INVN is up 20% since my first tweet on January 5, 2012 which followed a 9% gain that day from $10.90. The stock is up 33.43% since January 1, 2012 and 77.20% since the IPO on November 16, 2011. It’s a young IPO moving on strong volume with a small float and a very interesting (in-demand) technology.

The ideal buy point for this young chart pattern is $11.95, $0.10 above the high of the left side of the base, see chart below. The stock is currently extended from the buy point so please be patient and wait for a new setup or a pullback on lighter than average volume.

I do not own shares as of this post but I am looking to get in based on the analysis above. The stock shot up too quickly before I was taking it serious. It now has my attention. Note that the stock closed down 1.85% on Friday and after-hours trading had it down another $1.13 or 8.50%.

INVN Tweets in 2012:

• January 5, 2012 | $11.11: $INVN http://stks.co/1mSk Young IPO up 9% on vol 277% larger than ave. Interesting technology
• January 9, 2012 | $12.19: $INVN crushing it lately, targeted last week. Up 10% on vol 78% larger than ave to new all time high. Great technology.
• January 9, 2012 | $12.19: $INVN http://stks.co/1qYZ Making a move on volume
• January 10, 2012 | $12.99: $INVN http://stks.co/1rhQ Tack on another 6.5% with volume 156% larger than ave
• January 12, 2012 | $13.54: $INVN http://stks.co/1tyE A 22% move this week, as of noon Thursday. Small float, great technology.

Per Yahoo Finance:

InvenSense, Inc. designs, develops, markets, and sells micro-electro-mechanical systems (MEMS) gyroscopes for motion processing solutions in consumer electronics. The company delivers next-generation motion processing based on its advanced multi-axis gyroscope technology by targeting applications in video game devices, handsets and tablet devices, digital still and video cameras, digital television and set-top box remote controls, 3D mice, portable navigation devices, and household consumer and industrial devices.

It sells its products to manufacturers of consumer electronics devices, original design manufacturers, and contract manufacturers through direct sales organization and non-stocking distributors worldwide. The company was founded in 2003 and is headquartered in Sunnyvale, California.

Key Financials 2011:
Current Period (Quarterly) 10/2/2011 vs. Prior Period 7/2/2011
Cash (Bank Funds): $57,740,000 vs. $44,877,000
Total Assets: $102,312,000 vs. $84,150,000
Total Equity: $82,431,000 vs. $69,320,000
Sales (Income): $43,034,000 vs. $35,627,000
Gross Profit: $23,662,000 vs. $20,618,000
Net Operating Income: $14,799,000 vs. $11,731,000

Period (Yearly) 4/3/2011 vs. Prior Period 4/3/2010
Cash (Bank Funds): $38,075,000 vs. $35,269,000
Total Assets: $70,746,000 vs. $54,450,000
Total Equity: $59,141,000 vs. $35,000,000
Sales (Income): $96,547,000 vs. $79,556,000
Gross Profit: $52,900,000 VS. $43,483,000
Net Operating Income: $21,478,000 vs. $21,971,000

Signs are pointing towards a possible climax run for $GLD but please note that this may only be the beginning. Climax runs can push stocks and commodities to extreme levels with parabolic shapes at nearly 90 degree take-offs. Gold is starting to make a similar run, right now!

Well, Gold is now off 16% from that climax top post in August and more than 19% from the ultimate top which is within 1% of a confirmed bear market for the metal.

More important is the recent chart pattern which resembles a Dow Theory Breakdown or 1-2-3 breakdown. This pattern suggests that Gold has further downside.

I don’t know what 2012 will bring but for now, I continue to remain bearish on Gold, especially considering the strength in the US dollar.

With that said, this is the market and things can change in a day so stay tuned to my daily twitter updates (featuring charts and 140 character analysis).

The Dow Theory also includes movements such as the secondary reaction and the daily fluctuations. I am not interested in daily action because these short term movements are typically unimportant.

Edwards and Magee said:

“The Dow Theory is the granddaddy of all technical market studies” and “It is built upon and concerned with nothing but the action of the stock market itself (as expressed in certain “averages”), deriving nothing from the business statistics on which the fundamentalists depend”

The purpose of this post is to highlight the Principle of Confirmation which states that The Two Averages Must Confirm. The authors note that this principle has often been questioned and is the most difficult to rationalize of all the principles yet it has stood the test of time.

