Dan Fitzpatrick: This Is How To Find The Best Setups | Investing With IBD

welcome to the investing with IBD podcast everybody it's Justin Nielsen your host and Arusha won't be joining us this week he uh he was tied up so it's just gonna be me and our special guest this week is Dan Fitzpatrick he's the founder of stock market mentor and uh returning guest of the show he's also been on IBD live um we've got a lot of great stuff to talk about Dan so thanks a lot for being here today hey thanks for having me this is always fun yes it's always great having you uh one of our favorites so um let's get right into it okay so it's April 12th uh Wednesday here 2023 and we just had a CPI report and then we also had um the FED minutes come out and so right now it seems like there's this Push Pull of you know inflation and recession you know what what do we focus on um so we'll certainly have to tackle that to a little uh degree and also uh one of the things that we're going to be talking about with them today is the whole concept of how do you do your approach are you doing the top-down approach or are you doing a bottom-up approach and he'll explain what that means what he does and uh talk a little bit about the the screening that he does and how he finds the best setups and then of course as always we'll end with a few stocks so Dan let me turn it over to you and uh we've got the S P 500 up right now what what's your take right now on where we're at with the market and what what the Market's focused on yeah well I think it well as far as Focus I think it's a little bit scattered um doesn't know where to focus well you know that's that's the whole thing and it's like uh like add or more like ADHD everything's all over the place and you know you were mentioning about uh you know inflation uh versus economic growth recession and all that all that jazz um that's still it's almost like why even talk about it because everybody knows about it um the most important uh thing that is like the single biggest data point in the future is when is the Fed gonna come out and say well guess what you know we're not doing anything with rates now um and then the anticipation is the next the next move will be lower but nobody really knows when that's going to happen and it's I think you kind of this is the underlying premise for me because it works for me in the long run I think that the FED is simply not good at is at its job I think it really just doesn't know it's just not good at its job and so because of that we know what their issues are we just don't know how they're going to handle it it's like are they going to get it right are they going to get it wrong are they going to push too far until something really big breaks because that's what they always do and we don't know because of that the this is why you're seeing the market do what it's doing if you look at say um the s p it's been we've been trying to get through this 4200 level for quite a while and once we do you know I I think that's going to be a I think that'll be a key point but I don't I can't really say it's going to take this or it's going to take that in order to push the s p higher you know you really can't you can try to sound smart and say well once they make their first cut that's when the Market's going to scream but we really don't know because the market anticipates and right now with you know with a little bit of a clown car running the show you just can't really tell so it just really gets back to something that sounds basic and almost right you got to just look at the charts and let somebody else figure it out um but if you you know we have these moving averages on there um Justin if you look at where the s p is it's above all these key moving averages um and that's a good thing that shows me where support is and you're just highlighting it right there and so do I think the bottom is is established do I think the bottom is put in yeah I do I do and it's simply it's not because of Any Eternal wisdom on on interest rates or anything else it's just that there's so many moving averages there's so much support under there that's where the buying is and also one thing for people to keep in mind is that money has to go somewhere now a lot of it's going into CDs and money markets because of of what's going on uh with the regional Banks but money has to go somewhere and I just don't think as we get further along the x-axis which nobody pays attention to that's the time axis the more stocks March sideways the better the base is the bigger and solid the foundation is for the to support the next move higher so short term I'm scratching my head but long term I really think we're having a good setup and if you if you look like look at the NASDAQ Composite now keep an eye on what these moving averages are and just just real quick I want to make sure that people uh know what moving averages we're looking at because this isn't our typical ones we're we're using some longer term moving averages in this case not short-term ones so we've got the 50 the red and the 200 the black which is our normal but uh you have me add the 100 and the 150 day as well so that's the the pink and the green so go ahead okay and by the way here's here's why I do that because that's this is a pretty noisy chart with all this stuff but sometimes it actually clarifies because I'm not asking you to do this I don't even know if you can do this but if you just erased the price and only looked at the moving averages this is exactly what you'd see you'd see a takeoff you'd see kind of a touch and go so to speak on this and so of of all the indexes you know the major indexes I think the NASDAQ Composite still looks the best um that's kind of been in the news with the large cap and mega cap stack uh stocks working so well but you can just really see it in the in the index that it's working and if you want to look at we can kind of dig further down and if you want to look at the mid caps again guys just keep an eye on what the major averages are doing like that's that's a mess you know it looks like somebody's playing Pickup Sticks and hasn't started yet um you know it's just all over the place and then the same thing with the small caps um well this is mdy which is that yeah uh yeah um 400 yeah and this is iwm which is the ishares Russell 2000 that we're looking at here right okay yeah so look compare compare this look at where the price is to the moving averages like that's a ceiling right above that level and then you go you know if you went back to the NASDAQ it's the floor and until these stocks start to play kind of catch up and get up through that ceiling of moving averages you don't really want to be