Mega thread on Technical Stage Analysis and my learnings based on Stan Weinstein's book.
Today we'll cover
1. Stage Analysis
2. Technical Rules for Buy and Sell
3. Safest Point of Entry and Exit
4. Study 10 🇮🇳 Stock Charts (Large/Mid/Smallcap)
1/n
1. Stage Analysis
As per Stan Weinstein, each stock can be classified into 1 of 4 different stages.
Stage 1 - Basing Area
Stock trades in a range around 30W SMA over a long period of time with low volume. Both buyers & sellers move in equilibrium.
Example: #MusicBroadcast
2/n
1. Stage Analysis
Stage 2 - Advancing Phase
This phase is characterized by a sharp spike in volumes, breaking out of key resistance and sharply rising stock price over a period of time (many months or years) without breaking the key moving average.
Example: #FineOrganics
3/n
1. Stage Analysis
Stage 3 - The Top Area
Volume is usually heavy in Stage 3 and the moves are sharp & choppy. Can be a small timeframe formation as stock gets into euphoria & can’t hold highs.
Example: #Rajratan
4/n
1. Stage Analysis
Stage 4 - Declining Phase
The stock decisively breaks down below the 30W SMA and tends to fall sharply. Stocks in Stage 4 don't always need high volumes and can fall off their own weight many a time.
Example: #TataElxsi
5/n
1. Stage Analysis Summary
Stage 1 - Base
Stage 2 - Advance
Stage 3 - Top
Stage 4 - Decline
PS: It is not mandatory that each stage must be followed sequentially. I agree with @charts_zone on classifying Stage 1 and Stage 3 as “sideways” as we don't know the future
6/n
2. Technical Rules for Buying
Always follow these rules before buying
• Break-out above 30W SMA
• Strong volumes (1 wk volume > 2x avg 1 month volume or volume build-up over past 3-4 wks)
• Resistance Levels - Stock does not have any immediate upcoming resistance
7/n
2. Technical Rules for Selling
• Stock breaks below 30W SMA and prior correction low
Example: #ValiantOrganics
Should have exited around 1385 levels in 2021 and prevented a 50% drawdown
8/n
3. Safest Point for Entry
After the breakout above 30W SMA, stocks often pullback toward the initial breakout point and that is the safest possible entry point for any investor.
However, many big winning stocks don't offer this opportunity.
Example: #PolyMedicure at 245
9/n
3. Safest Point for Exit
Similar to the entry, stocks often pullback towards the initial breakdown level and that is the safest possible exit point for any investor.
However, many stocks don't offer this opportunity.
Example: #IRCTC at 800
10/n
4. Practice and Study 10 🇮🇳 Stock Charts
Let's practice by studying some charts across Insurance, Pharma, IT and Consumption
1. HDFC Life
2. ICICI Lombard
3. Acrysil
4. NIIT
5. TataElxsi
6. Laurus Labs
7. Divis Labs
8. Neuland Labs
9. IEX
10. Mirza International
11/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock #1 - #HDFCLife
HDFC Life is currently in Stage 1 (Base Formation). It's trying to form a solid base between 510-575.
Enter only if stock breaks out above 30W SMA on large volumes and also breaks above key resistance levels
12/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 2 - #ICICILombard
ICICI Lombard has been in Stage 4 since late last year and continues to remain in Stage 4 with declining MA.
Saving grace for bulls is the strong support by long term trendline, also passing via 2020 low
13/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 3 - #Acrysil
Acrysil is in Stage 4, offered a great exit around 740 in Feb'22 with pullback towards 30W SMA.
Stage 4 stocks should simply be put in "Avoid" category.
14/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 4 - #NIIT
NIIT is another Stage 4 stock. It offered a safe exit around 460 in May'22 with pullback towards and above 30W SMA.
However, once the top had been established and the trend broken, pullback was not sustainable.
15/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 5 - #TataElxsi
Tata Elxsi is another Stage 4 stock. It offered a great exit around 8500 with two consecutive weekly closings below 30W SMA. It's recently begun Stage 4 and may see more downside.
16/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 6 - #LaurusLabs
Laurus Labs has been giving warning signals of a breakdown for almost a year. Tried to fight the trend but started a fresh Stage 4 breakdown.
Another one to be put in "Avoid" basket.
17/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 7 - #DivisLabs
Divis Labs is another Stage 4 stock, offered a great exit around 4600 levels.
Like ICICI Lombard it has been in Stage 4 since late last year and continues to remain in Stage 4 with declining MA.
18/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 8 - #NeulandLabs
Neuland Labs has had a violent ride in the past 2 years. It is currently in Stage 2 and was shaken out of Stage 4 with a good spike in volumes in Sep'22.
Safest entry was at pullback towards 30W SMA at 1250
19/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 9 - #IEX
IEX is in Stage 4, offered a great exit around 225 in Feb'22 with pullback towards 30W SMA.
It's 30W SMA is still sharply declining and Stage 4 stocks should simply be put in "Avoid" category.
20/n
4. Practice and Study 10 🇮🇳 Stock Charts
Stock 10 - #MirzaInternational
Mirza appears to be entering Stage 3 after a very strong Stage 2 uptrend. It topped at 375 and now dangerously close to 30W SMA.
Hold till it decisively breaks 30W SMA on closing basis.
21/n
Notes and Caveats
• All weekly bar charts are as of week ending 13 November
• MA is 30week SMA
• Stock analysis is purely based on technicals and not fundamentals
• Stan Weinstein expects his methods to give 70% success rate, nobody ever had a 100% hit-rate in markets
22/n
Stan's Don't Commandments
• Avoid buying when the overall market trend is bearish
• Never buy in Stage 4 (falling knife) below 30W SMA
• Avoid buying with immediate overhead resistance
• Don't sell in Stage 2 with rising MA (nobody knows when the top will be made)
23/n
Golden Rules of Technical Stage Analysis
• Buy only on price-volume breakout above 30W SMA
• Sell immediately when stock breaks below 30W SMA
• Safest entry/exit are on pullbacks towards 30W SMA
END
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