Wednesday, May 2, 2018

CUE Global on Metastock XVI: Workflow to Identify Reversal Buy Opportunities

From the desk of Sagar Nandi and Superior Profit


Test driving CUE Global on Metastock XVI on the live USA market: A Workflow to Identify Reversal Buy Opportunities.
Metastock just released its latest XVI version, and I wasted no time in testing CUE Global Technical Trading System on the enhanced Metastock platform, on the live USA Market.
Trend following trades are common and are easier to identify. What is more difficult is to determine potential reversal trades. CUE Global does both flawlessly. Here I decided to define a simple workflow that will help you identify potential reversal trades.

Step 1: Using CUE Sonar scans to shortlist a few stocks.

There are thousands of stocks in the USA market, and it is not practical to go through all of them. Fortunately, CUE Sonar programs (implemented using Explorer in Metastock) are there to do the hard work. There are several Sonars that you may run based on what you are searching. I decided to use three distinct Sonars together. Let me explain.

CUE Sonars to identify reversal trade setups.
1.1. Many traders prefer to buy stocks at a discount. They do not like to buy a stock that has already gone up. In this case, I was looking for stocks that fell a lot and are now showing signs of life.
Such stocks are found using the Sonar program “CUE Pendulum Low and Reversing.” What is Pendulum Low? It is a price level that is low enough, i.e., attractive enough to start looking for potential long-term investment as well as short-term swing trade opportunities.
1.2. Showing signs of life may not be reason enough to buy a Stock. You may also want to find a stock that has given a proper trade setup as of today. As I was looking for stocks that declined and are now starting to go up, the stocks may not be in an uptrend yet. How to find possible buy opportunities in a down trending stock? You can do it using one of the CUE reversal trade setups.
CUE Headwind Long Trade Setup is such a reversal trade setup, and it turns out that CUE Systems has a Sonar to search for this setup: “CUE Headwind Long.”
CUE Headwind Long Sonar does not merely seek stocks with specific indicator values. Instead, it identifies stocks with solid trade setups at the right edge of the chart, using unambiguous checklists for the Headwind trade setup.
This CUE Headwind Long Sonar uses the unique and powerful Bullish Headwind signal. What is Bullish Headwind signal? Bullish Headwind is a signal that appears while the stock is still in a downtrend and indicates that a reversal may be imminent.
CUE Headwinds often accurately pinpoint reversals, as it did for several FANG stocks at their swing tops with Bearish Headwind signals. I had shared these FANG stocks’ Headwind reversal in a blog earlier. Here is a link to that blog.
1.3. Bullish Headwind signal works best when the stock is oversold. One way of assessing that is to check if the stock is at or below CUE Lower Boundary Lines. What are these Boundary Lines? These are lines that identify a stock’s usual price extremes. If a stock is outside the Boundary Lines, it is likely to snap back to its mean value. I chose the Sonar “CUE Beyond Lower Boundary” to find only stocks that are oversold.

CUE Sonar Result
Altogether, I decided to run three Sonar programs on the list of S&P500 Stocks. I ran the Sonars in such a way, so that result of one is fed as input to the next Sonar, shortening overall scan time. The Sonars took only a few minutes using real-time data, not data stored on my computer. If I used data saved on my computer, it would be even faster.
After running the Sonars, I could narrow down from more than 500 stocks to only four stocks.

Step 2: Evaluate the stocks on dual timeframes.

Many traders look for stocks that are strong both on weekly and daily timeframes before buying the stock. In CUE Systems you can do that by opening an instrument with the built-in, color-coded, intuitive, easy to read, CUE At A Glance Template. As the name suggests, you can identify a potential trade setup at the right edge in less than a minute, usually in a few seconds. CUE At A Glance Template uses dual timeframes, weekly and daily. However, what is different in CUE Systems from other systems is that it uses two distinct chart templates for weekly and daily. The weekly chart uses Backdrop Template, to show the backdrop against which the stock’s movements are taking place. And daily chart uses Hop On Template, which allows one to hop onto a trade using intuitive yet comprehensive signals.
I opened the four stocks identified in step 1 with CUE Technical Trading System charts. Here I share one of them looking through At A Glance Template.

Step 3. Make a trading decision.

FBHS (Fortune Brands Home & Security Inc) is a stock in Building Products industry.
Using CUE Edge real-time Industry Rotation Analyst or offline CUE Industry Scorecard, you can see that Building Products industry was lagging for a long time and now showing Acceleration of CUE Industry Score.
CUE Vital real-time Stock Fundamental and Peer Analyst or offline CUE Stock Scorecard shows FBHS is medium valued. It has earnings growth in the last quarter. CUE Stock Peer Analysis also indicates that FBHS is not the strongest among its peers. Neither regarding valuation nor growth. You may check out some of the stronger peer stocks for possible technical buy-point. For now, let us stick with FBHS and analyze it with CUE Technical Trading System.

FBHS Weekly Backdrop chart


At the right edge, a Memory Support line coming from far far away (the year of 2014) is supporting price. From the recent Candles’ Lower Tail it seems that Bulls are stepping in at the Memory trend-line support.
Weekly Backdrop chart’s Relative Performance is tilting downward. This downward tilt shows FBHS is under-performing the market in the weekly time frame, which you would expect in a reversal trade setup.

FBHS Daily Hop On chart
Daily Hop On chart shows FBHS has Heavy Activity in recent days, as the Industry is Accelerating. Thus, the Heavy Activity may be a precursor of possible reversal, as if buyers are stepping in. The daily chart has displayed the Bullish Headwind signal, a predictor of potential imminent recovery, at least enough for a quick short-term trade and potential for a longer-term up move.
Based on the CUE 360° Analysis combining Building Products Industry Acceleration, Fundamental medium-valuation & recent quarter earnings growth and chart technicals (weekly Memory support and daily Headwind at the oversold price point), this stock looks like a possible candidate for a low-risk buy opportunity. You could place the Stop just below recent low, determining the exact level using CUE Protection signal (not shown here).
One could take such a Bullish Headwind trade if one is comfortable entering reversal trade setups as against the trend-following trade setups that are more common among traders.

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