there and what I'm talking about I'm actually talking in in this segment here I'm really kind of talking about the top-down approach which is something that we should talk about um you know in in the next segment as far as why I think the better approaches the bottoms up approach but when you're looking at the broader Market you know this is what you got to look at not what Microsoft is doing um and so although right now I guess you know we should discuss that there there has been some talk about the the index strength lately um masking a little bit of what's going on underneath and part of that has been you've got meta uh that that was meta platforms that was doing very well Apple Google those were all holding up very well but there were some individual stocks that were kind of getting raked over the coals uh for a little bit here and again it it kind of has to do with that noisiness where money was kind of you know going from one place to another um so you know are are these are these Mega cap companies becoming too large of a weight and are they are they mudding the waters even more on what's really happening with the market that's actually that's actually what I what I think is there's nothing wrong with them you know if if you look at you can look at Apple um you can look at meta uh Microsoft Nvidia these are these are four stocks that I've had in our active trade ideas list which is a list that I you know I always try to get people in the stocks that are working and so I keep a list of things and it's a fairly actively traded thing and so we got into these stocks from much lower and I suggested either liquidating or at least cutting your position down on all of them simply because that's what I could see institutions doing I mean you look at how far this thing is run look at where Nvidia has gone from 150 um you know up to 275 or so in just a very few months that's a that's a position that uh a portfolio manager now is going to have an over he's going to have an overweighting there and so he's going to be reducing um that position and where is that money going to go you know it's not going to go into Apple it's looking for something else for the next big winner and that's why I think even though and I I don't really know I haven't looked at him lately whether uh the apples and the nvidias etc etc are over priced uh if they have a super high valuation you know I don't I haven't looked at that in a while I just think that they're stagnant at this point and to me again I mentioned the x-axis if a Stock's just going to be drifting sideways for a while then maybe ultimately that's a really good thing for future prices but for like right now for next week for two weeks you know I don't really want the sideways action um and so you got to be looking for the next ones so you know for for for stocks you know just to be clear you you don't want to be like necessarily sitting in them while they're doing that sideways action but uh what you're saying for the index is to kind of get back to that yeah um you you're actually kind of fine with sideways action right now uh as you said kind of almost building building that platform building that Foundation uh from which we can launch off of uh how how long how long do we need to go on the x-axis in that regard to build a strong enough Foundation I guess um look in in my view uh I think uh I think if if we if we can move sideways literally through summertime into what will then habit you you know typically be the strongest part of the year that's when I think that the market could really get going um but it but I have to say in order to just be you know intellectually um consistent you really just have to look and see what the market is doing as opposed to what you think it should do however I've been you know I've been doing this a long time and this is we're at this in this kind of limbo uh here because we didn't get a real V bottom like we did in 2020 uh with the pandemic or some of the or the last Financial you know the last banking crisis we didn't get any V bottom and the v's are the ones where they're they reflect just absolute stock puking right at the end and then you get a St just a spring higher that almost doesn't it doesn't need a base just because all the money got flushed out and now it's all coming in unfortunately we don't have that situation now yeah what we have instead is this slow grinding thing that I think is going to take I think it should probably take us through the summer at least I hope so because the longer we drift sideways the more sustainable the ultimate rally is going to be and this is standard Wyckoff stuff by the way um stocks or markets go into four Cycles accumulation markup distribution and mark down accumulation etc etc and so we're seeing the accumulation phase yeah um so I I'm showing the weekly chart here and certainly you know as you mentioned that covet V shape right there even uh you know there was the the period in 2018 where there was some some kind of v-shaped action with the with the FED kind of saying hey we're going to take the punch bowl away and then saying oh just kidding we're not um and and some you know some of that volatility crisis stuff that we have had at the beginning of uh you know 2018 so certainly I think people got used to that v-shape and um maybe we're hopeful that that was going to happen but you know that that that 40-week moving average line on the weekly chart here certainly acted as as a ceiling for a lot of those rallies that we had along the way but now it does seem like we're at least putting some price action above that 40-week line so does that does that kind of do you need it to stay above there in order for you to get a little bit more confident that this this one's for real yeah I would um although I will say on this it you know if we got to pull back say to 11 000 on the NASDAQ I don't think you know I I don't think that would be a bad thing I think it could certainly um sustain that um if it but here's the thing the further it falls within this range the harder it's going to be to get back above that because you know it's important to remember when when a stock is falling because it's being sold somebody's buying that stock and so the further down it goes the more pain it leaves in its wake but if you want to go back to the weekly chart I was just you know I was just thinking about something even though it's been since the mid 90s that I first started trading I do I do remember this aspect of learning you see like the first the you you see the first big sell-off in your life and you go like oh my God I don't know what's happening there um and then you see that then you say well you know