Stock Trends Case Study 2009

Stock Trend Chart Tutorial

Introduction on Stock Trend Chart Basis

"It is simple to complicate things but it is complex to make things simple" - Nameless Hero

 

The charts on this site are generated by a proprietary trend model invented by Raymond Tsang, aka Nameless Hero, the developer of this site .

 

I am trying to simplify it here so first I will first walk you through a list of chart features and then I will explain how to apply them.

Here is a list of chart features:

 

A - The stock name with symbol enclosed by parenthesis.

B - The time in eastern region the chart was generated; in this example the chart below was generated after market close. 

C - Bullish level.  A meassurement of the asset's trading activities.  This value can swing between 0 - 100% while 0% means extremely bearish and 100% means extremely bullish.

D - Green background gradient - forecasts the stock is going to trend upward.

E - Redbackground gradient - forecasts the stock is going to trend downward.

F - Period of the chart.  This can be daily, weekly or monthly depending on chart type.

G, H, I - A green bar suggests the current trend is upward.  A red bar suggests the current trend is downward.  A black bar suggests the current upward trend is stronger than usual.  G the bottom bar represents long term trends; H, the middle bar represents middle term trends and I, the top bar represents short term trends.  When all bars share the same color means the current trend is likely to continue.

J - The closing price or current price on that particular date.

 

Stock trend chart sample chart for tutorial purpose.

 

 

Consistency That Matters!

To understand how the charts work we need to know that the price is not important.  We are looking for the consistency of the color bars only.  On the same day if all bars (G, H, I) share the same color then it creates a more accurate trend signal.  A trend can be as short as one day (unusual) or whatever days the trend could last.  A mixed color of bars represents consolidation or flat in technical terms.  Most of the time the bar colors can reliably predict the direction of the next trend.

 

Bullish Level

Bullish level measures the “bullishness” of the stock. This value swings between 0 to 100% and 100% mean extremely bullish while 0% means extremely bearish. As a rule of thumb, we shouldn't buy a stock when the level becomes extremely bullish. We should instead wait for 2 signs to enter buy trades: a low bullish level and the appearance of the 1st of 3 green bars. Alternatively, we can wait for the 2nd or 3rd green bars to obtain a better price, as most of the time you can get a better price then, than buying at the 1st green bar.

 

Stock Trend Charts vs Traditional Technical Indicators

Single traditional technical indicators generally: don’t provide reliable trading signals, have a steep learning curve, and users have to "tune" the parameters. They are also prone to not working in different scenarios. The trending charts we provide have everything you need. They are designed to be simple to interpret, very reliable and don’t require tuning by the user. The best analogy to use in comparing traditional indicators to our model is 2D vs.3D.

 

Stock Trend Charts vs Cycle Theory

 

From the stock trend charts, we can observe cycles underneath, however cycles don't work while the market is moving in one direction for a long period of time.  Cycles are best for swing trades. However the period of cycles vary over time on a per stock basis which mean you have to tune the parameter, plus experience, to capture the right cycle in order to trade.  In cycle theory, they call the off cycle days stretched, or extended, and it is hard to "tune" and predict the next cycle days.  It works sometimes but not all the time.  It's like a radio station: you have to know the exact frequency to listen to the station.  As for Stock Trend Chart, it doesn't have the same problem, so is a more reliable trending tool that doesn't require the tuning and adjustments of cycle theory.
 

What's the Magic Behind Stock Trend Charts?

Believe it or not there is no magic behind Stock Trend Charts.  The model was created based on the boom and bust theory, just like Tai Chi.  It measures the momentum of the trades people do, which is reflective of the price movements and volume force.  After the noise is filtered out signals are revealed and, amazingly enough, trends are observable and reliably to trade.  The model has been sharpened over the years to be able to provide signals at this level and is presented in such a way that most people are able to understand.  The model is hardly fooled by market manipulations because it measures the underneath movements instead of pure price movements.

 

Weekly and Monthly Charts

These charts work the same way as daily charts.  The weekly and monthly charts just provide a bigger picture that daily charts can't give.  Basically it works like a zoom out which gives extra information.  These longer period charts complement what daily charts project.  If the weekly chart shows upward trend while the daily one shows downward, then more likely the daily trend will reverse back to upward quickly and this provides opportunties for people to "add" to their position.  Monthly charts work the same way, by helping to complement both weekly and daily charts.

