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We have been advised to remove index coverage from the Daily Trading Diary as this may contravene the new Financial Services regulations. I feel that the Daily Diary will be decimated by the change and am inclined to stop the newsletter at the end of this month.

This will give me time to develop material for a new format based on  feedback from the recent survey:

  • trading education - construction and execution of a trading plan;

  • technical analysis - examination of various price and volume patterns, citing past examples;

  • examination of past trades - what went right and what went wrong;

  • indicators - strengths and weaknesses; and

  • training on Incredible Charts - how to get the most out of the Charts, Stock Screens, Forum and other aspects of the web site.

The survey also highlighted a need for earlier US updates and a wider array of data. We have taken this up with our data suppliers and will keep you appraised of developments.

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Trading Diary
February 26, 2004

These extracts from my daily trading diary are for educational purposes and should not be interpreted as investment advice. Full terms and conditions can be found at Terms of Use .




USA (25th)
The Dow Industrial Average formed an inside day, closing at 10601. The close above 10600 and low volume signal a lack of selling pressure, favoring a reversal. A rise above the high of 10615 will be bullish; a fall below 10560 will be bearish.
The intermediate trend is uncertain. A fall below support at 10400 would be bearish.
The primary trend is up. Resistance is at 11300 to 11350. A fall below support at 9600 would indicate the start of a down-trend.



The Nasdaq Composite respected support at 2000, rallying to close at 2023. Lower volume signals potential weakness.
The intermediate trend is down. Narrow consolidation above the 2000 support level would be a bearish sign.
The primary trend is up. A fall below support at 1640 would signal reversal.


 


The S&P 500 recovered to 1143, signaling a possible reversal. Lower volume indicates potential weakness.
The intermediate trend is uncertain. A rise above 1155 would be bullish. A fall below support at 1120 would signal a down-trend.
The primary trend is up. Expect strong support at 1000. A fall below 960 would signal reversal.



The Chartcraft NYSE Bullish % Indicator eased to 84.27%.




Gold
New York (Feb 26 00:47). Spot gold is down at $397.10.
The intermediate trend is down.
The primary trend is up. A fall below $370 would signal reversal.




ASX Australia
The All Ordinaries rallied to 3358 on reasonable volume. Overhead resistance is at 3370. A fall below yesterday's low of 3337 would be bearish.



The intermediate trend is up and we are likely to see a test of resistance at 3425 to 3450 (the previous highs from 2001 and 2002). A fall below support at 3270 would be bearish.
The primary trend is up. Support is at 3160.

Stock Screening - "Shakeouts"
 Shakeout bars generally occur at the bottom of a down-trend and exhibit two features: a wide range and large volume. To screen for the presence of a strong-down trend, we can use a Moving Average Crossover or Directional Movement filter.
  • Moving Average Crossover: 10-day and 50-day moving averages; bear signal within the last 9999 days. 
  • Sort the Return page according to the length of time that the fast MA has been above the slow MA:
    click on the heading MA (10,50) and ignore all readings below 20 or 30 days when sorted. 
Next, filter for wide-ranging days:
  • Volatility Schwager: VR > 2.0 within the last 2 days.
    This will return stocks where the true range is more than twice the 14-day average, in one of the last 2 days.
Lastly, filter for large volumes:
  • Volume Spikes: Volume exceeds the 50-day Volume MA by 2 times within the last 2 days.

Stock Screening - "Compressed Springs"  
I refer to narrow range bars with high volume as "compressed springs". They signal high potential energy which is likely to be released on a breakout. We can screen for large volumes using the Volume Spike filter above, but there is no available screen for low volatility.
We plan to add further options to the Volatility Schwager screen to screen for low readings (e.g. VR less than 0.6) with our next revision. Likewise, we plan to add screens for low volume (e.g. Volume is less than half the 50-day Volume MA).


Stock Screening - Strong Trends
Another screen that can be used to identify strong trends is Bollinger Bands. The bands enclose all data within a specified number of standard deviations from a selected moving average. If we select a longer-term MA, fast-trending stocks will tend to be farthest away from the MA.
  • Bollinger Bands: 1 Standard Deviation
    Enter 200 as the 100-day minimum.
This will return all stocks more than 2 standard deviations above the 100-day exponential moving average. Again, I repeat the caveat: do not expect all stocks returned to be suitable for trading. You will still have to analyze the charts. Some strong trends may be close to exhaustion.






About the Trading Diary has been expanded to offer further assistance to readers, including directions on how to search the archives.

Colin Twiggs


The only sound reason for buying a stock is that it is rising in price.
If that is happening, no other reason is required.
If that is not happening, no other reason is worth considering

~ Nicolas Darvas.



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