Alright, now what do we do with this information? Let’s start by looking at these charts as a whole to observe some common themes amongst all of them. First and foremost, all stocks are in what I would consider to be, a longer term (1+ year) uptrend. Within any time frame, the going rate for any stock or commoditized item is going to fluctuate between one extreme and another.
To gauge this ebb and flow I prefer to use Bollinger Bands. I used to employ Keltner Channels, but over time I appreciated how BB’s took volatility into account. I like to see a contracting band (i.e. volatility decreasing over the specified time frame). As long as the price is contained within the bands, I feel pretty comfortable. Once price closes outside of the band, however, stocks begin to behave much differently. To the upside, I have found that this is best time to let a position ride. On the downside it will force me to walk away, no questions asked. I don’t mess with it.
With that in mind (and that these are weekly charts), every single stock I selected closed within the lower BB (20,2). Not all bands are contracting, but it’s safe to say that the majority are. Thus, even after the wild first week of August, these stocks are still exhibiting a reduction in volatility over the previous 20 weeks.
I also like to use a simple EMA on my charts, more for reference than anything. For weekly, I chose “52”. I never understood why certain numbers were held in such high esteem for moving averages. 50? What the hell does 50 days signify? It’s like a bit less that 2 and a half months. On average, there are 21 weekdays per month. 20-21, 42, 63, 84, 105, 126……250. Those moving averages actually measure an identifiable unit of time.
Anyway, I chose 1 year (52) on these weekly charts. I’m basically looking to see how the price and lower BB are interacting with the moving average. I know that the lower BB and EMA do not have a direct relationship, but I take comfort seeing them align in support just below where the stock is trading.
Recall that I said these stocks are not on my “buy” watchlist, but are instead on a long-term list that I will monitor periodically throughout the week and analyze in depth again next weekend.
What would I consider constructive at this point? Ideally, I want to see prices stabilize and calm down in the lower regions of last week’s price range. A quick snap-back rally will detract my interest from many of these names. I want to see less volume and less volatility. Note that I said “ideally”…I don’t think volatility is going to wane any time over the next week. Right now, everything is just plowing to the downside, so when going long, it’s prudent to lie in wait for opportunities and go in for small surgical strikes. If you lose, no biggie…if you win, take the money and get the hell out of there.
I think the (relatively) easy money will be made on the short side in the coming days/weeks. The tide has started to turn. Please feel free to follow me on Stocktwits for blog and trade updates.