They go on to say:

“the fact that it has “worked” is not disputed by any who have carefully examined the records. Those who have disregarded it in practice have, more often than not, had occasion to regret their apostasy”.

Please repeat the following rule several times and learn it, understand it and trade by it:

“What it means is that NO valid signal of a change in trend can be produced by the action of one average alone”.

Here is a chart from the 4th edition of their book Technical Analysis of Stock Trends, published in 1957

Now take a look at today’s Dow Jones and Transports. Do you see any similarities?

Of course you do, the Transports have not confirmed the change in trend along with the DOW. In fact, the $DJIA is now back below the resistance line after this week’s negative action.

Many traders on StockTwits, Twitter, blogs and TV (if you still watch financial television) are miffed about the action of the market over the past several weeks, particularly the past week. Well, the trend hasn’t confirmed so the risk is still high that the so-called “leaders” are setting up for failure or head-fakes.

I’ve started to sound like a broken record with my Dow Theory tweets but if it is fact, it is fact. As traders, we must be patient and wait for the confirmation before loading up on new shares. A trend change may still occur but we must cast a shadow of doubt until both averages confirm.

If you don’t want to listen to me, a lowly stock blogger, at least listen to what Robert Rhea said in 1932:

“The movement of both the railroad and industrial stock averages should always be considered together. The movement of one price average must be confirmed by the other before reliable inferences may be drawn. Conclusions based upon the movement of one average, unconfirmed by the other, are almost certain to prove misleading.”

Please note that “railroads” have been replaced with “transports” in today’s world.

Trading can essentially be broken down to managing risk and as Victor Sperandeo stated, “market forecasting is a matter of probabilities; the risk of being wrong is always present”.

So why tilt the risk against you if history shows us that both averages must confirm for a sustainable change of trend to take place. It’s a wacky world out there but the rules haven’t changed so wait for the confirmation before jumping in with both feet.

Market observation from Thursday, November 17, 2011: The NASDAQ has now flashed four distribution days since the start of the month. This is a red flag and a signal to lock in profits and sell losing positions before they grow in size.

Continue to follow me on twitter for daily tweets, charts and links to great articles.

PLEASE CLICK THE IMAGE TO SEE FULL SIZE GRAPHIC:

I can’t confirm that the recent extreme readings of the past week are forecasting a market bottom until the NH-NL ratio turns positive again. The key, please pay attention, to these extreme readings is when it is followed up by the ratio venturing back into positive ground! See the blue arrow examples on the chart. This confirmation signals a MAJOR market reversal.

When that happens, that’s when the confirmation for loading up on equities is ringing loud and clear. But, you may ask, how do we jump in earlier than this confirmation because a good portion of the move is already underway when this finally takes place.

Well, you look for a market reversal within one or more of the major market indexes along with a follow-through day, roughly 4 to 10 days later. A follow-through consists of a major index such as the $COMPQ, $DJIA or $SPX advancing 2% or more on volume larger than the previous day, preferably above average as well. When two or more major indexes follow-through, the signal to start initiating positions has arrived.

Tuesday was day 1 for the most recent “attempt” for a market reversal (even if it’s only short term). We now wait patiently before taking new positions for a follow-through day, beginning tomorrow (day 4).

Stay tuned to see what happens. I am sitting in cash waiting for a signal.

I have nailed several climax tops in the past and will use two prominent examples to highlight the extreme runs they made before dropping hard. These examples will also show us what to look for when selling into exhausting strength and possibly taking the opposite side of the trade on the down side.

Both Platinum $PL_F and PetroChina $PTR formed climax tops that I highlighted in real time on the blog back in 2007 and 2008. I started to notice both climax tops early in the run so use that information when analyzing my take on the current $GLD chart. I am most likely early and I feel that gold may have more rebound power if it does start to drop. What do I mean? I mean that Gold may drop hard (short-term), only to find support and then resume its up-trend.

I don’t know if Gold will fall apart the way that Platinum and Petrochina did a few years ago because the global economy is in bad shape and humans have been programmed to turn to the shiny metal as protection against “all things bad” – such as fiat money, recessions and depressions, etc.

