The basis of everything in the stock market is simplicity.
That’s hard to tell when there are thousands of opinions and indicators and time frames and derivatives flying around all the time. There must be a thousand videos on YouTube giving lessons in stock and option trading and now there’s also cryptocurrency too. There are brokerage programs and financial advisors and television commentators and TV guests galore. The mind boggles with all the information available, with all the noise, with all the complications.
But it all comes down to one simple fact – whatever it is, it either goes up or it goes down.
Even then, the question arises when is going to do one or the other?
So let me reminisce moment. I had a Twitter exchange recently with the excellent market-timing advisor, Brian Shannon, in which I had the opportunity to recall a conversation I had years and years ago in the parking lot of Cal. State University Northridge with the great market wizard, Willian O’Neil. He was just getting Investors Business Daily off the ground (that’ll tell you how many years ago it was) and was promoting it everywhere. That day at the university as he was leaving his presentation it turned out his car was parked next to mine. We had a nice chat about how useful his paper was, about his CANSLIM method of stock picking, his approach to timing the market particularly, and, as Hemingway used to say, how the weather was.
I asked him as he was trying to slip into his car to leave, what books and people influenced him when he started out. He paused, then with a sly smile and a twinkle in his eye, said “the Darvas book is awfully good.” The Nicolas Darvas book is “How I Made $2,000,000 In The Stock Market.” He made the money in the 1950s and published the book in 1960.
The book is a classic.
Darvas was one half of a renowned dance act that toured constantly and often gave ballroom-dancing demonstrations on cruise ships. The market was a sideline and since he couldn’t pay all that much attention to it while he was away, he would study the stock tables in Barrons and the Wall Street Journal to find stocks in sideways consolidations. He would then draw a box around the consolidation and He would give his broker instructions to buy the stock if the price came out of the top of the box and use the bottom of the box as a stop-loss level.
His stock investing system is simplicity itself. So simple, I’m sure there are those who go “What? It can’t be that easy.” Yes, it can.
Darvas turned his $10,000 savings into $2,000,000 in an 18-month period. As Bill O’Neil said “the Davas book is awfully good.” After I first read it, I realized that the sly smile and twinkle O’Neil gave me that day was him giving away his own stock-market secret – his CANSLIM methodology has Darvas written all over it.
Enough with the reminiscence, enough with the history. Dravas wrote that book 60 years ago.
What about now?
Nothing, absolutely nothing, has changed.
Let’s take NIO, the Chinese electric-vehicle TSLA wanna-be. See the chart below with the Dravas Boxes on each price consolidation since this year’s March low. NIO first came out of a Darvas Box at $3.20, then another at 4.17, then another at 7,91, and finally today again, on high volume, at 17.84 with no Darvas stops hit during its entire climb. Simplicity itself.
Of course, all of these boxes in NIO’s uptrend are in retrospect unless one happened to be focused on the stock and were watching for it to make its moves. That’s the past but notice is hereby given – NIO popped out of its box again today to 17.87 on a significant rise in volume. That makes it a buy on the open tomorrow. A tight stop would be the top line it just crossed at 16.44, and the stop Darvas would use would be the bottom of the box at around 10.5.
Stops are always determined by each individual’s risk tolerance but if the stops don’t get hit, NIO is an investment for the long term from this moment on.
(Click on the chart for a larger view)
Oh, and by the way:
(Click on the chart for a larger view)