Stan Weinstein's Stage Analysis

isatrader

Senior member
2,928 128
US Industry Sectors

Attached is the updated US Industry Sectors charts and the relative performance table. There was a few more trendline breaks this week and moves below the 30 week WMA. Energy (XLE) and Consumer Staples (XLP) moved down towards the bottom of their Stage 3 ranges and so could move into Stage 4 if the swing lows don't hold. Health Care (XLV) also looks weak now below it's 30 week WMA and trendline, and so will need to hold it's 200 day MA and swing low or it too will move into Stage 4.

The relative performance table below shows this well, as the late Stage 3B and Stage 4 sectors all make up the bottom of the list. But the overall Stages of the US market are still weighted towards the negative side, as I have it as four sectors in Stage 3, three sectors in Stage 3B and two in Stage 4.

 

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goodtyneguy

Active member
146 9
I hope you don't mind me saying, but GTG, this isn't really the thread to discuss macro
Hi Iplate, I appreciate that you do not want this thread evolving into a discussion on macro economics as I feel sure we all don't. I should inform you that Weinstein does mention macro economics, seasonality and historical precedence in the March 2005 edition of GTA.

As we’ve shown you many times over the years, as long as the trend for Debt is higher, that correlates very strongly with bull markets (while conversely, contracting Debt goes hand in hand with bear markets).
First of all, in addition to the fact that January was a problem month (and we’ve shown you many times over the years that while it’s not an infallible indicator, a weak January has often forecast a problem market - note that January was weak in 1957, 1960, 1962, 1969, 1972, 1973, 1977, 1981, 1990, 2000, and 2002 and all those years turned out to be bearish). In addition, we’re also in a post election year mode and again, while this statistic is not infallible, it is important to be aware of the fact that many post election years have been less than thrilling for the market (such as was the case in 1969, 1973, 1977, 1981, and 2001). Furthermore, there have now been 6 rate hikes (with more on the way), and a study of history shows that markets have not done well in such periods of rising interest rates.
He even mentions considering fundamentals
At the same time, make sure that you aren’t short stocks with poor fundamentals that we’re bullish on
Whilst I do not recall these consideration in his book I think they are relevant here. ISAtrader has made a sterling effort to find out what refinements have been made to his methodology and I think theses considerations are relevant to that cause. Whilst this is not stage analysis I do think that ISAtrader's intention for this thread was to create a discussion on all aspects of the Weinstein method. On this basis, I see both RewardZ and my comments in context.
 

isatrader

Senior member
2,928 128
Thanks to everyone for their well researched and considered replies. I will add that Weinstein's "Weight of Evidence" approach is a 100% technical - although the cravat to that statement is that a number of the technical gauges he looks at are of fundamental data. They are just looked at from a technical perspective by charting them, for example, the price/dividend ratio mentioned on pages 301-304 in the book; the Pension Fund Cash Ratio, the Bank Cash Ratio, Margin Debt, Insider Sell/Buy Ratio, Net Free Reserves, Large Block Ratio, Mutual Fund Cash Ratio in the GTA reports etc. I'm sure there's many more...the point is that he uses a lot of fundamental information in his reports, it's just charted and looked at in a technical way. So I don't mind macro being discussed on the thread, but I'd ask that when it is, that it's done in technical way through the relevant charts, as they do in the Global Trend Alert - to keep the thread from going off topic.

So as an example if you wanted to talk about Margin Debt you can download the statistics from the NYSE site NYSEData.com Factbook: Securities market credit ($ in mils.) and create your own chart. So I did that and created the all years Margin Debt chart, and the last 20 years which are below. This shows that margin debt is back to 2007 levels, which was the year that it made all time highs and looks to be quite correlated with the S&P 500, so it could be useful to look for divergences like can be seen in Aug 2000, and Oct 2007.
 

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Rewardz

Junior member
31 2
Thanks to everyone for their well researched and considered replies. I will add that Weinstein's "Weight of Evidence" approach is a 100% technical - although the cravat to that statement is that a number of the technical gauges he looks at are of fundamental data. They are just looked at from a technical perspective by charting them, for example, the price/dividend ratio mentioned on pages 301-304 in the book; the Pension Fund Cash Ratio, the Bank Cash Ratio, Margin Debt, Insider Sell/Buy Ratio, Net Free Reserves, Large Block Ratio, Mutual Fund Cash Ratio in the GTA reports etc. I'm sure there's many more...the point is that he uses a lot of fundamental information in his reports, it's just charted and looked at in a technical way. So I don't mind macro being discussed on the thread, but I'd ask that when it is, that it's done in technical way through the relevant charts, as they do in the Global Trend Alert - to keep the thread from going off topic.
I agree 100%. Stan has pages of graphics of "bullish" headlines which were seen at MARKET TOPS. and pages of negative graphics of pessimistic economic numbers/sentiment at MARKET BOTTOMS.

