$BMY

On Friday 8/28, a Morgan Stanley analyst downgraded Bristol Myers from equal-weight to overweight, and share prices fell 3.92 standard deviations (vs previous 20-days).

There was no bad news. The analyst simply thought the drugmaker's stock was trading at a premium price after recent gains.

To put that price drop into perspective, a 4 standard deviation price move should normally happen once every ~1000 trading years.

Looking at the chart, BMY broke out of a $18.75-$20.50 three month trading range in July, climbing to $23 at the end of August before the Morgan Stanley report.

Now, BMY has fallen back to $21.50 where a former top (and the 50-day EMA at 21.37) is serving as support. The RSI is 45, and still trading in the 40-80 uptrend range. Further, the RSI has made an intermediate positive reversal with the July 20 low -- the price is higher despite a lower RSI value.

I wouldn't be at all surprised to see BMY at $25+ by or before October.

$$ Gold Rush?

In the summer of 2005, gold began its run from $418 to $725, while the summer of 2007 saw gold start its run from $657 to $1011. We are now in the summer of 2009. Can we learn anything from studying the past two gold runs?

We'll see. Here's some similarities between 2005 and 2007:

1. The 2005 gold bull started July 18. It kicked off with a 10 winning weeks in 12, gaining 13% over those 12 weeks. The 2007 gold bull began on August 20 with 11 winning weeks in 12, gaining 26% over that initial thrust.

2. The 2005 gold bull experienced a 4-week basing period from early October through early November. The 2007 gold bull, which climbed faster earlier, "rested" for 5 weeks during mid-November through mid-December.

3. After these resting periods, both gold bulls went on 4-5 week runs gaining ~14%.

After that, the similarities end. The 2007 gold bull then experienced another 5-week basing period before a final push to $1011, gaining 11% over a final 4-week thrust ending in mid-March 2008.

The 2005 gold bull had a nice 4-week run starting at Christmas gaining 12%, then had a prolonged 8-week resting period from late-January to mid-March 2006 before a spectacular final 7-week push in which gold gained 30% by mid-May 2006. It's no coincidence that the longer basing period resulted in a big finish.

The post-2000 high for gold going into the 2005 run was $454. Gold made a new high for the new millennium during week 9 of the initial 2005 thrust. Going into the 2007 run, the post-2000 high was $725 which gold surpassed during week 5 of the first 12-week leg.

If we have started a new gold bull, it began on July 13, 2009. Thanks to a magnificent rally today, we have now experienced 3 winning weeks in a row ($913 on 7/10 to $937 on 7/17, $951 on 7/24 and $954 on 7/31) where gold has gained a total of 4.5%.

If history holds, gold will continue to rise through early-October with an expected setback week or two mixed in. The initial thrust should find gold topping between $1030 to $1140 and surpassing its all-time high close of $1011 sometime in mid-August to mid-September.

Then there will be a month-long basing period before another 4-5 week run that will take us into January. After another resting period, we'll be ready for the final leg.

Note that if the first 12-week thrust results in relatively small gains (less than 15%), then under the Elliott Wave alternation principal we should expect the final push to be significantly larger. See the 2005 structure (13% first wave, 30% last wave). On the other hand, if the initial push is large (over 25%), then we should expect the final thrust to be relatively smaller. See the 2007 structure (26% first wave, 11% last wave).

As for where gold eventually tops in the Spring of 2010, the inverted Head & Shoulders pattern projects a top of $1379, while $1357 is a 360 degree turn on the Gann Square of 9 from $1011.

It will be interesting to see whether we are in the midst of a new gold bull run, and if so, how it will unfold in comparison to prior bulls.

PS I should note that according to Alf Field, the 2005 and 2007 gold runs were Waves 3 and 5 of Major Wave One which took gold from $256 to $1011. If we are beginning a new up Wave, it will be Wave 1 (or 3) of Major Wave Three, and might well behave differently than did Waves 3 and 5 in Major Wave One.

$$ Magic T Theory

Terry Laundry projects a " short range T" (interim stock market peak) ending on October 15, 2009 with the " long range T" (ultimate top) ending on August 26, 2010.

He says the fear experienced in the March of 2009 low should be reflected symmetrically by euphoria at the top in late Summer 2010. After the projected Summer 2010 peak, he expects a major down cycle testing and perhaps exceeding the March 2009 low.

$TBT Trade in Multiple Time Frames

Here's the daily chart for today's TBT swing trade:

Note price broke through resistance today in the direction of the main uptrend. At the same time, RSI broke through bearish divergence resistance. Prices often accelerate upwards when RSI bear divergence lines fail.

Last week we saw price make a long term positive reversal with the RSI on the daily chart while the RSI made long term bullish divergence support (see the red lines). That would have been an excellent entry point, and supports the long term trend analysis for this trade.

Dialing down to the 30-minute chart, after seeing price break through an old failed support line on the 30-minute chart and the RSI break through bearish divergence resistance, I decided to stalk entry on the 5-minute chart:


I waited for the Force Index(2) to go negative on the 5-minute chart, and trailed a buy stop which got executed at $53.20:

It didn't take long for the trade to turn positive. I moved stops to break even with an hour left in the day. Now we're free-rolling.

I will trail a fairly loose stop and watch TBT closely for signs of trend exhaustion at or near 4 Average True Ranges from its 50EMA [Keltner Channel (50, 4, 25)] at which point I will take partial profits and tighten my trailing stop.

$$ Trading in Multiple Time Frames

Brian Shannon recently wrote Technical Analysis in Multiple Time Frames. He advocates a minimum of three time frames be studied before committing capital to a trade.

For swing traders he suggests daily charts for long term trend analysis, 30 minute charts to analyze risk-reward, and 5-10 minute charts to fine tune entry. For day traders, he suggests 30 minute charts for long term analysis, 5-10 minute charts as an intermediate time frame, and 1-2 minute charts for fine tuning entries.