maybe that's a glitch maybe that's a fluke and then it happens again and you you missed that one too because you're freaked out and then you say okay when it happens again the third time that's when I'm gonna get it but it never happens for the third time I mean it's it's always like two and then everybody's waiting for it and because everybody's looking for the same thing it doesn't happen and that's what I think that's a just it's just the way I kind of look at things is how does the market learn and the market actually learns very slowly it factors things in very quickly but in the aggregate the market learns very slowly but once it does learn and this is my argument now with the way why stocks are trading so sporadically and haphazardly now the Market's changing that's why you know black boxes don't work you know black boxes are awesome for certain market conditions and then when the when the Black Box uh stops working it's more like the red box and that's where all the money gets dumped into um you know so the Market's changing and we're definitely seeing that right now we've seen it over the last year or so two years really so when you say the Market's changing what do you mean exactly there well I mean that um there are no there are no real sustainable themes um you know you've heard you hear this saying you know oh it's a stock Pickers Market well what that really connotes when you think about it is let's look at it in the opposite way when is it not a stock picture well right it's not a stock Pickers Market when everything just goes up I mean that's the whole point like ah you don't have to pick stocks you know the Market's doing well it doesn't matter what you pick it's all it's all good exactly exactly but but here's here's the point if if it's not a stock picker's market and everything's going up I would argue that it's even more of a stock Pickers Market because it's easy to get complacent and you don't care about buying a stock that's going up you care about buying a stock that's beating the major averages that has a positive Alpha and the more impressive the better it is but to just say oh this isn't a stock Pickers Market well then I assume you have all your money in the spy and the QQQ and you're just playing golf um so now we really truly are in a bona fide stock Pickers Market where you you really have to understand you have to understand charting you have to understand position sizing and you have to understand taking profits because if you don't understand those three things you're not going to Prevail in this market you're gonna get chopped up that's the way the market is now and it didn't used to be that way it bailed you out of everything now there is no parole right doesn't doesn't require you it requires the discipline that you didn't need just a short time ago well yeah yeah this kind of brings up a good point for you before it doesn't now so this brings up a good point uh and when we come back we're going to talk a little bit about what you're looking at when you're doing your stock picking to give you an edge I don't need to tell you but the stock market is incredibly complex wouldn't it be nice to have a cheat sheet for the market you can rely on every day Market DM by Investors Business Daily is a newsletter that boils down the most important market news and Analysis into a five minute daily read you get actionable trade ideas for stocks and options in your inbox every morning plus educational lessons to help you elevate your trading game subscribe today for only twenty dollars a year just go to investors.com market DM that's Market d-i-e-m to get started welcome back to the investing with IBD podcast it's Justin Nielsen your host and Arusha is on vacation and he'll be joining us next week but we do have Dan Fitzpatrick joining the podcast again he is the founder of stock market Mentor so it's good to have him back on the show and in our first segment Dan we were talking about the market and kind of this top-down approach where you look at the market and then you kind of drill down a little bit um can you can you talk a little bit more about that approach and how you might have shifted uh as you've learned new tricks in in this market sure um when I was when I first I first started trading in 1996 and um in in 2000 uh I I worked uh for John Bollinger for about six months I basically talked my way into a job that I was totally unqualified for uh it's a talent of mine that's got me fired from many different jobs throughout the years but I've learned a lot anyway um so one of the things that I learned John Bollinger of course Bollinger Bands for people that are uh familiar with that technical indicator so yeah yeah that's another uh that's another thing I can't look at anything without Bollinger Bands because if they make so much sense to me um but one thing I learned from John was this top-down approach where you you look at the at the broader market like such as the s p and if the the s p is working then you want to dig further and look for the the sector that's working or the sectors that are working and then once you find the sectors then you go into the industry um groups you know semiconductors versus technology or then maybe uh Fabricators uh you know within that whatever's working and then finally go into stocks into the stocks that are working so you're kind of really digging down to find the gold and that worked well for me for a long for a long time because as I mentioned in the last Market there are times when it's really not a stock Pickers Market you just kind of buy what's working and everything seems to be working but as I've gotten a little more refined in my uh in my trading and in my market knowledge I've realized that that Approach at least the way I used it maybe I was using it wrong I would always find the stuff that was working really well that had been working really well and I just kind of I just kind of missed the move because I had to dig through all these different layers again to get to the gold I'm not talking about gold stocks though they seem to be hot lately um so instead what I did was as I learned more about technical analysis I turned it around and I'm going like you know what I just want to find the stocks that are working that are giving me these patterns that are in new uptrends that are that have this moving average Matrix that I like so much I want to find those because if I find some of these stocks or if I find one stock that's in a sector that's all beaten down and nobody likes it and all that but this one stock in there turns out to be a really good one well that's the stock I want to be in especially when it comes time for that whole