Sometimes the best kept secrets are staring us in the face. When we begin the week, looking for the next winning stock picks, we follow a few simple rules.
Use the Top Down Approach
Use the Top Down Approach to confirm your winning stock selection(s). If the markets are conducive to a bullish bias, then the sectors within should confirm the selection process. The rule states:
- start with the indices, if bullish then
- examine which sector is strongest
- which industry group is producing bullish setups
- look for the strongest candidates in this industry group.
The 9/20ema Rule
Use the 9/20ema rule as a strategy for entry and exit. This rule states:
- where is price action relative to the 9 and 20ema?
- if above you should think bullish
- if below you should think bearish
Let’s look at some examples.
The S&P500 and NYSE Composite are trading higher in the pre-market session. Last week was a fairly constructive period for financials, so we drilled down in the sector to find that banks are strong. Big money center banks broke out last week, so the regional banks should follow.
There were 18 financial stocks in the February 26 IBD50 List. We already know the fundamentals meet a high level of scrutiny to make the list, so we filtered these with a 60 minute trigger. More on that in a minute.
TCBI is breaking a 4 month downtrend. RSI is rising, following stochastic and MACD higher. Price action is above the 9/20ema, so we think bullish.
This little “tweak” to the 60 minute chart was brought to my attention by Pete Clark, one of our members. If you’d like to listen to Pete’s interview, click here: Basically, we use a 54ema. This mimics the 9ema daily. When the 9ema passes through the overhead 54ema, we have a bullish trigger. When the 9ema passes down through the 54ema you have a sell trigger or exit. Here is TCBI 60 minute, which triggered on the 28th.
Look for a flag and TD Setup this morning for entry and initial stops. Earnings are due on 7/19/2017, so we intend to swing this candidate if rules dictate that we do so going into the close today.
Happy Trading – Vinny