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Trend Continuation?

Hi!

For the purpose of identifying potential trades for writing put credit spreads, using StockCharts, I developed a scan that yields stocks -with an SMA(14) Price > $20 and an SMA(14) Volume > 1 million- that are currently trending up.

Is the ROC indicator the best for finding out if there is “any mileage left” in the price rise? What settings?

For additional trend confirmation, what are other indicators? What settings?

Thank you!

Dr. T

Comments

  • markdmarkd mod
    edited July 21
    I think the situation you want is a symbol showing relative strength versus its peers (other stocks in the same industry), continued buyer interest, and few to no signs of aggressive selling.

    A good way to assess relative strength is the Price-Performance indicator ($SYMBOL:$INDUSTRY), e.g. The line should be generally rising, and should stay above it's rising MA on price declines. I like a quarterly sma (63 bars on the daily), but you could experiment with other lengths.

    A good sprinkling of tall volume bars on up closes shows continued buyer interest as prices rise.

    Three ways to assess the absence of aggressive selling.

    One is there should be no lower lows - that is, no down leg should breach the low of a prior down leg.

    Two, in general, no down leg should have more bars than the prior up leg, or if it does, it doesn't retrace the entire up leg.

    And three, there should be few high volume bars closing down. If there are, they should not be "off the top" - that is, the first one or two bars of a down leg; and, they should not break the low of a prior up leg; and, they should not be followed by more strong selling.

    Also, you probably want a chart making new 52 week or new all time highs - look at a weekly or monthly chart going back a few years to be sure it is not coming into old resistance - either a prior high where it topped out before or an old broken low (broken support that could become resistance).

    Here's a chart that illustrates these points:

    https://stockcharts.com/h-sc/ui?s=PTC&p=D&yr=0&mn=9&dy=0&id=p58557103636&a=537304485






    Note: this one might be getting tired - it didn't make a new high when it could have at the end of the chart; buying volume on the most recent up leg is weak.

    I'm not a P&F expert, but P&F does include a method for projecting price targets. A problem for an options player, though, is P&F doesn't say anything about when those targets will be hit. I haven't tried, but P&F targets might work for options with an intraday (maybe hourly) chart. Just guessing, though.



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