IBD Technical Talk with Mike Webster

[PuddinHead42]

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.

[PuddinHead42]

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.

[PuddinHead42]

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.

[PuddinHead42]

In the 5/17/24 weekly video (1hr 8m) Mike talks about the usual stuff and some stocks. Bottom line, still in good shape. He are the notes I made fo myself.

○ We got everything we wanted in the market this week. The pause was good because you don’t want a hot market getting too hot.|

||○ When you get back to an old high (e.g. S&P), it becomes a battle ground for the bulls and the bears. Uptrends have higher highs and higher lows, and we set a higher high on the S&P this week.|
||○ I would not be increasing your exposure before NVDA earnings It’s a crapshoot, so if you are invested in AI related things, you should have some profits that can buffet bad news. Remember, it is not how NVDA opens after earnings, it is how it closes. Go back and look at the great reaction on CRWD then the reversal by the end of the day. That reaction meant you wanted to pare back on CRWD so you could wait out the consolidation/basing process. Mike would love to see a weak open, even a test of the 50 day, then a slow climb up the rest of the day. |
||○ Mike recalls working with Bill on the institutional side for 15 years and every Sunday night they would spend a good hour and a half review charts. Bill would always start with the monthly and wanted so see that a stock had provides a great run in the past. He felt that gave it a much better probability of happening again. |
||○ 15:28 CRWD has a nice cup base and Mike considers that it really broke out 2 days ago when the price moved above the high from the second day after the last earnings. (see chart). He has a position with tight stops.|
||○ 16:39: GDX. |
||○ 31:18 21dma. Looking strong, lows of the days are still above 21.|
||○ 33:39 Webby RSI|
||○ 40:25 Discussion of historical power trends because we are on the verge of a new one, which could be Monday if it is an up day. Naz has 87 power trends in its history, here we look at the subset of 16 that turned back on within 25 days of the old one turning off (that is the case now). They range from 7 days to 301 days. Then they highlight the 4 that ended because of a circuit breaker as opposed to the 21dma just falling below the 50dma. They created this circuit breaker to get you out of the market faster. The circuit breaker is that the index has fallen 10% or more from the peak and is below the 50dma (so if the 21dma is still above the 50dma, then it does not mean anything anymore, get out). They advise studying these. Maybe that will give us an edge in this market.|
||○ 49:27 review of circuit breaker from the PT that turned back on on 11/29/2016. The was an extremely long power trend and you can see that even though prices fell below the 21dma at times, the 21dma did not fall below the 50 dma.|
||○ Get your stocks ranked in 3 tiers before NVDA releases earnings. Know which are the weak stocks to go first.|
||○ Mike will be doing a swing trader status update at 5PM every Tuesday, Free to everyone (to convince you to pay for swing trader).|

[PuddinHead42]

• IBD Mike Webster Friday Review (5/24/24)
○ Positive Expectation Breaker After Downside Reversal; DECK, NVDA, NFLX In Focus | Stock Market Today (youtube.com)
○
Timestamps are from the video hosted on Investors.com and may vary slightly compared to the video on YouTube
○ Thursday was an expectation breaker (downside reversal), but we had a positive expectation breaker Friday. A downside reversal gives you the expectation that you will have 2-3 bad says, so you generally want to get out as soon as possible. So Friday’s big up day was also unexpected, in a positive way.
○ 06:54: Deckers discussion. Reminds us of a bunch of past retail/shoe success stories. Shoes are fads and Deckers has done a good job at creating or catching the next fad (UGGs, Hooka). Breakout of a cup without handle, RS of 93 was also a blue-dot. It has had a series of tight bases followed by good runs. The earnings gap up was followed by sideways action all day. “This is the most constructive because it is not getting ahead of itself”. If you bought it, the obvious stop would be the low of the day. An alternate stop could be the high on the left side of the base.
○ 14:20: NVDA discussion.
○ 17:21 NFLX: Sales starting to accelerate again. Still actionable. 5 weeks up into the breakout - big institutions accumulating over time.
○ 26:12: index chart TA.
○ Watch the low and high from Thursday, if we go above that, it is good, if we g below that, it is not good.
○ In general, remember to focus on the 21dma. If you price/index low is above 21dma, that is great. If the high is below the 21dma, that’s-a-no-good-boss.
○ 40:00-ish: Goes over Webby RSI, looking fine, but if Friday was down like Thursday, it would have looked bad.
○ 44:20: ATR review (in good shape).
○ 46:20 Looking historic downside reversals (DR) and subsequent buybacks.
○ The Market School definition of a DR is: Big spread, closing at the lows, after a 13 week high
○ If you come back over the high of the downside day within two days, then is it a “Buyback” scenario. Of 61 qualifying downside reversals, only 11 became buyback scenarios. All 11 of those happened in a power trend like we are in now. That is, that market had been strong when the downside reversal happened. It shows the market is much stronger than you thought, because normally the DR will cause the market to continue to go down. In other words, if we go above that high Tuesday, push on the gas. (Buy back anything you sold on the DR)
○ 49:12 looking at DR and Buyback of May 2020.