Brian's philosophy about time frame correlation is similar to that of Alex Elder who first wrote about his Triple Screen method in Trading for a Living. Elder looked for signals on daily charts that were in sync with the direction of the weekly trend, then used hourly charts to fine tune entries. In his later books, Elder offered tweaks and adjustments to the indicators and settings he used for the Triple Screen, but never varied from his time frame correlation.

Brian categorizes price action into 4 stages: accumulation (Stage 1), markup (Stage 2), distribution (Stage 3), and decline (Stage 4). This analysis is very reminiscent of Stan Weinstein's Secrets to Profiting in Bull and Bear Markets. Weinstein called the four stages: basing area, advancing phase, top area, and declining phase.

For long trades, Brian correlates the long and intermediate time frames of choice by insisting on a Stage 2 (i.e. trending) phase in the long term chart, while anticipating entry when the intermediate chart changes from Stage 1 to Stage 2. For short trades, he looks for Stage 4 in the long term chart, and Stage 3 converting to Stage 4 in the intermediate chart.

In other words, Brian tells us to invest with the long term trend when the intermediate chart says that trend is about to resume from a recent correction. Sage advice.

There's a lot more to Brian's book than this general overview. I highly recommend it. For those of you have Brian's book, you might check out the Weinstein and Elder books for more discussion of time frame correlation and the four stages of the price cycle.

$$ Magic T Theory

Terry Laundry's theory (made famous by Buzzy Schwartz) calls for stock market bull through Aug. 2010. Listen to his latest comments.

$$ Daily Double Update: Weds 7/15

$ICF and $SRS had double plus stretch on Tues.

$$ NR7 Update: Weds 7/15

$GDX, $EEV, $OIH, $QID, $SDS, $SMH all had NR7 days on Tues 7/14.

$$ Bull Hook Update: Weds 7/15

$EWZ went "Bull Hook" today, with an open above the prior high, close below the prior close, and a narrower range than than the prior day.

According to Crabel, going long can be profitable the day after a Bull Hook, especially if $EWZ opens lower on Wednesday, but moves quickly to the upside and trades past today's close ($50.05).

$$ Poised for Breakout?

As seen in the chart below, $GDX is on the verge of testing an old RSI bear divergence line. Often when bear divergence lines fail, price can accelerate upwards.

In addition, $GDX has completed a 5-point Wolfe Wave bullish descending wedge and has started to move upwards. As explained in the chart, the Wolfe Wave has both a price and time target. Price is forecast to hit the 1-4 line about the time the 1-3 and 2-4 lines bisect.

In other words, if the RSI bear divergence line fails, I would not be surprised if $GDX goes to ~$43 by ~end of next week in accordance with the Wolfe Wave.




For more chart analysis, see my Public Chart List at Stockcharts.

$$ The Dude Update: Tues 7/14

The Dude Long = $EWZ;
The Dude Short = $DTO, $SRS.

$$ Daily Double Update: Tues 7/14

$DTO, $EEV, $EWZ, $GDX, $ICF, $SRS, $MDY, $SDS, $QID had double plus "stretch" today.

$$ 3-Day NR Update: Tues 7/14

$DTO = narrowest 3-day range in last 15 days.

New Robertson Stadium Images

$$ ID/Trend Update: Mon Jul 13

$UNG = inside day in downtrend. See the chart.

$$ 2-Day NR Update: Mon 7/13

$VXX and $RKH = smallest 2-day range in the last 15 days.

$$ The Dude Update: Mon 7/13

Long: $EWZ, $SMH;
Short: $DTO, $SRS, $QID, $VXX.

For more info and charts, see my Stockcharts Public Chart List.

$$ Anti-Chick = The Dude

With a hat tip to The Big Lebowski, The Dude combines features from Linda Raschke’s “Anti” system, and “Chick” Goslin’s 3-point system (with a sprinkle of Andrew Cardwell's RSI methodology).

The elements of The Dude are:

Trend Line = 50-day simple moving average
Confirming Line = 10%D stochastic line
Timing Line = 7%K stochastic line and/or SMA3 of RSI3

In addition, Positive and Negative Reversals on the RSI(14) are incorporated. Courtesy of Mr. Cardwell, Positive Reversals occur when, despite greater downward momentum on a pullback during an uptrend, price cannot make a lower low compared to a prior correction. Negative Reversals occur in downtrends when, despite a higher high in the RSI(14), price cannot rally to a higher high compared to a prior downtrend rally.

Here’s how the chart looks with some explanations and an example of a Positive Reversal:


When the Timing Line (which is short term momentum) starts to change direction, an entry signal in the new Timing Line direction is given in three cases:

1. The Trend Line is pointing the same direction, AND

• The Confirming Line is sloping in the same direction as the Trend Line, OR
• Regardless of its direction, the Confirming Line's location is above 60 for new buy signals or below 40 for new sell signals.

2. Regardless of the Confirming Line's location or direction, the RSI(14) shows a Positive Reversal as the Timing Line turns up for a new buy signal, or a Negative Reversal as the Timing Line rolls down for new sell signal.

3. Regardless of the Trend Line direction, entry is signaled when the Timing Line turns up (down), AND

• The Confirming Line stands above 60 (below 40), AND
• The Confirming Line points in the same direction of the new Timing Line direction.

In a later post, I’ll discuss money management rules for The Dude.

$$ My Stockcharts Public Chart List

For daily charts of the ETFs I follow, please see my Public Chart List at Stockcharts. For reference, I have included a permanent link to the right just above my Twitter updates.

$$ ID/NR4 and NR7 Update: Mon 7/13

$UNG = ID/NR4
$OIH = NR7