The Alert System Used Here

A Reason Not to Buy

*The lists you will find here are not personal buy or sell recommendations.  They are merely reports of stock activity and technical signals generated by a single specific discipline.    However, this system is well-known and widely followed.  However, proper alignment is not in itself a sufficient reason to buy or sell a stock.  Look at the chart below, for example. 
^.
 
The moving averages aligned properly in the last few days charted.  The blue line is the 4-day moving average, the red line is the 9-day moving average, and the purple line is the 18-day moving average.  Notice the large price spikes that caused the signal.  These are white candlesticks.  They are followed by one more short white candlestick and then by a large black candlestick (the last bar) that undoes the work of the two preceding white bars.  At this point, we should be observers only.  Earlier, there had been sideways work done between $26 and $27, the lower boundary of which is marked by the horizontal black line just below 26.  This area will offer some resistance when the stock rises.  Another area of possible resistance is the downward sloping straight black line terminating at about 23.24.  This is the trendline that defines the current downtrend.  Lateral work (not shown) was done between $22 and $22.75 (and later between $21.25 and $22).  All of this suggests there may be some support around $22.  The 50-day moving average (the broken black line) is at $22.71 and the 9-day average is just above $22.  If the stock is going to be worthwhile, it should stop the decline that started with the large black candlestick before it reaches half way into the first large white candlestick.  Once again, that is at about $22.  All of these levels, taken together, should give you an idea about where the stock can be expected to get support.  If that doesn't happen, the wise investor will simply walk away.  The foregoing notwithstanding, we are not very positive about the stock on a long-term basis...yet.  Observe that the downward sloping trendline drawn through significant tops is still in control (the closing price is below it).  This line acts as overhead resistance, and it is still declining and exerting downward influence on the stock.  The 50-day moving average has not yet shown any signs of turning around.  If you are bullish, you want it to be at least flat if not rising.  It is still declining.  Our guess is that this stock may have to do a little more work and build a base before it is ready to embark on a significant uptrend.  However, nimble traders can still make a nice profit on it by capturing surges.  These traders are the ones who will look for support at about $22  After all, a $4 gain on a $22 stock is a gain of more than 18% (not bad for a few weeks).  Longer term investors should require more convincing.  As you can see, a stock can have the correct alignment of moving averages for a purchase but the pattern itself may still not be "ready' or it may even be lousy (or dangerous).    

While Allen's discipline is a popular trading system in its own right, the trading members of our company prefer to use it as only one of their screening tools.  That is, its output notifies us of the recent emergence of certain technical conditions that make a stock interesting and a candidate for a closer look.  We conduct further evaluation and analysis to determine if a stock should be included on our "Watch List."  We would suggest that you use the same approach.  

In general, we watch for a setup, the absence of significant overhead resistance, and a "trigger event."  With regard to this particular screen, a proper setup may exist if a stock is listed on this page and if there is no reason to be apprehensive about the chart pattern.  If there is overhead resistance immediately above the current price, there is reason to be apprehensive.  If there is no resistance there, a good trigger event might be a follow-through price surge on increasing volume.  If the resistance is there, we might still consider it to be a "setup" but modify the trigger event.  For example, we might consider an acceptable trigger event to be a follow-through price surge on increasing volume that takes the stock through that resistance.  Some experienced traders may even wait for a subsequent test of support at the previous level of resistance and then a resumption of the up-trend. 

Instead of using Allen's system to define the setup, some use it to define the trigger event.  For example, the trader might look for good setups (a Bollinger squeeze with penetration of upper band, for example).  These setups would have a context that is attractive.  Then, they would wait for R.C. Allen's discipline to give the final go-ahead. 

(Note: A discussion of the meaning of "support" and "resistance" can be found by clicking on "Free Tutorials" on the navigation bar and scrolling down to the section titled "Charts."  Read all of that section if you are unfamiliar with these terms.)

.

If you are using IE8 for a browser and you are annoyed by the "Do you want to view only the webpage content that was delivered securely?" message, go to our "Notes" page for instructions on turning off the messages.
 

Create A Shortcut To Our Web site

^{Look at our URL in your browser. Notice that just to the left of our URL is a small picture.  In Internet Explorer it is usually an 'e' but it may be some other picture. Click on this small image and drag it to your desktop. This will create a shortcut to our Web site on your desktop.  See FAQs if you need additional help.}