53:38: Viewer request: Vertex (VRTX) This came Straight Up From The Bottom (SUFB) into the buy zone. That means there was no opportunity for a shakeout of weak holders. (e.g. a handle). There was an upside reversal on earnings day, so that was a bit of a shake out. Mike says it is still actionable, but it is a “B caliber” opportunity, but not an “A caliber”. It is showing accelerating EPS growth. Also seeing some acceleration in sales. Previous bases were tight. So you can promote it to a B-plus or A-minus quality opportunity.

[PuddinHead42]

Power Trend’s First Real Test A Success; LOGI, Vertex, MercadoLibre In Focus | Stock Market Today (youtube.com)

IBD Friday Review with Mike Webster
○ The power trend was tested this week, but remained intact.
○ Naz sliced through 21dma, but ended up well above it. S&P had an outside day and upside reversal day on Friday, and almost touched the 50dma. Both finished near or at highs for the day, a sign of strength. If you look at the 5 minute chart for SPY, it is really impressive coming off the bottom.
○ Thursday a week ago was an outside day and downside reversal ending near the lows, so today’s action was an important counterbalance to that.
○ Mike reminds us that the 50dma is important because technical traders and lots of algorithms deem it important and will start selling when the indexes (or a stock) go below it.
○ For day traders, the morning high is an important indicator and when the market retakes a morning high, they start buying and try to squeeze the shorts.
○ “we were able to defend the 50 day and the 21 day in a meaningful way (S&P)” Also, look at the weekly for S&P and you will essentially see a 3-weeks tight pattern.
○ Mike likes to use the RSP for breadth because it is a “primary” indicators vs advance/decline or up/down volume. It also closed above 50 and 21 day. Closed at highs of the day.
○ IWM in cup with handle and it found support at the 50 day. But is has been setting up since 2021 and failing, but an up day on Monday would be a signal that IWM might start to lead or at least keep going up. [Pete: Or, will it continue to fake us out until there is a rate cut.]
○ MDY about same as IWM, might be time to press the gas if it is up Monday.
○ Mike likes to think about “what are the magnets the market wants to go to and can I withstand that with my style of trading?” for instance, if the markets had closed at lows Friday, we would expect them to continue down to the 50 day on Monday. (And with that expectation, we might need to exit Friday afternoon). Swing traders were probably taking a lot of action this morning, but a position trader could wait for the end of the day to take action.
○ Power trend still in effect and today’s action was very important to that. If we go below today’s lows, that is bad news.
○ Mike likes to review the SPDR Sector ETFs a couple times a day. Sorts his list by price change, high to low. It will give you a sense of what is going on, is there a rotation happening. If the sector is looking good, then you might look at the stocks that make it up to find charts in a position to breakout.
○ They added XLU and XLP to swing trader at the end of the day.
○ 26:35 - LOGI - breakout of double bottom base this week. Weekly chart shows 6 weeks up in a row on the right side and a shakeout at the bottom. This is actionable here. This is more of a turnaround than a growth stock.
○ Read Reminiscences of a stock operator (about Jesse Livermore). One of Bill’s favorite books and one of Mike’s favorite books.
○ 31:30 VRTX - added a nice little handle and rebounded Friday. “Actionable”
○ 32:49: MELI - Some problematic damage on the left side of the base, but then it came Straight Up From the Bottom (SUFB). Breakout failed but it is holding above the 21dma. Actionable if it takes out yesterday’s (Thursday) high, but a little more risky than the other two.
○ 34:34 - Extended version of the program. TA nerd-out
○ With his best fit lines for S&P and Naz, the indexes bounced off the lower (one std deviation) line, so that is a bullish sign “push on the gas”.
○ Still above the 50% retracement area, so good. If we go below today’s low, put on the brakes.
○ 41:35: looking at 21dma and SPY went below it, but a decisive close above it. Same for Naz. SPY looks stronger.
○ 43:47 Webby RSI = Number of ATRs above 21dma. Like it to be in the 0.5 to 2.0 range. But after today’s action, we are underneath it, so waiting for next week to get more positive. About 3 ATRs from high, more than 4 is a worry.
○ This week’s homework: Finding ideas in the Growth 250 list (In MarketSurge). Sort by percent change. Look at sub-lists like “Breaking out today” and “Near Pivot”
○ 54:35 Viewer Request: Chubb analysis.
○ Back to finding stocks using growth 250. Use it every day, but certainly on the weekend.
○ 58:10 ONON: Pausing in a natural way, but extended. Looking for a spot to get in. Maybe a gentle pullback to the 21-day like we see in GS right now. Or a nice, tight shelf for a week or two. Don’t want it to trade below the recent lows on the up days.

