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PatternDNA of the Week: AJGFD
It had an interesting dynamic between short term, and trade performance. Short term performance improved as the match conditions tightened, but the long(er) term trade performance - as measured by Average Return per Trade (Average Return per Trade applies an initial stop of 10%, raised to 5% off the price reached on a 15% gain. Ultimate Profit Target of 25%) - fell.
Patterns
% Win
% Win
% Win
Per Trade (> 5 day)
Unlike some of the former PatternDNA patterns we have featured, this particular one offered the most at the Weak match. Ordinarily, the Strong match tends to be the sweet spot for a particular pattern, but given the low sample size it's hard to be convinced on merit here. Also, at the Strong match, only half of the potential trades were profitable, compared to 61% at the Weak match (data not shown) - hence the higher Average Return per Trade.
Baidu (BIDU) was one such stock with this pattern, but at the Weak Match there were 81 matches in the S&P and just 12 at the Neutral Match.
One of the stocks in question was Chubb Corporation (CB). Chubb made a solid breakout in the middle of April and held those gains as the market headed south. It is nicely positioned to take advantage of the bullish implications of this pattern.
PatternDNA - CANSLIM Analysis May 26th
PatternDNA projections are derived from a pool of 18 U.S. stocks. Expected returns and win probabilities are calculated from patterns matched in stocks over the past year and performance assessed from the next open price after the pattern completes. The Average Return per Trade is based on the use of a trailing target and stop, and assumes a long position bought at the next open price (Initial stop of 10%, raised to 5% off the price reached on a 15% gain. Ultimate Profit Target of 25%).
Collectively, the outlook for the coming five days is relatively neutral. Only Baidu (BIDU) offered a projection of substance, with Research in Motion (RIMM) and Barrick Gold (ABX) behind.
PatternDNA projected a 60%+ probability of a higher close for days 1, 2 and 5 after the Pattern completes in Baidu (BIDU). However, the performance of this Pattern when a trailed stop is employed is more modest given the projected win percentage for a profitable long trade is below 60%.
Barrick Gold (ABX) offers the brightest trading opportunity when a trail stop is employed; near 70% winners with an Average Return per Trade of 4.5%. Research in Motion (RIMM) exhibits a Pattern with the highest projected Average Return per Trade of 6.0%; this from 66% winning trades and a 63% probability for a higher close next Wednesday.
While the May 3rd outlook failed to live to expectations, oversold market conditions may offer more here.
Active Screen - CANSLIM: May 25th
Apple (AAPL) has been dogged in its defense of $330 support. What had looked a bearish head-and-shoulder pattern has evolved into a more neutral consolidation. But $330 support is a battleline. Note the fast arriving 200-day MA, currently at $320, to help offer support if needed.
Vale S.A. (VALE) delivered on its bearish head-and-shoulder pattern. It sliced $31 relatively easily, then struggled in a rally to break above this price. The past couple of days have produced a "Death Cross" between its 50-day and 200-day MA, a sign a longer term downtrend is now in play. The fundamentals keep it in the screen, but price action is weak.
Barrick Gold (ABX) collapsed from a high of $55.74 on April 21st to a low of $45.01 on May 13th, cutting through both 50-day and 200-day MAs with relative ease. The May low marked a new reaction low for the year, undercutting the $46 bottom from January. A new lower higher (on this rally) will kick start a new downward trend for the stock. The past week has seen a modest rally, but the stock has it all to do to mount a comeback. First up is the 200-day MA sitting overhead at $49.07.
Baidu (BIDU) is one of the rally stalwarts in recent months, but it too has its struggles. The stock lost support of its 50-day MA on May 13th and was rebuffed at this moving average following a rally on May 20th. A similar event played out in December 2010 and the stock was able to recover. Two levels of support are key here: $130 in the short term with a second, stronger tier, around $120.
When the overall market floundered, Research in Motion (RIMM) was already in the mire. The past few weeks haven't changed anything. The stock is down at September 2010 lows ($42.84) and is well away from its 200-day MA at $52.97. Back in February 2011 the stock traded at high of $70.54.
Cognizant Technology (CTSH) is another high flyer for the past year. Early May saw the stock gap below its 50-day MA and then drift lower. It's currently trading just above its 200-day MA at $70.83. The sizable gap breakdown (on volume) will be a point of supply on the next advance, but value buyers may be tempted to take a look here.
Netflix (NFLX) has the best looking chart of the eight stocks. The stock is currently pressuring $250 resistance. Any existing shorts will be squeezed by buyers on the advancing 50-day MA (at $235.20). It's a relatively straightforward risk:reward play; buyers will take a heavier volume (at least double a 2-month average of volume) close above $250, stop on a loss of $225.
Finally, Agrium (AGU) sneaks in at eighth spot. The chart isn't looking too great. The stock lost support of its 200-day MA in early May and hasn't made any serious attempt to regain it. There is an area of support around $78, but beyond that there isn't a whole lot until you get to $50. Not a stock you would want to bet the house on.