sector uh to kind of Catch Fire and more people more investors are are flocking to this particular sector so if you can get in the winning stock early then by the time the money by the time the Old Dan comes down to it through the top-down approach you're in a winner and you've got more profits and then you can you can kind of trade in and out of that you've got more options when you have a good profit and a stock and so that's just kind of what I found was if I had if I could develop certain parameters irrespective of what the market was doing then I could be in better stocks earlier and then I also had uh you know you have to develop or you get out of the business I had to develop ways to manage my risk because you can be in you know you can think you're in the right place but if you're losing money uh then you can't keep trading because now you've just gone from Trading to gambling and there is no gambling in trading yeah and you know I guess one of the things too that is a little bit tough when you're as you said if you're kind of um looking at where the money has been going um and and then kind of following that you know you can you can be late and if if you're trending for long enough being late is okay but certainly what seems like uh we've been dealing with lately is things haven't been trending for very long so if you wait until things are looking strong then you know that that's kind of at their top and you're you're you're buying at the high and then selling at the low and uh that's kind of the opposite of what you're supposed to do it it is it is really hard right now because just in a nutshell breakouts aren't working I mean you always want to pay attention to the breakouts but you know I can tell more about what a Market's doing by just seeing whether breakouts are working then I can by looking at at the major averages at the NASDAQ or the S P um because it does all get down to what stocks are doing and um yeah we're you know it used to be where if I had because I'm a fairly active Trader but if I had a 15 profit in a stock you know I'm really looking I'm really looking to take some profits in that maybe close it all out but really just try to take some profits which drops my average cost basis and the rest of it and then wait to see if a a subsequent pullback hits a higher low to where then I can I can reload and and build a bigger position size because the Stock's reinforcing to me that it's where the money's going so like 15 5 pullback seven percent pullback hey man I'm back in and ready to go well if you look at stock at generally speaking if you look at most stocks they tend to go up and down in about a 10 range um as you look at the sideways drifting ones and there's a lot of them X the very very volatile ones it's like 10 and so to be with that said if you're looking for a 15 gain you know it's not going to happen very often so let's go with that it's not going to happen very often so now now if I get a seven or an eight percent gain now I'm looking for the ceiling and now I'm kind of looking for the early exit and so my profit expectation just based on what the Market's giving me my profit expectation is lower and that means that my loss tolerance also has to be lower I have to be buying it at the at the low you know you can't buy breakouts anymore I'd love it if you do but I have to wait for the pullback so I could buy it close to the bottom of that 10 Channel and then I start looking for the exits earlier as long as that's the kind of trading that's working you're in a market that's not very good because who wants to just be doing doing that but that's really the kind of Market that we're in right now and so it really won't be you know I talk about about being stock specific and what you're trading obviously but you got to look at in the aggregate just this theme of our breakouts working our earnings are our great earnings gapping up and running or are they gapping up and then being slammed down uh by investors who are saying finally I got my opportunity either to get my money back or to finally take profits as long as we're seeing that kind of dynamic you know I think we're still in a we're still in kind of a tough Market yeah no absolutely so um so certainly the risk management part is is very important and I I really like that concept I mean this is something that bill O'Neill taught me uh the whole idea what he called it was the three to one ratio you know if you're if you're looking at getting profits at you know 15 well then you got to make sure you're cutting those losses at five that way you can take uh a number of losses and have one Gainer and and make up for it right um then and and that that's just the way the math works right well yeah most Traders uh they don't understand mathematics because they don't want to know how bad they are um you know it's it's really sad you know but it's really true because trading's fun and you know I'll just say this if your dopamine is going off the charts and you're getting adrenaline rushes all the time you're doing it wrong um it should actually you know kind of be a little bit boring and mechanical and so um you know what I I always go back to this are you making money are you making money and if the answer is no well then the response has to be okay we got to do something different is it you or is it the market and maybe it's the market but if it's the market it doesn't matter because you're you're not doing well but what you're talking about with respect to the math you know there's really two components to that and you got to get to both of them and that is the win loss ratio obviously how many how many game how many winning trades do you have versus how many losing trades do you have but then we get to the other part of the math which is what you're mentioning uh with uh with Bill O'Neill what's your average gain versus what's your average loss you can have a 500 batting average and blow out in no time flat if you don't have position size and risk management parameters with stops down on the other hand you know you can have a a 300 batting average and build a career on that if you're if your losses are small and your gains are big and you're also going to find out that and you you know you have to accept that your your big your big increases in your account are going to take place from very few trades most of your trades most of your profitable trades are are not going to really move the needle in the portfolio too much maybe a little bit um but not a lot and then every once in a while you get this one that really really hits it out of the park and that's the one that really jumps up your account but you have to be there in order to