[PuddinHead42]

6/7/24: Weekly Review…

○ “Today’s action was very good for the position we are in. Gives us expectations of a slightly weak open on Monday”
○ Similar to a high tight flag, buyers and sellers in equilibrium
○ The IWM has had a history of acting like it is breaking out and then failing, now below 50dma.
○ We would like to see the RSP (S&P500 equal weighted) tell of that a broad range of stocks are breaking out
○ QQQ RS line is going in the right direction and above the RS MAs. See MDY for a contrast.
○ 09:55 quick TA review of some of the sector funds. When the RS lines of the ETFs were good, he would say that is where you can look at the individual stocks for ideas.
○ 12:27: CRWD. Chart not great and Mike would not be in it if not for the great fundamentals.
○ 16:40 DKS, not good for a position trade, but they do have it on swing trader. When you look at the EPS and sales growth, you can see why it would not be a position trade.
○ 18:57 VIK: Good bounce of 21dma. Mike wanted to get back in and this was third day down. “You try not get in on the first or second day down, but wait for a logical area. Really looking for a third day with upside reversal.” He liked it so much for swing trader that he sold his personal position so he could added to swing trader, then he could buy it back"
○ He has mentioned a TWAP (Time Weighted Average Price) order several times. Apparently, some brokers have this feature where you can say “buy x shares of the next hour” and it will space it out so you don’t get stuck buying a spike that then goes down.
○ Mike notes he created the IPO base for IBD, the only one Bill did not develop (he looked at all IPOs “ever”). Yes, cup with handle, etc existed, but Bill did the back testing to determine the metrics for defining it for IBD (e.g. what is the deepest is should be, what is the shortest length it can be, what is the max depth of the handle, etc.)
○ 25:00 start of the extended TA portion of the program.
○ Start with best fit trendline channel of 1 standard deviation. No surprises. Might open weak on Monday.
○ 33:12 Webby RSI - we are in a healthy level above the 21dma on S&P, just a little hotter on Naz.
○ ATR: based on recently lows, 3 ATR off the high is normal and a trip back to that is no big deal.
○ 38:17**: Precedent Analysis:** Follow Through Days and Rallies from 2003, 2009 and 2023. The vertical bar is the FTD for each rally. We are currently at day 151 of the rally, so that is where the blue “current” line ends. Our high from FTD is 38% so far, the other two rallies peaked at 55% and 63%.
○ Homework: Use MarketSurge to set dates back to a few months
after the FTD of 2003, 2009 (Naz) and watch how it plays out and how you would feel or trade in that environment. Watch for the index low when it is above and below the 21dma.

○ 53:05 Next Mike again showed us how to go through the subfolders of the Growth 250. He likes to sort by dollar volume. “Near Pivot” is the best place to start.
○ 58:33 Viewer analysis request: SG.

[PuddinHead42]

6/14/24
24:20 ---------- Extended TA session --------------|
||○ On a weekly basis, the S&P and Naz look strong. Opened the week low and just went higher, confirming the trend.|
||○ 31:xx looking at key levels for spy. Levels where we would be getting worried and cautious if they did not hold (like the top of the downside reversal day on 5/23/24. And the June 5 low).|
||○ 33:04 - 21dma line review.|
||○ 35:00 - Webby RSI looking good. S&P Got hot for a second, but backed off to a normal zone. Naz is still a bit hot (around 2.6). Prefer this to be between 0.5 and 2.0.|
||○ 36:45: Bob Marley indicator (ATR). Still in green zone, nothing to worry about now.|
||○ Mike always seems to talk about finding that spot where the bears might come in and push the market lower. For example, 200dma, 50dma, or other critical point like the high or low of a recent downside reversal.|
||○ Still in a power trend. Webby’s indicators are good, not too hot, not too cold. So we think about things that would not be normal. Right now, a gap up would not be expected and might make the markets too hot, even though we would theoretically like that to happen. Base case now is sideways to a drift down. A major gap down would be abnormal here. Don’t predict, but interpret the market (as Bill taught). Mike would love a week of sideways action for the 21dma to catch up, but he acknowledges the market never listens to him. So now we are no longer pressing hard on the gas. Still heavily invested. (Swing trader around 100%). |
42:35 Homework: Mike likes buying upside reversals and pullbacks.

