Here’s your trade on Hostess ($TWNK) and an explanation of the Fitzpatrick Modified Dow Theory – October 10, 2022
SPY DIA IYT COMPQX QQQ MDY IWM DJUSBK SMH KRT TWNK
I want to take you for a walk through the Fitzpatrick Modified Dow Theory. The typical Dow theory is the Transports and the Industrials. If one makes a new high then it’s confirmed when the other makes a new high. If the other doesn’t make a new high then it’s not confirmed and the market is suspect.
The market is a little more complicated now than it was when Chuck Dow was calling the shots here, a smart guy but he’s dead. I just want to look at things that I check out that go beyond the SPY ( NYSEARCA: SPY ), we can even look at it on the weekly chart, not good. DIA ( NYSEARCA: DIA ), not good, ( BATS: IYT ), not good. All of these so far are moving lower, COMPQX, not good, ( NASDAQ: QQQ ).
How about MidCaps ( NYSEARCA: MDY )? Small-caps ( NYSEARCA: IWM )? How about, and these are the things I look at too, the Banking Index ( INDEXDJX: DJUSBK ), no. How about the Semiconductors ( NASDAQ: SMH )? CNBC, I had it on in the background today, they are all over the fact that the Semi’s are breaking down. That is kind of a big deal too. And how about the Retailers ( NYSEARCA: XRT )? They are also down.
You can say, well it looks like a bottom to me. Okay sure, well this did too. I am not saying this is not a low. I am not saying that this isn’t a bottom here, the one we are looking at here. All I am saying is, that this sure looked like a low as well. It was fine all the way up until a new low was made. This is a weekly chart, what I am talking about is kind of macro stuff. I don’t have to be steeped in deep economics and macro this and that and the other thing. I’ll take a Big Mac over all the macro stuff. You just look and see what the market is doing.
And by the way, the price action in these indexes, the price action in the market, is dictated by the conglomerate of people that are a heck of a lot smarter and better educated and better capitalized than you and me. And so I don’t have to know all that stuff as long as I know what they are doing. And I know what they are doing when I just look at charts.
One thing that I wanted to show you, though, was Twinkies ( NASDAQ: TWNK ), I hate Twinkies ( NASDAQ: TWNK ), mostly because I used to love them when I was a kid but I could afford them then. I am not talking money, I am talking waistline. But I am looking at this now and I see a stock, it’s kind of a choppy cup and handle, pretty steep down here but it is a cup and handle, nonetheless. And then this little pullback here, and this is what I am looking for.
But let’s check out the volume, during this pullback phase you see that most of the days were below-average volume. And the ones that were above were typically the green ones. Here are a couple of up days here. Here is a high red day that did lead to more downside. But the thing that is remarkable to me, meaning worth remarking on, is this. Overall, the trend and volume is down as the stock has declined a little bit.
This is what we like to see, if a stock is pulling back you like it to be shallow, you don’t want it to be steep. So you like it to be shallow and the pullback to be on lighter volume. Because what that reveals is, that there is a lack or an absence of real concerted institutional selling. Certainly, there is some profit taking but it’s not widespread, it’s just we can say, when I am done with this I think I will go to Starbucks and get the coffee of the day, they’re done with the Twinkies ( NASDAQ: TWNK ).
Right now I am looking at this as a good stock, we’re in it on the Active Trade List, but I am looking at this as a good stock to at least be watching. I don’t see an impending, boom, big break out here. What I am seeing is an ongoing base-building process. Where the 50-day moving average is favorable, it’s right up along here and we are seeing this kind of move in the stock.
And so this is what I want to, hopefully, see happen. We get some more chopping around in here and then right around November 8th when earnings are reported the stock blasts off because as it turns out everybody, now that they are out of their caves and have thrown their masks away, everybody is eating Twinkies ( NASDAQ: TWNK ).
Free Chart