Stocks hit a new low for the move Friday before reversing and closing the day higher. The S&P 500 is the leading index now, down 5.7% from its September high vs. the Nasdaq's 7.0% setback.
Added to the list of things plaguing the backdrop (inflation, higher rates, supply-chain issues, stagnation in Washington) is the power shortage in China. This may exacerbate existing supply chain issues in Asia which would impact things globally.
The two groups that stand out are the shippers and oil & gas explorers. The former consists mainly of two-week ledges which are not deemed worthy of our attention at the moment.
Some of the oil & gas explorers are completing their cups with just one-day handles. Given the magnitude of the move up the right side of their patterns as well as general market direction being down, these were not deemed suitable. With that said, Range Resources (RRC), +32% in four weeks; and Devon Energy (DVN), +15% in seven days, have worked well for us.
A couple of other explorers, Pioneer Natural Resource (PXD), and Bonanza Creek Energy (BCEI), are nearing completion of their cups, but are not suitable.
The entire market, not just the growth sector, is completely devoid of pattern setups for the breakout player. It is as barren as we have seen it in quite some time. We know that these things can resolve themselves pretty quickly, so we must be like "Johnny-at-the-rat-hole" in our monitoring of each day's activity. As such there are no actionable issues on the Focus List for Monday.
In summation, the averages set new lows for their corrections on Friday. Pattern setups for the breakout player are absent. Cash is king as far as fresh-money buys are concerned.
Q: Thank you for providing the Part IV video. Very intriguing and instructive. Let's say you find a security on the hourly, in full time continuity, do the other higher time frames have to have the exact same setup or can they have one of the others?
A: All you are looking for is that all four TFs be the same colored bar at entry. For entry on the daily, you want W M Q to be in continuity. For entry on the hourly, you want D W M to be in alignment.
Q: I have read HMMIS twice, the last one a couple of days ago. One question that I have is if the sell rules that William O'Neil mention in the book are still valid in these new market. He said, for example, to take profits at 20% or 25% most of the time except you find a super stock; he use weekly charts instead of daily; etc. I mean, I don´t understand how the algos work in this new market and how can they affect the selling rules that he defined a couple of decades ago.
A: It's all the same. Nothing changes in the market because fear and greed never change. It is a good idea to take partial profits or complete profits at 20% or 25%, unless something just jumps up like a rocket. Then you should try to play it out for a larger gain. The algos don't affect what we are doing.
Q: Thanks for sharing your FTFC testing in last nite's video......were you testing it within your Bread n Butter pullback method or within the Strat setups? I am not as proficient with candles yet but I thought I saw some setups that were not really Strats. Trying to learn both candles and TheStrat will take some time.
A: The bread and butter is nothing more than a Strat 2-2 or 2-1-2 pattern. A 3-1-2 pattern also fits the bill.
Assuming an uptrend, anything that makes one or more lower highs followed by an entry on the first higher high.
The above sentence is the whole bread and butter. This is the essence of simplicity - a strategy that can be described in just one sentence.
So each setup last night was both bread and butter and Strat. The only thing that is "new" with the Strat is the broadening formation and perhaps using four TFs, though using higher TFs for confirmation is not exactly new. The question is whether that yields a higher win rate than using moving averages to describe the trend. As Livermore said, there is nothing new in the market. There can't be because the market is as old as the hills.
Until just recently, I had not used candlesticks in about seven years. I don't prefer them but it is much easier to spot FTFC while reviewing many charts when using them.
Introduction to the service video (38:00)
Money management and risk management video (20:27)
Bread and butter pullback video (11:10)
Bread and butter pullback: Pt II video (15:09)
Bread and butter pullback: Pt III video (31:48)
Bread and butter pullback: Pt IV video (30:16)