[PuddinHead42]

6/28/24 - Last Day of quarter. Downside reversal and outside day make us expect weakness next few days.

Show Notes:
○ Naz and S&P had downside reversals and outside days. “These happen all the time in bull markets…it means the rally has run out of steam (for now) and our expectation is to move lower. Today’s high becomes an important level we need to get through… a few weeks of sideways action or slight down action would be normal”. May be getting a rotation.
○ Equal weighted RSP did better than the big caps for a change.
○ Don’t forget it was then end of the quarter, odd things happen.
○ Remember the downside reversal buy back rule, if you trade back above the high of the downside reversal day, which is today, and it is within 2-3 days, then it is a buy signal. But Webby expects we will test the 21dma instead.
○ 9:30 - review of the sectors SPDRs. He first looks at the RS and how it looks compared to the MA of the RS.
○ XLRE second up day, bounce of 50dma. This was up on a down day, so we want to look at the stocks in that sector. XLF worth looking through. XLK was rebalanced last week, so it may be a little goofy on the chart. XLY might have some stocks to look at, same for XLY. XLU - stay away.
○ Looks like chips (SMH) are rotating into the software space (IGV). Lots of good stocks in IGV, but due to today’s market action, he would not be surprised to see it come back down to the 85.22 shelf.
○ 18:01 - UBER - has been consolidating and broke a downtrend today, so buyable. Mike would have bought today, but he is playing defense due to market action of today. 3-weeks tight, which is constructive, but left side of base is not ideal. There was also 3-weeks tight on left side at about the same price level. Bill and Mike did lots of research on that and noticed symmetry was not uncommon.
○ 21:06 - JPM - Actionable early entry, breaking a downtrend and short shelf near the buy zone. RS line poking above its moving averages.
○ 22:02 HLT (Hilton) - In position, but not a perfect stock, shows some decelerating sales. RS is good, RS trend is good. Had a bit of a shake out last week or so, which is good.

24:16 - extended programming section…
○ Naz 17,137 is a 50% retracement line from the March highs to recent highs. Mike says as long as we are above that he will feel good. I could also see where you could do the same thing with the highs in June, wonder how he decides which is “right”.

He noted some important and semi-important support areas to watch in the following two charts (breakthru yellow is not unexpected but break thru red is bad news).

○ Webby RSI is “fine” right now, not too high, not to low, but is on the lower side

○ ATR still in the green zone… A 3% pull back from the high would be considered normal.
○ Recent Breakout List: good to look through it and see if breakouts are holding or failing. Looking at AMZN, if it were to close below the low of 2 days ago, that is bad, if even lower than the 50dma, then really bad for the market.
○ Also, look thru stocks near pivot: Found NOW, base is a little wonky, but Mike is looking for a place to get in because fundamentals are so strong. MMM weekly chart looks interesting “I would investigate this to see if there is something unique, or there is just money flowing in”.
○ Homework: Mike notices rotations at end of quarters, so go through sector spdrs and your favorite ETFs like IGV and SMH. Go back a couple years and look for quarterly patterns. If you find something, send it to him on twitter because he has been meaning to do the research

Audience Request PANW - Mike really dislikes huge down weeks like PANW had recently, looks like big investors are bailing like crazy. So, maybe you have millions of shares to ditch and you start selling, then you break the stock and you have to stop, but now you are waiting for a new chance to unload. Mike will keep a stock like this in the penalty box. If he sees a gap up that holds for weeks, then he figures the big selling is done. He does not plan to do anything until it can at least get above old highs. He has done a lot of work on these and they tend to resolve on the downside.

[PuddinHead42]

Show Notes Friday 7/5/24:
○ After last week’s downside reversal (Friday). We expected more weakness this week, but did not get it. But that means we are even more extended than we were. The next day we did get an upside reversal, but that is not uncommon and they don’t always mean it is over. But on then following day, the market told us it really wanted to go up. Now our low is above the high of the DR day. (Strength)

MidCap (MDY) and Russell 2000 (IWM) are still dismal. Only good for super fast traders for mean reversion|

38:14 starting extended portion of Friday program.

