SCTY Update

I haven't forgotten about the momentum stocks watchlist that I talked about on Friday, it just hasn't been  a very interesting list since Friday.

You may recall that one of the breadth indicators I use from Worden's T2 series, is the Percentage of NYSE stocks trading  2 Standard Deviations Above their 40-day moving average; these tend to be momentum stocks and besides just knowing generally that they have been beaten down lately, we can see it on this indicator as they went from over 40% to 30% to 10% in just a matter of months, in other words they were beaten down pretty badly and this makes sense from an asset manager's allocation p.o.v., they want to get out of the high beta names and in to the blue chip, dividend paying names if they are going to be long.

SCTY is one of the stocks on my watchlist, it is also one that looks to have a little promise, although not as much as it may have had with a similar price pattern months ago before these started getting pounded (around March for SCTY as it has lost about -44% since then).


Here are the charts and why SCTY is starting to look timely and interesting.

 Initially I was looking at this as an inverse H&S type pattern. For a true counter trend move to the upside after a 40+% loss, this would be the kind of base I'd expect, but the market tends to have the most influence over any individual stock's directionality and while I'm sure the market will have counter trend moves as it did just two and a half months after the initial break in 1929 for a bounce of about 50% over the next 5 months, we need a break lower before a true counter-trend move emerges (there were about 5-6 counter trend moves from the 1929 break to the 1932 bottom).

We have been talking a lot about H&S and Inverse H&S bottom volume lately. I put together a cumulative custom volume indicator just to make it easier to track volume/price trends as that's the most important aspect in identifying a true pattern from randomness, it's even more important for an Inverse H&S bottom than a top.

The blue line is the custom cumulative volume indicator. At #1 there's typically more volume (the blue line would be higher), but it is not essential until you hit the head area, then volume takes on a very important role. At #2 volume surges as price sells off in to the lows of the head, this is as it should be. Even more important, volume surges even more on the rally from the bottom of the head back up to the neckline, this is essential for an Inverse H&S bottom.

At #4 volume should have picked up on the rally to form the top of the right shoulder and it fell off on the decline at 5 which is fine. From here, an increase in volume is essential, it should be one of the largest volume readings of the entire pattern, especially on a breakout above the neckline, any pattern missing that volume is very suspect.

 The recent 3C charts at the bottom of the right shoulder are showing the kind of divergences you'd want to see for such a price pattern, here the 1 min trend is leading positive at a new high as the lower right shoulder is formed, perfect.


 The 2 min trend shows positive divergences at the left shoulder, the head and the right shoulder with smaller negative steering divergences at the neckline to send price back down to the accumulation zone.

 The 3 min chart shows a positive at the lows of the head and an even stornger leading positive at the lows of the right shoulder, just as you'd expect to see.

 At the 10 min chart we do have a positive at the right shoulder, there's little else through the rest of the pattern other than some divergences forming resistance at the neckline, but this alone should be tradable being positive out to a 10-min chart, it probably won't live up to the measured move of an Inverse H&S, but likely still worth a shot.

 At 15 mins, we don't have anything but an inline status as 3C follows price, confirming the downtrend. This tells us the divergences that we see above are there, but not that strong which is another reason I don't think we'll get a true counter trend rally from SCTY, but still likely something that's worth a quick speculative trade, especially if the market lines up with it.

The longer 60 min trend is also clearly in line after going negative at the very top, thus we can't expect a huge move from SCTY, but it still has some decent divergences that so far are better than most other averages.

The highest probability trade would be to catch SCTY and the overall broad market both in positive divergences and looking ready to make a move, the market will give SCTY something to draft.

If you are interested in SCTY (long trade), feel free to email me for continuing updates, if I see anything really interesting I'll be sure to post it.