>>> BTW, what is a Stage 3 uptrend, such as you describe the last run up in the O&G sector? <<<
Stage 3 is a consolidation phase. Stage 2 is an uptrend stage. These are part of the 4 stages a stock may be in according to Stan Weinstein's book, Profiting In Bull And Bear Markets.
There are 4 stages to a stock price's movement.
Stage 1 is the Basing Area. This is where a stock has actually been falling and comes into an area where it trades sideways for a while. It is during this stage that your moving averages stop falling and start to level out. A good basing period is 7 weeks or more. Breakouts on less than 7 weeks of basing are often false breakouts. Not always, but often.
Stage 2 is the Advancing Stage. This is the stage where where the price starts advancing, the volume picks up and the moving averages start rising. This is the stage that captures most of the price movement.
Stage 3 is the Top Area. This is where the upward movement peters out and the stock starts trading sideways again, or starts to show sharp and choppy movement. This stage is where the battle between buyers and sellers heats up again as both bulls and bears try to gain or maintain control. The moving averages will once again start leveling out. It is possible another Stage 2 can develop here but, if not Stage 4 comes into play.
Stage 4. The Declining Phase. This is where the price starts falling. It's mostly the opposite of Stage 2 with the exception of volume. Stage 2 requires increasing volume to push prices higher, prices will often fall on lower volume. In this phase, your moving averages will all be falling.
All of this is covered in the book, Secrets For Profiting in Bull and Bear Markets by Stan Weinstein. A "MUST READ" in my opinion by anyone serious about obtaining consistent profits. (Be sure to read the reviews.)
amazon.com
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If you are looking at longer term time frames, then you need to ignore daily charts and look at weekly and monthly charts. I use a 20 week and 40 week moving average on weekly charts. Weinstein likes the 30 week moving average. But all of your trades should start with the long term chart.
Since you want to focus only on the energy sector, you are going to be handicapped unless you can play both the long and short side.
In looking at a weekly chart of XLE, it is in an uptrend. The 20 week moving average is above the 40 week moving average and there is a comfortable distance between the two.
When you have this alignment, there are two buy set ups.
1. One is at the 20 week moving average if you are "anticipating" what price may do. It's important that if you choose this set up, you place a stop about 6% to 8% below support in the event you are wrong.
2. Wait for price to break out to a new price high on above average volume. This is the better way if one wishes to manage risk and play a higher probability trade.
If you are going to anticipate a price move, you want your technical studies to be pointing up or showing a positive divergence.
In the case of XLE, the MACD studies are pointing down and we don't have a divergence. They are actually confirming weakness.
Money flows have dropped off dramatically as well and if money flows don't pick up, you won't reach the recent price highs. So, the chart is telling me, at this time, that even a long term trade in XLE is still a weak play. It could work but it isn't a high probability play.
stockcharts.com[h,a]waclyiay[d20040605,20050505][pb40!b20!f][vc60][iut!Lah10,30,9!Lc20]&pref=G
In looking at a couple of other technical studies, On Balance Volume is weak, it's below the average and Rate of Change is still pointing down. So, with long term studies still pointing down, XLE may see some more selling pressure before it can start to rise higher. Other technical studies are showing some signs of improving but the point here is to show that we don't have strength yet. It may take another week or two before a better picture becomes apparent.
stockcharts.com[h,a]waclyiay[d20040605,20050505][pb40!b20!f][vc60][iut!Lg!Lm12]&pref=G
I think it's important not to fall into the trap of trying to catch the bottom price. You want to capture the momentum and you can't capture momentum until it is established.
dabum |
