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As the market continues its subtle upward trend, an increasing number of interesting stock chart patterns are surfacing. About three dozen stocks or so that will complete a 3 weeks tight pattern (or very close to it) this week. Several are backing and filling in their buy zones right now. A three-weeks-tight pattern is an alternative pivot point where you might consider adding to a position or initiating one, if you are looking to get into the stock. If you want to learn more, check out this article about the Three-Weeks-Tight Pattern from IBD.
I’ve built a screen in MarketSmith that looks for tight weekly closes to help me focus in on these stocks. It’s currently being shared in the MarketSmith community, so if you’d like to use it, just visit the Shared Screens page. The screen uses the % that price is up in the current week to find stocks with at least two weeks of tight closes. It yields about a hundred stocks, but if you screen against the Growth 250 instead of the entire database, you end up with 42 stocks with potential three weeks tight patterns.
If the market holds here today and tomorrow, this weekend’s research should yield many potential ideas. This is not a runaway bull market, but with a little patience and dialed down expectations-progress can be made. I would not recommend chasing any stock, since it will probably prove to be hazardous to your portfolio’s health. Who knows where we end up on December 31st? But for now the markets are acting in a mildly constructive manner.
President, MarketSmith Incorporated
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Scott, thanks for posting and sharing screening tips. I don't see the shared screen however. What is the name of the screen?
The screen is called "Tight Weekly Closes." Currently its at the top of the list, since its the last screen shared.
Thanks for the screen. It looks like the screen is only looking for "%Price Is Up in the current week" column. So this current week can be a second week. For example, Ashland is in third week of potential "3 week tight" if it wont go up tomorrow and Alkermes is in 2nd week of potential "3 week tight". In any case, it is a good screen for a weekend routine.
Thanks for sharing this screen. Nice clean method to generate some candidates. Will be looking at my ready list this weekend to check for these patterns.
I like that the S & P took nine weeks to reach the November lows and in the nine weeks since the low, it is now out at new highs.
Thanks Scott for the post and the screen!
What would be the min requirement on volume surge once the stock takes out the high of the 3 week tight pattern?
For example CYT tried to clear and breakout out on Thr but reversed by the end of the day, then on Fri it attempted to breakout again and closed almost at the top of it's trading range. Neither Thr or Fri showed significant volume surge
@thnkbigr: I don't have a minimum. The more the better. However if volume is below 50% I act in a more cautious manner.
Scott thanks for the quick respond.
By 50% Do you mean 50% above average or if the volume is at least half of the average volume?
I rarely take any trade on the 3WT or any breakout when the volume is at least not average of the last 30 to 50 days. If I buy early in the day and Volume surge is low by the close for the day I generally sell if I see no price progress in the next few days.
My apologies for multiple questions on this subject. Now that we are talking about the pattern let's master it in the best way possible. Not trying to make it a perfect science just need to understand things better so we can identify the patterns that are defective to increase the probabilities in our favor.
1) Does the pattern need to be based on a weekly calendar which means that the close on the last trading day of the last 3 weeks need to be within 1.5% of each other or any rolling 15 days work?
2) Is the Buy range on the pattern within 5% of the highest point reached during the pattern or do you use a smaller range (Less than 5%) since this is a shorter pattern and just an add on buy point rather than a true base.
3) Where is your sell point if the pattern doesn't work out? I usually sell the portion I added on the 3 Week Tight BO once the stock breaks the lowest point reached during the pattern. That's if the pattern fails righ away without any price progress, but if the stock runs for awhile I will use the break of the 21 day as my stop.
Below I have listed those stocks that have recently formed 3 week tights so we can use them as examples. I would appreciate any comment if you can recognize things that I can't. I think these shluld be helpful to everyone on the blog.
CYT attempted to BO on Thr and Fri, neither day had a major increase in volume and the stock in the last 3 days has pulled back within the pattern. Didn't buy the stock since there was no volume surge but if I had a position my stop would have been placed below 1/17 low 72.75, Lowest point reached during the pattern.
CMN same story as above. It cleared the 3WT on the 24th on below average volume and then broke back within the pattern on Mon on a major surge in volume. Never purchased due to no volume surge on the BO but had I added to the position I would sell half on the break of the 21 day MA since it broke below the buy point on a surge in volume and sell the other half once it breaks the low of the pattern. The stock has been finding support on the 21 day.
ALJ broke out yesterday on a major surge in volume and so far so good. My Stop below 1/8 low 17.10
ALK has yet to BO although on 1/24 it attempted to BO after announcing earnings.
Pattern recognition identifies TRMB as a 3WT for the weeks of 1/4, 1/11 AND 1/18 which would make 1/24 or 1/25 as the BO days although both on below average volume. This doesn't have a feel of a 3WT for me since when you look at it on a daily chart it has been raising in the last 3 weeks rather than a sideways consolidation. Am I correct by avoiding such patterns that are slightly moving higher but the weekly closes are still within 1.5% of each other?
CFX had two 3WT patterns in the last 2 months. It formed one during the month of Dec with the BO on 12/31 although on low volume, the volume kicked in on 1/2 and since then it formed yet another 3WT with the BO on 1/24 on about 30% increase in Volume. I didn't take the 12/31 due to no volume surge but added on 1/24 with my stop below 1/10 low.
TEX formed nearly a perfect pattern with the BO on 1/25 on a major surge in volume. Don't own it because the stock just took off too far too fast. Didn't act quick enough.
RAX formed a 3WT since 1/2 with the BO on 1/24 on a good surge in volume. Didn't take the trade only because the overall accumulation since its original base BO on 12/18 has been low. the stock broke down yesterday on a surge in volume which would have triggered a sell if it was purchased.
DLX as it was pointed to in the webinar yesterday as a 3WT pattern. Took the trade on 1/24 and so far so good. Even though the stock has worked out nicely so far this is not a type of a 3WT pattern I ususlly take since it is edging higher on a daily time frame throughout the pattern.
NSR is called as a 3WT formation by the pattern recognition and also the Leaderboard team at IBD. I personally stay away from 3WT patterns that are wide and loose like NSR where the highest and lowest point reached during the pattern are far apart so I will not be adding to my position here if and when NSR takes out the 1/17 high. I wouldn't mind if the pattern has large reversal days to the upside but definitely avoid those with large reversals to the downside. Again is this a defect in the pattern that would cause you to not take the trade.
Thanks a ton for all of your support I enjoy every one of your webinar's and blog posts.
Every is welcome to comment on any of these or if you have other examples that you would like to share with all of us.
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