6-22-12 Comments

[Ken]

Hi Mike,

Doesn't the break on 6/21 also triggered S9 signal with the break below 50D ? Also, is there any statistics that speak to distribution days within a certain days of an FTD and its implication to rally success ? The current action is somewhat similar to 12/20/11 FTD where we had S1 distribution signal the next day 12/21 but it turned out to be a good bull run so my guess is as long as the DD are not back to back, the rally case is still on.

Also, does the behavior of leading stocks override some of the exposure decisions in this model ? We seem to have good money rotation into fresh leading issues such as ALXN, PCYC, TRIP, FB. A lot of the old leaders seem almost ready to move again now with decent base in place AAPL, AMZN, LNKD, KORS, MA, PCLN, CMG, ULTA. Overall a mix bag but the breakdown on the early leaders from 6/5 bottom are showing concerning signs: LQDT, BBBY, UA, MNST, REGN, SXCI, CERN, MLNX, EQIX.

Thanks-
Ken

[Mike]

Hi Mike,

Doesn't the break on 6/21 also triggered S9 signal with the break below 50D ? Also, is there any statistics that speak to distribution days within a certain days of an FTD and its implication to rally success ? The current action is somewhat similar to 12/20/11 FTD where we had S1 distribution signal the next day 12/21 but it turned out to be a good bull run so my guess is as long as the DD are not back to back, the rally case is still on.

Also, does the behavior of leading stocks override some of the exposure decisions in this model ? We seem to have good money rotation into fresh leading issues such as ALXN, PCYC, TRIP, FB. A lot of the old leaders seem almost ready to move again now with decent base in place AAPL, AMZN, LNKD, KORS, MA, PCLN, CMG, ULTA. Overall a mix bag but the breakdown on the early leaders from 6/5 bottom are showing concerning signs: LQDT, BBBY, UA, MNST, REGN, SXCI, CERN, MLNX, EQIX.

Thanks-
Ken

Ken, the break below the 50-day was not an S9 sell signal. Before we can have an S9 there has to be a prior B6 (lows above the 50-day). This relationship is to prevent signal churning around the 50-day.

Here are the distribution statistics presented recently at an IBD seminar I have done similar research with nearly the same results:
Distribution day 1 or day 2 after a FTD: 95% rally failure rate
Distribution day 3 after a FTD: 80% rally failure rate
Distribution day 4 or 5 after a FTD: 30% rally failure rate

As you noted distribution right after a FTD doesn't mean 100% failure...

Action of leading stocks is very important and is the final arbiter of whether we are in a confirmed uptrend. This is somewhat subjective and takes experience to know when enough leadership is there and whether they are coming under pressure. I track breakouts which has been looking okay except for the fact that the breakouts that occured on or after the FTD are on average below their buy points. Stocks that broke out in advance of the FTD are up okay. So from a leading stock situation I would say they are under pressure.

[Riskslayer]

Hi Mike,

I thought the overall failure rate of all FTD's (regardless of DD's) was around 60-65%.

Last Th, Jun 21's DD would have been a d4 DD.

The high failure rate stats you cite for DD's on d1, d2, and d3 are certainly consistent with everything I heave read or heard on the subject from you and others (e.g. Minervini, Zanger, etc)...

But, mathematically, a 30% failure rate relating to a d4 or d5 DD would actually be much better than the *average* FTD.

30% seems too high to me, I would have guessed d4 or d5 DD would lead to something like a 70-75% failure rate?

Assuming 30% is the correct number, what am I missing?

Thanks,

Shawn

[Mike]

Hi Mike,

I thought the overall failure rate of all FTD's (regardless of DD's) was around 60-65%.

Last Th, Jun 21's DD would have been a d4 DD.

The high failure rate stats you cite for DD's on d1, d2, and d3 are certainly consistent with everything I heave read or heard on the subject from you and others (e.g. Minervini, Zanger, etc)...

But, mathematically, a 30% failure rate relating to a d4 or d5 DD would actually be much better than the *average* FTD.

30% seems too high to me, I would have guessed d4 or d5 DD would lead to something like a 70-75% failure rate?

Assuming 30% is the correct number, what am I missing?

Thanks,

Shawn

Shawn,

You are right that the overall failure rate is high for any FTD when the criterial for failure is a rally where the market does not go up 10% or more from the FTD and the rally last at least 5 weeks which is the criterial I usually use. IBD didn't disclose their criterial which is obviously looser. But both sets of data show extremely high failure rates for distribution very close to the FTD.

[Ken]

Ken, the break below the 50-day was not an S9 sell signal. Before we can have an S9 there has to be a prior B6 (lows above the 50-day). This relationship is to prevent signal churning around the 50-day.

Hi Mike, does this relationship also apply to B3 and S5 signals ? For instance, would actions of today 6/25 be considered an S5 signal or do we need a B3 signal first ?

Best-
Ken

[Mike]

Hi Mike, does this relationship also apply to B3 and S5 signals ? For instance, would actions of today 6/25 be considered an S5 signal or do we need a B3 signal first ?

Best-
Ken

Ken, there are several relationships between buy and sell signals that reset each other. Here they are:

You can't have a B3 (Lows above 21 ema), B4 (5 days of lows above the 21-day ema) or B5 (10 days of lows above the 21 day ema) signal without a prior S5 signal (Break below the 21-day, closing down at least 0.2% below).

You can't have an S5, S6 (Overdue break below the 21-day--no S5 for the last 25 days), S7 (5 days of highs below the 21-day), S8 (10-days of highs below the 21-day) without a prior B3

You can't have an S9 (Close below the 50-day) without a prior B6 (lows above an uptrending 50-day)

You can't have a B6 without a prior S9