Two Green Arrows?
Two Green Arrows?
Stock Investor is a very powerful search and research tool with the 3-Green Arrow search being the cornerstone of the 3 Step Investing Process. The 3 Green Arrows are produced when a stock crosses and closes above the 21-day Exponential Moving Average (EMA), the MACD line crosses above its signal line, and the Stochastic crosses its signal line all on the same day.
Below is daily chart for Mead West Vaco Corp. (MWV). On July 17th, the stock went 3 Green Arrow and since, it has continued to climb.
This really isn’t the greatest example, the 3 Green Arrows occurred in a downtrend, but as oversold as the market has been, this stock and a lot of others had some pretty good bounces in them.
The 3 Green Arrow search displays all the stocks that produced Green Arrows on all three indicators on that day. If a stock only gave us 2 Green Arrows, it won’t show up on the search. This is because the signals tend to be stronger when they occur at the same time rather than on different days. However, many stocks begin strong trends without going 3 Green Arrow on the same day. Often, the arrows come a few days apart. You want the arrows to be as close as possible; the closer the better.
So how can you find stocks that only have 2 Green Arrows that day? Believe it or not, there is a way to search for these in Stock Investor.
Expanding the Searches
Let’s look at a screen shot of a typical search page.
On this day, there were 8 stocks that produced 3 Green Arrows. Often, however, you might only get one or two or even none. If you are unhappy with the results for that day, you can actually expand the search to find stocks that have only 2 Green Arrows that day. This will give you more stocks to look at.
On the screen shot above, you might notice 3 columns, titled “EMA”, “MACD” and “Stochastic”. Under each column for each stock is the word “True”. This means “True, the EMA went Green Arrow today. True, the MACD went Green Arrow today and True, the Stochastic went Green Arrow today. Three trues; 3 Green Arrows.
If you put your cursor over the column title, “EMA”, “MACD” or “Stochastic”, a little down arrow will appear.
I’ve circled that little arrow that appears when you put your cursor over that particular box. If you click on the little down arrow, the following menu will appear.
I clicked on the “EMA” box. There are 3 choices presented on this drop down menu, “All”, “Custom” and “True”. You’ll notice that “True” is already selected. “Custom” is something we’ll ignore. But if you click on “All” you will suddenly get more stocks showing up on your search page because what you’ve done is you’ve told Stock Investor to display all stocks that have the other 2 indicators producing Green Arrows, whether or not they are producing a Green Arrow on the EMA (or which ever indicator you chose).
Now you have a bigger list! You’ll notice that many of the stocks don’t have the word “True” under the EMA column. This is because these stocks didn’t produce a Green Arrow this day, only Green Arrows on the MACD and Stochastic. These stocks might have produced a green arrow on the EMA a few days ago, or it might not yet be ready to go Green Arrow. By expanding the search like this, we can start putting together a good watch list of potential trades.
If the stock went Green Arrow on the EMA a day or two ago, and not it’s going Green Arrow on the MACD and Stochastic, you now have a stock that is 3 Green Arrow and could be a potential trade. Remember, the stock doesn’t need to go 3 Green Arrows on the same day, just withing a few days of each other. The closer the Green Arrows are to each other, the better and more powerful the signal.
Let’s look at a couple of the stocks on our list.
The chart above of Aerovironment Inc. (AVAV) is a good example of what this search can find. You have a stock in a near-term upward trend making higher highs and higher lows with good volume pushing you up. The stock last produced a Green Arrow on the EMA back in June. Since then, the stock has remained above the 21-day EMA, like a strong stock should. On a recent pullback, the MACD and Stochastic both went Red Arrow, no big deal. Remember the trend is more important than the indicator; an upward trending stock often goes Red Arrow on pull backs. As long as the stock stays above its trendline or 21-day EMA, it’s okay. Sure enough, the stock only pulls back a little, then the buyers come back in. This produces fresh new arrows on the MACD and the Stochastic, another possible entry point.
Our next stock, however, is something that would be best avoided.
Above is a daily chart of Nucor Corp. (NUE), the stock has come down quite a bit from its highs. Although the MACD and Stochastic has gone green arrow, the price is still trading below the 21-day EMA, so no Green Arrow there. Even if this stock was giving 3 Green Arrows, it probably wouldn’t be a good candidate for a buy because of the series of lower highs and lower lows that it is making. Furthermore, the 21-day EMA is still trending down; not a good sign. I also don’t like to buy when the 21-day EMA (green line) is trading below the 50-day EMA (red line). Remember, the trend is more important than the indicators, and this is in a near-term downward trend and it doesn’t appear ready to change any time soon. Just as an upward trending stock can have pull backs, downward trending stocks can also have bounces. These bounces usually don’t last long and soon you are making new lows again. In fact, that is the case with NUE, let’s see what happened a few days later.
I’ve put an arrow at the point where the first chart left off. As you can see, the 21-day EMA acted as resistance and the selling came in pushing the stock to a new low. This is why you have to follow the trend and wait for that confirmation of the third Green Arrow. NUE didn’t have an upward trend, nor did it have 3 Green Arrows.
Conclusion
Above, I changed the EMA from “True” to “All”. You can change the EMA back to “True” and then change one of the other indicators; MACD or Stochastic to “ALL” to see what other opportunities you might get. Often, the MACD lags the other two indicators a bit, especially on a bounce off of a support level. The Stochastic will also go Green Arrow a day or two before the other indicator. Trying a few different settings will get you different results. You shouldn’t need to have more than one indicator on “ALL” however. If you’re not getting results by changing just one indicator to “ALL”, it’s probably a sign that you shouldn’t be buying anything at that time.
Also, you can do the same thing on the 3 Red Arrow Search.
By expanding the 3 Green Arrow search, you can find trading opportunities. Some of the stocks might be ready to trade right now, others will be watchlist candidates. Either way, by expanding the 3 Green Arrow search to find stocks that have only produced 2 Green Arrows on a given day, will give you more candidates for potential trades.
-Mark Jackman
Stock Investor Personal Coach