Dave's Set Up Examples

Trade Setup Number 3

This setup will focus on how to use my tools on the Monthly/Quarterly and Yearly Swing Charts. In this example, I will show how you can track and trade a stock for the long term. The stock I have chosen is AFAM, a stock that has been quite hot over the last several months.

Chart 1

Chart 1 shows a Chart Tab that I use to analyze the Monthly Price and Volume Chart. In the top pane, price is a plotted with a 12 month simple moving average. In the middle pane I have inserted my Reif AVX indicator with a period of 12. In the bottom pane I have plotted the monthly volume with a 12 month simple moving average. The Red Bars in pane 2 designate Reif Distribution Months (RDM) and the Green Bars designate Reif Accumulation Months (RAM). The first RDM on the left of the chart came at the end of February 2002 with a price of 5.95. Thirteen months later the price bottomed at 2.00 in March 2003. The first RAM occurred in November 2004 at a price of 6.15, 33 months from the RDM in February 2002. This month was the kick off to a move to a high of 26.59 (+332%) over the next 28 months. While it was making this move, the monthly swing chart did nothing that could be deemed bearish as I will show in Charts 2 and 3.

Chart 2

On Chart 2 above, I have set my Cycle Finder indicator at the low month of March 2003 and set a separation of 6 month intervals. I have also set the Principle of Squares Indicator on the price low of 2.00 with 45 degree separations. The Blue Boxes on the chart outline the yearly swing chart. Let us now study the time relationships from the March 2003 low. As you can see the six month mark was very near the high of the first move up at near 135 degrees in price. For the next 12 months, the price oscillated between 90 and 135 degrees up from the low. Then in November 2004, the price shot up from 90 degrees up in price to 225 degrees in price, or a total of 135 degrees, which is equal to the move up from the major low. It is also important to observe the thrust up in price once the Yearly swing Chart turned up in November 2004. The stock then settled into a new trading range for nearly six months, oscillating between the 180 and 225 degree angle up from the low. In July and August 2005, the stock advanced to the 270 degree angle and again went into a six month trading range bounded by the 225 and 270 degree angles. The next significant event was in March 2006, 36 months from low, when a Monthly RAD was given driving the price up to its high in March 2007, where a significant top occurred, the price declined sharply to a low just under 17 in just 1.5 months. It is my hope that by studying this chart you will begin to appreciate the movement of price and time in the monthly time frame. Is also interesting to note that the correction is May was an almost perfect 180 degree pullback in price with the low being right on the 12 month moving average. May was also a +1-2 setup on the Monthly 3 Bar Chart which was covered in detail in my book, unlocking the Profits of The New Swing Chart Method. I will discuss this method when we study Chart 3 below.

Chart 3

Chart 3 is another Chart Tab I use frequently in my Stockshare program. This is the Monthly Candlestick Chart with Quarterly Boxes in Red. The first thing I will discuss here is the concept of the Three Bar Chart. In this case we will focus on the quarterly boxes which show the action of the quarterly swing chart through time. The concept of the Three Bar Chart is to observe when the plot has three straight higher highs or three straight lower lows. In this case, starting from the low on March 2003, the quarterly chart had three straight higher highs which I have numbered in the chart above. The Quarterly Chart then went up inside in the first quarter of 2004 which led to a turn down in the second quarter of that year which would be your expectation based on the tables I provide in my CMT paper. Price plotted lower in the third quarter as well, and I call this a plus 1 minus two buy setup. This means the 3 Bar Quarterly Chart is Up (+1), with two lower lows in successive quarters.(-2) This setup occurs on the Three Bar Chart of ANY time frame and is most effective on the Weekly, Monthly and Quarterly time frames. Please note that if the price had declined below 2.00 in the second quarter of 2004, the 3 Bar Chart would turn down because it broke the prior 3 bar low in only one quarter. In any case, in November of 2004, the quarterly chart turned back up when price exceed the prior quarters high of 4.30. In addition the yearly swing chart also turned up shortly thereafter when price exceeded 4.73, the prior years high. I call this a cascade up buy signal. It is not easy to see on this chart, but the Monthly Swing chart turned down below Octobers low and then two plotted back up Hence a turn up in the Monthly led to a turn up in the Quarterly and the Yearly charts. The stock was now in very strong position and ready for a multi-year advance. The bull market in this stock started with a +1-2 Setup on the Quarterly Chart and from that time on The Quarterly Swing Chart gave only bullish indications. In the second quarter of 2005, the chart turned down and made low in the same month, once the chart turned up, you now had a second higher low. I have also noted two very bullish events in the first and fourth quarter of 2006. Both of these were very bullish two plot quarters. Note also that the fourth higher low produced the largest percentage gain in the shortest period of time.

Please bear in mind that I have Chart tabs that will show all three charts used in this study and I can switch very quickly from one to the other. These three templates are where I begin my analysis of any tradable.

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