 

Note we offer weekly charts to our registered users and monthly charts are only available to our paid subscribers.

From Novice to Professional Case Study #1 - Chesapeake Energy (CHK)

Almost perfect signals for enter/exit point for this case:

 

1. The first red bar on Dec 1 suggests an exit before a correction.

2. On Dec 9, the Short Term bullish bar appears green (very tiny) and indicates/signals a short term bounce is predicted after a downtrend indicated by 6 consecutive all red (LT/MT/ST) bars since Dec 1.  Then the next day, Dec 10, all Short/Mid/Long term trend signals are up (green) which confirms the bounce/rally.  Two days later on Dec 14, the stock breaks out.

 

What we have learned:

1. All ST/MT/LT going in one direction would almost guarantee the direction of the stock.

2. After consecutive days of all red bars, where LT/MT/ST are all in downtrends, a Short Term uptrend (green) is a sign of a possible bounce/rally, but one also needs to watch the closing price action.  A close that is just slightly up from the day before also adds to the rally consideration.

3. A flat price close 2-3 days signals a bottom, also adds to the rally/bounce consideration.

4. If the Broad Market Trend is up, this also adds to the rally considerations.

 

 

 

 

Chesapeake energy trend snapshot.

From Novice to Professional Case Study #2 - Research in Motion (RIMM)

Significance of a Black Bar

From the last tutorial, my reader asked how the black bar works.  As you can see on the chart below on Dec 10, a ST black bar means the model is suggesting the price is topping.  This ST Max signal is useful for swing traders or short term traders per below, but also helpful for long term players that can use the ST Max signal to help them to hedge their positions.  Because it is impossible to predit the price in the future, profit taking is very important (At least you are not losing money but instead the risk is you may sell too early).

 

Short term strategy when you see just an ST black bar:

1) Sell all your positions.

2) Sell a portion of your positions to lock in some profit.

3) Raise your stop loss target (this doesn't help if the stock gaps down the next day).

 

Long term strategy when you see any combination of black bars:

1) Raise your stop loss higher than your entry price but leave a big cushion (so at least you are not losing money).

2) Sell a call contract when the Broad Market begins a downtrend (more advanced) or the uptrend has topped (many black bars) and cover your call when the market begins an uptrend again.

 

To summarize:

1.  We will have a low risk setup after consecutive whole red bars with lower trend levels.

2.  Another sign of bottoming is when you see flat price actions for a couple of days.

3.  Always bear in mind the current trend of the Broad Market.

3.  Keep your position when the whole bar is green until you see one or more of the following signs:

a) price action not confirming the trend

b) black bars (suggested top)

c) red bars (run)

 

 

 

 

 

 

Here I attached another example of many black bars appeared in Sport Gold ETF.  It was too crowded.

 

 

From Novice to Professional Case Study #3 - Barnes & Noble (BKS)

How to identify a stock starting a downtrend?  Today we take a look at Barnes & Noble (BKS)

 

1st Signal

On Nov 24, we can see the uptrend was broken after 5 days of maxing in ST trend (in black).  This indicates that short term traders are leaving or profit taking,  which triggers the wheel broken of middle and long trend.  The next day on Nov 25, we see an all green bar indicating the down trend is not confirmed yet, but the model had given us a first warning of an impending downtrend.

 

2ns Signal and Eventual Downtrend

Then on Nov 27, the short term uptrend broke again and the closing price actions were flat as well.  It is just like the anology of a car running 60 miles per hour: you need to apply brakes a couple of times to stop before you can reverse it.  Although we see the ST bar was red on Nov 27, the overall trend level had not confirmed the down trend yet but it represented a 2nd signal.  On Dec 1, we can see the overall trend level is lower plus we see whole red bars (ST/MT/LT all in red).  This confirms the downtrend according to the model and you could see the next day, Dec 2, has both a lower trend level and a whole red bar again to further confirm the down trend.

