NukeJohn Technical Analysis (NJTA)

MotleyFool contributor NukeJohn developed a simple technical analysis methodology he has been using successfully. It concentrates on a few simple measures of the supply/demand balance for a company's stock, mostly change of momentum indicators. It does not rely on any chart pattern recognition such as cups and handles, shoulders, etc.

The requirements for a company's stock to pass NJTA are that all of the following occur on one day:

  1. The stocks' price must have recently (within the last week, possibly two) have broken out from below its 5-day EMA (Exponential Moving Average) and risen above it by at least 3%. Previous to this breakout it must have been below the 50-day EMA for at least one month. The more quickly the buy decision can be made after the stock's breakout, the better.
  2. The stock's MACD must be positive and rising
  3. The stock's RSI must be higher than 30 days ago and on a rising trend; however, it should not be over 80 which indicates buyer saturation
  4. The stock's trading volume must be at least 40% above its recent average volume

These indicators are easy to obtain at Yahoo's Technical Analysis page for any given stock. Other resources are broadly available.

Combining NJTA with the HG-Type Screen

Generally stocks will pass the HG-Type Screen for some number of weeks and then fall off again. During the time a stock is on the passing list, the NJTA requirements may only be met for a few days, maybe only one day or in extreme cases only for part of a day. The purchase decision should be made only when all requirements are met: passing the HG-Type Screen and passing all NJTA criteria. Essentially the HG-Type Screen produces a watch list and the final decision on buying is made when a watch list stock also passes the NJTA criteria.

When a stock stops passing the HG-Type Screen, I will keep it on the watch list for another month. If during that time the NJTA parameters are satisfied, I will still buy the stock.

Sell Strategy Based on NJTA

No strategy yet exists. If there were one, it would most likely be some combination of price exceeding the screen's max price and/or most of the NJTA criteria failing in reverse and/or a major breakdown in company fundamentals.