○ 41:xx - Mike as started a new regression line and channel, and like the old one, it is steep, as Mike says “Unsustainable”. (but it could still go for a while like the last one.) (For daily chart, he uses 50 trading days for the regression line)

○ The concept is to know what trend you are in and when do you fall out of that

||○ Talked again about how 50% retracements are normal and healthy, if you go below that, you need to worry.|
||○ 53:00 Webby RSI. In good shape for S&P but a little hot for Naz. Naz is 8.3% above 50dma too. Would like to see this corrected with a sideways move or a weak open that gets you closer to 21dma.

[PuddinHead42]

Show notes for 7/26/24

• Fridays with Webby
○ Won’t feel good until lows get above 21dma, then the wind is at our backs. (and not just above it for a day or two, want to trend above it). The low needs to close above it AND should be a positive day AND finish near highs (Per Market School research) Most people should wait for this signal and forego some gains for more certainty. The exception would be an upside reversal, like we almost had yesterday. You can then start buying and buy heavy because you have a clear stop at the low of the day. (See May 31, 2024 for good upside reversal)
○ ETF check…You can go to the sectors webpage, paste ETF contents into Excel then paste into MarketSurge and go through each one.
○ XLE: RS is moving up, so might want to check the stocks in this ETF/Sector for candidates.
○ OIH is “looking interesting”, had a nice upside reversal.
○ XLV nice RS line moving up “the place to fish in”.
○ XLU: Mixed bag with AI-related utils and regular utils.
○ COST: Bill would always think about where a stock should go to during a correction (in the stock). For Costco it could be the $787 breakout price or the nice round number of $800. Webby thinks it then could round out and be ready in 3-4 weeks.
○ XLK: RS in a downtrend underneath moving averages, avoid
○ XLF is “the area to fish in” BRKB has a natural pull back that might be ready to bounce up.
○ Homework: scan through all banks and S&Ls above $10 and above 50 and 200dma. A lot are extended
○ XLRE: RS moving up, price is putting on a handle and breaking the downtrend of the handle is a place to buy.
○ XLB: RS shooting up. Chart is a double bottom.
○ XLI also has nice move up in RS.
○ XLC: Avoid
○ 3M: each of the last 3 bases has become more shallow. Webby says this indicates people are becoming more comfortable with the stock. Lots of 3-week tight patterns showing accumulation. Then a blast out of the base. This is a good trend to look for in other stocks too. Can’t buy 3M now, but will be watching for a tight flag or even better, an upside reversal. Webby probably would not buy it for a couple of weeks.
○ GE: ab out a year ago, GE did what 3M is doing now (fixing the company). Last 2 flat bases have been very tight. Webby still watching to get back into this.
○ NOW: put on swing trader yesterday, but could certainly come back down to $800 or even to the low of the gap up day and that would be “normal and natural”. But, bases have been getting deeper instead of more shallow. Also, the weekly chart shows this most recent base was flawed - too many red bars. Group (software) is weak, but sales growth remains strong.
○ 38:16 - TA deep dive, Webby RSI, ATR, Regression lines, etc.
○ Regression/Trend lines: we have fallen out of trend again, now need to create new ones.
○ SPY and QQQ below their 50-day retracement and “living below it”, but IWM sill above it. RSP and MDY were below for a day, but popped back above. IWM touched the 50% retracement (around $215) level but then reversed up.
○ 52:00 Webby RSI for SPY is in the “bad zone” (no surprise). Time to be cautious. Naz even worse, but so much so that you are looking for an oversold bounce in the form of an upside reversal. RSP looking good. IWM looking very good.
○ 55:00 ATR is just in the yellow area for SPY but deeper in for the Naz. RSP nicely in the green. IWM well in the green. Had a pull back a few days ago and we want it to stay above that (on the ATR chart)
○ 57:xx: more stock charts
○ IBP: double bottom with a little pause before the breakout. Webby plans to review this over weekend, but is worried that earnings are in 6 days. Advises to look at other stocks in the group that have already had earnings.
○ CHDN: Webby does not like Thursday’s action (failed breakout).

[PuddinHead42]

Expectation Breakers:
Webby, Justin and Harold came up with this idea/terminology in when creating Market School a decade or so ago. As seems obvious, an expectation breaker is when you have something happen in the market or a stock that sets an important expectation and if that fails, something is wrong and you need to react to it, or at least acknowledge it and adjust your thinking.

So here are two charts of when the market had a very strong up day, and cleared a consolidation. The expectation was for continued up momentum the next day, or at worst, a quiet inside day.

The next two charts are the above, but one day later. The expectations were clearly broken with a big down day…

So the first chart in each pair is the Naz. The up day was 10/31/2007, the down day was the first day of the crash of 2007/2008. The second chart (on the bottom) is the SPY from Wednesday (up) and then Thursday (down). As we know Friday was another bad down day.