Stans approach seems to be ignore the fundamentals and simply follow the "markets reaction to the news"

Thus the charts are what matter and not the headlines or econmic numbers.
 

goodtyneguy

Active member
146 9
Thanks to everyone for their well researched and considered replies. I will add that Weinstein's "Weight of Evidence" approach is a 100% technical - although the cravat to that statement is that a number of the technical gauges he looks at are of fundamental data. They are just looked at from a technical perspective by charting them, for example, the price/dividend ratio mentioned on pages 301-304 in the book; the Pension Fund Cash Ratio, the Bank Cash Ratio, Margin Debt, Insider Sell/Buy Ratio, Net Free Reserves, Large Block Ratio, Mutual Fund Cash Ratio in the GTA reports etc. I'm sure there's many more...the point is that he uses a lot of fundamental information in his reports, it's just charted and looked at in a technical way. So I don't mind macro being discussed on the thread, but I'd ask that when it is, that it's done in technical way through the relevant charts, as they do in the Global Trend Alert - to keep the thread from going off topic. I suppose at the end of the day it is just an economic news event albeit a very important one in my opinion shortly afterwards which we could see the volume characteristics and breakouts we are looking for.
Fair comment ISAtrader, this is already one of the "cleanest" and most focused on topic threads on T2W and that idea should help keep it that way.

Having said that, I can't think of one chart which would have supported my comment on the outcome of the fiscal cliff deliberations being of significant importance to the future direction of the markets.
 
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isatrader

Senior member
2,928 128
Fair comment ISAtrader, this is already one of the "cleanest" and most focused on topic threads on T2W and that idea should help keep it that way.

Having said that, I can't think of one chart which would have supported my comment on the outcome of the fiscal cliff deliberations being of significant importance to the future direction of the markets.
It's a "known unknown" so I guess the point of Weinstein's approach is that potential blackswan events like this happen all the time but that it's all in the tape. So using the method you should ignore the headlines and opinions, and simply focus on what the overall weight of evidence from the various charts is telling you to determine your positioning.
 

goodtyneguy

Active member
146 9
It's a "known unknown" so I guess the point of Weinstein's approach is that potential blackswan events like this happen all the time but that it's all in the tape. So using the method you should ignore the headlines and opinions, and simply focus on what the overall weight of evidence from the various charts is telling you to determine your positioning.
Yes, elliottwave principle holds this to be true also but obviously using a different method i.e. a wave structure. Correct me if I'm wrong but the weight of evidence appears to be on the downside for the US indices. In that case the most probable outcome is a continuation of bearish price action and supporting indicators and market internals. So perhaps the charts are telling us that a bear market is on the cards regardless of the out come of the fiscal cliff negotiations. I can accept this because of my macro beliefs regarding the deflation/inflation argument. "The tape tells all" as with any profitable trading method sticking to rules is the key to success.
 

isatrader

Senior member
2,928 128
...Correct me if I'm wrong but the weight of evidence appears to be on the downside for the US indices. In that case the most probable outcome is a continuation of bearish price action and supporting indicators and market internals. So perhaps the charts are telling us that a bear market is on the cards regardless of the out come of the fiscal cliff negotiations. I can accept this because of my macro beliefs regarding the deflation/inflation argument. "The tape tells all" as with any profitable trading method sticking to rules is the key to success.
Yes I'd agree that the weighting has shifted back towards the bearish case from the market internals and we are in Stage 3 for the broad US stock market (NYSE and S&P 500), Stage 3B for the Dow Industrials and Stage 4 for the Nasdaq 100. US Treasuries however are also in Stage 3B and the Dollar Index is in Stage 4B imo. So the price action is in a neutral / negative posture going into the New Year which would suggest (depending on your trading timeframe) to either stand aside if you're using the investor method - as you should only buy in late Stage 1 or early Stage 2 generally. Or if you're using the trader method to be both long and short in the strongest and weakest sectors/regions, with more weighting towards the short side imo. But that's just my opinion of what I believe the weight of evidence is currently suggesting for US markets. As Weinstein has said, it's all about probabilities at the end of the day. You'll get whipsawed occasionally, but if you focus on the higher probability trades then you'll come out ahead over the long run.
 

Rewardz

Junior member
31 2
So I spent this holiday season reading Stan's book for the 3rd time in 1 1/2 years, cover to cover.

