|620 Chart Setup||Please refer to the 10/15/14 and 10/19/14 reports.|
|Accumulation||Institutional, as opposed to individual investor, buying of a stock or the market in general.|
|Ants||When a stock is up at least 12 days in a 15 day period, it “shows ants.” This is a sign of exceptional upside power and strength, auguring well for the stock. Once a stock logs a series of ants and then stages a pullback, the pullback is monitored for a subsequent move higher through its consolidation area, which is normally small.|
|Base||A period of consolidation, or sideways price movement, following a price trend, be it an uptrend or downtrend. The consolidation forms as buyers and sellers are roughly equal. Its purpose is to “digest” the prior price trend so that buyers and sellers become more closely aligned.|
|Bottom-Fishing Pocket Pivot||A pocket pivot that occurs as a stock is trying to move up off of a recent low following a significant price decline. Generally, a stock will bottom, move up slightly, perhaps 10% or more, and then move tight sideways. It is at this point that a bottom-fishing pocket pivot can be watched for. In some cases the bottom-fishing pocket pivot can help to identify a turn off the lows and the start of a new uptrend. Such an uptrend can be of a short-term or a more intermediate- to long-term duration, depending on the general market environment within which it occurs. The rules for a standard pocket pivot are discussed in detail in the book, How to Trade in Stocks.|
|Bottom-Fishing Buyable Gap-Up||A gap-up move that occurs in a similar position as a bottom-fishing pocket pivot. The rules for a standard buyable gap-up, as outlined in the book Trade like an O’Neil Disciple – How We Made 18,000% in the Stock Market can be applied to this type of gap-up move. As with a bottom-fishing pocket pivot it can indicate a turn off the lows and the start of a new uptrend. Such an uptrend can be of a short-term or more intermediate- to longer-term duration, depending on the general market environment within which it occurs The examples of WDAY in early March of 2016 and MNST in late April 2016 illustrate the idea of a bottom-fishing buyable gap-up.|
|Buyable Gap-Up (BGU)||A buyable gap-up (BGU) is a powerful buy signal that should meet the following criteria:
1. Buyable gap-ups should occur in fundamentally sound and leading stocks, or there should be a compelling thematic basis for consideration.
2. A buyable gap-up move, in other words the height of the gap-up “rising window,” should be at least 0.75 times the stock’s 40-day Average True Range. In most cases, however, one can simply “eyeball” the gap as being of a substantial and powerful nature. Small gap-ups are not what we’re looking for here.
3. A buyable gap-up move should occur on volume that is at least 1.5 times average daily trading volume.
4. Buyable gap-ups should occur within an uptrend or constructive consolidation, not while a stock is in a downtrend. In the case of a “bottom-fishing” buyable gap-up (BFBGU) the gap can occur coming out of a low base consolidation as a stock is trying to round out the lows of and recover from a prior intermediate- to longer-term decline.
5. A buyable gap-up should hold above the intraday low of the gap-up day, and one can therefore use the intraday low of the gap-up day as a selling guide.
Examples of buyable gap-ups: TSLA on May 9, 2013, NVDA on May 13, 2016, and BABA on August 11, 2016.
Examples of bottom-fishing buyable gap-ups: AMBA on June 3, 2016 and CUDA on July 8, 2016.
This instructional video explains a buyable gap-up in more detail.
|Correction||A pullback of about 8%-12% in a trend, most often over a period of several weeks.|
|Cup With Handle||A basing pattern that resembles a cup when viewed from the side. The majority of cwh patterns last from 12 to 26 weeks. The typical correction in price from peak to trough is from 15% to 33%. The handle area should ideally be between 1 and 2 weeks in length and should not be more than 10%-15% deep.|
|Distribution||Institutional, as opposed to individual investor, selling of a stock or the market in general.|
|Flat Base||A base in which a stock’s price moves sideways for a minimum of 5-6 weeks and corrects between 10%-15% from its high. A stock that forms a flat base subsequent to a strong prior uptrend has the best chance of continuing higher after breaking out of the base.|
|Follow-Through Day||A concept popularized by Bill O’Neil whereby the odds of a new uptrend in the market sustaining are increased when, on the 4th through 10th days of rally off of a low, at least one major stock average advances by 1% or more on volume that exceeds that of the prior day. The best FTDs occur on the 4th through 7th days of a new advance.|
|IPO Pattern||Please refer to the 11/16/14 report, and its discussion on FEYE and CYBR.|
|Ledge||An abbreviated basing, or consolidation, pattern. A genuine base normally has a duration of at least five or six weeks. A ledge may be as brief as a week or two.|
|LUie Formation||This is where the stock fails badly, then forms an L-shaped pattern, holds tight, and then launches back above the 20-dema and/or 50-dma on volume.|
|MLDR||Massive liquidity-driven rally.|
|Monkey Breakout||A pivot-point breakout that occurs as a stock clears a base to new price highs.|
|Moving Average Undercut & Rally||When a leading stock breaks below its moving average, a move back above the moving average can provide a long entry point as the stock moves back up through the line. Thus the term, “Moving Average Undercut & Rally.” The stock essentially undercuts the moving average, faking out sellers and would-be short-sellers, and then rallies back above it. Once the buy signal is triggered, one then uses the moving average as a selling guide, and can adjust their stop to 1-2% below the line depending on risk-preference.
