What is Pullback Smoothness?

There is one technical analysis technique I use that you won't find in any book. I don't even have a term for it – maybe ‘pullback smoothness', or something like that.

I have noticed over the years that stocks that pull back forming a ‘smoothly' falling Stochastics tend to rebound cleanly. By this I mean that the %K and %D Stochastics lines don't cross and fall nearly parallel. If they form a simple, clean crossover, below the 20 level, and then rebound forming a textbook Stochastics ‘buy signal', these tend to be rather good trade entry points.

For example, General Dynamics fell ‘smoothly' back in August of 2013 and again in October of 2013. The %K/%D lines formed nice, parallel tracks. Each time the Stochastics didn't meander much once below the 20 level (well, a little in August), but the rebound was almost straight up afterwards and the %K/%D formed nearly parallel rising lines.

Falling parallel %K/%D lines indicate the selling is restrained and consistent. It most likely is one or more institutions lightening their position over several trading days. After a gentle pullback, some other institution realizes the stock now represents a value proposition and begins to accumulate a position.

On some stocks I see the ‘pullback smoothness' on a regular basis, and by coincidence, I often notice short-term trades in the stocks would not have caused many sleepless nights. Look at GD above, after the August 2013 and October 2013 lows. Straight-up gains followed, with hardly a down day.

Of course, I would not make a trade based solely on identifying this feature. But if I have narrowed down a list of potential trades with a lot going for them, such as a strong seasonal pattern (track record of gains the same time each year), then spotting this characteristic helps me identify the best trade candidate(s) to go with.

Does GD have a good seasonal pattern right now, and if so, would I jump in or look for a certain setup? Today's newsletter covers that.

High probability setups on stocks with strong seasonal track records, and the best ways to trade them, are covered in every issue of Seasonal Forecaster.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, type in www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2014 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

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