IBD Technical Talk with Mike Webster

As I have noted, Mike Webster “Webby”, worked with BIll at IBD for many years and now he is back. As I listen to his new Videos, he mentions all these things he came up with on his own or with their Market School project. He has done significant amounts of analysis, back testing and thought to come up with important indicators for people investing the CANSLIM way. Some of you guys here will really like it, but some of you are day or swing traders and it won’t apply to much.

I will take notes and post links here as I go through them.

3 Likes

Today I went back and watched the 1hr 15m podcast video Mike and the team did on 4/4/24. Here is a link and summary.

Know When To Hold ’Em: Mike Webster On Trading Around A Core Position | Investing With IBD (youtube.com)

This is about using RS moving averages to help know when you need to sell out of a core position you hoped to keep for a big run to huge gains. Mike came up with some simple moving averages on RS that did very well on back testing for exit signs in this context.

The first segment of the video is about current market conditions.

Around the 19 minute mark he goes into his RS indicators.
At the 48 minute mark, they show some current examples (as of 4/4/24)
At 57minute mark he talks about SMCI (this on 4/4/24)
then at 1hr5m he talks about NVDA.

Current Market Analysis:

First some market analysis. Mike recalls that Bill talked about the 3-waves-down pattern, so Mike and others did historical analysis and determined this happened many times and usually led to a good rally.

Mike also notes that sometimes there would be days of distribution in the market and Bill did not care, but at other times, he might say “there are 5 days of distribution, you have to get out”. This is what led Mike and the team to discover “Power Trends”

21dma: Mike came up with this in the late 90’s when he reversed engineered his good and bad trades. Use the exponential, not simple. The 21dma is the simplest trend to follow, if above, then “gas on”, if below, “brakes on, more defensive”. They also noticed that to reset distribution days you either need time or a significant rise (5%) in index price to make it drop off. But in between, the market might be grinding higher. So they decided that if the low of the market has been above the 21dma for 5 days and you finished up for the day (5th day?), they you could take that as a buy signal. That is, it was a counter balance to distribution.

Market Analysis is the most import foundation of investing. That is the “M” in CANSLIM, only buy when the market is in a bull rally. You want to be aggressive at the right time, and this almost always coincides with the general market trend.

Mike says he will look at 1000-1300 stocks every day, sometimes more than once. He does that to get a better sense of where the market is going.

When to Hold 'em:
In addition to 21dma, Mike uses
Regression Channels.
Standard deviation above and below the line of best fit. Does this a few weeks into the trend, but then stops after 50 days. That is, stop calculating the channel, but keep the best fit and channel lines running forward. Look for the angle of ascent, is it too steep?

If you get too near the top line, you expect a correction, so employ your offensive sell rules (but don’t just sell everything and go to cash). If it goes down to the bottom line and turns back up, that is when you want to press on the gas.
If you go below the bottom line and come back up, wait for some confirmation that it is staying above that bottom line.

Don’t buy the dip, but the strength after the dip!

Using Relative Strength Line To Hold or Sell (29:00)
Mike was trying to solve his problem with holding correctly. Especially for holding a core position that you hope will become a huge winner. Maybe your max position size is 25%, but your core might be 15% that you hope will make the huge move. So you trade around that with the standard rules.

Three holding rules for core position using the weekly chart:
1) When the RS line breaks the 8week ma (of the RS), sell some, maybe 1/3 of core position.
2) If the RS line continues to drift down a little more, sell the next 1/3rd.
3) Sell the rest if the RS goes below its 21wma

For non-core positions, Mike uses the daily chart and RS for swing trading. That will kick you out more quickly.

You can buy it back when the green line is back above both moving averages.

Warning:
• nothing is perfect, you need to test this, or any other indicator, to see the strengths and weaknesses.
• Never use this to override serious sell signals, like you are down on the stock. This is for holding a winner, not rationalizing a loser.

Mike says that of all the things he created over the years, this is his favorite, and it is the simplest.

At the 48:xx mark they start showing some current examples.

For swing trading, you use the daily, but if you have a good gain and are holding now, then around the 3-week period you can switch to using the weekly as your trigger.

1 Like

Here is a fascinating 16 minute video with Mike Webster explaining why volume these days is dirty and he will no longer rely on it.
Is Volume Data Contaminated? Mike Webster On Price And Market Mechanics | Investing With IBD - YouTube

Here is my bullet summary I made for myself…

• Volume is important, but Mike thinks we don’t have an accurate measure of volume anymore, it is dirty.
• Volume confirms price action. High volume means this price action is real. There is conviction and demand
• He started looking at times when volume just was not right.
• Bill noticed that a stock was only breaking out on 40% volume instead of the 50% or more they expected. He concluded that they figured it out and are intentionally trying to prevent alerting people like Bill to come in and drive the price up. The stock is playing opossum.
• Buy players can now use dark pools and other tricks to hide their moves.
• Back in 2105 Mike was writing algos to buy stocks and one of the criteria was volume. He did backtesting to 1963 and came to the conclusion that if you don’t have clean data, your back tests are worthless. So he became focused on clean data.
• These days with algos doing instantaneous trading, you get volume that has nothing to do with conviction. Computers are trading in and out for pennies of profit and that creates false volume. The options market also impacts price and volume. ETFs allow big buys to buy a bunch of things at once. People can front run big orders from a mutual fund trying to buy a real and large position.
• When you do get a move in a stock, it draws in day trades, small hedge funds, computers., etc.
• There is no way to parse out the source of volume, so it is dirty. Can’t figure out the traditional conviction,
• Since Mike can’t know, he has stopped looking at volume.
• Mike even turns off price on charts where that is possible.
• He has built his own price related indicators like the Webby RSI and Average True Range.
1 Like