Our expectations were broken Thursday. We should have put zero dollars into new long positions at the very least. We should have sold anything we bought on Wednesday and more.

No one is saying this will be the crash of 2007, that is “impossible” as that was (eventually) about a systemic threat to the entire financial system. Now we are just worried about recession and might not stop worrying until we see a 50 basis point rate cut, or the words that promise that. Regardless, the point is, we should all have changed our thinking and expect bad stuff until that expectation id broken.

[PuddinHead42]

Show notes for 8/2/24 With Mike Webster

Once the IWM broke below the 220 level and couldn’t rally, that was a character change. But, it did stop where it should stop (at the 50dma).

Sidenote : Bill originally created the Follow Through Day rules to get you back in the market after a big correction, but then it evolved to be used even in smaller corrections.

Webby suggests going through all your stocks and if you wouldn’t buy it today, then you should sell it.

Looking through Sector SPDRs. Ignoring the ones with bad downward RS. XLI and XLB are holding up well enough that you can look through them and build a watch list for the turnaround. XLC good. XLV and XLU RS lines actually moving up. Of course utilities are a safe place to hide, but you won’t find big movers. XLP strong, RS good and chart good - look at all the stocks in this sector.|

CBOE, great chart and upward RS. If you can’t stand to stay out of the market, this may be for you
RACE looks good.
MELI up on earnings. Keep on your watch list (but it is the riskiest of the three).

25:53 - Webby’s charts
○ At the moment, the S&P correction of 3 weeks down, looks like the one we had in April, with 3 weeks down. But, we never know. Naz was a little more dramatic this time.
○ s&p fell out of regression channel 7/21, tried to get back in, but failed. So another reason to be more conservative. Naz pretty much the same.
○ To state the obvious, Webby says the facts are the facts, you have to be defensive.
○ Webby RSI: SPY is -3.1 (bad) But not enough time at the bad levels to expect and oversold bounce back yet.
○ ATR: ATRs off highs are almost to the level we saw in the April pullback. No where near as low as when we saw the 3-waves down in the fall of last year. Naz is worse, now below the April lows. There’s no lipstick for this pig.
○ Keep doing your screens and building your lists so you are ready when the market changes character. Will need a FTD. |

[PuddinHead42]

Show notes from Friday 8/16/24

○ The S&P jump above the 50dma was important and impressive.

○ Mike is looking at the S&P chart and seeing the spirit of a double bottom and we are right about back to that middle high that would be a buy point in a double-bottom chart.

○ Mike would like the market to come down a bit, but maybe we break through this pivot level.

○ Mike noted that we had expectation that the market would have some normal retests of the 50 or 21dma, but it did not, and that was a positive expectation breaker. He then went over the 1985 correction which went below the 200dma for a bit but then retook it, and the 50 and never rested. That was big rally after that. His point is that if you are waiting for a retest before you start raising your exposure, you may never get it and will be left out of the rally.

○ Jan 11, 1990 example: Here we had another correction below the 200dma, it retook it, then tested the 200dma. In this case, the test failed and the market kept going down.

○ Don’t trade on what is supposed to happen, take it day by day.

○ Remember, a lot of FTDs fail. You still use them to slowly expand your exposure, but still pay attention to market signals, don’t blindly trust and FTD. Bill always taught the team to stay flexible.

○ They reviewed a bunch of historical market charts to make some points, really worth watching for chart nerds.

○ 32:31 RACE: Mike has a position. He was attracted to the long, tight base (Flat, 10% deep). Each of the 4 bases you see on the chart became more and more shallow, which is exactly what you want to see. That means the bears and bulls are in agreement on a price level and we are waiting for it to break out or break down. It broke out, so they bought it on Swing Trader. If you close under the gap up low on Wednesday then he thinks you would back out of this trade.

○ COST: moving up to a buy point. Slow and steady stock.

○ DaVIta (DVA) Flat base, 11% deep. Modest breakout. Like RACE, the bases have been tightening up. On this one, Mike would know he was wrong if it came back down to the $145.38 price (where he says he should have bought it).

○ In general, Mike is looking for things where the exit plan is close so losses would be small.

○ 38:30: Sector SPDR review: Look through these: XLF, XLU (poor RS, good price action), XLC good price action, but RS below RS trend lines. Same for XLP, XLY weak. XLK p stick with QQQ or SMH. XLB Price and RS look weak. XLV good price action RS looks bad, but you can look through components for strength. XLRE - same thing. XLE avoid. XLI avoid.

