INFO: Stock Timing's Update
Tuesday, April 3rd
I have about 60 different layouts that I use for different purposes in measuring the market conditions, to helping me identify when stocks might have an upcoming strong move to the upside.
This morning I will share a very simple analysis that you should all find easy to do. It involves the use of two RSI (relative strength) indicator settings, and a common Stochastic Oscillator chart.
The rules are simple:
1. A RSI of 30 is a good indicator setting to spot times when the strength breaks to the upside of an important resistance level. Look at a chart and draw a horizontal line that caps the upside resistance level. When there is a breakout to the upside, a very strong move is being set up.
2. Also use a RSI of 14 in conjunction with it. However, do not draw horizontal resistance line. Instead, draw trend lines and note when there is a breakout. These breakouts should occur before or around the same time that the 30 RSI breaks through its horizontal resistance line.
3. Use a standard Stochastic indicator set on 21-7-7. If the RSI is breaking to the upside, then look for the Stochastic to move above 50%.
Below, is a chart of TWX (Time Warner) where you can see the method in play. The blue vertical lines are where the indicators are setting up for an up move. and the red vertical lines are where the support has broken down for a downside move.
So where is TWX now? It is below its 30 RSI horizontal line, below its 14 RSI resistance line, and below 50% on the Stochastic ... but note that the Stochastic is now close to its 50% level. That puts this stock on a "watch list" where you should now look for the RSI's to indicate that a strong up move might occur. If the 30 RSI does not move above its horizontal resistance, an up move will fizzle out and not give you a nice long run. If we get all three indicators giving an "up condition", then TWX should move to a condition that supports a good up move.
Here is another chart using the method for you to look at ... Freddie Mac.
Note how applying the same rules keep you out in the down trend and in during the strong up move.
This is a simple system and won't work on stocks that are not trending in nice cycle patterns. But, it is a nice tool for developing a watch list for stocks that might have a nice upside breakout and decent rally. http://www.stocktiming.com/Tuesday-DailyMarketUpdate.htm