This lesson
will educate you on how to use the two new index screens and two
stock-specific screens that are now posted on the site. They can be accessed at
the bottom of my text page.
These screens will enhance your
trading research and assist you on your entry/exit decisions for intermediate
and long-term position trading.
The primary purpose of the screens is
to identify the buying or selling pressure in specific stocks, groups and
sectors. This trading research will uncover the trail of the Generals as they
start to get involved. It will help you find excellent trading setups in stocks
that have changed direction or are about to have a significant move.
Keypoint I
Buying pressure (sells reversed) is
evident when you get an increase in force and volume accompanied by range
expansion, a close above the midpoint and preferably in the top of the range. It
is also more significant if the closing price reverses previous closes and
highs.
Prior to a reversal in a trend, you
will often see a narrowing of range with a significant increase in volume and
little change in price as the trend in price is about to change.
Keypoint II
The daily close is very significant
when selecting your stocks and analyzing a stock's action. When an uptrending
stock is coming under distribution or selling pressure, the daily close will be
at or near the bottom of the daily range each day, even though the closing price
might be up on the day (reverse for buys).
The four screens are as follows:
1. S&P
500 Index Screen
2. NDX
100 Index Screen
3. 3
Day Wake Up Call
4. Change
in Direction
The Generals operate within the
universe of the S&P 500 and NDX 100 for their primary positions. These are
the big-cap stocks that have liquidity and earnings. These are also the stocks
that are involved in the major program trading situations which will often
accelerate a stock.
Institutions control the markets so it
makes sense for traders to focus on these stocks and let the Generals do the
research. We, as traders, can follow the Generals as they determine direction
with their money and we identify when to get on board by anticipating the buying
and selling pressure.
The "Wake Up Call" and
"Direction" screens are stock-specific screens of the stocks in the
S&P 500 and NDX 100.
Screen Overview and
Thought Process
Before I start, pull up the S&P
500 or NDX
100 screen on the site, as it will be easier to follow along. Both screens
have the same format.
The index screens default to a sorting
by the volume in relation to a percentage of the 30-day average daily volume.
They can also be sorted by percentage change and where the stock closed in its
range which is the CR1 column. The CR2 column gives you the preceding day to CR1. You can get the column definitions by clicking on the link above the
screen.
My actual sequence of checking these
screens each morning is as follows:
- Sort by the CR1 column This
shows me what the buying and selling pressure is for all the stocks in the
Index. I want to know if the majority of stocks finished above or below the
midpoint of their daily range. I look to see if a specific group or sector
stood out with closes in the top of the range. I look at this column first,
because it is the fastest way to observe the overall market dynamics from
yesterday's action and this helps anticipate today's activity.
- I then sort by Pct Change to
observe the price persistence both ways. The Generals speak with their money
and this is the final score. You should be thinking about whether it is
stock-specific or was it across-the-board buying and selling? I want to see
if all the group or sector was involved in the move. After the first two sorts, which should be no more than five minutes, I have
an excellent picture of where the Generals spent some money and what I
should focus on today, anticipating continuation of the move. At this point,
I have yet to bring up a chart.
- The final sort and the one I work
from is the Pct 30D Vol column. This enables me to start my search
with those stocks that indicate the Generals showed up in size. I look for
buy setups first. Starting with the increase in volume, I then check the CR1
column for the range close and look for 75 or over, which means a close in
the top 25% of the range.
- Next I check the range column (Rng)
looking for expansion or narrowing of range relative to the 10-day average
daily range which is the next column to the right. I look to see if the
stock advanced or declined on the day. Stocks that have declined slightly on
the day but have expansion of range, increased volume and a close in the top
25% of the range can be great setups. They might have tested any of the 20-,
50- or 200-EMAs or maybe a Fibonacci RT level and this brought in a surge of
buying. Remember, the Generals love to buy pullbacks in uptrends and vice
versa in downtrends.
- Next, I check the 5D%Chg
and 20D%Chg column to see whether it's a new move or a continuation
that might be overbought or oversold.
- The selection process then moves to
the 20-, 50- and 200-EMAs. The strongest trending stocks will be
above all three EMAs. After I check the stocks above all three EMAs, I drop
to the next level of above the 50- and 200-EMA, etc.
- Finally, I check the 52W
columns to see whether the stock is under-loved and oversold or extended and
overbought based on its 52W%Chg. You then look at the 52-week high
and low prices. Many explosive trades come from setups 5%-10% below 52-week
highs and become even more desirable if just below 3-5 year highs.
As you go through the screening
process, you are hitting up your daily charts to see if it's a high-probability
pattern setups.
"3 Day Wake Up Call"
This screen, along with the
"Change In Direction" screen, should be used in conjunction with the
Index screens.
The 3
Day Wake Up Call screen identifies those big-cap stocks that have closed
above the previous two days' highs, have the largest daily range and most volume
of the three days. This screen will give you stocks that show some thrust with
expansion of range and volume, or have just broken out of a consolidation.
Volume will usually precede price and this is one way of seeing the Generals
coming.
"Change In
Direction"
This is an excellent
screen to pick up those stocks that have pulled back to make at least a five-day
low, followed by a Change
in Direction
day which is a higher high, higher low and a close above the high of the low
day. This will identify those stocks that have just made a swingpoint low or
high. It can also pick up those stocks that have had a longer decline or advance
and might be reversing the trend.
Chart Examples
As you use the screens for
your trading research, your trade selection will improve immediately and you
will realize that the dynamics make the pattern and it's not just some lines
drawn on the paper that you base your entries on.
If you only trade the S&P and Nasdaq futures, your trading will benefit from
recognizing the daily dynamics of the stocks comprising the indexes.
On all of the following charts, the letter A is the actual screen day and your
entry would follow that day.
The charts give you some different
patterns from the screens. I only labeled the most recent screen selection (A)
but as you can see, there are prior entries that were strong setups.
I strongly urge you to use these screens every day because you will be rewarded
for your efforts. Going forward, I will be leading you from what I see on the
daily screens and this should accelerate your curve.
Good trading!
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