RE: Stan Weinstein's Stage Analysis
(2013-08-31, 12:34 AM)theory6453 Wrote:(2013-08-29, 03:55 PM)isatrader Wrote: With the US markets beginning to look like they could be moving into early Stage 3 soon, I thought it would be a good time to post Chart 7-13 from Chapter 7 of the book as a reminder, which shows the ideal short sale entry points and general pattern as a number of stocks are beginning to break down into Stage 4.
That actually brings up a question I had about the overall markets being in Stage 1 or 3... The book maintains that one should mainly take long positions with the occasional short when the overall market is in Stage 2 and vice versa when the overall market is in Stage 4... but what types of positions/setups should we be looking for in transitional phases such as Stage 1 or 3? If we do move into a Stage 3, I realize that we should keep an eye on our long positions to move our stops up so that they get stopped out and we keep our profits. But what sort of setups should we be looking for in these transitional phases? And what would be the distribution (if I'm looking to have 6 positions, do I take 3 long and 3 short when in Stage 3).
Apologize if this question has already been asked/answered or if it's addressed in the book and I haven't gotten to it yet (i'm about 3/4 done with the book currently). I could be over-thinking this again. I'm sure there's no concrete answer to the question but I just want to get people's feedback as to what they would be looking for when the overall US market is in Stage 3.
Thanks,
I haven't done my full weekend update yet, so the following is just from a quick look at the charts.
NYSE Composite - Stage 2B-/3A
S&P 500 - Stage 2B
Dow Industrials - Stage 3A
Nasdaq Composite - Stage 2B
Russell 2000 - Stage 2B
The market breadth charts are very important in times like this imo, as they are leading indicators of what's going on the market. One of the key ones to watch with Stage Analysis is the $NYA150R - NYSE Percentage of Stocks above their 150 day (30 Week) Moving Averages, as the 30 week moving average is a key component of the method, and when stocks are above their 30 week moving, they are mostly in Stage 1 or 2, and when they are below it they they are mostly in Stage 3 or 4. And we know from an old book interview with Weinstein that this is the closest indicator to Weinstein's proprietary Stages surveys that he does in his Global Trend Alert Newsletter every month and has a good correlation with it.
Currently this broke below the 50% level this week and closed the week at 49.31% of stocks in the NYSE above their 150 day (30 Week) Moving Averages, and has been gradually weakening since May. So with that in mind, I think it's safe to assume that the broad market is now in early Stage 3 even if all the major averages charts are not, as the breadth indicators have mostly turned negative including the long NYSE Bullish Percent Index, which moved to defense and closed below the key 70% level this week.
With regards to your question of the balance of trades to take when the market is moving into Stage 3, I've not come across a definite answer for traders, other than it's very important to only pick the very best A+ type situations on the long and short side as it's a stock pickers market during Stage 3. So you have to be more cautious, and play both sides if you are trader, as moving into Stage 3 doesn't always mean a move to Stage 4 is certain, as a lot of the time it will make a continuation move higher and resume Stage 2. So assess your individual positions stages, be sure to protect holdings with a close stop and be cautious with the quality of any new positions you take imo.
NYSE Percentage of Stocks above their 150 Day (30 Week) Moving Averages chart
isatrader
Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.
Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.