August 3rd, 2012

PEP vs ZMH: Technical vs Fundamental Analysis

We’re all often warned that we should be carefully about information we find on the internet.  Sometimes it’s true, sometimes it’s strictly opinion, sometimes it’s offered with some ulterior motive and sometimes it’s just inaccurate opinion.  Take for example the daily email midday alerts from Cramer’s theStreet.com.  The one today included a piece entitled “Katz: Two Names Continue to Impress.  The headline worked because it caused me to open the link.

Katz leads off with the following statement:

“In the second quarter, I recommended PepsiCo (PEP_) and Zimmer Holdings (ZMH_). Both companies recently reported better-than-expected earnings for that quarter, but their stocks followed very different trajectories. PepsiCo shares rallied to a recent high of $72.76, while Zimmer’s share price declined a bit to $58.70 based on a modest revenue shortfall and some market-share loss in the U.S. I continue to like both names, with a particular emphasis on Zimmer in light of the stock’s recent price decline.”

Katz goes on to repeat each company’s fundamentals like products, market share, sales and earnings growths and dividends history.  While he likes PepsicCo from a fundamental perspective, he is disappointed in Zimmer’s financial performance and marginal market share erosion.

But comparing PEP and ZMH is truly like trying to compare an apple to an orange.  They are in radically different industry groups and their stocks have dramatically different volatility and dynamics.  The only thing linking them is the performance of the stock market (remember, “the stock market drives 50% of a stock’s performance”).  Since he mentions only in passing the stock performance of each and that’s essentially all that we’re interested in, I’ll offer the two charts (click on image to enlarge):

PEP

ZMH

What’s interesting about these two charts (as contrasted with the long-winded fundamental analysis presented in theStreet.com offering), is that:

  • The stock market action impacted both stocks similarly
  • Both stocks have completed a right triangle and currently are at the neckline
  • Where they differ significantly is in volatility.  As expected, PEP has been about half as volatile as ZMH, a trend that might be expected to continue as the market soon breaks into new high territory.

TheStreet.com piece states that “This is a free preview of commentary that originally appeared in Real Money – the premium investment information service from TheStreet that delivers investment strategies from a veteran team of Wall Street pros, including Jim Cramer.”

With information like that above, why would you want to subscribe to their service?  I, for one, would rather rely for my investment decisions on seasoned technical analysis.  By the way, if your bullish you’d put your money into ZMH and if bearish into PEP; at this stage of the market’s correction, my bet would be with ZMH

July 6th, 2012

In Celebration of New Beginnings

Hope everyone is having a nice day off celebrating the birth of the nation on this Fourth of July. It also seems to be a fitting time to celebrate what perhaps might turn out to be the beginning of a strong second half for the stock market. Each day since the beginning of June, the market has successfully knocked over one obstacle after another and could be free to ascend all the way to the market’s previous all-time high close of 1565.15 set on October 9, 2007. The last remaining hurdle is the previous interim high close of 1419.04 set this past April 2. It would be fitting indeed if that high-water mark were reached on its fifth anniversary this coming October, a 13.9% increase above Friday’s close.

Since I’m in a celebratory mood, I thought I’d share with you some of the more successful stock picks that Members and I have enjoyed over the past six months. I offer them more as a tribute to the truth of market timing and chart analysis than my own foresight. The stocks were purchased at different times over the past six months but they all have one thing in common; they were all purchased when they crossed above significant resistance levels.

The comments below on each stock were excerpted from the Instant Alerts emailed to Members at the time of the purchase; each was also accompanied by a chart as of that date. The symbols are links to charts as of Wednesday’s close:

