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Green line breakout (GLB) explained;

GMI remains Green
DR. WISH MAY 20, 2018

I have been writing for some time about the value of the green line break-
out, GLB, for identifying strong stocks breaking to all-time highs. Almost
every growth stock guru I have valued talks about buying stocks after they
have advanced, formed a base and then break out. e idea is to not be a
pioneer—one does not want to be the only one interested in a stock. e
deep pocketed institutions need to be showing buying interest, evidenced by
up days with above average volume. I therefore try to find very strong CAN
SLIM type stocks that have rested by forming at least a  month base and
that then break-out to all time highs, preferably with increased trading
volume.

I begin by looking at a monthly chart for each stock that hit a new all time
high recently and draw a green horizontal line at the highest price reached at
any month, that has not been surpassed for at least  months. In other
words, I want a stock that reached an all-time high and has then rested for at
least three months. When a stock moves through the green line or is above
its last green line I become interested. I only buy stocks that are trading above
their last green line tops. Stocks that form a multi-month (or multi-year) base
at an all time high, especially recent IPOs, often go on to large gains after
they break out. (e great Jesse Livermore made a similar observation.)
While it may seem strange, I also like the stock to have already doubled
from its lowest price over the past year. is attribute helps, but is not
always required, especially for IPOs. e great Nicolas Darvas alerted me to
the idea that a stock that has recently doubled is likely to double again. As a
psychologist, I have learned that the best predictor of a person’s future
behavior is his/her past behavior. e same can apply to stocks.

Why do I buy stocks at all-time highs? Because there are no buyers who
bought at higher levels, had a loss, and are waiting to sell out if they can get
even. On the other hand, a stock that has advanced to an all time high,
rested or declined a little to form a green line top (a base), and then
overcomes any overhead supply or resistance to break through to a new all
time high (GLB, see blog glossary), is showing real technical strength.

When I speak publicly to audiences of investors I often begin by asking

them to raise their hands if they buy stocks at new yearly highs. Typically,
fewer than  say they do. I then tell them that I only buy stocks at all-
time highs! By the end of the semester my undergraduate students have all
embraced this strategy.

To show you the evidence that GLB’s can work, I am providing below a set
of examples using weekly charts. I find that weekly charts are preferable for
viewing trends and for keeping me from being shaken out of strong stocks.
(I have been told that the great William O’Neil preferred weekly charts.)

Of course, not all GLBs work out. One can never know in advance if a GLB
will lead to a significant advance. It does help if the stock showed above
average volume at the break-out. I have a strict rule to sell a stock immediately
if it comes back below its green line. If I buy because of a GLB, I must get out
immediately if the signal fails. It is folly to hang on if the primary reason for
buying fails! No hesitation or remorse, because I believe that each loss brings
me to the next gain. In some of the examples below there was a GLB failure
and a subsequent successful GLB. I find buying back a stock that I exited,
after it shows a new buy signal, can be very profitable. It makes sense to buy
back a stock that I have evaluated and researched and not to abandon it just
because my initial timing failed. (ere must be no ego in trading–I accept
and study my mistakes.)

Because there have recently been more than  stocks hitting yearly highs
each day, I have reinitiated the GLB Tracker list to the right to this page.
is is a list of stocks that had a GLB in the past week that I will monitor.
e date in the table is Friday and not necessarily the day of the GLB. I
keep this list as an indicator of how likely recent initially successful GLBs are
continuing to rise, not to serve as a buy list. Stocks on the GLB Tracker list
need to be researched and evaluated for possible purchase and are not
automatic buys. Moreover, I do not have to buy on the exact day of the
GLB. e examples below clearly show that if a GLB stock is followed by a
few weeks of advance there are many new opportunities to hop on (perhaps
at the  or  week moving averages), as long as I set reasonable sell stops to
protect my capital. (Setting stops and exiting is based on one’s personal
tolerance for risk and cannot be rigidly defined for everybody, so don’t ask
me how to do this.) Study these examples:
One more observation–if one is fortunate enough to hop on a successful
GLB stock and pyramid one’s position, it might be a good strategy to stay
aboard until it closes below its rising  week average (solid red line in
charts). It takes patience and discipline; that is how fortunes can be made….

e GMI remains at  (of ) and on a Green signal.

https://outline.com/hWwMXK COPY

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