Picking A Winning Stock

Click Here For Wyckoff Wave Chart 08-02-2013

This week, the Wyckoff Wave reacted and began to rally off the support lines of both the short and intermediate term up trend channels.

Presently, the short, intermediate and long-term trends of the market are all up.

For most of 2012 the Wyckoff Wave moved sideways in a trading range. The range began in April, 2012 and ended in December, 2012. The trading range is broken up into 4 phases on the 100 Point & Figure chart. The second phase’s objective is between 37,400 & 38,900. The Wyckoff Wave entered that objective area at the end of May when it reached 37,606 at point J. Since then it has moved sideways and on Friday closed at 37,341.

As there is still more potential to the upside and the Wyckoff Wave continues in an upward trend, this is a reasonable time to discuss selecting individual stocks.

The most important thing that a Wyckoff trader should know is the trend and position of the general market. That decision is also related to the trader’s investment objectives. If you are a short-term trader, you must trade with the short-term trend. Likewise, intermediate-term and long-term traders must trade in harmony with those trends.

It is also important to understand the market position in that trend, before heading to your portfolio. If the trend is up and the Wyckoff trader is preparing to take a long position in a stock, he or she should look to take deposition on a spring, its secondary test, a last point of support or a successful testing of the support line within the trend.

The Wyckoff trader should start by looking for the answers to three very important questions.

1. What is the market doing and how is it doing it?
2. What does this market action mean?
3. What, if any, action should be taken?

After the Wyckoff trader is comfortable with these actions, the next step is to look for strong candidates. This is where relative strength or weakness studies are extremely important. A quick and easy way to do this is comparing Group Leadership Stocks with the Wyckoff Wave.

The Wyckoff Wave is made up of 12 stocks that serve as an index for their particular group. The stocks and their groups are listed below.

AT&T (T)            Communications
Boeing (BA)            Aerospace
Bank of America (BAC)    Financial
Bristol Myers (BMY)        Healthcare
Caterpillar (CAT)        Industrial Equipment
DuPont (DD)            Chemicals
Exxon Mobil            Energy
Ford (F)            Automotive
Gen. Electric (GE)        Manufacturing
IBM (IBM)            Technology
Union Pacific (UNP)        Transportation
Walmart (WMT)        Consumer Goods

After spending many years developing and analyzing group indexes, I have found that these leading stocks are just as effective as a group index.

It is also quite easy to quickly identify which Group Leadership stocks are stronger then the Wyckoff Wave. These are the ones that will point us to stocks that are ready to move.

I do it in groups of four. One chart allows me to compare 4 Group Leadership stocks with the Wyckoff Wave. In a very short period of time I can identify which groups should be investigated further.

I have attached 3 charts that compare the relative strength of each Group Leadership stock to the Wyckoff Wave. You can make your own determinations and then go searching for profitable investments.

While the most important concept is to always, always trade with the trend, profits can be maximized by waiting until an individual stock is in a position where it is ready to move. This will dramatically increase your profit/risk ratio.

The market appears to have more potential to the upside. The positions of individual stocks relative to their short and intermediate term trend channels, may provide an opportunity for profitable trades.

Ask the important questions. Write down your answers. Identify relative strength and weakness. Find the stocks that are ready to move. It’s an excellent recipe that can certainly increase your net worth.