I am starting a bottom fishing strategy using Bullish Reversal Patterns (opposite of those for the Profit Alert Filter) for entry with emphasis on those with clear RSI Bullish Swing Buy Signal. Once the stock is selected, it will be exited when RSI falls back below the Buy Signal trigger. If the stock advanced and pass the Alpha 20 Holds Filter, it will be subject to Alpha 20 Holds Filter exit criteria and Profit Alert criteria same as the Alpha 20 Holds Strategy. The selected stock must be a member of Alpha 100 at the time of selection. Market timing criteria will be the same as those for Alpha 20 Holds. There will be no reentry during down markets.
Initial selection enter today at 12:00 pm will be as follows: ACTG, ARIA, CMG and EGHT.
Future changes will be reported in IN-N-OUT Discussion.
Excerpts from Investinganswers.com:
"1) When RSI goes above 70 or below 30, it indicates that a stock is overbought or oversold and vulnerable to a trend reversal.
2) A reversal often occurs after bullish or bearish divergence. Bearish divergence takes place when the stock breaks out to a new high, while RSI makes a lower high. Bullish divergence occurs when a stock makes a fresh new low, while RSI sets a higher low.
3) An RSI failure swing provides a trading signal. A bearish failure swing occurs when RSI peaks above 70, goes below that level, tests the first peak, fails, and breaks support on the RSI chart. The bullish failure swing is the reverse.
4) RSI forms patterns, such as triangles or head and shoulders tops and bottoms. Breakouts from these patterns on the daily chart often precede the price breakout by one or two days -- providing the swing trader valuable advance notice.
These four features of RSI often come together to create a high-probability buy or sell signal. Thus, a stock may go over 70, create bearish divergence, form a descending triangle top, and then complete a failure swing. These signals often predict the signal on the price chart.
5) A final use of RSI mentioned in Wilder's book, New Concepts in Technical Analysis, is that "trendlines on the bar chart often show up as support lines on RSI."
Bullish Swing Strategy
PROFIT ALERT: None.
Past few days there were a lot of Alpha Stocks with sharp price gains and sharply rising PPO histrograms. This is a lesson to keep in mind in bottom fishing in the future. For now, it does not appear worthwhile to chase them, so this strategy is on the lookout for these stocks to pull back and reverse up to give us that RSI Bullish Swing Buy Signal for a safer entry.
IN: TNAV, BAS, CLFD, FTK
PROFIT ALERT: None
Market appears weakening and Bullish Swing is not adding new stocks. Current holdings' RSI does not appear to hold up well as of yesterday.
PROFIT ALERT: None
Strategy now exits positions as soon as PPO histrogram reverses direction to the down side. All positions will be exists when SPY's RSI level of 38.02 is crossed to the down side.
Strategy exits all positions as market condition does not allow play.
If market raises after the first hour,
IN: ALLT, BAS, GTLS, FTK, GLNG, LULU, MIND, ULTA
The 8 stocks here has a common characteristic. They dropped fast and hard previously and yesterday or the day before was a big reversal to the upside. In addition, RSI disagreed with the drop and registered a higher high compared to the prior low.
This strategy will exit a position when either RSI drops below the immediate prior low or price drops below the immediate prior low.
No new position.
IN: ARIA, ATHN, CLF, CVI, TNAV
Strategy will exit enough of current positions such that the 5 stocks added will be of equal weight for a fully invested 15 stock positions.
As of Friday, 18 positions, 9 closed, 6 winner 12 losers %W=33.33 % Gain = -3.86%
Profit Alert: None
Bullish Swing Filter does not pick up any additional candidate. The guess is that the short term bottoming is complete.