get that one and I'm not talking about really just oh this is the one this is the one I'm talking about there's this principle called the Pareto Principle where it's like you know it's the same thing with with employment like 80 percent of your work comes from 20 percent of your employees you know we're seeing that in some of the tech like Twitter and meta ditching all these they're ditching the 80 percenters and keeping the 20s but you see the same thing in in your trading at least that's what I've seen is my big gains are the ones that take the account higher um the rest I'm just kind of treading water and hopefully keeping my nose up above it but then you also have to look at the flip side of that if you're if if you're going to blow up your account you didn't blow up your account slowly um 20 percent of your losses are responsible for 80 80 percent of the you know of the drop in your in your account so it's just really important to understand the math yeah if you once you understand the math here's the way I look at it once you understand the math then you have a true understanding of what your trading process and what your trading results are only then can you fix it because you can't improve something if you're not measuring it how do you know whether you're getting better or not if you don't have an objective measurement that's such a that was such a big Revelation to me on a lot more levels than just trading but certainly to trading you've got to measure it yeah absolutely so let's get into this a little bit deeper you know you kind of explain the top-down approach and and the bottom-up approach so um when you're doing your stock picking you know what is it that you're looking for specifically in order to say okay this is this is a setup that's worth taking a shot on and as you said they don't all have to work you know it's just you have to be trying enough of them you know and the ones that don't work you you cut your losses um but trying enough of them that's what's going to get you those few winners that will be uh moving the needle so what what is it specifically that you look for well the first thing I look for is to cut out most of the stocks because if I'm looking at the market in general looking at all stocks or you know see what's on CNBC or Bloomberg or Fox Business and hey what are they talking about um you know it's not going to get me too far if I'm doing TV then sure maybe I sound real smart if I talk about something that goes up but that doesn't make anybody any money so what I do is right off the bat and I learned this from Paul Tudor Jones if it's if a Stock's below the 200-day moving average it's literally dead to me I don't even wanna don't even wanna look at it because I might do something stupid like try to catch the bottom um and so if it's not above the 200 I don't care about it and then that would be my initial filter and then I'll just kind of dig down on my ideas to get get it more and more narrow which when you think about it that's exactly what Market Smith has on your different on your different parameters where you start on your scans you start with the broader market and gradually you know you start from like 7 000 stocks and get down to 150 or something by applying parameters and so my basic ones even to get to that point are price above the 200-day moving average also the 50 above the 200-day moving average um and I'll talk more about that in just a sec as far as the 50-day moving average but on a fundamental well it's not well on a fundamental basis I want to see the EPS be say above 85 or so um and and then from the EPS rating pardon me the obvious rating okay yeah and then on the on the relative strength I'm also looking for 85 on that and so that gets me just those four parameters they'll get me a group of stocks that I can get my arms around now I you know you're always going to miss something uh and frankly you know I'd say yeah like on that one you go from 9600 down to 194. um but I will um I I acknowledge that I'll miss the best ones and that's just trading you're always going to miss the best ones you just want to get more good ones than bad ones but this helps me helps get me in the right direction because with relative strength ratings that high then you know institutions are buying it otherwise the relative strength wouldn't be that great um and then with the EPS ratings that's again that's the stuff that institutions uh like and so if I'm in a fish you know I want to fish where the fish are and institutions know where that is so I want to fish with those guys and maybe just catch a little guppy uh and go along for the ride but I know that a lot of people require the price to be above the 50-day moving average I don't really want to limit myself to that and I'll tell you why because some of the things that we've been talking about just with this moving average Matrix or hierarchy uh what I've found is some some of the best trades that unfold are ones where the 50 and the 200 are really pretty close together and they're they're kind of trading sideways and mathematically that means that the Stock's been trading sideways for a while or those moving averages wouldn't line up and sometimes you'll get this volatility explosion from a stock that's actually been below the 50-day moving average for a while and if I don't have that stock on my radar because it didn't hit it because it wasn't above the 50. that's something that then when I see it because maybe I'm scanning for volatility squeezes and you know a big move higher above the upper Bollinger band then I look at and I go well crap why didn't I see that before yeah and it's because it was two percent below the 50-day moving average so it didn't get on my screen you see a little bit too late yeah yeah so I just that's something that I just dispense with and I think there are other uh other Traders in in my Arena that don't you know they they require the price to be above that um I I just don't and I think it's just because of the type of setup uh that I look at so well and it gives you a little tolerance it's just my way yeah it gives you a little tolerance level there too you know again especially yeah when something is going sideways it's a little bit easier for it to be kind of trading maybe a little bit up and down around that 50-day moving average line so you don't want to to kind of drop off your radar too quickly well and see we're talking now in a situation like that you also want to be looking at volume you don't want to see high volume when a Stock's trading sideways like that because the whole idea is it's a sleepy stock there are uh you know we can so to speak just people that aren't you know retail