  • IPHS (June 14 at 52.77; last 58.01): “The stock has steadily moved significantly higher since the 2009 Financial Crisis Crash bottom; it had its IPO in 2006. The stock appears to have completed what IBD calls a cup-and-handle formation and by crossing above the resistance area is now entering new all-time highs.”
  • CRUS (February 29 at 23.74; last 29.11): “Another stock that’s been trapped by several recent “Stocks on the Move” scans. The stock has an extremely interesting pattern which, like many others now, could be interpreted as either a reversal top or a consolidation depending on your outlook (bull or bear) and the market’s future direction. One can see in the chart either a partially-completed “double head-and-shoulders” reversal top or a horizontal consolidation channel with a possible near-term cross above the upper boundary. Since my current view of the market is bullish (and the fact that I’ve seen many other stocks break on the upside), I’m taking a chance that the pattern will eventually turn out to have been a consolidation channel.”
  • MED (March 14 at 16.58; last 20.46): “The stock is a product of yesterday’s Stocks on the Move scan. It has formed an inverted head-and-shoulders reversal pattern at what I hope will be the bottom of a multi-year descending wedge pattern.”
  • CYMI (May 3 at 52.51; last 60.00): “The stock was on the recent Watchlist. It is primed and with a supportive push from a strong market is hopefully ready to cross above a multi-year resistance level into all-time new high territory.”
  • VTR (June 26 at 61.07; last 63.85): “Technically, it looks as if VTR completed an 18 month “cup-and-handle” consolidation formation and may resume its upward advance.”
  • DDD (May 2 at 31.07; last 35.57): “I’ve had my eye on DDD ever since I noticed it crossing into all-time new high territory and beginning what appeared to be a “buyers’ remorse correction”. Just recently it crossed above what could be considered the upper resistance boundary of that correction and ready to be one of the leading stocks that continues moving further into all-time new high territory when the market resumes its ascent.”
  • EQIX (February 2 at 122.65; last 177.38): “Stock has crossed into all-time new-high territory set at its IPO at the peak of the Tech Bubble in 2000. This stock is also a momentum scan favorite.”
  • EBAY (March 2 at 36.01; last 41.02): “The stock is another Stocks on the Move scan result. The chart has formed and is now crossing out of a buyers’ remorse pattern that might be interpreted as a channel, complex inverted head-and-shoulder or complex cup-and-handle. This congestion follows EBAY successfully moving out of a long-term descending wedge and crossing above the neckline of a multi-year reversal base after the Tech Bubble Burst.”

The Model Portfolio currently includes 55 stocks; these are among the best performers of the lot. Several poor performers have been sold and a couple were sold when they were the subject of an acquisition or merger. I still have confidence in these and the rest of the stocks in the Portfolio and believe they will continue advancing in the wake of a strong market. As far as whether I will continue to hold them even with substantial profits, I refer you to my “Sell Rules” discipline.

June 22nd, 2012

An important, emerging new positive chart pattern in the S&P

Look at the chart inserted on the June 12 post below, “Cramer and One of My Five Lines in the Sand” and you’ll see the second trendline from the top at 1365.  When the market touched that level on Tuesday, I emailed Members the following yesterday morning:

“Yesterday, the market touched 1363 and then fell back. Let’s see what happens today after the Fed Meeting. We’re not alone in looking at this trigger level and, if there’s any positive signals out of Washington about more Fed easing then all those technicians could launch the next move higher. I, for one, will join the herd.”

Having set that hurdle saved us a lot of money because after hitting that level a couple of days ago, the market pulled back significantly.  If we had bought stocks on the expectation that the advance would continue, we would have been hurt terribly yesterday as near 90% of stocks declined as the market took its biggest hit in months.

Those who make decisions based on the news that the media decides to spotlight each day will continue to be whipsawed.  Yesterday, everyone was talking about double-barreled mauling of the market with Goldman Sachs’ bearish call and the across the board marking down of the major banks’ credit ratings by S&P.  Today, they’re talking about the market’s surprising resilience and how “the ratings agencies are always late”, “when they only reflect what everyone already knew” and “changing the rating on one company is important but adjust the whole industry changes nothing”.

But for those of us who take a longer-term view (like the chart in the June 12 post), we need as much of a downside confirmation before heading for the exits as we needed an upside confirmation.  The chart below identifies those two critical levels: 1360-65 for the bullish confirmation and 1260-1266 for the bearish confirmation.

Chart reading is a dynamic exercise as new data reveal new balances in the continually changing struggle between bulls and bears.  Interestingly, a new chart pattern has emerged as a result of the recent volatility: a flag sort of correction (descending parallel lines) coming off the March high.  Patterns like these are usually constructive as they underscore consolidation (or continuation) rather than reversal.  Furthermore, crossing above the upper boundary of this new pattern as well as the 1360-65 level only solidifies further the strength of the following upside move.

June 12th, 2012

Cramer and One of My Five Lines in the Sand

I informed Members in their June 3, Weekly Recap Report that “the market has been in a 30% trading range (1050-1365) as the economy works its way through the ruins brought on by the 2007-09 Financial Crisis.  While we’ve been glued to news stories about one crisis or another over the past three years, we fail to see that, underneath the surface, the economy and the market have been in a healing process.”

