Webby’s Homework (don’t look away…I see you 😂)
To catch the next big one, study the last big one. Change date to the pivots, go week by week and take notes!
MonthJune 2020
Following are three charts based on @mwebster1971‘s stock market update The Raging Bull’s Victory. Hopefully you’ll find the charts helpful as an additional reference.
In his book How to Trade in Stocks (1940), Jesse Livermore describes a concept that eventually became known as a shakeout + 3 when described by William O’Neil in his book How to Make Money in Stocks.
Jesse’s idea was simple, after a shakeout to a low, if there is another shakeout that undercuts the previous low, the buy price becomes the previous low price plus 10% of that low. Jesse referred to this as a pivotal point.
The “+ 3” aspect came about as O’Neil’s example was based on a stock that was $30/share, hence, 10% of $30 is $3, so it was known as a shakeout + $3.
Calculating Shakeout + 3 Early Entry
On November 3rd, 2020 AMD setup a potential shakeout + 3 early entry. It starts with a recent low undercutting a previous low:
Using the two lows shown above, here are the steps to calculate a shakeout + 3 entry point:
Step #1 – Get two recent low values:
Original low: $73.85
Undercut low: 73.76
Step #2: Calculate prices at 5% and 10% of original low:
5% of $73.85 = $3.70
10% of $73.85 = $7.40
Step #3 – Calculate early entry range:
The range is the original low plus the 5% and 10% values from above:
Range = $77.55 ($73.85 + $3.70) to $81.25 ($73.85 + $7.40)
Step #4 – Look for an area of resistance:
As with the range, an area of resistance was not part of the original concept described by Livermore or O’Neil. Using prior resistance you can find a more logical area to enter a trade.
In the figure below I’ve highlighted the early entry range ($77.55 to $81.25). The orange line is an area of resistance, notice several times in the past the price action didn’t move beyond that level.
Shakeout + 3 Example
Here’s a cheatsheet of the shakeout + 3 pattern and how to calculate the entry price.
It’s never too late to build your watch list. Here’s a @MarketSmith
screen for liquid quality names. Webby’s Thick.
Mike Webster and Irusha Peiris recently discussed power trends on the Investing with IBD Podcast. Ajay Jani took the time to code the concept in an Excel document which shows power trends for both the Nasdaq and S&P.
The orange indicator in the charts that follow, highlights where the power trend is on. The Nasdaq chart goes back to 1984 and the S&P 500 back to 1962. Richard Moglen helped Ajay with data acquisition.
Continue readingAs a companion to my @IBDinvestors SMU, Stock Market Update: The Raging Bull Avoids A TKO, I created a Webby’s Rocky Anti-TKO @MarketSmith Screen Hope it helps!
Following are three charts based on @mwebster1971‘s stock market update The Raging Bull Avoids A TKO. Hopefully these will provide some additional visual context to the week’s technical action.
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