traders that aren't really committed to the stock so they're liquidating a bit but it's holding up at a certain level because there's somebody down there buying it and so the supply and the demand are are pretty evenly balanced without a lot of these gyrations and in that case then there comes a certain point you know where the where the rubber meets the road when the supply dries up is there enough demand to push it up to another level or is there a is it a situation where when the supply dries up there's a little demand that squirts it up but not enough to follow through and that's why and that's kind of what we're getting now to go you know zoom out a little bit that's why breakouts aren't working there's not enough money saying I got to get me that stock right now everybody's got these alligator arms you know they're not reaching out too far the the T-Rex arms yeah yeah okay well when we come back we're going to talk a little bit about some of the stocks that are on your radar and maybe you can get into some of these Concepts a little bit more deeply sure yeah stay tuned we'll be right back I don't need to tell you but the stock market is incredibly complex wouldn't it be nice to have a cheat sheet for the market you can rely on every day Market DM by Investors Business Daily is a newsletter that boils down the most important market news and Analysis into a five-minute daily read you get actionable trade ideas for stocks and options in your inbox every morning plus educational lessons to help you elevate your trading game subscribe today for only twenty dollars a year just go to investors.com market DM that's Market d-i-e-m to get started okay welcome back to the investing with IBD podcast everybody it's Justin Nielsen your host and Arusha he's going to be joining us next week he's taking a break this week uh but we do have Dan Fitzpatrick he's the founder of stock market Mentor uh this is a a great site and I wanted to kind of give people a little bit of a chance to uh you know as as we kind of learn about some of the stocks that are on your on your radar I wanted to mention where where can people find more information about you Dan I know you have a Twitter you're pretty active there at Dan Fitzpatrick um and then also your website I assume um yeah stock I have stock market Mentor which is really kind of the home base um I also have an option site option Market Mentor very creative that way okay and uh and and I I run both of those sites so I'm doing stocks and options and you know different ways but um yeah if people we we're doing really well over at stock market I've been doing that since uh 2006. okay um so it's really a lot of fun it's a lot of fun for me well and I'm sure it is fun for your members as well we got people that have literally been with me since 2006. so yeah you know they've either forgotten that they're paying or they really like me okay yeah so I'd love to have people give it a try yeah awesome well let's uh let's get to our first stock here that is on your radar right now and this is this is one we've been talking about Arista networks and so uh certainly I mean the the computer networking group um this is this is this is absolutely one of the leaders so what is it about the the the stock chart here that is attracting you okay yeah if start with the weekly chart okay and this was another one I mean I I do I get a lot of my I get a lot of my stock ideas from uh from people in our in our trading room and you know it but the thing is it's not like you look at a somebody points out a stock and you say oh yeah yeah that's right they just point out a ticker and then you're looking at it and you're going okay well I I think that guy's gonna lose money the way he's trading it but wow I really see something here and so I looked at this weekly chart and I see that this thing has been at a top of 150 bucks since December 2021 that's 15 months of a high basing pattern which is kind of you know if you look at that and compare it to what this was doing prior to that starting as I'm looking at your chart in say uh March of 2018 um on until December of 20 uh 21 or 20 yeah right there when it broke out this is doing this is doing the same exact pattern and this is on a weekly chart and so I'm I looked at that and I see that if you just do a you just do a simple kind of a cocktail napkin down and dirty measured move where you're measuring the depth of this cup from 150 down to the June low of you know around 90 bucks that's sixty dollars and so a real simple technical analysis measured move is okay if it's a sixty dollar depth then once it breaks out we can expect it to run 60 bucks on the upside just kind of very general rule of thumb thing well that takes us up to above 200 bucks to about 210 and the way this is looking I mean that to me is my price Target at least 200 um but then so you know you see what I'm I'm looking at from the from this latest low in last June and then a higher low in October and then a higher low still in January of this year this is really giving you kind of a an inverse Head and Shoulder continuation pattern you know that would be a Frankenstein head and shoulder pattern um but but it is giving some you know you can call it a cup you could whatever you want to call it I just call it a really good looking pattern of higher lows and a flat top and when a stock like this on the weekly chart breaks through a flat top then then here's what you have to look for you say okay how far is it going to go before it pulls back and then you say okay it's looks like it's going to pull back how far is it going to pull back before it goes again okay well we see that playing out here now flip to the daily chart and you can see exactly what's happening um this thing popped out above 1 150 well it popped out above 150 um back in mid-march and it ran right up to 170 by you know like two weeks later a week later that was the initial move and it was on pretty good volume um I mean the volume bars during that time yeah the blue ones there these are skyscrapers and that's what you want to see and then since that time when the stock peaked on the 23rd it's been retracing it's been pulling back okay but here's the thing first of all the pullback has been on declining volume I'll take that any day after the kind of move this has had and how far is it pulled back a little over six percent okay well after the kind of run that this has had I'll take six percent too and look at the volume bars declining volume and so this is on a daily chart you know it's you know on a daily chart it look it still looks good um it's a little bit overbought for my tastes with respect to like a short term um trade