When Nicolas Darvas arrived in America in 1943, he excelled at two things... He could dance. And he could survive.
How a Dancer's Rules Beat the Market
By Pete Carmasino, chief market strategist, Chaikin Analytics
When Nicolas Darvas arrived in America in 1943, he excelled at two things... He could dance. And he could survive. Darvas was born in Budapest during the Great Depression. When the Nazis invaded Hungary in the early 1940s, he fled through Turkey to escape. Darvas' journey ultimately led him to New York City. And by 1952, the ballroom dancer was touring dance halls with his partner and half-sister, Julia. They got paid a lot for the gigs. But Darvas' real fortune began with a strange offer... Instead of cash, a Toronto promoter offered to pay Darvas with 6,000 shares of a Canadian junior miner called Brilund Mines. The stock traded for $0.50 per share at the time. So it was worth around $3,000 in total. As luck would have it, Darvas couldn't make the event. However, in a gesture of good faith, he still bought the 6,000 shares from the promoter. He hoped to save face for future gigs. Here's where Darvas' story gets interesting...
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You see, Brilund's stock quickly surged to $1.90 per share. The 280% gain gave Darvas a profit of more than $8,000 almost overnight. For a refugee who had dodged death squads, this type of return felt like magic. He thought he had cracked the stock market code while on tour as a professional ballroom dancer. Hitting it big on a stock he knew nothing about got Darvas hooked on the stock market. But he was still far from an investing guru... Like many first-time investors, Darvas struggled to actually crack the stock market code. Darvas failed because he acted like every other amateur... He chased tips from bartenders and waiters. He followed dead ends from wealthy folks at his shows. He panicked if stocks dipped. He held losers too long and sold winners too soon. Loss after loss drained both his bank account and his confidence. But Darvas was a survivor at heart. He had escaped the Nazi invasion. And he wasn't going to let the stock market beat him. So he got to work... He read countless books and began to see patterns that others overlooked. And like many other investors, he eventually realized that his emotions were getting the best of him. Darvas kept reading and tracking stocks through the newspapers. Then came his true epiphany... While performing overseas, Darvas noticed something odd in his weekly Barron's issue. A lot of strong stocks would hit new highs... and keep climbing. And a lot of weak stocks would sink below recent lows... and keep sinking. From that, Darvas developed a system that would make him millions... It's called the "Darvas Box Theory." The idea behind this theory is simple... Darvas looked for stocks trading within tight price-range "boxes." When a stock broke out of its box on high volume, he bought it. If it dropped back into the box or below, he sold. If the stock kept climbing, he would ride the wave higher and higher. Darvas would approach each trade from the same point of view... With every new position, he would place a mental stop loss just below the box floor. And each time, he would "trail" his stops upward as prices rose. In just 18 months during a bull market in the late 1950s, Darvas turned $36,000 into $2.25 million. And he made all that money without ever stepping foot on Wall Street. But Wall Street banks won't tell you what really led to Darvas' success... Darvas succeeded because he couldn't watch the ticker. Since Darvas constantly traveled for dance gigs, he traded remotely through telegrams to his broker. This approach allowed him to avoid the "noise" that distracts many other traders. When the 1957 bear market hit, he sold everything at predetermined levels. And when new leadership emerged in missile and electronics stocks, he pounced. Darvas' system hinged on three pillars – box floors, breakouts, and volume confirmation. Since he traded remotely from the road, he had no choice but to remain disciplined. He didn't have daily price checks – just the weekly updates from Barron's. That sounds crazy in today's ever-connected world. But it was the reality of life back then. As I always say, the patterns build themselves on the charts... I use the relative strength as my driving force. I also like to see good volume. And the Chaikin Money Flow indicator – which measures the trading activity on Wall Street – helps find the right opportunities as well. But importantly, I also never ignore the fundamentals. After all, the Power Gauge reminds me about that every time I pull up a chart. It's our built-in discipline. We've preached about this idea for years at Chaikin Analytics... A bunch of strong stocks in strong industries tell us "what" stocks are in play. Then, the technical indicators help us figure out "when" to act. The bottom line is simple... Darvas proved that the market rewards rules over genius. His story is one of riches to rags and back to riches. He went on a roller-coaster journey after his introduction to stocks. Nearly 50 years after Darvas died in 1977, boxes still form. And stocks still break out. The question is... Will you be ready to act on the day they do? Good investing, Pete Carmasino
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-0.95%
9
13
8
S&P 500
-0.92%
86
269
143
Nasdaq
-1.26%
31
50
19
Small Caps
-1.16%
420
1003
481
Bonds
-0.65%
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks remain somewhat Bearish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Real Estate
+1.33%
Energy
+1.05%
Information Technology
+0.87%
Financial
+0.68%
Staples
+0.47%
Communication
+0.35%
Utilities
+0.33%
Health Care
-0.3%
Materials
-0.56%
Industrials
-0.74%
Discretionary
-2.84%
* * * *
Industry Focus
Health Care Services
4
30
24
Over the past 6 months, the Health Care Services subsector (XHS) has underperformed the S&P 500 by -10.38%. Its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #15 of 21 subsectors and has moved down 3 slots over the past week.
Indicative Stocks
ACHC
Acadia Healthcare Co
AMED
Amedisys, Inc.
ASTH
Astrana Health, Inc.
* * * *
Top Movers
Gainers
EXPE
+17.27%
TTWO
+14.03%
MPWR
+8.98%
SMCI
+7.21%
UBER
+6.59%
Losers
ULTA
-6.68%
APD
-5.39%
DHI
-5.27%
ENPH
-4.48%
NKE
-4.27%
* * * *
Earnings Report
Earnings Surprises
KIM Kimco Realty Corporation
Q4
$0.23
Beat by $0.04
UI Ubiquiti Inc.
Q2
$2.28
Beat by $0.14
FTV Fortive Corporation
Q4
$1.17
Beat by $0.05
CBOE Cboe Global Markets, Inc.
Q4
$2.10
Missed by $-0.02
* * * *
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