How to read and buy a pullback

BobS

I have been watching 3 specific mining stocks which all seem prime for a buy. In all 3 cases it seems like there are loud signals from the price channels, the 3 Stochastics, a moving average and the RSI to buy. It also seems that they are in a short pullback before a big surge. Could you give me your take on each on the following questions?
1. Is this a good buy?
2. Is this the right time (ie Monday) or should I wait for one more sign on the volume or price?
3. Is this stock a better buy at this time than the other 2?
4. Where would you place your buy and stop?

Here are the 3 stocks (AG, then ABX, then KGC).
http://stockcharts.com/h-sc/ui?s=AG&p=D&yr=0&mn=8&dy=0&id=p20541163747&a=477415679
http://stockcharts.com/h-sc/ui?s=ABX&p=D&yr=0&mn=8&dy=0&id=p01788540146&a=477578303
http://stockcharts.com/h-sc/ui?s=KGC&p=D&yr=0&mn=8&dy=0&id=p71258907822&a=477415697

One more question: In each case I entered the long permalink. Would it have been better for me to have used the "short URL"?

BobS

markd

stockcharts.com/h-sc/ui?s=AG&p=D&yr=1&mn=0&dy=0&id=p66246179866&a=478861611

http://stockcharts.com/h-sc/ui?s=ABX&p=D&yr=1&mn=0&dy=0&id=p84450845659&a=478862509

http://stockcharts.com/h-sc/ui?s=KGC&p=D&yr=1&mn=0&dy=0&id=p96127907254&a=478864037

Hi BobS

See comments on annotated charts (in my chart style).

In general, these stocks look like they have reached at least a minor buy point if we assume that the distribution period is over. I think it's too soon to tell. Force indicates there has been a lot of net selling off the highs. There may be a little accumulation going on for a run back to either the crossed lows (broken support becomes resistance) or the old highs, but I would be really surprised to see a run straight back up through everything to new highs.

All three show not so good, but possibly recovering RS, against both the $SPX and their respective industries (Precious Metals $DJUSPT and Gold $DJUSPM). AG and KGC are showing support with high volume candles closing down but with minimal range. ABX shows the strongest buying - high volume with good form closing up. All three are doing worse than GLD (not shown). I'm thinking that support might be a stall to allow further distribution a little higher up, and not "real" demand.

If I had to guess, I think these stocks may be due for a trading range until the long term moving average catches up to them (gold dashed line on my charts). Then we'll see whether some re-accumulation for new highs has occurred. The long term trend is still up, and weakness in the trend can be a good time to buy, but that distribution bothers me. I want to see some accumulation first. Of course, there is no guarantee that will happen.

As for entries, choose prices that fit your risk parameters. I don't think you should feel stampeded into a trade by the timing on these - there is always another trade. I know you have put a lot of work into these trades, and that, consciously or unconsciously, can create an emotional attachment to them. So be careful of that.

Also, since these are not particularly strong stocks right now, it's likely you will get at least one second chance to get in after some strength, if it shows up. If you don't want to wait, since these seem like lower odds trades to me, I wouldn't want to risk much on them, so I would put a buy stop under current prices but above the lows. Or wait until some real strength does show up and buy the retracement - maybe that would be the current high close.

Within the group (PM), stronger stocks seem to be RGLD, BVN and BTG. But, I'm not following these (or the ones you selected) so, grain of salt to everything said here.

markd

I think Elder's advice to check both the time frame above and below the one you intend to trade in is a good idea. So I have a two and five year weekly and a 15 year monthly to provide perspective. For the shorter term, a 21 day half hour is pretty good.

The monthly is two time frames above, but it gives you a bird's eye view of what kind of stock you have and where it is in its life cycle. The half hour seems to show more useful detail than the hourly, plus it has complete intervals - the hourly does not. Also, the half hour makes a less cluttered and more legible chart than 15, 10 or 5 minutes charts, and gives a longer view than the shorter time frames, too.

If you are interested, I like these chart parameters. As usual, all parameters are chosen for calendar (or clock) intervals that seem to best describe the price action. There seems to be a time element in price behavior, so these seem to describe that, at least sometimes.

For the half hour chart, channel and K parameters are 13 (one day), 26 (two days), 65 (a week) and 273 (a month - 21 days). Force is 273 with MA 26. Price MAs 273 and 65.

Note: for the 5 minute (showing 2 days usually), which I like for watching the action, parameters are, channel and K 12 (1 hour), 24 (2 hours), 78 (1 day) and 390 (1 week). Force is 39 (a half day, 3.25 hours) and 24 (2 hours). MAs are 24 and 78.

For the weekly charts, the channel and K parameters are 4, 13 and 52 (just 3), Force is 52 with MAs 4, 13 and 52, and a 13 MA on volume. No price MAs.

For monthly, channel and Ks are 12 and 144, Force is 12 and MA 12, and a 12 MA on volume. No price MAs.

All charts include the 4 RS ratios on the daily.

markd

Hi BobS, I have a chart list of the sector SPDRs plus $SPX, and then for each sector, a chart list of industry indices (the $DJUSxx indices). I put each chart list into CandleGlance with a chart style that includes the Price Performance ratio (RS) with an MA (same as my daily charts, but just versus the $SPX, not all four. I'm looking for the MA to be sloping up or turning up, and the RS to have an upward bias - either a clear up trend, or after a downward trend a flattening or basing area and a tendency not to fall on down bars. It's not the value of the RS line that matters, but its recent direction. I like to have price action and RS on a chart together so I can see what's producing the over or under performance - is it solid price and volume action that confirms the RS direction, or something else.

markd

It seems like you really want to get into ABX. It's not an unreasonable entry area. It's been saying for three weeks it doesn't want to go down. That's not the same as saying it wants to go up, but there seems to be some support, which is positive. So if you want to get into it, risk to the down side seem pretty low right now. Then you would just wait and see what happens at 19-20 resistance if that's what you want to do.

