By Dr. Alexander Elder and Kerry Lovvorn
In our market work, we always go from the general to the specific, from major trends to the intermediate ones. This is the principle of Triple Screen: making a strategic decision to be a bull or a bear on a weekly chart and then moving to a daily chart for tactical decisions on where to enter and exit a trade.
Let's first review a chart of our favorite leading indicator of the stock market, establish the market trend, and then look for a stock whose weekly and daily charts point in the same direction.
We believe that the New High - New Low Index is the best leading indicator of the stock market. The new highs are the leaders in strength and the new lows the leaders in weakness. The New High - New Low Index (NH-NL) takes the daily number of new highs and subtracts from it the number of new lows. We track NH-NL on the weekly charts and then on three sets of daily charts -- in yearly, quarterly and monthly time windows.
This sensitive indicator, measured in various timeframes, helps us track the strength of market trends and anticipate reversals.
Here we see the bullish trend of the market confirmed by bullish NH-NL patterns in all four timeframes that we track. The weekly NH-NL on the left side of the chart is trending higher, a hair-breadth away from a record high for this year - bullish. The yearly, quarterly, and monthly charts on the right are also rising.
This bullish message of NH-NL prompts us to look for bullish stocks. We concentrate on the ones that have not yet exploded in this year's rally, stocks that have some catching up to do. Among them is Amazon.com /zigman2/quotes/210331248/composite AMZN +0.57% .
We can see from this weekly chart of AMZN that it is flowing from the lower left corner to the upper right corner of the chart. About once every year this very bullish pattern gets interrupted by pullbacks, marked here with thick green arrows. One such pullback is occurring near the right edge of the chart. It has been going on for several months. The flattening indicators tell us that bears are losing power in AMZN, suggesting that the long-term uptrend is about to resume.
The daily chart of AMZN shows several sets of bullish divergences, marked here with green diagonal lines. It also shows a set of horizontal support lines, marked here with dashed lines. AMZN support levels are rising, setting the stage for a rally. We're accumulating AMZN on dips into support. Our target is above the $240 high that was reached in 2011. Visit Spiketrade.com
Dr. Alexander Elder and Kerry Lovvorn both own positions in Amazon