[isatrader]

1. Certain stocks seem to be in perpetual stage 2. That is, they started off low and have been climbing for years. There is no clear cut stage 3, stage 4, or 1 at all. A good example would be NYSE:IBM which has been plodding along for the last year with the price oscillating around the 30 week MA. This current phase was preceded by years of continuous advance. How would one treat those stocks? Would you just consider it to be in a stage 3 top phase and ignore it completely?

Another example would be Microsoft (MSFT) which if you look at it from the beginning looks to be in a stage 3 top for the last 15 years. But when you zoom in, you begin to see the price fluctuating around the MA with some mini break outs and break downs. How does one approach these stocks? Can stage analysis by even applied in such a case?

Stage Analysis can be applied to all stocks and is done using a weekly chart, and you'll generally not want to have more than 3 years in view, so that you are zoomed in enough to see the support and resistance levels that are most likely to have some relevance. IBM for example moved into Stage 3 in mid 2012 and finally broke down into Stage 4 in mid 2013, but the Stage 4 only lasted until the end of the 2013 and then it moved back into Stage 1 and then a weak Stage 2 breakout in March 2014. The breakout was a failed one, as it would have taken out the investor stop loss position in June 2014, before reversing higher again. So I'd reclassify it personally as forming a higher Stage 1 base now and so would need to clear the 198 zone swing high to make a fresh attempt at moving into Stage 2.

A lot of stocks will go through the entire four stages in a single year and if you look back at page 18 in the book Weinstein defines the timescales for the two methods. The trader method is each significant two to four month move, and the investor method is up to 12 months.

Some stocks look to have gone up in a straight line for years as you scale out on the charts, but if you zoom into each few year period you can see the Stages play out. However, this doesn't mean that you will always see all four Stages, as in stocks in long term uptrends you'll often see a Stage 2 advance followed by a long sideways Stage 3 consolation of possibly a year or more, before it makes a Stage 2 continuation move higher, and this can repeat many times. And you can also see many mini Stage 3s as well as it tries to shake out the weak hands before making another continuation, and even the occasional false Stage 4 breakdown.

So Weinstein's methods are about catching each significant Stage 2 advance over the time frames I mentioned and avoiding the sideways periods and down periods.

Another point to remember is that Stage Analysis is not just about the price action only. That is only one part of the equation, as you need to consider the other key components of volume, relative performance versus the market, and significant near term support and resistance zones as if all four of those aren't in gear with each other then you should avoid and move on as you need to consider the opportunity cost of each trade.