I included in that Report a chart onto which I inserted five critical trendlines, levels at which the Market has pivoted (reversed direction) from 5-7 times over the past two and a half years.  I also suggested that Members “click on the image to enlarge it, print it out and past it over your computer …. we’ll be looking at it throughout the summer watching for the turn.”

On CNBC’s Fast Money show tonight (to see clip, click here), Cramer revealed a bold prediction by Carolyn Boroden, a highly regarded technician on Wall Street.and one of his “favorite” technical analysts in an “Off the Charts” segment.  The analyst predicted that 1265, the point at which the market seemed to have turned up last week, would be a line in the sand.  It might actually turn out to be the low for the year followed by a run to as high as 1465.  That technical analyst based her interpretation of the chart mostly on Fibonacci time and level measurements which were beyond my understanding.  But what I found most interesting is that the levels mirrored almost exactly the trendlines I’d presented to Members two weeks ago.

Now that Cramer has pulled the covers off a market timing analysis that closely correspondents to one that I distributed to Members a couple of weeks ago, I wouldn’t be committing any breach with Members’ by now including that chart here:

Interestingly, Cramer and I aren’t the only ones having focused on the importance of the 1265 level.  Yesterday, in the Minyanville post The Single Most Important S&P 500 Level, Kevin A. Tuttle wrote that over the last dozen years, the SPX has crossed, retested, and breached this level 12 times.  According to Tuttle,

“When adding the melodrama and sensationalism, Wall Street scandals, global tensions, political finger-pointing, misappropriation of funds, struggling economics, quantitative easing, and the US’ skyrocketing debt load, it can become somewhat overwhelming to ascertain potential direction.  It’s the whole “forest for the trees” idiom. My firm believes that no single individual or institution has the mental capacity, intellect, or quantitative ability to comprehend the amalgamation of all global fundamental factors to derive a meaningful conclusion about the general direction of the market without employing the demand factor, or better said, the law of supply and demand.”

I, said as much to Members in my Report of two weeks ago.  I confessed that I
“…. don’t have enough time for that and throw my hands up when it comes to trying to evaluate and assess the potential impact of the news flow from around the world.  I find it overwhelming and I just don’t feel up to the task.  But I can look at the above chart and identify important levels where the supply and demand for stocks came into balance and created turning points in the past (even if temporarily) and may, with a high degree of probability, do so at the same levels again in the future.”
The low of last week may have been one of those critical turning points.  If it was, then it behooves investors to begin putting some more cash to work because the summer break may be short and the run to higher ground may begin sooner than most anticipated just a month or so ago.

June 7th, 2012

When It Comes to Technical Analysis, Accuracy Depends on Time Horizon (GLD)

My wife ran into my office yesterday and said that somebody on CNBC was saying that the market was making lower highs and higher lows and that, based on that “analysis” she said we should be either selling stock or buying some Ultrashort SPY ETFs.  I looked at my charts and I couldn’t see to what that “talking head” might be referring.  Or, to be more correct, I saw many situations on the S&P 500 chart to which the statement could be applied but it all depended on the time horizon, hourly, daily, weekly or monthly.

I saw another instance of this principle this morning when I clicked open a post by Corey Rosenbloom, well known for his internet go-to website dedicated to a technical approach to the market, Afraid to Trade, and frequent contributor to many other commentary sites like  Green Faucet.  In the ETF Daily News post, entitled “Watching Converging Trendlines in Gold“, Rosenbloom includes the following hourly intraday chart covering the period since December, 2011:

and  writes:

While there’s many other ways you can analyze the current Gold price chart, be sure to take into account this trendline convergence or overlap into the $1,630 area ….  That doesn’t mean price is required to reverse here – it’s just a key level on which to focus and plan short-term trades depending on whether trendline resistance holds (bearish if so) or breaks (bullish above $1,640 for confirmation) ….. A push/ breakthrough beyond $1,640 strongly suggests a Structural Reversal of the short-term trend, implying higher targets ($1,670, $1,700, etc) could be achieved in the context of a new intraday uptrend ….. The recent push above $1,600 locked in a “Higher High” which is the first step to a structural reversal).

My trading horizon is longer than that inferred in Rosenbloom’s strategy.  If precious metals is a good place to put my money in the hope of appreciation (the only form of return since precious metals don’t  pay dividends or interest) as an alternative to other opportunities then I want to make sure that the percentage gain will be significant.  I own a large number of stocks and, once I put precious metals (or any other stock for that matter) in my portfolio I don’t want to necessary have to make hourly or daily decisions as to whether it’s worthy of continuing it being held.  The only way of doing that is to focus on more elongated trendlines, longer waves and bigger swings.

