Market stage analysis: My next strategy to allocate my portfolio

This technique is mind blowing. Do you want to spot the next leader after this bear market to ride the huge gain in the next bull cycle? The big gain that I am talking here, is ranging from 100-500% gain, or even 1000% gain!

Hello everyone, the current bear market is still prevailing, and instead of waiting, we shall start to look for the new leaders in the market to increase our gain as much as we can.

I really hope that I know this technique earlier. This analysis has completely changed how I view the market now. It is a big mindset blow to me.

As usual, you are encouraged to view the whole content with the video as it is a lot easier with the animation.

Of course, please subscribe my channel and give me a like to encourage me!

Lets's start:

While I need to emphasize dollar cost averaging on index tracking ETF such as SPY, QQQ are always right, but this is not applicable to stocks.

For example, this is the current Dow Jones component since Year 2020:

If we compared the Dow jones component 20 years ago, which companies are in the Dow Jones components since 20 years ago?

Even we manage to invest into one of the 40% of these stocks, if we compare with DIA and SPY, with an average gain of around 200% for 20 years, only 7 stocks, HD, HON, JNJ, MCD, CAT, MSFT and PG beat these 2 index significantly during the same period. This shows us the important of choosing a right leaders in stock market!

The first step to identify a leader is to understand four stages of a stock market. This is purely technical, but if we manage to master this, it would be easier for us to grasp this profitable technique for stocks, options, mutual funds or even commodities much easier and profitable.

The basic fact for this technique is: Any stock has to be in one of four market stages, and the trick is to be able to identify each one.

This is the chart to illustrate the four stages of a major cycle:

Stage 1, Stage 2, Stage 3, stage 4. And it will be going back to stage 1.

In this video, I will be focusing on stage 1 and stage 2, with some of the recent examples.

Stage 1 is called the basing area. This stage happens after a stock has been declining for a period of time and finally the downside momentum is no longer sustainable. The stock starts to trend sideways, where the buyers and sellers are starting to move into equilibrium. In this stage, we could notice the volume is normally low. To determine the stock stages, 30-week moving average is used. In stage 1, the moving average loses its downside slope and start to flatten out. In a sideway trend, the stock will be moving above and below the moving average. Thus, support and resistance will be formed as well. Sometimes, the base forming can go on for months or even years.

You may ask: As stage 1 is forming a base, or a potential bottom, is this a right stage for us to buy stock? The answer is No. The money could be tied up for long time with little movement, and in fact, time is money. What can make thing worse is the investors who are impatient, may end up selling after months of frustrating sideway at a slight gain or lost, right before the big move starts.

Stage 2: Advancing phase. As mentioned previously, in stage 1, a base with a support and resistance would be formed. When the stock finally breaks above the resistance and moves above 30 week MA, with an impressive volume, the start of the advancing stage 2 begins. This is where the excitement coming from. In stage 2, the stock will move higher and higher, and forming a typical up-trend pattern: higher high, higher low.

There will be three types of buying points:

1. The moment breakout happens.

2. The first pull-back after the breakout happens. The dip would bring the stock back close to the buying point, and move higher again.

3. Any dip whenever the stock is still in stage 2.

The 1st buying point will bring bigger profit, with a higher risk of false breakout. The 2ndbuying point has lesser risk, but it may miss the whole stage 2 if pullback does not occur. For the 3rd, the stock may move into 3rdstage and the risk reward ratio is no longer attractive. There is no right or wrong, just follow our own risk appetite.

When a stock first moves into stage 2, normally it still surrounded by negative news. When it moves higher and higher after several months of bullish bliss, more and more investors will jump into it. Eventually, the stock will be trading far above its support level, over-extended and no longer a buy.

Overall, if we miss buying a stock near the advance stage, don’t get panicky and chase the stock: FOMO.

Next, by combining stage 1 and stage 2, we will be able to identify the next leaders.

I will only use one indicator at this moment- Weekly moving average 30. I will introduce more indicators to further sharpen our entries/exits in the future videos. If you do not know how to set it up, please refer to my previous video here on the top right corner.

Let us first start with Dot.com bubbles in year 2000. The chart period is week. White line is weekly MA30.This is a typical example of stage 4 period: Stock sold off, down-trend, forming a pattern of lower high and lower low. Does this look similar to the current market?

The 2 main observations during this period:

1. MA30, the white line is sloping downward

2. Most of the time, the candles are below MA30.

Can you spot the stage 1? Yes, it occurred in around year 2003, where the MA30 was flattening. In addition, we could also see that a clear support and resistance area were formed.

Then, the price crossed above MA30 and the price were mostly above MA30. Stage 2 occurred and the bull market started, which lasted for 4 years! During this period, the stock moved higher and higher!

How about Subprime-mortgage crisis happened in year 2007-2008? Now, I will let you spot the stage 1 and 2, by observing the MA30, for 5 seconds. (pause 5 seconds)

Hopefully you can spot it. The MA30 was flattening here, and the price crossed above the MA30. Then, the first dip happened and the stock started a new bull cycle again. This part is stage 1. This part is stage 2. If we manage to spot the early stage 2, we could ride this bull for a nice gain!

This has signified us a hint that Technology stocks will be the potential leaders after the Covid-19 crash.

Similarly, if we use ARKK as an example, we could also find that it had crossed above MA30 on 13Apr, with MA30 started to sloping up. This signified speculative stocks were the potential leaders after the covid-19 crashed as well. Indeed, ARKK had a gain of almost 150% during the same period!

Oil stock.

Stage 1 was during this period, while the early stage 2 was in November 2020, where the MA30 started to slope up, and the prices were above MA30 most of the time.

Then, the commodity super cycle starts, and the oil price starts going higher and higher- a typical price pattern in stage 2.

When I found this, this truly amazed me. We were already warned that inflation may start to spike up by the chart, in the year 2020! After I introduced stage 3 and stage 4 analysis in the next video, then you could find that we can even spot the market sold off due to the commodity super cycle.

I hope I know this stage analysis earlier!

Stage analysis is also very useful to spot the penny stock that has a potential to be a big runner. Let us take NIO as an example here.

NIO was sold off in year 2019, then the price was stabilizing in the first half of year 2020. Can you spot the stage 1 or the possibly early stage of stage 2? The MA30 was flattening at this point, thus this is a stage 1. Then, the price crossed above MA30, and stayed above MA30 most of the time. This is a potential early stage of stage 2.

Thereafter, the stock ran up for more than 1000% gain in the stage 2 bull run!

I guess I have been giving enough example here. Before I end this video, let us see how the current market looks like.

Which stage are we in now? Both SPY and QQQ are showing the similar pattern: Down-trend, below MA30, and the price is still far below the MA30. Thus, I won’t buy any stock at this moment until it has formed a base and reach the early stage 2.

Is there any stock in the early stage 2? Yes it is. But I will share it after I complete the stage analysis: stage 3 and 4 in the next video.

Thank you and see you in the next video.