 

It is important to remember here that the model may show early signs of a downtrend, but the actual downtrend may take a few days to actually develop and occur.  Was the all red bar on Nov 24th a false indicator, and should the downtrend have definitely occured the next day?  In fact, no because the stock was not ready yet, the model did its job by warning of a possibility of a downtrend coming.  The beauty of the model is it will try to mimic and identify a trend even if the price action is going against the trend.  My point is an up day of a stock doesn't mean it is on the uptrend and vice versa.   Without this model, I can't tell the stock is under uptrend or downtrend unless I lay out the chart and draw the trend lines on paper.  And by just looking at candlesticks, you cannot identify the turn is going to continue or not either.

 

 

Barnes Noble (BKS) trend snapshot.

From Novice to Professional Case Study #4.1 - CitiGroup (C)

This is a live case study for Citi Group (C), I will try to post analysis on the coming days to make a tutorial on specific stock.  It is not guaranteed to make money but to illustrate how the trend model works and how to interpret the signals.  Anyone can add on comments if they have any insights even thought I am the creator, I still need to learn on how to interpret it.  I will post right before the market close in the coming days just to get more saturated signals.

 

Here is today's analysis.  We see some price action after some consecutive down days.  I had some Jan 11 calls strike at $5 bought on Dec 11 and today I added a bit more.  The great things about leap call contracts is you only need to put 5 - 10% of you money to participate in a risky stock for a year without risking the whole portion of your money.  On top of that, you don't need to tied up your money and invest somewhere else.  If Citi Group bankrupted, you only lost 5-10% instead of full amount.

Another consideration to add more position today is the Broad Market is very close to the bottom.

Here is today's chart.

 

 

 

 

CitiGroup (C) trend chart. /></p>
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From Novice to Professional Case Study #4.2 - CitiGroup (C)

Today we saw some supports at the current price, short term and middle term players jumped in but long term players were leaving.  This is a half and half sign but odds are on the good side since we see the trend level is up (a bouncing could see trend level going up as well but would be very short lived like 3-4 days) and the closing price confirms the trend level increament.  If tomorrow the long term bar also turns into green, we will add more position to it and the bottom could have formed.

 

 

 

 

 

 

 

 

From Novice to Professional Case Study #4.3 - CitiGroup (C)

Nice trend signal today for CitiGroup and adding more to positions here.  We have the first whole green bar after so many red ones plus a higher trend level.  I prefer the trend level gradually increases rather than a jump and one should consider if the the trend level raise proportionally high compared to the previous ones, one should lock in some profits if there is any.  Here let's look at the chart today.  The closing price is a little lower than yesterday but the trend signal is more important as long as the drop is within acceptable range.  We trade basely on trend level and red/green signals rather than price and that's how it works.  On top of that, the broad market is on its uptrend and I conculde that today's price is a gift.

 

 

 

 

 

 

 

CitiGroup (C) trend snapshot.

From Novice to Professional Case Study #4.4 - CitiGroup (C)

Today the model gave a whole red bar of Citigroup, this translates into there possibly more down days coming.  The marginally lower price kind of confirm the downtrend.  But how deep will the down days given is unknown.  By using physological stop loss price I would set to $2.8.  Since my calls are Jan 2011, it is too early to declare a retreat.  From the weekly signal, it shows Citigroup is at bottom and unless the market crisis comes again, otherwise it would be good to accumulate or scale in at this level.
 
 
 

 
 
 

From Novice to Professional Case Study #4.5 - CitiGroup (C)

Sorry I was on vacation and missed out the case study on Thursday.  I am here to continue the series for CitiGroup because I would like to find out what the outcome is.  I picked CitiGroup because I think this stock has big opportunity on the upside than the downside.  If I am wrong, yes I will lost money, but on the other side, I have the opportunity as well.  So let's continue what's to see what's happening here.  Today the price action is flattened and went up a little bit compared to the day before.  However the trend level is lower, that implies a lower price action coming.  This is like half and half case to go either up or down, therefore do nothing is better than do something about it.  I would keep my position unless my stop loss (@2.8) is triggered.  I think this is a long term play but I will keep updating this series of case study for educational purpose. 
 
 
 

 
 
 

From Novice to Professional Case Study #4.6 - CitiGroup (C)

Today we see Citigroup has some positive actions:
 
1) Price action improving.
2) Trend level going a little higher or flat (a little higher is better than way higher, a real rally usually comes with little increaments).
3) ST/MT are in green which means short/middle term players joins the club, if we tomorrow we see the LT in green as well then we will see a significant price movement to the upside.
 