Platinum Climax Top? | February 18, 2008

What catches my eye is the extreme run-up over the past two months as the metal seems to be making a climax run (out of character during the 10-year up-trend). Similar action started to happen in PTR and I highlighted it in the exact manner as I am doing here with $PL_F in a post titled The Real PTR Climax Run.

The Real PTR Climax Run? | October 10, 2007

…the HUGE volume on the latest push to new highs clearly indicates something is going on.
…a climax top is where the stock has advanced for many months and suddenly races up for one or two weeks much faster than any prior one-or two-week period or since the beginning of the stock’s long move up.

Politicians lie and markets do not so ignore Washington and focus on PRICE and VOLUME action!

So, with that said, what does last week’s action across the US and global market truly mean? The $DJIA was down 5.75% on the largest volume since last summer, the $COMPQ was down 8.13% on the largest volume since May 2010 and the $SPX was down 7.19% on the largest volume since May 2010.

All three major markets confirmed a Dow Theory Reversal, a “Change of Trend”. In addition to the major indexes, the Dow Transports TRAN also confirmed a Dow Theory Reversal by breaking support and making a lower low.

Emotionally, I suspect that the market will bounce and that many stocks and indexes are “oversold” but this will most likely only be short term. Long term, the trend HAS CHANGED according to the charts. And until the charts show a new trend to the upside, all moves up are suspect. No one has to pick the exact bottom or top of a market so be grateful to recognize a trend and grab 60-80% of the move. It’s a lot safer and less risky to jump on board once the trend is confirmed rather than play a guessing game that can get you caught in a 500 point slide, similar to last Thursday. Markets can change on a dime so be prepared at all times but longer term trends stay intact for months, if not years.

I made a mistake in my general market analysis by not paying enough attention to my New High – New Low (NH/NL) Indicator. And it cost me because I put on positions in $RENN and $DANG in recent weeks after warning signals had been given. I did avoid a new position in $LNKD and saved money heading into the earnings announcement. Overall, shame on me but I didn’t lose too much because rules were followed and I am digging deep to listen to my indicators. Regardless of what “ I think may happen”, I am listening to my indicators and charts 100%!

So you ask: What warning signals?
The first signal was given by the Dow Jones NH/NL 10-day average differential (Diff) (chart above). The 10-d Diff started to make lower lows as the Dow was making higher highs, a clear divergence that warns the underlying stocks are weakening while the overall market is making a new high. This one signal alone should have put me on caution while entering new positions. It didn’t because the NH/NL 10-d Diff was still above the critical level of zero. Well, the market took care of that this week by plunging below the zero level, closing at -203 on Friday for the Dow. Consider this, it closed at +15.1 last Thursday ( 7/28) but went red the following day at -2.5 (last Friday, July 29, 2011). The divergence and the reading below zero was now screaming MOVE TO CASH and gave us enough time to do it before the end of the week romp! We all had time to get out without taking a loss. As it stands now, the 30-d Diff is also below zero with a reading of -21.47, the first reading below zero since July of 2010.

It’s interesting that the markets topped in May, just as Osama Bin Laden was killed – I must give a HT to Howard Lindzon for coining the Osama Bin Laden Top (he may have nailed it) and closing his blog post with this statement:

With the mood of financial markets quickly turning negative, the horrific price action of financials, the silliness of IPO valuations and some Bitcoin mishigas, you may not soon forget the ‘Osama’ top.

Now, let’s take a look at a number of charts and see what they “were” saying and what they “are” saying right now, as we head into next week (ahead of the market reaction to the US credit downgrade). NOTE: I personally believe that the downgrade is mostly priced into the market but I am sure we will still see some further selling pressure before a normal bounce.

The first chart that I would like to explore is the percentage of stocks trading above the 50-day moving average on the S&P 500 Index. Oversold conditions typically appear when this indicator drops below 20%. We last saw multiple readings under this level back in May, June and July of 2010, the last time the market traded below the 200-d ma. The reading closed at 3.6% on Friday, the lowest level since the 2008 market correction. This says that the market is oversold and is due for a bounce which may be the case but keep in mind that readings below 20% can exist for months at a time with short term rebounds. So, I see this signal as short term for now, considering the Dow Theory confirmations and the NH/NL readings. We will bounce higher but the other charts are signaling a longer term correction until told otherwise!