A huge takeaway for me was how Stan trades futures contracts using not the 150 day MA but the 40 day! Yes the 40 day for stage analysis! (see page 330-333)

IT'S NO DIFFERENT WHEN DEALING WITH THE FUTURE(S)

"The final area where you can put it to use is with futures contracts. With a slight alteration in the method (you need a shorter time frame and moving average), you can do amazingly well with any
of the futures contracts, be it orange juice or stock index futures."

"If you want to play investor, then you could stay with the
contract as long as it remained above the 40-day MA (dotted line)
on Chart 9-12."
 

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isatrader

Senior member
2,928 128
So I spent this holiday season reading Stan's book for the 3rd time in 1 1/2 years, cover to cover.

A huge takeaway for me was how Stan trades futures contracts using not the 150 day MA but the 40 day! Yes the 40 day for stage analysis! (see page 330-333)

IT'S NO DIFFERENT WHEN DEALING WITH THE FUTURE(S)

"The final area where you can put it to use is with futures contracts. With a slight alteration in the method (you need a shorter time frame and moving average), you can do amazingly well with any
of the futures contracts, be it orange juice or stock index futures."

"If you want to play investor, then you could stay with the
contract as long as it remained above the 40-day MA (dotted line)
on Chart 9-12."
I do remember that from the past when I read the book the first few times. However, it was a very small mention in the book of just a few pages near the end and I haven't seen it referenced in any of the GTA reports I've read, as they always show the daily charts with the 50 day SMA and 200 day SMA. To be honest there isn't a huge difference between the 40 day and 50 day MAs, except for it being slightly faster. So it may be useful for when a commodity is going parabolic, but a trendline would probably do just the same in terms of getting you out earlier when the momentum is waning, or even a weighted or exponential 50 day MA. To me the 30 week MA, the 50 day and 200 day moving averages are most helpful in determining the stages as I like to look at both charts at the same time, which then makes it fairly easy to determine the current stage. I think the 40 day MA could possibly be another part of the method that has been dropped over the years since the book was written, but that's just speculation on my part, so you should obviously test it for yourself to see if there's any added value for short term futures trades.
 

isatrader

Senior member
2,928 128
Watchlist - Monthly Charts

I'm thinking of getting back into my ISA over the coming year with some investor positions in some UK stocks. So attached is an initial watchlist of monthly charts of UK stocks making big Stage 1 bases and in a few cases already breaking out. I haven't been through that many charts yet as I came across a few randomly and then decided to be more systematic and went alphabetically. So I'm only up to D in the FTSE 350. Remember these are monthly charts, so are much more long term.
 

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isatrader

Senior member
2,928 128
Great update p92 as usual, isatrader.
Russell 2000 highs to be hit today IWM - weekly - StockCharts.com
Thanks lplate and happy new year. The broad New York Stock Exchange chart ($NYA) will be testing the top of it's Stage 3 range as well today. So it is going to be interesting to see how this week goes and whether the likely breakout today holds or is a blow off top, as the last few days rally has been on very light volume. So personally I'm going to be watching the volume price action relationship closely.

 

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Rewardz

Junior member
31 2
I do remember that from the past when I read the book the first few times. However, it was a very small mention in the book of just a few pages near the end and I haven't seen it referenced in any of the GTA reports I've read, as they always show the daily charts with the 50 day SMA and 200 day SMA. To be honest there isn't a huge difference between the 40 day and 50 day MAs, except for it being slightly faster. So it may be useful for when a commodity is going parabolic, but a trendline would probably do just the same in terms of getting you out earlier when the momentum is waning, or even a weighted or exponential 50 day MA. To me the 30 week MA, the 50 day and 200 day moving averages are most helpful in determining the stages as I like to look at both charts at the same time, which then makes it fairly easy to determine the current stage. I think the 40 day MA could possibly be another part of the method that has been dropped over the years since the book was written, but that's just speculation on my part, so you should obviously test it for yourself to see if there's any added value for short term futures trades.
I found more evidence in the book that Stan recommends shorter moving averages for commodity futures and stock index futures (whether you chose 40-day or 50-day MA period is a personal choice)

Here's a quote from the book on futures:

"Just be aware that when dealing with commodities or stock index futures that the time frame is speeded up considerably, and a Stage 2 advance may unfold in
a matter of weeks instead of months. So you'll need to use a much shorter-term MA." - Stan Weinstein - pg 55

I've been reviewing several commodities using the 40-day MA daily charts for futures and its working amazing. You use the slope of the 40-day MA to determine the stage...NOT the 150MA....and I'm seeing some extraordinary signals. I'll post some in a future post.

Happy Trading!
 

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