○ GDX: irregular double bottom (too short). IGV: Price action good, RS going sideways. Breaking downtrend line - look through component stocks. SMH: AVGO looks buyable, Mike is waiting for it to go sideways before buying.

○ 43:25: Webby TA charts: Regression lines, 50% retracements, ATR, Webby RSI.

○ Determining 50% retracement levels are an art, but for the SPY, we are above them regardless of different reasonable top and bottom prices. He shows one on the SPY around 537 and says it would be normal and reasonable to come down and test that, just want to live above it.

○ When looking at various levels of resistance and support on the SPY, we have broken above a lot of potential resistance areas. Mike says I am shocked that we were able to bounce back through that many levels so quickly|

[PuddinHead42]

9/13/24 Friday Show…
○ Expecting Naz to get to recent highs of 18017 if this “is a normal move up”. QQQ showing a cup with handle formation and broke downtrend line of the handle yesterday.
○ For SPY, the expectation breaker high of Aug 1 is the key level and S&P is now above that.
○ Once Mike saw that the price was not going below that support (and turned up), he started buying and putting his stop loss below the low of the day.
○ Mike bought some GE today
○ Next week, we will know the rally is in trouble if this week’s breakouts start to fail (he did not say it, but that would likely be triggered by Fed disappointment)
○ While going through the Sector ETFs Mike reminded us that he looks for the close to be above the 21dma, and if so, you can look into the stocks in that EFT/Sector for opportunities.
○ Zillow breaking out. Mike has a position, but it is a little wilder than a lot of stocks. Moved to much for a swing trade, still ok for position. But the base was a little bit deep for him, so keeping his position small
○ WPM: (I almost bought it). The gold stocks are generally looking good. Not too far out for a position trader, missed it if you are a swing trader
○ 43:30 APP very strong breakout on Wednesday. “It is a canary in the coal mine”. Follow this because if it continues to do well or if it fails it will tell you something about the market.
○ Also look at ORCL. It had a big downside reversal today. Can it hold now, or will it continue to go down?
○ Mike goes through over a thousand charts a day to see how breakouts are working (like mentioned above)
○ As a side note, Mike said they are working on getting candles into the MarketSurge charts.
○ 1:00:43 - CAVA (Mike’s biggest position). Didn’t do anything abnormal on Friday even though it was down when the market was up. If it had created an outside day by going lower than Thursday’s low, then that would be different.
○ He started buying it on the day it went above the 50dma and so did swing trader. He would like to see it go flat for a few days then wants to buy it as it goes above the recent $128.18 highs. (Pete says "gee, would that be nice for it to wait for Fed then take off).
○ Mike thinks CAVA is the leading stock in the market right now. He talks about the possibility of forming an ascending base and what percentage pullbacks to expect in that scenario.

[rdutt]

@PuddinHead42

Zillow breaking out. Mike has a position, but it is a little wilder than a lot of stocks. Moved to much for a swing trade, still ok for position.

Thanks for this update. I started a position in ZG this morning as a swing trade, after Wedbush raised the price target from $50 to $80. And yes, the move in APP the past week has been incredible. I trimmed a little off my position in that today. I am not in CAVA, but watching it for a better entry point.

[PuddinHead42]

@rdutt

And yes, the move in APP the past week has been incredible. I trimmed a little off my position in that today.

Please see my note on APP in the IBD trading thread. It is the discussion on the 8-week hold rule.

[PuddinHead42]

• Friday Review - Webby is back
○ It’s a good thing when the RSP can go up 1% in a day. S&P is the leading major market index and looking good. “It’s all systems go”
○ S&P has been in a power trend for a bit and recently found support at the 21dma, which is exactly what you would expect.
○ Webby mentioned the problem I am having and reminded us it is a good problem to have: you’re seeing lots of good breakouts and you have to decide if you want to sell a stock to buy a potentially better one. That is a sign of a good market.
○ Webby considers the RSP as the best measurement for breadth.
○ ETF check: XLI looks strong, look at every stock in that area for opportunities. XLF is breaking out. But earnings coming up next week. Don’t buy the components right before earnings. You could buy XLF then swap into an earnings breakout. XME, also check out all the stocks “in that space”. KWEB, Webby missed the move so he was waiting for a consolidation, which allowed him to establish a position today. The exit strategy would be the low of this week. The election is a key risk to Chinese stocks.
○ UBER: Webby missed it and now is waiting for spot to get in. Too extended for swing trade and most position trades. Look for consolidation or upside reversal (see SN, AXON). If you are in it, today’s low should be a sell point.
○ CEG: upside reversal off test of 21dma. Same for VST.
○ Webby Market Charts…
○ Regression lines: SPY is “normal and natural” at this time, right in the middle.
○ Indexes over 21dma, a good thing.
○ Webby RSI is trending nicely. Around a value of 1, would like to see it get to 2. Naz not quite as strong.

