[isatrader]

Hi,
I was wondering if this would be a proper breakout candidate meeting the stage analysis criteria? I understand one should not buy it even if it is a good breakout candidate because the overall market (TSX) is still in stage 4, so this is a purely educational question.

CTC.TO (a Canadian retail chain) has broken its trendline on above average volume 2 weeks ago and price is above the SPX price line. However, I am not clear as to whether the 30 MA is still considered to be in a downtrend even though last week it seems to have started to curl up a bit. If this is not a breakout candidate what would I need to see to go long (if the TSX had not been in stage 4)?

Thanks for your thoughts.

Hi marry123,

The 30 week MA has turned up this week with the continued move higher, so it is technically in early Stage 2A. However, it would not be considered an A+ candidate, firstly because it's still below significant near term resistance. See the section in Chapter 4 in the book (p96) The Less Resistance the Better, as it's currently pushing up against the consolidation range that made up a large portion of 2019. And one of the key requirements of successfully trading with the method is to avoid stocks that are still under near term resistance.

I've added the ichimoku cloud to the weekly chart, as this gives a rough visual guide to where the resistance is and considers the time based nature of resistance too, as it projects the cloud six months into the future. So I find this useful if I'm ever unsure about resistance. As ideally you want to trade from a proper base once it's clear of resistance.

Also, note the moving averages on the daily chart. The 50 day MA is still below the 150 day MA and the 200 day MA (which is still declining). You want to see the reverse of this when considering resistance, as the 50 day should be above the 150 day MA and the 150 day MA should be above the 200 day MA and they should all be moving higher.

       

One of the biggest mistakes that new users of the method make is to try to get into a stock that's had a big Stage 4 decline of a year or more that is then just starting to turn up after a very small base. I did this many times myself when I was beginning to learn the method. But this is literally the opposite of what the method is, and Stan talks about it on page 1 of the book. As our aim is not to buy low and sell high. It is to buy high and sell higher.

So avoid stocks that have had big declines and instead focus on stocks either making big bases of a year or more, or stocks that are already proving themselves in Stage 2 and breaking out of early bases. Mark minervini talks about the Stage 2 base count on page 80 of his first book. Focus on trading breakouts from base 1 and base 2 once a stock is in Stage 2, and you'll do much better, as at that point the stock has already proved it's in a Stage 2 uptrend, but it's still early enough to get in a make big gains before the rest of the crowd discovers it.