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Secrets for profiting in bull and bear markets

Sam Weinstein

Check market indicators for overall direction Scan the industry groups to know which one to zero in Cull out the stocks with the most potentially profitable formation within the favourable groups Concentrate majority of buying in continuation-type buy patterns that are already in Srage 2, and reverse for bear markets

Know where protective stop will be (ALWAYS use it) set before entering the order – if it’s too far away, look for other stock or wait to purchase when safer level forms Never sell a stock in Stages 1 or (especially) 2, AND never buy a stock in Stages 3 or (especially) 4 – stage analysis can be applied to any investments that are governed by supply and demand Never guess a bottom (and go long)

Don’t feel that one has to be 100% invested all the times. Differentiate when charts and indicators point to fully invested and when to extreme caution Always be in harmony with the market – buy Stage 2 strength; sell Stage 4 weakness In case of conflict between price volume action and the earnings, always go with objective message being supplied by technical approach Always be consistent. Keep a diary and analyze actions

Daily for very short traders, weekly for intermediate (several months) traders. Below specifically on weekly charts:

1.   Look at each high-low-close spike – forming pattern with insight into next major move

2.   Look at volume plot – very important that volume is large and expanding on breakout

3.   Look at 30 week MA – never long if P below declining 30-week MA; never short if P above rising 30 week MA

4.   Be aware of its long-range background (yearly high-low, long-term support/resistance)

5.   Look at its relative-strength line – long on uptrend, short on downtrend; watch those situations where it shifts direction

Stage 1: basing area. After several months decline, start sideways trend. Volume lessens (often starts expanding towards end stage 1). 30 week MA begins to flatten out.

Stage 2: advancing phase. Ideal time to go long when stock swinging out of its base into this more dynamic stage. Breakout above resistance zone and 30-week MA should occur on impressive volume. Usually after initial rally at least one pullback (the less the pullback the stronger the stock).

30 week MA usually starts moving up shortly after breakout. Expect price to move two steps forward and one sharp step back – ok as long as above 30 week MA.

When angle of ascent of MA slows down considerably and prices closer and closer to MA, stock becomes a hold.

Stage 3: top area. Upward advance loses momentum and stock starts trending sideways. Volume usually heavy and moves sharp and choppy.Prices tiptoes below and above MA on declines and rallies. Keep emotions in check.

Stage 4: declining phase.   Stock breaks below bottom of support zone.

Stock initially moves out of Stage 1 base and enters Stage 2. Risk extremely low (support just beneath purchase price) and excellent upside potential (entire Stage 2 advance lies ahead), but need patience (it can take time for solid Stage 2 momentum to build).

After Stage 2 is well underway, when stock drops back close to its MA and consolidates. MA should still be clearly trending higher. Then it breaks out anew on top of resistance zone – this is continuation buy.

Early in bull market plenty of stocks breaking out for the first time, later very few but still plenty of continuation variety buys.

Rule of thumb: 80% continuation buys, 20% early stage 2 variety.

Use buy stops, within set limits, good-til-cancelled (GTC):

A.     Don’t have to watch market closely – frees attention

B.     Better, less emotional decision (not involved in market energy)

The more mechanical the system and the less subject to judgements and emotions, the more profitable.

Buying/Selling patterns

4 Year presidential cycle: first year bear, second year bear until midway then bullish, third year most bullish, fourth tear choppy – usually first half weak, then strong

Months -   bullish: Nov-Jan, April. Bearish: Feb, May, June, September

Day of week: Monday worse, Friday strongest.

Day preceding holidays usually bullish.

Selecting the sector

Use same criteria than stocks, most important criteria that group be healthy (not in Stage 3 or 4), breaking into Stage 2 with a minimum of resistance overhead. One difference: if group well in Stage 2 far above support and one stock just breaking out of Stage 1 basis it’s ok to buy; same if group just moved in Stage 2 but one stock as continuation pattern, ok to buy.

For trader, ideal is a continuation breakout within a dynamic group exhibiting the very same sort of pattern.

If several sectors are well, best will be one with best individual top chart patterns.