Follow the Money, Trade the Trend

Potential Stage Two Breakouts (Stan Weinstein)

INTRODUCTION: 

The stock market is the picture of chaos. Everyday, trillions of dollars are exchanged and millions of market participants fight to acquire the most money. How can you possibly determine what is going on? Which stocks are leading the pact? Which stocks are on the verge of a decline? When should you buy and sell?

These are all great questions and don’t be alarmed, every stock market newcomer faces the same struggles you are experiencing. Reading hundreds of books, watching a thousand hours of YouTube and trading for years will certainly teach you all of the stock market’s tricks, but what if you don’t have the time to wait that long? What if there was a way to learn a strategy that is immediately applicable and solves your biggest pain point, lack of time and experience?

Thankfully there is. My book, “Follow the Money, Trade the Trend” is available for pre-sale, click here, and in it I explain the exact strategy I follow after reading hundreds of books, watching thousands of hours of YouTube videos and trading the markets for years. Sidestep years of pain and frustration by trading a strategy that is proven to work in today’s market conditions. 

The stock market is a dark and scary place for a newbie trader. You’re competing against Ivy Leaguers and trading firms that have the most sophisticated algorithm. That is why it’s CRITICAL that you register for the pre-sale on my new book. You need a trading plan that works, and this book will lead you down the path to market mastery. 

WHAT IS STAGE ANALYSIS?:

Stan Weinstein is credited with the invention of the four stages of price movement in his book, “Secrets for Profiting in Bull and Bear Markets.” The four stages are as follows. Stage One is the accumulation phase. Stage Two is the breakout phase. Stage Three is the distribution phase. Stage Four is the decline phase. The four stages can be visualized below. 

(The Four Stages of Price Movement)

Stage analysis is a theory within the technical analysis family and was first developed by Charles Dow in the Late 1800’s. Stan Weinstein then came along and perfected this theory in the late 1960’s, early 1970’s. 

(AAPL displaying perfect Stage Analysis in 2021)

Tenets of Stan’s Stage Analysis

1. All assets move in cycles.
   • Nothing will move up forever and nothing will go down forever. While this is not a reversion to the mean strategy, it is a way to identify the current trend of an asset. 
   • The turning points within the cycles are the most important and mastering this identification will greatly increase your profits. 
2. This is not a predicting mechanism.
   • Weinstein’s Stage Analysis is not forward looking. It does not seek to predict where price is going. The method is to simply interpret price action in relation to support/resistance and the 20-week moving average. 
3. “The Tape Tells All.”
   • Only trust current price action, not your expectation of what price action should be. 
   • If the price action is bearish, you have to be bearish. If the price action is bullish, you have to be bullish. If the price action is neutral, you need to find a hobby because there is no trend to trade in a neutral environment. 
   • If you try to impose your will on the market and trade counter to the current trend, you will simply lose money and confidence. 

4. Stage Analysis is fractal.

• This strategy can be used on any asset, during any time period, over any time frame. Anything that can be charted and traded is subject to Stage Analysis. 
• The same stage analysis that you use on equities can also be used on bonds, currencies, commodities, indexes, futures, etc. 
• If an asset has a chart and has ticks, you can use stage analysis on it. 

5. Stage Analysis aids in asset selection.

• Stage Analysis allows for asset filtering. If an asset is not in the stage you are seeking to participate in, you simply ignore the asset until it meets your criteria. This helps reduce choice overload/analysis paralysis. 
• What this means is, if you only want to trade stocks in Stage Two Breakouts, you simply ignore all other assets not in a Stage Two Breakout. 

6. Stage Analysis deciphers discounting.

• As many of you know, the market is a discounting mechanism and forward looking. Money moves into assets based on perception of future performance, not past. 
• The market is never placing valuation on assets based on today’s financial outlook. Instead, they are pricing it based on their prediction of the asset’s future financial performance. 

(QCOM Stage Analysis in 2022)

DEFINING A STAGE TWO BREAKOUT:

After volatility has contracted and price has broken above the 20-week SMA and the Stage One resistance, the asset has now entered into a Stage Two Breakout, the ideal buying point. Stage Two Breakouts often go unnoticed by the masses. The Stage One caused market participants to lose interest in the asset, often right at the moment they should be most interested in it. This loss of interest translates into neutral sentiment for the asset and the media coverage will be minimal. Fundamentals will be below average to average and this makes sense based on the market being a discounting mechanism. The smart money can predict when assets will improve prior to reports being released. You can see the smart money accumulating strong assets throughout the Stage One process and the Stage Two Breakout confirms those smart money beliefs. 

(AMZN transitioning from a Stage One to Stage Two Breakout)

Stage Twos form from increased demand, meaning bulls have taken control of the momentum. Look for a series of higher lows and higher highs. Price should also stay above the 20-week SMA (within reason) throughout the duration of a Stage Two. If you’re looking for assets to increase in value, then Stage Two is where you want those assets to live. All big moves to the upside happen during the Stage Two. 

(AMZN in a Stage two Breakout)

POTENTIAL STAGE TWO BREAKOUTS: 

Now that you know a little bit about Stage Analysis and Stage Two Breakouts, specifically, let’s take a look at some stocks that are on the verge of breaking into Stage Two territory. 

Dutch Bros. (BROS) went public in September of 2021, and is currently trading below the weekly IPO closing price. BROS is a drive-through coffee chain that competes with Starbucks for dominance of the specialty coffee market place.  

(BROS in a Stage One Accumulation)

Although price is still below the Stage Two Breakout Level, the 20-week SMA is curling up, a bullish sign that BROS is being accumulated. BROS’ Stage Two Breakout will be confirmed with a move above the $44.50 level. 

Robinhood (HOOD), the extremely controversial, yet wildly popular brokerage application, went public in the Summer of 2021. While I don’t care to comment on HOOD’s ethics, I will comment on the state of its current price action. 

(HOOD in a Stage One Accumulation)

HOOD has been trading sideways for the last ten months, ranging between $13 on the high end and $6.75 on the low end. HOOD has also been magnetized to the 20-week SMA. During the ten month consolidation , HOOD has rarely had a weekly bar whose price range does not contain the 20-week SMA. This phenomenon perfectly describes the price action you see when a stock is under Stage One Accumulation. 

For HOOD to move into Stage Two Breakout territory, watch price the 20-week SMA’s slope to curl higher and for price to breakout above the $13 level. 

Next up we have KE Holdings (BEKE). BEKE is one of China’s premier online housing brokers, think Zillow or Realtor.com. After going public in August of 2020, BEKE is trading roughly 40% lower than its IPO price.

(BEKE in a Stage One Accumulation)

BEKE’s Stage One Accumulation started back in March of 2022 and now BEKE is pushing up on the resistance of this large consolidation pattern. I would expect BEKE to pullback to its 20-week SMA prior to transitioning into Stage Two Breakout territory. 

CONCLUSION: 

By now you should have noticed a theme. All the charts selected are recent initial public offerings (IPOs). IPOs are generally more volatile than your larger market capitalization stocks, and lots of money can be made if you correctly time your Stage Two Breakout buy. 2022 was a horrible year for IPO returns and almost all experienced Stage Four Declines for the duration of Mid-2021 to Mid-2022. With these stocks in the midst of Stage One Accumulations, now is the ideal time to build your watchlist and buy when the Stage Two Breakout is confirmed. 

Keep training your eyes to spot these Stage One Accumulation patterns, and you will unlock the secret to buying stocks before they experience their large moves higher. The more charts you look at, the easier this identification process will become.