Archives for May 2010

Google (GOOG) has setup the Trader Vic 1-2-3 pattern or a Dow Theory confirmation of a trend change.

As you can see:

• GOOG broke the up-trend after establishing a new 52-week high above $629 (point #1).
• From there, it consolidated and formed what is referred to as the minor sell-off (the lower horizontal red dotted line).
• Prices started to rise but failed to make another new high. This test of the previous high failed near point number 2 (March & April).
• A failure to make a new high is usually (not always) a signal that the trend is about to change. This is where some traders jump in early.
• Lastly, we reach point number 3 where prices drop below the previous short term minor sell-off (this is trend reversal and the signal to short). If missed, you can short on the first failure to recover the major moving averages (or #3 area which then turns to resistance).

This is the pattern I am watching setup in dozens of stocks across multiple industries. I am also watching this pattern to potentially setup in the major indices as well.

Remember, have patience and be prepared to sit on the sidelines for a while as this pattern takes time to build and then confirm (4 months for GOOG). The key word is CONFIRMATION!

You may play GOOG up and down short term but long term, the trend has changed!
Follow me on twitter to watch the stocks currently setting up this pattern (prior to confirmation).

Blackrock (BLK) setup what Trader Vic would term as a 1-2-3 setup or a Dow Theory confirmation of a trend change.

As you can see:

• BLK broke the up-trend after establishing a new 52-week high above $242.
• From there, it consolidated and formed what is referred to as the minor sell-off.
• Prices stared to rise but failed to make another new high. This test of the previous high failed near point number 2.
• A failure to make a new high is usually (not always) a signal that the trend is about to change.
• Finally, we reach point number 3 where prices went below the previous short term minor sell-off (this is trend reversal and the signal to short). If missed, you can short on the first failure to recover the major moving averages (or #3 area).

In addition to the 1-2-3 setup, the stock has also allowed its 10-week moving average to cross below the 30-week moving average with typically signals a change in trend when both lines are starting to point down.

Victor Sperandeo says this about the 1-2-3 setup:

At the point where all three of these events have occurred graphically, there exists the equivalent of a Dow Theory confirmation of a trend change. Either of the first two conditions alone is evidence of a probable change in trend. Two out of three increases the probability of a change in trend. And three out of three defines a change in trend.

Take a look at the picture I scanned from Sperandeo’s book on page 76:

This is essentially the pattern I am watching for in several of the stocks starting to churn (run out of steam) that I posted to my twitter stream. However, have patience and be prepared to sit on the sidelines for a while as this pattern takes time to build and then confirm (nearly four months for BLK).

Twitter stream for 5/17/10 (stocks down on heavy volume, trading near 30-wk): $PCLN, $GMCR, $V, $MA, $TCK, $BUCY, $BTU, $MR

Recent Tweets on BLK:

• 7:33 PM Apr 6th via web: $BLK – 198.55, clearly falling apart (but gap down has to fill before ultimate slide).
• 10:02 PM May 5th via web: $BLK…Trading @ 174.80 & going down!

This is a game of odds with developed expectancies so take the trades and follow the rules.