three or four days it just seems like it's got more uh needs uh to be consolidating a bit but when you look at that Weekly chart in my mind this is a stock that you want to buy and hold for a bigger move but you can't buy it for a bigger move and then sell it two weeks from now because you got stopped out for a three percent loss you have to decide what am I trading here am I trading the fundamentals in a weekly chart or am I just doing an Impulse buy and then I'm not going to give it any room to move because I'm a swing Trader at heart I mean you you have to decide and the way you can hold for a bigger move by the way is keep your position size small so you're not risking many dollars you can always add to it when it works but if you look at the you know at the EPS rating on this it's 98 you look at the relative strength rating it's 96. the you know um and I'm actually you know I'm actually seeing you know one little it one little bone I would have to pick with the RS rating is um back in uh on the last Peak uh in uh in RS a couple you know a few weeks ago I'm trying to I don't have my market Smith up but that last Peak was higher than the key yeah yeah that one that was higher than it is right now so and yet the price has hit a new high so it's like the prices hit a new high but the RS rating has not hit a new high so you know that's that's a little I don't really like that too much but then what you want to do is you just want to zoom in and see how it's behaving uh in more of a shorter term basis I'm not going to let something like that uh keep me away from the stock you know I just think they've got really good fundamentals a good fundamental story and I think the um the institutional buying is it looks pretty obvious this is not profit taking um if the stock did not break out or if it broke out and then immediately fell then you would say well I think this this move is over it's a fake out but I don't think so I think this is more of a long-term hold very good well let's go ahead and shift gears over to another stock that begins with a Analog Devices uh also uh you you mentioned chips before and the chips are certainly in one of the strongest groups uh one of the strongest groups right now this is in the semiconductor manufacturing so talk to us a little bit about Adi yeah I like this for a lot of the same um reasons if you know we're just talking about the relative strength on Arista net here you know I have a problem with that on the weekly chart as well it's 90 which is good um but it's you know it's it's not as high as it was yeah right where you're drawing there so that's a little bit of a negative too I like the aristonet pattern better but you see the same elements here RS of 90 certainly gets it in the Wheelhouse and then you look at the route that the EPS rating of 92. um composite rating 98 timeliness I mean everything's kind of lining up and if I was just looking at Bill O'Neill's parameters I'm pretty sure it's a hundred percent and so at that point now it just becomes where's the trade you know I want to look for the trade on this stock and this was actually one that um you know every once in a while helped Jim Cramer with his off the charts um segment uh okay a lot of people don't know I actually helped Jim uh on his during the first week I was on vacation up skiing and he contacted me and he said hey I want to do this chart thing uh every day next week can you help me write the program and I'm going like sure writing charge for doing steaming on your vacation right yeah so I've been helping him with that ever since and this is this was the one that I I mentioned to him and I was really focusing more on the weekly chart on this one as well um but it's a little sloppier than a wrist and that but it does have the same the same kind of characteristics where I would look at that um that uh trough say if you go to the weekly chart you'll see it um from top Yeah from that top there um to the bottom it's about 50 bucks about 50 bucks and and then you've got successively higher lows and that's right where the breakout is right around 190. so this is a stock as as we're doing this right now it's not a it's not at a good setup it really kind of needs to work uh to do some work more it's holding at the 50 but out of the last three four five six seven out of the last seven trading days only one of them has been an up day so it's still and that was on fairly low volume so this is still a stock that's under distribution uh short term and I just think it needs to build a base uh more but it's definitely one to keep an eye on I mean just because you look at a stock and it doesn't quite have the setup that you're looking for you that you can't take that off your list or you're never going to have any stocks that you're looking for because typically you know an entry point is going to be like one or two days something like that so you you want to have that list and then be setting price alerts so that you're not always saying like crap you know it's Wednesday I should have seen this last Friday right yeah certainly uh especially in this market this is not not a market that's very forgiving if you're chasing stuff you know no it's not if you're chasing you're buying from somebody who wasn't yeah you know right exactly um so okay let's uh let's go ahead and round this out with uh one of these kids is not like the others okay so Marathon digital yeah this one looks quite different uh what what is it that is attracting you about this one because again it does look very different I mean just uh again this this blue line that we're looking at here and uh for those of you that are listening you can always look at some of the chart analysis that we're doing at investors.com podcast but you know this this blue line that we're talking about this is the relative strength Line This is actually a comparison of the stock versus the S P 500 it's actually a little bit different from the number here because this number the relative strength rating uh does compare that stock versus all stocks in our database um so the relative strength line has been you know pretty pretty brutal here but the relative strength rating is a 93 so yeah yeah it's kind of interesting there but EPS rating of four what what's going on there well hey man it's kicking the crap out of uh a few stocks anyway yeah that's true yeah no it's uh from a from a fundamental standpoint it you know it's it's probably only slightly better than Enron was um you know it's just horrible however well at least you know they're not fudging their numbers right I mean who knows maybe they are maybe they are but go to the go to the daily chart on this and I'll I'll show you