Let’s apply stochastics to this chart on Whole Foods Market (WFM). (July 06, 2016)

by DAN WFM 
I want to show you a couple things here. First of all on Whole Foods ( NASDAQ:WFM ). I’ve covered this before, about trends, and this is in a trend. Not in a downtrend, not in an uptrend, it’s in a sideways trend. But you can see what’s happening, this is resistance, right around 35.00ish, the mid 35s. Support is down around 29.00ish. This time around, 30.00. Now, this by the way, this is a key thing, before it had been testing these levels down here. This time around, AFTER printing a new high, relative to this last high, it’s looking like it printed a new low, a higher low. So now what you’re looking for, first of all, you’re looking for a move to here, and then a move lower, it’s called expect the expected. You’re not looking for this, it will probably happen eventually, but for now you’re just looking for a move here. And then if you’re long the stock, put a tight stop on it and if it breaks out, great. If it doesn’t, well aren’t’ you glad you had a tight stop on it.

But the idea is, this is in the center of the range so it’s not really actionable. So this isn’t a, “Hey, I’ve got a free trade for you video.” It’s a, “Hey, lets look at some analysis here.” The 50 and the 200-day moving average are moving sideways. This is an oscillating base. This has been basing all of this year. It started in the 4th quarter of last year. This is a pretty firm, strong base. But I want to show you how you can be trading this type of thing using simple stochastics. This doesn’t work worth a darn when stocks are trending. Stochastics will always be overbought during uptrending stocks, and always be oversold during downtrending stocks. That’s the way they are. But they work really well in these choppy base building processes. And you look down here, like at this line right around there. And then another line right around there, we’ll call it the 80/20 lines.

So here’s the deal: When the stochastics, measures of overbought and oversold, when they fall below this line, don’t do anything except watch. You see they get oversold. And then at sometime later, and this is a few weeks later, they cross above. BUY IT. When this gets up here ABOVE the resistance line here, don’t do anything. WATCH IT. When this starts to peter out and you see the price start to drift lower, you SELL IT. You could wait, if you want, for the stochastics to be moving back down, and that’s fine. But if you’ve just got the regular price pattern, and you see this resistance here, you would do just fine with that. You sell it or you short it; that’s about at least a 10 percent range, almost 20, you short it. And then when stochastics, after it gets oversold, see here it’s getting oversold, don’t do anything, you’re not buying it, you’re not buying it, you’re not buying it, maybe here.

Sure, you would have got faked out; this is called trading not winning. Back down, it breaks out again, this is you’re signal to buy. Stochastics that were below the 20.00 line are now moving back up. That’s your indication to buy. Overbought, don’t do anything. Stochastics down, through this line, now it’s time to sell. Lather, rinse, repeat. So where are you now? Well, stochastics are still moving up. So you wait for stochastics, you wait for this blue line to go above this line here, the 80.00 line, and then once it starts to rollover, then you would sell. If it doesn’t rollover, then you stay long, and there’s your breakout.

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