in
? 4-5 sentiment indicators
? 3 or more market indicator
? Buy if glock is in stage 1 (late) or stage 2 or stage 2A
In addition to these main indicators you can also confirm with the less important indicators like sealiment
Indicator
? Dow theory (divergence indicator)
? Short interest ratio
? Mutual fund cash ratio (long term guide)
Other
? Number of secondaries
? Speculation index
? London market
? Most achieve stocks
? Big block trading
? Margin debt
? Insider achivity
? Update/Down side volume
- Buy at 35 1/4 instead of 35.1/2 or 35
(47) Most Bullish Time
Magic twenty minutes
2:20 pm = 2:40 pm
(48) Buy a stock whose chart has formed a triangle
Need 2 ingredients
? Ability of stock to hold above previous low
? Establishment of an upside breakout (point the crossing of which will signal a new uptread)
(49) Buy a Stock with More Complex Pattern
(50) Buy a stock that has Support
Are buyers willing to stop in and bid for stock
(51) U.S Federal Reserve board discount rate and stock margin level changes by fed are one of key indicators to
watch
In the past when the discount rate was increased three times in succession this indicates start of bear market
And when the discount rate was finally lowered, this signals the end of the bear market
(52) During bull market stocks tend to open down and come back later in the day to close up strongly
(53) Look for diverge of key overages at major turns
Eg: Dow was up 10 and S&P up 2 for the day indicates the rally was not so broad and strong as it would
appear on the surface
(54) Watch for heavy volume without further price progress up
In one of the days in the uptrend, the total volume for market will increase cover preceding day’s high
volume, but Dow’s closing average will show substiantially less upward action than on prior few days
(55) Don’t buy when a number of lower quality, low priced stocks begin to move up
This could indicate start of bear market
(56) Same sectors are late movers in a bullish market
For example, based on which sectors are moving up, you can determine the stage we are in a bullish market
(57) Upside/Downside Volume
Indicator is a short term index plotted on a 10 day moving are rage which relates to the trading volumes in
stocks
(58) Short Interest Ratio
Indicator is the total amount of short selling expression a % of total trading volume in the Nikkei
It can reflect the degree of bearishness shown by speculators in the market
(59) Odd lot balance index indicator
= Total buying (of odd loites)
Total selling
(Odd loiltes are individual investors that buy/sell in less than round lots (100 shares)
The higher the volume of index, the more bullish
(59) Mutual funds sales and redemption
If MF redemptions ? + fund cash position ?indicates bullish market
Cash and equivalent position of mutual fund ?
Cash position of pension funds ?
(60) Unweighted stock index indicator shows the true picture of the average stock
(61) Glamour index indicator is compassed of speculative or aggressive type stock
A strong upturn in this index indicated new/renewed speculation
(62) Forming per share and relative strength
Most of the superior stocks will usually rank 80 or higher on both EPS and relative strength
A winner stock should have an increased EPS for the last 5 years (earnings growth rate) and good % increase
in last 2 quarters
Also average relative strength number at 87 at the starting point, when they broke out of the 1st price
consplidation basing area prior to substantial price advance
(63) Be alert to stock with greatest % change in volume
Pick up a winner stock which has an increase of 200-500% in volume
(64) Monitor stocks marking new highs daily
-> Stock making new high for the year
-> Rank them in order of EPS
-> Volume in last 12 months
-> Weekly graph of high, low and close price
(65) Performance of world stock market needs to be morutored
(63) Nikkei momentum index (200 day moving average of OTC advance/declines)
-> Moves above zero indicate bullish market
(64) Pension fund cash ratio
Higher ? the more bullish
(65) Bank cash ratio
Higher ? the more bullish
(66) Margin debt ? more bullish
(67) Eleven o’clock indicator
(68) Insider sell/buy ratio (8 week MA)
(69) Alert indicator (AAA bond yields is week T-Billrate) ? bullish
(70) Stock market pallets
(71) 2 good indicators
MACD movements
RSI indicators