[PuddinHead42]

Friday 11/8/24 - market very strong…

Friday Video with Webby Party Like It’s 1999?

○ Remember on 10/31, the SPY dropped 1.9% , but stopped at the 50dma, just like we would expect. The bears would really want to push it below so that algos and stop losses would kick in to drive it lower, but they couldn’t make that happen. Now we are past the binary event of uncertainty. Plus, the Fed is making the market happy and AI is driving optimism.
○ Remember, you are not a genius, we are in a strong bull market.
○ The big drops on earnings are good for us, it keeps the euphoria down. We are not like 1999 yet.
○ IBD folks trimmed a bit the week before the election because the big tech downdraft increased risk. But once the election was over and it was clear the market was resuming its move, they got aggressive again.
○ Webby: as a trader you had to pay attention to that downdraft and react to it. Maybe sell some, maybe stop buying. After the post-election jump, it was tough to get back into individual stocks because many were out of position. On IBD Live they suggested the strategy of buying ETFs, even 2x of 3x if you like, because this reduces the single stock exposure on stocks that just jumped too much.
○ But you needed that exposure right away. Webby used SPY, QQQ, IWM, IBIT. Now your FOMO is gone and you can sell ETFs to fund proper buys in individual stocks. He has been doing this a couple decades.
○ The moves in APP remind Webby a bit of 1999.
○ Around 25m into Video, Webby makes some interesting comparisons to 1999
○ Webby talks about APP and reviews QCOM in 1999 and AXON (TAXR) in 2003-2004 to show stocks that can blast off and really keep going. He also mentions that when Bill would miss a stock like APP, he would not chase it, but keep watching it for a new proper place to buy. Bounce off trend like, tight pattern, new base. A stock like APP could still go up huge.
○ 32:58 in video, shows how to handle a big gap up with RDDT example. It had the big gap up, then had a couple of down days. The day after the down day, as it rose up past the highs of the down days would be where Webby would buy. Then his stop loss is the low of the previous down day. But after a huge move up, it is possible to get a huge move down, so you would want to start with a smaller position when you buy. Youtube link: Party Like It’s 1999? How To Play The Bullish Stampede As APP, ALAB, RDDT Surge | Stock Market Today - YouTube

○ Webby charts start at 40m mark.
○ SPY weekly chart shows a “Big blue perfect candle” for this week, so let’s look at previous ones like it. Oh, there is one, and market kept going. Oh there is another, and market kept going. So that is our expectation this time. Same for Naz.
○ While looking at his regression lines, he noted IWM jumped above upper line, which is usually worrisome, but it was a big jump and it held, so IWM has had a character change and we can get aggressive with it. But if it comes back to the upper line, be careful, you don’t want to ride it back to the mean line.
○ ATR charts are showing the “power” you want to see at the beginning of a move, 2 to 3 ATRs for the SPY. Naz will typically show more strength.
○ We are going to have some bad days along the way, create your game plan for that. For example “I will get off margin” “I will sell anything I am down on.”
○ Don’t take big losses right now because there are a lot of stocks moving.

1999 Naz comparison….

Today…

[PuddinHead42]

Tuesday Swing Trader Market Review with Webby
“Why today was the day to be aggressive”

○ This was picture perfect. It did what it should do. After the post-election gap up, “we (Webby)” said we should get a nasty sell off.
○ You always need to think what you would do if you were a bear, because that is what the big bear hedge funds will do. When they see a breakdown like Friday, they want to push hard to get it to fall to the 50dma, and then hopefully beyond. But since they could not make that happen you can see that the character of the market is still strong. The bulls one and it stopped where is should.
○ SPY held 21dma and then had a nice reversal, so now there is a magnet to 600.
○ NVDA looks like the perfect setup in the sense that it had a little shelf, then a shakeout to the 21dma. For a swing trader, you have to be worried about an initial bad reaction that causes you to close out positions, but then there is a reversal and you are out. Bill would always say “everything is built into the market, so your job is just to look at charts”. Reg-FD probably makes that less true around earnings, which is why we get gap up an gap down events.
○ We also had recent falls to the 50% retracement lines that Webby had drawn. They held as support and we are now “living above them”, another reason to get aggressive.

So all the signals we have are telling us to go in heavy. But it may not work out. But you have to trust your tools.