These channels and flags that are appearing are giving the market an underlying bullish tone. This fact alone is keeping me out of any shorts at this time. This weeks watch list has so many quality names and those names are in my favorite formation a lower channel line bounce with a nice stochastic oversold signal appearing at the same time. This is my go to pattern and expect a great week this week. top 3 stocks for the week.
Now on to a little education.... MCD (McDonalds) Has a great channel that it has been trading in for the last year. The stochastic signal could have been traded on each signal with a great return. I am starting to see a Stochastic-Price Channel Divergence in the chart that is represented by the recent oversold stochastic oscillator and the higher low on the price. We are about to get oversold again in MCD and will be watching for a move back up this week.
Chart 1 Larger Image view
So lets look at the Stochastic Price Divergence in a Channel
This is an excerpt from the HPS Methodology Education Section I have been writing it could be useful to print out these charts for future reference.
Stochastic Price Divergence this divergence is a another great technique in determining a change of trend. What is key here is to see the recognized confirmed trend in the stock or index this technique works great when we are in a confirmed channel. As the price in in our example makes lower lows you should see the stochastics cycle alone with the price and get oversold as the price makes lower lows. The divergence happens when the stochastics get back down into a oversold level as it had been doing in the downtrend, but the price puts in a higher low. This can usually be seen clearly in a organized channel and usually is the first signal that a break out of the channel is approaching.
Chart 2
Chart 3
Lets watch MCD this week and see how it plays out. I don't see myself getting in this on but saving my powder for the pure HPS Best Bets (Kick Ass Trades)
