Why this Bull Market Requires Strict Discipline

by Darrin Donnelly on February 13, 2011

Click on chart to enlarge.

Click on chart to enlarge.

The market continues to surge higher and we closed last week with “The Weekend Rule” in full effect. 

“The Weekend Rule” is a trading term that refers to the markets (or an individual stock) closing at or near its high on a Friday – to end the week. 

When we see “The Weekend Rule” in action, it tells us that the big-money institutions are very bullish because they’re comfortable enough to hold major positions over the weekend.  When the institutions are uncertain or nervous about the market, they’ll often sell portions of key positions late in the week; so as not to be too worried about their holdings over the weekend. 

In the weekly NASDAQ chart attached to this article, notice how often this “Weekend Rule” has occurred over the past three months.  This behavior tells us we’re in a very strong uptrend right now.

When the market is this strong, it’s important to exercise some added discipline.  [click to continue…]

The 40 Hottest Stocks to Watch

by Darrin Donnelly on February 9, 2011

Each month at DarvasTrader.com, I publish a list of the hottest, fastest-moving growth stocks on the market right now.  These are the stocks Darvas traders should be watching for new breakouts, bounces off of key support levels, and as indicators of industry and market strength.

As Darvas traders, our goal is to whittle down this list of 40 to the handful of stocks that make up the very best of the best.  We only want to be trading those ELITE market leaders. 

In Darvas Trader PRO, you’ll find the stocks that make that elite list. 

But for a broader view of candidates you might want to consider trading, here’s a list of 40 stocks with tremendous Darvas potential. [click to continue…]

How Sleeping Late Makes You a Better Trader

by Darrin Donnelly on February 7, 2011

Why traders are better off sleeping late.

Why traders are better off sleeping late.

Benjamin Franklin famously stated: “Early to bed and early to rise, makes a man healthy, wealthy, and wise.”

However, it’s the famous night owl Willie Nelson who reminds us: “The early bird may get the worm, but the second mouse gets the cheese.” 

In the world of trading, like most competitive environments, how early you rise is often seen as a badge of honor.  Caffeine-fueled traders like to brag about being up at 4 a.m., devouring the international news at 6 a.m., trading in the premarket at 8 a.m., and then jumping into the opening bell frenzy right at 9:30 a.m.

Nicolas Darvas, the inventor of the Darvas Trading System, was actually more likely to END his day at 4 a.m. than start it at that hour as he famously traveled the world and thoroughly enjoyed the night life.

For the Darvas System trader (and nearly any type of trend trader), jumping into the market right at the open is actually detrimental to your trading results.  [click to continue…]

Why I Bought this Stock: A Darvas Box Breakout in Action

by Darrin Donnelly on February 3, 2011

Click on stock chart to enlarge.

Click on stock chart to enlarge.

On Monday, GPOR gave us a picture-perfect Darvas Box breakout.  This is a stock we have been watching for quite some time as it formed a sound base and we patiently waited for a proper breakout.

Fundamentally, GPOR has everything we’re looking for in a Darvas stock.  It’s seen tremendous earnings and sales growth in each of the last three quarters and projections for the coming year are also extremely high. 

When hunting for Darvas stocks, we also want to make sure we’re sticking with top-performing industries.   GPOR is a member of one of the market’s hottest industries right now: energy.  In fact, I think the energy industry is poised to be a leading group throughout 2011.

From a technical standpoint, we’ve patiently watched GPOR build a great-looking Darvas Box over the past eight weeks.  This long Darvas Box is also referred to as a simple Flat Base pattern. [click to continue…]

Market Flattening, Here’s How to Profit

by Darrin Donnelly on January 31, 2011

Click on chart to enlarge.

Click on chart to enlarge.

Chaos in Egypt caused a 4% spike in oil prices, Amazon and Ford both reported disappointing earnings, and the U.S. economy rose less than expected in the fourth quarter.  This trifecta of bad news at the end of last week took the market down sharply and ended a four-day winning streak on the NASDAQ. 

Friday’s action marked the fourth distribution day in less than one month. 

While Friday’s steep decline erased the gains made earlier in the week, the weekly NASDAQ chart (as seen in the chart that accompanies this article) shows that we have entered a Stage 3 Flattening period and have not yet entered a Stage 4 Downtrend. 

It’s important to remember that Stage 3 markets are not always tops and don’t always lead to Stage 4 Downtrends.  These flattening zones can simply be constructive pauses as the market consolidates before continuing on its uptrend.  [click to continue…]

Uptrend Intact, But Caution Remains

by Darrin Donnelly on January 27, 2011

Click on chart to enlarge.

Click on chart to enlarge.

A three-day winning streak on the NASDAQ this week has last week’s sell-off looking more like a minor pullback than the beginning of a market correction. 

The market’s ability to snap back this week (with consecutive accumulation days on Tuesday and Wednesday) and already close the gap created during last Wednesday’s gap-down decline is very encouraging. 

Still, we need to remain somewhat cautious as last week’s selling came on heavier volume than we’ve seen so far this week and the distribution day count remains at three.  Four or five distribution days in a one-month period usually signals the beginning of a downtrend.   

How should you trade in a “cautious” market stage like this? [click to continue…]