Frequently Asked Questions
Q: When applying the 7 week rule, do you start counting the weeks only after the stock has broken out of a base, or is it from the first time it closes above the moving average? For example, PCLN has remained above the 20 day m/a for about 10 weeks now, but only broke out of a base 6 weeks ago.
A: The count is contextual to the overall chart. In some cases, where the chart has been obeying the 10dma prior to the pivot point, the count begins there. This would be true with follow on pocket pivots (pivots that occur after the breakout) and some gap ups. In cases where the stock has been basing, the count generally begins on the day of the pivot (pocket pivot, breakout, gap up, etc), since a basing stock is highly unlikely to obey its 10dma for more than a couple weeks which should usually not be included since within a basing pattern, a stock can often 'obey' its 10dma for a couple weeks before heading down again, thus these couple of weeks should not be included in the count.
In the case of PCLN, you could take the first day at 7/13/10 when it breaks above its 200dma. It then violates its 10dma in its 7th week, thus you would switch to using the 50dma as your sell guide, since a stock must have not violated its 10dma for a minimum of 7 weeks to use the 10dma as your sell guide.