I expect to reduce some equity exposure based on seasonality trends in the next 1-2 weeks. However, that selling process will be limited to 10-15% of the equities we hold within the ValueTrend Equity Platform. A more serious sell signal is my hard and fast sell rule of “a lower low and break of the 200 day SMA”. This is something that I have discussed numerous times on this blog , and in one of my Investors Digest articles here.
Of course, I also talk extensively about selling rules through my book Sideways – and have covered stock price patterns that indicate executing a sell order here.
What I’m trying to show you here is I have provided you, the good readership, with many sources to understand how you can create a disciplined methodology of selling. So there’s no excuse if the proverbial poop hits the fan on this market…right? You know what to do!
Let’s take a look at a short termed S&P chart and see what it will take for us to execute a significant sell strategy on our portfolios. As a quick review….My BUY and SELL rules on this weekly chart are simply:
- SELL if the last peak AND last trough are lower than the prior peaks & troughs AND there is a break below the 200 day SMA—and this condition remains in place for at least 3 days—bare minimum.
- BUY if the last peak AND the last trough is higher than the prior peak & trough AND the market moves above its 200 day SMA. Again—you need to see the break last for 3+ days.
Simple is beautiful, isn’t it?!
And now…the chart!
The current chart illustrates BUY and SELL signals for the past few years using the above rules. It shows us that, right now, the S&P is (barely) over its 200 day SMA – which stands at just over 2600 as I write. The price of the S&P has, since February, put in lower peaks BUT not lower troughs. The last trough in early April roughly met the February low—which stands at around 2580. So – no lower trough, no break in the 200 day SMA. Thus, we hold.
This ain’t rocket surgery, folks…
I will sell if the S&P 500 moves below its 200 day SMA AND takes out the 2580 level and that condition lasts for 3+ days.
Any questions? Post your comments below—I’ll do my best to answer them.
This blog is growing…thanks to you!
Recent statistics came out at 10,400 individual unique persons reading this blog (i.e. multiple viewing excluded). Just 2 years ago that number was a little over 3000—a triple! I started this blog about 8 years ago and I think the only readers back then were my wife, my two dogs (they’re really quite smart!), and a few clients.
Lets keep spreading the word. You know that this blog is not, and never will be a “ValueTrend commercial”. I write this blog to offer a valuable resource for opinions, education, and community discussion. You can feel good about recommending it to your friends. And you should know that commenting below will NEVER result in your email address being used to solicit or bother you – nor would it EVER be sold to a third party. That is NOT my way of doing things!!
Meanwhile—catch me on BNN next week. Call into the show with stock questions—mention that you read my blog when you are on the air—it helps me a lot!
Keith on BNN Televisions MarketCall Tuesday May 1 at 6:00pm
Keith appears regularly on BNN MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management.
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Hi Keith, Thanks for the post. Really helpful.
What do you think of GOOS.CA? Is it forming a cup and handle now? Do you think there is still room to go up in the short term? If so, will it be a entry point now? Thanks very much.
Watched every BNN show with your appearance. Good shows! Enjoyed them very much! Always learned something from the way you explained/analyzed the charts.
No cup and handle here. Its in an uptrend, albeit the highs are bumping at a $48 ceiling right now–suggesting a consolidation pattern within the greater uptrend.
Cup & handle formations are bottom consolidation patterns –they rarely occur, and when they do are usually a long time in the making (over many weeks or months). My book Sideways does a good job of explaining when such a pattern would occur by covering the phases of the market–grab a copy if you can.
Patterns like bottom Head & Shoulders, Cup/handle, double bottoms, etc are phase 1 consolidation patterns. They don’t typically occur in the midst of an uptrend. Consolidations in an uptrend look a bit more rectangular–as does the consolidation that is occurring on GOOS at this time.
Thanks a million!
At Keith’s discount Technical Analysis Emporium, you always get change back from your million!
Have a good one.
Yup, found Cup and Handle pattern information on p. 44 of Sidesways. It is one of the bottoming patterns, phase one in the markets — have not finished /STUDIED the book in details yet. 🙂
Wish had become Sammy Stockpicker 10 years earlier!
Well done on the user growth. I shared it with friends over the years. We like the simplicity of the strategy. Some strategy out there attempt to squeeze more out of the system, but in return, are far too complicated for people who don’t have the passion or time. That is your EDGE!
About the peaks and through, would you mind explaining how you would apply it to TD? The reason I think the question is timely is that the Weekly chart has made 3 perfect symmetrical waves since November and this week will have bounced on the 40 week moving average. As much as I’m biased against Canada, that seems a pretty special pattern right here so I’m studying it this morning. If I understand, you would have never sold it since November because although it did a lower through (actually 2 of them) it made higher peaks (actually 2 of them).
Is that right?
TD had a flat period September to December 2017 where it kept hitting technical resistance (peaks) at $75-ish. Then it hit a new high (peak) at $76-ish in early March.
The market fell, TD with it, and its resulting trough was in February 2018 at $70-ish. That level ($70) was successfully tested again this month where it did momentarily break the $200 day SMA. BUT…it didn’t break (materially) the prior low. So no sell signal. And the stock quickly moved back above the 200 day SMA
So using my rules, you hold the stock until $70 is taken out by a minimum of 3 days AND the 200 day SMA is cracked also by more than 3 days. Currently it is considered in a consolidation pattern.
From April 18th post: “Next week I’ll take a look at the major Canadian sector ETF’s.
I was looking forward to your reading your comments. Can we still expect you to provide a review of the Canadian sectors.
Bill–thanks for the reminder–busy week (excuses, excuses) and I was distracted. But, I’m on it. Again, thanks for the prod. I have a great memory. Its just short.
“This ain’t rocket surgery, folks…”
and yet…. (chuckle)
It looks like you count your peaks and troughs on a weekly chart and use the S&P as a general timing guide for selling specific holdings. Is this correct?
Also, well done & well deserved on the growth of your blog Keith. I sure look forward to your posts.
Yes, and thanks!
Hows that for concise…?
“it didn’t break (materially) the prior low”
The word ‘materially’ is stumping me and it looks like an important judgement.
If this is part of the 3+ day range. Do you assign a percentage range for it to hold during it’s (underwater) time?
Good question. I use the minimum 3 day rule, and if you want to be extra careful, I will sometimes let it decline up to 3% although truthfully-i won’t usually let it fall that low on a break. Materially is – as you say- a judgement. almost 30 years of doing this stuff does help give me a bit of perspective. The point I am trying to make is that a one day blip, or something that is within a percent of support, is probably not something to be acted on.
Good work Keith! Your blog posts are always informative.
I noticed that the green moving average line on the chart is a 50 week moving average. would that not correspond to 250 days instead of the 200 days you mentioned in your post?
thanks–I will change that–although i do know that the market remains over its 40 week/200 day SMA. I must have accidentally kept the 50-bar average and transcribed it from the daily to weekly chart–again, thanks for noting this and will fix for future blogs.
Hi Keith. i own a few shares of Obsidian energy it (used to be pen west) i’m under water a bit. I got wind last week from their annual proxy. that they are considering a reverse split 3 for 1. can you explain for me how or why they are allowed to do this. they are virtually stealing my stocks.
Companies are allowed to do this with their common shares–its been happening with underperforming stocks for a long time.