The 4 Darvas Stocks Ready to Break Out

by Darrin Donnelly on March 20, 2011

Click on chart to enlarge.

Click on chart to enlarge.

We saw two dismal rally attempts on Thursday and Friday last week.  Even though both sessions ended with gains, both sessions saw the NASDAQ close below its open, indicating that big investors used the higher open to sell positions. 

While Thursday’s effort came on light volume, Friday’s 0.3% gain actually came on very heavy volume.  However, don’t confuse the Friday session with being an “Accumulation Day.”  The higher volume was due to the “quadruple witching” session, which occurs when options and futures contracts expire for both indexes and individual stocks, causing heavy trading volume.

As this downtrend continues and we enter the fifth week of the correction, now is a good time to reiterate exactly what a Darvas trend trader should be doing during a downtrend.

First off, most downtrends will never provide us a good opportunity for shorting individual stocks.  Because most corrections last 8-12 weeks and drop around 15%, the fact is that a typical correction will neither be long enough nor severe enough to provide us with good individual shorting opportunities. 

Only the most severe bear markets, like the rare one that ran from late-2008 to mid-2009 are truly good environments for shorting individual stocks.  The reason is simply because most corrections end quickly and provide nothing more than a good “resting” period for stocks (as opposed to the complete obliteration of stocks like we saw in 2008).

With this in mind, our focus should be on following leading stocks that are building quality bases.  In the new issue of Darvas Trader PRO, we’re showcasing the four stocks that are constructively resting and building sound new bases. 

These are the stocks that you must be ready to buy into when this downtrend ends and breakouts occur. 

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The rest of this article is available only in the latest issue of Darvas Trader PRO – the exclusive newsletter for Darvas System traders. 

You can access this article immediately by joining Darvas Trader PRO risk-free for 30 days.

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{ 2 comments… read them below or add one }

Zikai March 21, 2011 at 6:59 pm

Hi,

You have mentioned GPOR in a number of your blogs. Do you consider it to be too thinly traded? (The average daily volume is < 600K.) One or two funds can start selling and send it into a tailspin. A related question: do you ever consider a stock to be too thinly traded to be a Darvas stock?

Thanks

Reply

Darrin Donnelly March 21, 2011 at 10:28 pm

Hi Zikai,

Thank you for your question.

To be honest, any stock that trades more than 100,000-200,000 shares on average each day is usually just fine with me, assuming, of course, that it isn’t too cheap (less than $10).

– Darrin Donnelly

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