The mechanics of this trade are similar to a regular Undercut & Rally (U&R) move where a stock undercuts a prior low in the pattern, usually along the lows of a potential new base, and then rallies back above that low, triggering a buy signal based on the U&R. The difference is, of course, that an MAU&R works on an undercut of and rally back through a moving average, while a straight U&R is simply an undercut of a prior low (price point) in the pattern and a rally back above that same low.
|PODs||Punchbowl of Death. A large, wide, late-stage bowl type of pattern that forms in a big leader that has had a prior massive upside price move. Following the big price rise, the stock then breaks down and corrects sharply, creating the left side of the “punchbowl.” The rally up the right side of the punchbowl appears to be the formation of a typical saucer- or cup-shaped base. However, such a long climb out of such a deep correction often leaves a stock exhausted once it reaches its old high, which corresponds to the top of the right side of the punchbowl. Often, it will then break down completely and stay depressed for an extended period.|
|Pivot Point||The point on a price chart at which price has the highest probability of moving higher; the point of least resistance. Often this corresponds to the high of a base.|
|Pocket Pivot||An early buy point in relation to a stock’s basing pattern. Typically, in intermediate-term investing, a pivot is located near the top of a stock’s base.|
|Reaction||An abbreviated correction in a trend, normally as little as 3% and as much as 5%..|
|Relative Strength||The concept of measuring the price performance of one security vs. another over a period of time, usually a stock vs. an index. A relative strength line can be plotted on a chart to easily show the investor the relationship between the two securities.|
|Resistance||A price area on a chart that tends to act as a ceiling of resistance by making it more difficult for price to rise.|
|Roundabout Pocket Pivot||A pocket pivot that occurs as a stock is coming up the right side of a base or consolidation as it tries to “round out” the lows of potential new base. A roundabout pocket pivot differs from a bottom-fishing pocket pivot in that it is occurring within the confines of what can be considered a normal base or consolidation, whereas a bottom-fishing pocket pivot will occur after a more significant price decline. The advantage of a roundabout pocket pivot is that will occur within the base, well before a standard base breakout. Therefore it serves as an early buy point that is not initially obvious to the crowd.|
|Support||A price area on a chart that tends to act as a floor of support by making it more difficult for price to fall.|
|Ugly Duckling||This refers to when the market and leading stocks bottom out and then suddenly move back to the upside, usually at the point where they achieve maximum ugliness, so to speak. This has brought into play a variety of new long technical set-ups that have proven to be far more efficient and effective than buying standard base breakouts. These include the undercut & rally (U&R), which is derived from the “Wyckoff Spring” first identified by Richard D. Wyckoff. It’s corollary, the moving average undercut & rally (MAU&R), and the more standard “Wyckoffian Retest” or “test for supply” are other Ugly Duckling set-ups that I discuss in these reports.|
|Undercut & Rally||This is described in detail in the book, Short-Selling with the O’Neil Disciples and indicates a technical condition where a stock is in a decline and moves below a prior low in the pattern. The crowd will view this as an obvious “break of support” at which point natural sellers will be washed out and short-sellers will swarm the stock. This ends up fooling the crowd, and the stock will then rally back to the upside. This is also known as a “springboard” in the writings of Richard D Wyckoff. When selling short, I often use an undercut of a prior low in the pattern as a point at which to cover my short and take profits.Note that Jesse Livermore’s “Shakeout-Plus-Three” rule, which is described in detail in Chapter 5 of his book, How to Trade in Stocks is based on a particular type of “undercut & rally” move. Livermore’s rule would be triggered by the following conditions: 1) a move by a stock below a prior low but not more than three points lower, and 2) a rally by the stock back to the upside that carried at least three points above the prior low. For Livermore, a Shakeout-Plus-Three buy set-up was another type of “pivotal point” indicating that a stock in decline was turning back to the upside.
One can download a free PDF copy of Livermore’s How to Trade in Stocks here
William O’Neil has taken Livermore’s Shakeout-Plus-Three rule and altered it into a “Shakeout-Plus-N” rule where the N = a specified number of points based on the price of a stock. Thus while a stock trading at 60 might use a Shakeout-Plus-Three rule where N = 3, a stock trading at 120 might use a Shakeout-Plus-Six rule where N = 6. In most cases N is usually equal to approximately 10% of the stock’s current price, although I find this to be somewhat imprecise for my purposes.
|Voodoo||A voodoo (Gilmo slang for VDU, or volume dry-up) pullback occurs in a leading stock that is pulling into a logical area of support, either at a key moving average like the 10-day, 20-day, or 50-day moving average, or the top of a prior base. Generally, volume on a voodoo day is less than -45% below-average, although it can also be measured contextually relatively to the volume seen on preceding days on the chart.|
|Walking The Plank||A stock that experiences a very sharp drop of, say, 20% or more, due to a gap lower (often earnings related), will often attempt to recover by moving sideways in a range. This is akin to “walking the plank” before the ultimate fall. At first, the sideways range, or plank, appears to be a stabilization of price. Many times, however, this walking of the plank merely postpones the inevitable, a renewed selloff that accelerates as investors realize price recovery will not occur anytime soon, and throw in the towel.|
|Wyckoffian Retest||A technical set-up where a stock makes a low, rallies off of that low, and then pulls back slightly to retest that initial low without undercutting that low as volume dries up. This is also known as a “test for supply” as the stock backs down towards the prior low but does not hit it as selling dries up. The volume decline on the pullback indicates a lack of supply as sellers fail to hit the stock again.|