Before applying our buy and sell rules, know the situation regarding the stock you are considering. Is the company sound and do earnings show gains based on increased sales, not just on internal cost cutting? Technical analysis enhances basic research. Of course we do this before we list a stock on our Buy-Watch list.
Here are North of the Blue's basic Buy and Sell Rules and their corresponding Buy and Sell Points. Please remember, however that past performance is NEVER a guarantee of future performance. In other words, just because we are usually correct that is no guarantee that we will always be correct. Not only do our lawyers insist that we say this but is simple common sense.
We have three "Almost Never Fail" rules*:
First and most important is our North of the Blue Rule from which this program takes it's name. This rule says that a stock should be bought when it's price crosses our Blue Moving Average LIne with the price going up (Buy Point) and sold when the stock price crosses our Blue Moving Average LIne with the price declining (Sell Point). We refer to the Buy Point as "going Norfth of the Blue". You can see that illustrated in the chart above where the blue arrows point to two Buy Points and the brown arrow points to the Sell Point. There are modifications to this rule that allow our users to sell well before the price declines to our Blue Moving Average.
Equally important, but rarely found are the events underlying our Stochastic-W Rule. Our Stochastic-W or Power-W occurs when a stock's High Price Strength and Upward Price Strength join and form a clearly defined "W" in the Stochastic Panel under our 15% stochastic line. The red arrow points to this occurrence on the Alcoa stock above. The Stochastic-W Buy Point occurs when the "W" is completed and our High Price Strength and Upward Price Strength remain joined as they cross our 15% stochastic line going up. This point operates independently of our North of the Blue Rule. Seldom will the Power-W Buy Point and the North of the Blue Buy Point occur at the same time.
Finally, the rule that lets you keep your gains. When a stock's price begin to decline, as shown in our Stock Price Line in the Price Analysis Panel, and the High Price and Upward Price Strength join and drop below the 85% line in the Momentum Analysis Panel, SELL. Often, holding a stock until its price falls below our Blue Moving Average, forfeits some of the gain a stock has made. However, if one sells when the price turns down AND the Price Strength falls below 85% allows an investor to retain much of the gain.
Here are additional rules that provide significant buy opportunities but without the strength of our first two rules:
This supplemental rule states that when a stock has established a clear trend line and its price line falls to our Blue Moving Average Line, i.e. touches it (or falls within 5% of it) and begins to climb again. Hence the name Trend Rebound Rule or simply the Rebound Rule.. Trending stocks usually offer numerous instances of this. Our Rebound Rule Buy Point occurs after the stock price line has touched our Blue Moving Average Line and begun to climb. The green arrows on the Alcoa chart show five instances of this happening.
A little more explanation is worthwhile here. The Rebound Rule only occurs during a clearly defined trend such as the Alcoa (AA) chart here indicates. On March 29th the price crossed our Blue Moving Average heading North. Between March 29 and October 22 the price line fell below the our Blue Moving Average between July 1 and July 16. The Stock Price Line touched our Blue Moving Average four times and rebounded each time.
Strictly following our North of the Blue Rule we would have bought the stock on March 25 at $7.31 and sold it July 1 at $10.60. This would have yielded a gain of 45%. We would have bought back in when the stock crossed our Blue Moving Average on July 16 at $9.98. We would still be holding the stock today at $14.15. This time our gain would be 41.78%. Total gain for the period is 86.78% (45% + 41.78%).
If we missed the March 29th purchase date, we could use our Rebound Rule and purchase it on June 23, July 22, September 2 and/or October 5. While the gains would have been less they would definitely be gains.
A similar rule applies when a stock's price approaches a Support Level as indicated by the green horizontal lines in the the Price Analysis Panel. We call this the Support Level Rebound Rule. The Support Level Rebound Buy Point occurs when a stock price falls to or through but remains within 5% of the Support Level. If there is to be a rebound this is where it will happen.
It is worth noting that the Support and Resistance Lines are so accurately drawn that most stocks fall right to the line. We draw these lines based on a complicated algorithm that lets us predict when these significant events occur. The lines are drawn before events occur, that is from left to right. They tell us that a significant event will always occur at that time. In the case of a seriously declining stock we know that if it falls through one Support Level it will continue down to the next level.
So here you have the heart of our buy and sell points.
Stocks on the "Buy-Watch" list are ones in which we expect one of these rules to apply in the very near future.
*Remember that lawyers do look over these documents and they cannot let us say that we are always right or have rules that guarantee gains. We do well, but as we all know, past performance is no guarantee of future performance.