Based on the above, I added more Jan 2011 calls today.
 
 
 

 
 
 
Here is today's weekly trend chart:
 
 

 
 
 
 
Here is today's daily trend chart:
 
 

From Novice to Professional Case Study #4.7 - CitiGroup (C)

Today we saw a mixed signal on CitiGroup where the price is flattened, on the other hand the trend level is lowered.  We still see short/middle term players joining except the long term players.  If this is the case, it is not a good sign.  Let's take a look at XLF, the banks ETF and it looks similar to what Citigroup looks like and that means Citigroup is kind of moving along with bank sector, nothing special for C.  I think we won't see many actions before the holiday ends.
 
 
 

 
 
 

 
 
 
 

From Novice to Professional Case Study #4.8 - CitiGroup (C)

Today the price still flattened or marginally lower with trend level lowering.  One can interpret: lower trend level means larger room for future uptrend, with price flattened or marginally lower.  Bottom red bar means long term players are leaving and the topper green bars shows some strength short term and middle term.  Two things I observed here:

 

1) Price flattened or marginally lower with trend level decreasing, the stock is in its consolidation phase.

2) LT leaving with ST/MT joining, LT leaving with price flatten is a bullish sign if I interpret it correctly.  That means the stock is changing hand to other players.

 

IMHO, price at this level is not worth to sell if they have bought the stock over $10 or even $30.  Let's see how it unfold.  This other bank stocks are consolidating especially Bank of America (BAC) shows a strong weekly MACD during the consolidating phase.

 

 

 

 

 

 

CitiGroup (C) trend chart.

From Novice to Professional Case Study #4.9 - Citigroup (C)

Today we see the same trend signal for 4 days which price is still flattened with a lowering trend level.  By just looking at the current situation, I would interpret the stock is consolidating.  On top of that, I took a look at BAC's weeking MACD, the formation looks strong and consolidating as well.  This makes me have a feeling financial sector will have a strong bounce.  Of course this is not guaranteed and I could be wrong.  Here is today's chart.

 

 

 

 

 

 

CitiGroup (C) trend chart.

From Novice to Professional Case Study #5 - LDK Solar (LDK)

Today I took a look back on LDK and want to see if the opportunities will come again.  I remember I made 2 trades last time and I would like to post it here for study purpose.

 

On Nov 12, I add position because of whole green bars for 2 days and price flattened.

I got out on Nov 24 because I see the price action didn't confirm with the trend level and been maxed out for 3 days.

I enter position again on Dec 1 because the weekly signal is still up (available later through registration) and the broad market trend is close to the bottom.  (this one is just more guessing, but at least the model confirms a whole green bar and I was planning to keep it long term, well I always get out too soon).

 

I got out again after on Dec 4 for it made a huge jump that day, I can't resist the profit and I didn't regret I made that decision.

 

After that, I didn't check back on LDK frequently and today I come back and check: yesterday and today is a disaster.

 

 

 

 

From Novice to Professional Case Study #6 - Dell Inc. (DELL)

Today I am going to use DELL as a sucessful example from my bottom picks.  This one has been playing well and rewardable, as Dell is a large cap, the risk is quite low compared to the return for holding this stock 8 days for a return of around 6.8%.  This is a patient game and observing would be always better than participating.

 

On Nov 18, we saw a black bar on the ST position which means a top was warned by the trend model and the next day we saw some sell off and all ST/MT/LT were showing red bars in which the model suggested a confirmation of down trend starting or started.

 

On Nov 25, we saw all ST/MT/LT all showing green but based on past expenience, a stock drops like that won't be bottom so soon.  Yes, you need to have some basic knowledge how the market works.  Just imagine a crowded room, people were trying to leave but some other people still thinking the room still good for them even though the movie is finished.  Long story short, we have been patient and wait for the stock to satuate and nail a solid bottom before we jump in.