This chart shows the NH’s and NL’s added together to give us the daily differential. Friday registered the most new lows since November 21, 2008 when the reading spiked to 1,527 (historically low territory). The NH/NL ratio is best used to tell us when the market is changing trends rather than picking the tops and bottoms of markets. The NH/NL ratio has been mostly positive since March of 2009 so the readings of the past few days are red flags as the strength among the individual market participants is weakening considerably.

The NH/NL 10-d Diff is the average of the daily calculations over the past ten days. This 10-day average allows us to view the market action with less volatility than the daily fluctuations. The chart clearly shows us that the NH’s have weakened considerably since 2010 but did make a new high in February of this year. However, that new high was short lived and never quite made it to the peaks of 2010. The red arrow shows us that the NH’s have been trending downward for the past 18 months but most importantly, the peaks have been coming up short from March, to May to July.

NASDAQ CHARTS:
Similar to the Dow Jones NH/NL chart, this NH/NL chart of the Nasdaq is also racking up new low statistics, the most since March of 2009, the beginning of the bull market. What does this tell me: it tells me that the market may be turning since the readings now mimic the start of the up-trend. Short term, we’ll bounce around but watch the NH/NL 10 & 30-d Diff charts to avoid the daily noise.

The next three charts reinforce the action that we are seeing on the Dow Jones. Trend changes can be taken more seriously when two or more of the major indexes confirm the same action on the charts. We have all major indexes flashing the same signals: NH’s weakening, NL’s increasing, Dow Theory Reversal confirmation and distributions days and weeks on big time volume.

One last signal to watch is the action on the Value Line Index (VLE) which was featured in the post What Should We Do, written on October 27, 2008 when the market was hitting new lows. This indicator was down 9.62% last week, a clear sell signal.

The Four Percent Model Indicator uses the Value Line Composite Index (I use the Value Line Arithmetic Index (EOD) or symbol $VLE on StockCharts.com), which can be found on the web or in financial pages of newspapers. The model makes use of the weekly close of the Value Line Index. A buy signal is generated when the index rises four percent or more from the previous week. Similarly, a sell signal is indicated when the index falls four percent or more from the previous week.

I leave you with this: If the trend (this article and analysis applies to the longer term trend, not for day and swing traders) has truly changed for good and does not have the stamina to reverse back to the upside, be careful but understand that this is only the beginning. You still have time to get out before further damage to your accounts. We will have a bounce or two so use them wisely but don’t stay or go long if the Dow Theory doesn’t reverse the trend back to the upside. You have been warned, not by me but by the price and volume action of the market!

The StockTwits Edge: 40 Actionable Trade Set-Ups from Real Market Pros
By Howard Lindzon, Philip Pearlman, Ivaylo Ivanhoff

From the Inside Flap

The Internet as we know it has changed many things for stocks, markets, and finance in general. The “social web” and advances in technology have helped create tools and platforms that are empowering traders and investors, and allowing them to capture consistent profits along the way.

StockTwits® has emerged as the leading stock market social network, providing individuals with a vehicle to exchange ideas and receive real-time market insights. Made up of over 100,000 people from all corners of the world, trading thousands of instruments, StockTwits is all about crowdsourcing the best ideas and talent, and that’s exactly what you’ll find here in this new book.

Created by StockTwits cofounder and CEO Howard Lindzon and his colleagues Philip Pearlman and Ivaylo Ivanhoff, this unique guide is comprised of over forty contributed chapters from both well-known professional traders and individual traders who have attracted a following on StockTwits. While some of the people you’ll meet have been trading for years, others have been in the business for just a short time—but each has an amazing focus and belief that if you can master one thing well in the markets you can succeed.

In The StockTwits Edge, each trader and investor presents his/her favorite setup in detail, highlighting the underlying psychology and real examples for better understanding of the rationale behind each step, including risk management. You will learn how to use their approach to find new ideas yourself.