BobS

@MarkD thanks again. My delay in response was because of processing your sage advice. You are right that the amount of work I had put into these trades did incline me to want to make them. But you were totally right on the additional distribution coming. I have now incorporated Force and a few RS back into my charts (either weekly or daily). Force does appear more stable and useful than ChiOsc for measuring accumulation and distribution. Thanks for your chartstyle for guidance.

2 more side questions:
1. Do you gather almost all of your data from your daily chart (which indeed has a LOT of data). Or do you also suggest consulting a weekly chart regularly?
2. Do you recommend going to a shorter time frame (like hourly) to choose the specific timing of your trade during the day? I have done this a few times.

BobS

Thanks. I have now updated my Mo and Wkly chart styles and have replaced my hourly with a 1/2 hourly one with your parameters. Thanks.

BobS

@MarkD, at the bottom of your comments on Sept 25 you mentioned "Within the group (PM), stronger stocks seem to be RGLD, BVN and BTG. But, I'm not following these (or the ones you selected) so, grain of salt to everything said here."
I have a general question and a specific question about that.
General: How do you decide what groups (sectors or industries) to follow?
Specific: I have been using 2 Perf charts to select what group to follow. I take the 2 with the fastest slopes from Perf of the slower slopes and put them in the Perf with the faster slopes. Below I have my 2 Perfs. The first one is the slower slopes and the 2nd one is the faster slopes. From these Perfs, it seems that I have the best chance with Metals and 2nd best with Brazil. Please look at them and tell me what you think.

Slow: http://stockcharts.com/freecharts/perf.php?$SPX,IWM,XLF,XLY,HEDJ,FXI,DXJ&n=200&O=011000
Fast: http://stockcharts.com/freecharts/perf.php?$NDX,XLE,EWZ,XME,FXI,IBB&n=200&O=011000

Thanks. BobS

BobS

@MarkD, do you think ABX has made a higher low today on "slightly" increasing volume?
Would you still wait until it clears the resistance at $19 and pulls back?

BobS

Thank you so much for these 2 answers. I have 2 more questions.

1. If the likelihood of being stopped by resistance once again at the 19-20 level, that does not seem like very good reward for the risk (albeit small risk). Is that what you would be thinking at this point? To see more evidence that ABX wanted to go up would you look for better slopes on the RS lines, better slope on Force and its MA, more days like Sept 21 (long, tall candle with strong volume), or all 3?
2. Does your chart-list of sectors have an entry for either miners or gold miners, or are they beneath the Materials sector?

markd

Well, we don't know that resistance would stop it. The question is whether you want to be in the trade while you find out, or do you want to see proven strength first. If your perspective is longer term, and you expect the to hold for a return to the prior highs or beyond, you might want to get in below resistance, anticipating that, because we are in a longer term up trend, the trend will resume and get through it. It could work out that way.

Materials (XLB) has several indices for metals and miners: $DJUSMG - general mining, NF - non-ferrous metals, PT - platinum and precious metals, PM - gold mining.

The $DJUS indices seem to correspond to the industry headings on the Sector and Industries drop down.

BobS

Thanks once again. I am processing all of this and have made some changes as to how I select my sectors/groups.

markd

Right now I'm exploring another way of doing RS through point and figure. If you haven't read Dorsey's Point and Figure Charting (3rd ed), it's a worthwhile read, especially the RS section. If you like P&F and want to learn it, the du Plessis book is the most complete and textbook-like. The de Villiers and the Cohen books, the original publicizers of the method, I think are out of print but are available, or at least partially available in pdf. But if you don't have good security software, I wouldn't recommend downloading anything. Some of the pdf sites are a little dodgy. The du Plessis book is sufficient. The added value of Dorsey's book, which is much more anecdotal and flow of consciousness in style, rather than text-bookish, is he shares his experience learning and using P&F - some of which is to promote his consulting business - but he does give you a good feel for the technique. If you put something like Dorsey point and figure into search on Youtube you will come across some of his seminars - some oriented to futures - but still useful. I'm still learning, so I don't know if I will use it in the end, but the attraction is that the P&F chart radically simplifies decision making, and it gives you a very long term view of the stock in a small chart. I don't know yet if that's all a good thing, but at the very least, it should complement standard price and volume bar charts.

BobS

Thanks for the heads up. I definitely prefer the text-bookish approach over anecdotal. I think my security software is sufficient, but appreciate the warning about pdf sites, as free pdf's are very important for some of the people I teach in East Asia.

I am not exploring P&F right now. But when I do, I will definitely check these sources. Let me know if you actually decide to use it, once you get to the stage of integrating it with your current methods.

lmkwin

I use Point and Figure pretty exclusively. I use the CSS Strategy for Point and Figure charts, focusing on Dynamic CSS setups. CSS stands for Consecutive Sell Signals. The dynamic setup is referenced in a great book on how to use P&F for profit, Dynamic Trend Line Charting by Howard Prenzel. If you want to learn P&F use that book, any Du Plessis book, or Asset Allocation Techniques and Finanacial Market Timing. Dorsey's books on graze the surface and are marketing for his service. He sold the company since to Nasdaq and now is focused on momentum and not Point and Figure anymore.

There are many ways to use P&F charts but the CSS Strategy for Point and Figure charts is very tough to beat, in my opinion.