something now look at the the box in the upper left hand corner with the EPS uh history and then um you know forecasts in 2022 you know hey man they only lost basically six bucks a share which for a ten dollar stock now that's kind of a big loss but they're projected to make 25 cents in 2023 which isn't a big deal uh but then you look at 2024 they're projected to make 68 cents that's 172 percent um upside so one could say that's a breakout that'll be a breakout year okay well that's way in the future I mean hell we're just trying to get through the next fed meeting um but that is something you know I would never trade just off of that but it's something that just makes me go hmm and then I look at what they do okay they mine cryptocurrencies with a focus on the blockchain ecosystem and right now for various reasons and you know Mike Compadre Scott McGregor knows more about um crypto than I'll ever learn he could address something like that but for a lot of different reasons cryptos really starting to to take off and so you got stocks like marathon and and also Riot and microstrategies which you know we don't need to get into but you're really seeing a good yeah well there's Riot that's another great one um you're really seeing these kind of crypto oriented stocks which have been absolutely crucified um for so long they're starting to catch bids and if you think about what I was saying in the first segment as far as um investors kind of rotating out of the larger Mega cap stocks searching for something else I'm not going to say all the money's going into Marathon digital I'm sure it's not but something's happening here um but it's also if you go back to the other things that I was saying you know it's it's pretty much a rule breaker in every sense of the word um it stayed it was below the 200-day moving average all the way up until like Monday two days ago right yeah so the only reason I saw this stock again was because somebody called it to my attention but it's breaking just about every rule that I talked about however I look at these squeezes and this was a classic squeeze and so I you know fundamentally it doesn't make sense it is like you say one of these is not like the other this would be the one but I really think this one has some legs especially you know we'll get into a little top down like if you go back to Riot you know it's the same uh same industry really blockchain that's also taking off um and and you can see it's been in a very very long base it's essentially shaking everybody out everybody that rode this thing all the way down through 2022 you know they're they're either going to be buy and hold forever or they've already rotated out of this stock so now it's getting a new group of of buyers and I like to look back about six months or so and say like okay what's the stock done over the last six months and why am I doing that because I want to know whether people that are in this stock are winners or losers and in this case um people that are in this stock it's a total generalization but guess what that's what trading is is you're generalizing about what the crowd is going to be doing you know if you look at Riot everybody that's bought in the last six months man they're winners so now the question is are they going to sell because they're losing money well obviously no are they going to be taking profits sure maybe but look at the chart there's going to be people that are going to be happy to get them out of that trade because they're buying and then you look at the same thing with microstrategy and I remember back when in 20 in 2020 when Bitcoin was going through the roof you know microstrategy I forget the CEO's name uh you know he was these just all into Bitcoin and the stock is just screaming but then when Bitcoin fell you know microstrategy kind of became micro stock um but now it's moving up uh I think in you know it to some extent in sympathy with um with uh Bitcoin it's not you know it's it's different than the others as far as exactly what they do but they have a big Bitcoin holding and so this is kind of more of a thematic uh thing but but you know so I like Marathon I I have I own that um I like Riot and I don't think you know full disclosure um yeah I have a little bit of Riot as well um so I like both of those but as far as entries I like Marathon better right now okay well great uh and and yeah as you mentioned with microstrategy I know that they did uh uh you know change CEOs uh sailor was the one that was right right right very into the the Bitcoin you know he was basically saying well why hold cash why not just put it in Bitcoin and you know have it because he found out why the whole cash so uh yeah very good well hey Dan it was a real pleasure having you on the show really appreciative of you sharing your insights sharing some of your stock ideas and uh the way you're looking at things so uh thanks a lot for for coming on well thanks for having me Justin I really appreciate it it's always fun always always a pleasure um and again you know you can follow Dan at Twitter at his handle at Dan Fitzpatrick you can also find him at stock market Mentor where he has a paid Service uh where he's giving a lot of information to his members so uh thanks again for joining us well thanks Justin okay and when we come back on next week we're going to have Arusha back and we're also going to have Matt Caruso back uh from Caruso insights so uh he's another one of our uh go-to guys for podcast and IBD live so hope you join us for that thanks a lot for watching this week and we'll see you next time make sure to subscribe rate and review our podcast if you haven't already we'd really appreciate it you can also send us your questions and comments to investingpodcast investors.com we would love to hear from you and may use your comments on an upcoming episode [Music] hey everyone thanks so much for watching Investors Business Daily on YouTube if you want to watch more videos make sure you hit that subscribe button so you don't miss a thing

Channel: Investor's Business Daily

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Keywords: investor's business daily, stocks, stock market, investing, investment, investments, invest smarter, investment tips, investment advice, exclusive stock lists, stock list, investing data, stock market research, financial news, business news, business, stock, stock market news, stock news, ibd, trading, stock trading, trade stocks, learn to trade stocks, stock trading advice, stock trading tips, Dan Fitzpatrick, This Is How To Find The Best Setups, Stock Market Mentor, podcast, iwibd

Id: PADKjiRinV4

Length: 62min 46sec (3766 seconds)

Published: Thu Apr 13 2023