Divided into seven comprehensive parts, this reliable resource covers a wide range of topics that can help improve your trading endeavors, such as:

1. Trend following
2. Value investing
3. Day trading
4. Swing trading
5. Options trading
6. Forex trading
7. The art of trading

Whether you trade every day or every so often, the ideas found here can help you make the most of your time in today’s markets. Armed with each contributor’s favorite setup, you can excel on your own or visit the StockTwits website and gain real-time insights into leveraging the wealth of information contained within these pages.

Click below for the table of contents which features the excellent list of contributors and their StockTwits handles (also their twitter handles):

40 Actionable Trade Setups from Real Market Pros

Several China based stocks have been scrutinized for faulty accounting and some shady government practices such as censorship. Renren takes that a step further due to a sudden resignation by a key board member before the IPO (this board member was the chief of its audit committee).

Renren is consider by many as the “Facebook” of China, with a population base at least 3-4 times grater than that of the United States. Renren is a social networking Internet platform in China that generates revenues from online advertising and Internet value-added services.

Revenues and total cash from operations have been increasing year-over-year but net income has not lived up to expectations. It does appear that the company has a boat load of cash and future earnings pan out as such:

FY 2011: -0.03
FY 2012: 0.03
FY 2013: 0.13

With all of that said, I wouldn’t touch this stock with a 10-foot pole since it doesn’t come anywhere near my technical criteria but something keeps pulling me back. I hope it’s not a gambling tingle but more of a hint of intuition knocking. I almost want to compare $RENN to $SIRI when it was trading in cents. $SIRI was crap and still wasn’t turning a profit but my intuition said to buy, at least a few thousands shares. I didn’t and now it’s up nearly 10-fold from that point. I know traders that did and have been paid off handsomely.

So Is RENN teasing me because of my SirusXM miss or is intuition correct again in telling me that this stock has been unfairly beaten down in a rough Chinese stock environment and overall market pullback?

Intuition says to grab shares and hold as a value/ rebound play. My “technical” rules say to STAY AWAY.
I think I’ll grab shares on Monday and tuck them away for a while.

Let’s see if breaking the rules comes back to haunt me. My leash will be slightly larger because my overall position size will be smaller than normal.

To give you an idea of a couple of stocks that my screens and rules are pointing me towards, check out $FIO and $BBRG. They are new IPO’s with earnings and sales growth with prices making new highs.

Let’s revisit all three in 3-6 months.

I’ll narrow down this list of 175 to 10 – 20 of the best, technically, in my opinion (later this week).

Take a look:

The webinar highlighted the following topics:

• Successful Investing through Education
• Psychology of Trading & General Rules
• Essentials of Fundamental Analysis
• Master Technical Analysis
• Screening for Stocks
• Making a Watchlist
• Money Management: Position Sizing & Expectancy
• Case Study Examples

The content covered is a high level overview of how I trade part time while managing a full time career and family as my top priorities. It can be done successfully but there are some key rules that must be followed in order to be consistently profitable.

Take a look and let me know if you have further questions, post them here in the blog comments (the webinar is an hour long with two Q&A sessions).

The interactive webinar link can be found here:
Webinar: How to Make Money Trading Part Time

Workshop slides can be found through this link in PDF format (please note that the chart case studies won’t work properly in static PDF format – the PDF is not interactive):
How-to-Make-Money-Trading-Part-Time

Lastly, I would like to thank Tim Bourquin from TraderInterviews.com for hosting this webinar and giving me a chance to perform this workshop both in person back in February in NYC and on the web.

Review these posts as a follow-up to the webinar, to reinforce the topics that I discussed:

• Position Sizing and Expectancy
• The Holy Grail of Trading: It’s not your System
• How to Create a Successful Stock Watch List
• My CANSLIM Screening and Buying Strategy
• Fundamental Screens and Scans
• CAN SLIM Breakdown
• Understand the ‘M’ in CANSLIM
• Focus on Decisions, Not Outcomes
• Position Size to Determine How Many Shares to Buy
• Trading Mistakes: Avoid at all Costs
• How to Calculate a Stock’s Pivot Point
• Do Not use Fundamental Analysis Alone!
• How to Short a Stock
• Learn to Focus when Investing
• Point and Figure Charts

I look forward to the next workshop and/ or webinar, thank you again!