 

On Dec 10, we saw some short term players start jumping in again so we better go for it or just scale in, another factor to determine is the price been flattened for couple days which means a bottom was possibly formed.  The next day we saw the confirmation of the uptrend and we probably either scale in more or just leave it like that and let it roll.  I am still holding it while I am writing this tutorial.  Braod Market Trend was also taken into consideration and it seems the market has hit a short term bottom as well where the risk is even lower for this setup.

 

 

 

 

 

 

 

 

From Novice to Professional Case Study #7 - Yamana Gold Inc. (AUY)

Today I am gonna share my trade yesterday, could be an good example of a low risk setup.  The following are the factors I considered before I made the trades:

 

- Gold price been flattened for 2-3 days.

- Broad Market bottoming and very close to uptrend.

- AUY price flattened for 3 days.

- Many consecutive days of whole red bars (downtrend).

- I like gold stocks.

 

 

 

 

 

 

From Novice to Professional Case Study #8 - DryShips, Inc. (DRYS)

Bottoming, bottoming and bottoming?  Based on the weekly trend chart, this stock has been bottomed, the price has been flattened for couple weeks, the trend level starts to improve.  I think it is worth to keep this stock for long term play and time will tell.  I put this in case study series because I think it would be good to illustrate how the weekly chart works.  Weekly trend charts are just another great tool to capture a longer trend of stocks, combine it with the daily chart and one can track back the rally is a bounce or a real rally.
 
 
 

 
 
 
Weekly Trend:

 
 
 
Daily Trend:
 

From Novice to Professional Case Study #9 - Hecla Mining Co (HL)

I remember couple weeks back, gold and silver were rallied hard, one of the silver stock I like is HL. I am going to choose it for today's case study.  When I look at the weekly chart, it is quite interesting to see a 21 weeks rally along with Elliot Wave formation.  Please refer to the chart below, it is interesting to see the 5 waves formation hidden in the trend chart, however the daily chart is to short to show such a large time frame rally.  Analogy: It's like the globe always in front of you but you need to fly up to the space to see the whole picture.  Back to the EW analysis, if the above assumption is correct, what we are at as of this writing is the wave A correction (1st down wave after a complete rally), using Fibonacci ratio we need at least 21 weeks * 0.382 = 8 weeks to complete the whole correction which is 4 weeks away (another 2nd wave correction, wave C) before another bull market again.

 

Weekly Chart of Hecla Mining Company (HL)

 

Let's look at today's daily chart, even it shows some good signs (consecutive) whole green bars, it is just the weekly chart not confirming the rally and the stock is still restricted by the correction wave A.  It is interesting to see EW hidden in the trend chart and here conclude today's case study.

 

 

(HL) trend chart.

From Novice to Professional Case Study #10 - China Green Agriculture (CGA)

One of my potential pick China Green Argiculture (CGA) has very nice speculative signal these recent days.  Black shows a stop, red bars projects down trend and green bars projects uptrend and one can make money like a pro.  This is a very nice example of buy low and sell high.  What we have learn here is to pick the right stock which has consistent signals (whole red or whole green bars) and simply trade based on the color of the graph.  This made me to come up with some scanning idea to do some statistics on stocks which produces consistent signals.  If the stock you trading, the trend chart produes mixed siganls, then I would recommend to pick another stock or wait until it provides a more clear signal.
 
 
 

 
 
 

From Novice to Professional Case Study #11 - China Mobile (CHL)

Happy New Year and hopefully you have got some CHL from my bottom picks since Dec 21, it is still not too late, just need to wait for a pull back and board.  Today I am going to use China Mobile (CHL) for this last case study of 2009.

 

I have a list of stocks which I frequently monitor them, those stocks are either fundamentally strong or have high potentials.  This is important because you will get more familiar on news, price actions, history about the stocks and you will have more confident to take the hit in case it went the opposite way.  To know the fair value is very important as well and that helps on risk management.  Alright, enough for talking and let's start.  Price been flattened for weeks and recently the daily chart shows some bullish sign, see the following chart:

All signals a potential rally is coming: price action, raising trend level and whole green bars.

 

 

 

 

 

 

 

 

Also we need take a look on the weekly signal to see a confirmation, and it shows consistent signals: Price action, raising trend level and whole green bars.  In most of the time, these signals confirm the rally is real.  Couple stocks have been bottom picked using this strategy like LKD, DELL in the previous case studies.