That’s why included a longer term chart a month ago (updated to yesterday’s close), in “Buffett and Precious Metals

and wrote

Both charts [I'd also included a chart of silver] contain familiar features:

  • descending channels;
  • potential necklines;
  • a zone that could indicate whether the controlling pattern is a consolidation or reversal;
  • lack of clarity as to whether price will cross below the potential neckline

With all that upcoming uncertainty in the $US, I can’t imaging that the emerging pattern in precious metals isn’t a consolidation and, with all due respect to Warren Buffet, there won’t be another run higher beginning towards the end of the summer.

Rosenbloom looks at possible breakout from his “converging trendlines” and sees a move to the 1670-1700 (or, approximately, 167-170 in GLD) presumably over several weeks.  But then what is he going to do with this 4.3% move?  I look at a possible breakout from my flag and see a long-term move equal to the preceding the neckline.  I see the possibility of a 75-80% move to the 250-270 level over a year or two.  It all depends on how much time you want to spend managing your portfolio and making trading decisions.

May 30th, 2012

FAST: Revisited

When I get disgusted about the market, frustrated that everything seems to be moving so slowly and despondent when charts fail to deliver as they promised, I turn to some prior posts and revel in those prognostications that worked out.  An example of one of those is the case of FAST (Fastenal) which I wrote about on February 4 in a piece entitled “Two views from the Heart and the Mind“.  The post was spurred by an analyst who indicated that FAST was over valued based on his analysis and he recommended it be sold; the previous FAST close was 48.30.

I took a different approach and looked at the very long-term chart for FAST and found that the stock was approaching the upper boundary of a 17 year ascending channel.  I concluded that

“An unequivocal ascending channel since 1994 with parallel trendlines and, yes, FAST is approaching the upper trendline.  If the stock continues to rise at its current rate then, after another 16% move higher, it will touch the upper boundary at around 56.  A slower ascent will allow a slightly higher touch point.  My conclusion is that one can get another 16% gain before the “overvaluation” becomes an issue.”

The chart I used was (click on images to enlarge):

Nearly four months have passed since that post and I must admit that we were both correct. FAST is currently at 44.60 so that other analyst was correct, the stock is down 10% since his call. However, I was correct also. FAST actually almost did touch the upper boundary; it hit a high of 55.05 on March 27, seven weeks after the above sell recommendation. That was a single point away from what I saw my target and 14.0% higher than the 48.30 sell recommendation price:

So when you begin to lose your confidence, you need some moral support, you feel like you’re being pulled in many directions in the battle of the bulls and bears, then it never hurts to look at your successes.  No one is going to give you moral encouragement, pat you on the back or give you that ego boost …. you have to do it yourself.

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May 22nd, 2012

FB or Las Vegas? I’ll take Vegas

I was asked several times last week whether I would buy FB (Facebook) at the IPO.  Those who asked have no real concept of technical analysis or my style of trading/investing.  At its core, technical analysis is an approach to the stock market based on notions of supply and demand, of equilibrium and imbalance, of dynamic and static.  When the supply and demand situation of a stock is in balance, its price will remain within a relatively narrow range; when the equilibrium in a stock’s supply and demand is disrupted for some reason, price begins to move out of the range.  That movement begins to feed on itself, momentum is launched and that “trending” continues until supply and demand gets back into balance and a new condition of equilibrium sets in.

By its very nature, there’s no way of telling where a stock’s equilibrium will be.  We know the price that the underwriters have established as the IPO price but there’s no way of telling where the supply and demand pressures coming from the rest of the investment world work themselves out establishing a true market-based equilibrium level.  And even then, that equilibrium level price will likely be only temporary as it’s relatively easy for pent up supply and demand factors to disrupt the balance.  The process can continue for some time until all the conflicting forces work themselves out.

Traditional technical analysis tools such as moving averages, trendlines, resistance and support levels are meaningless when it comes to IPOs, even with several weeks and months of market trading after the actual IPO date.  Are you kidding me?  Is this a chart on which you can make any sort of “technically intelligent” investment decisions, whether to buy or to sell?

All the hype of the past 2-3 weeks has been nothing more than a crap shoot, a ploy to enable the underwriters to unload their stock at a price they determined the market would bear.  Anyone who bought the stock through an allocation of IPO shares was doing nothing more that putting some money down at a craps table.  One would have to be a seer, fortune-teller, medium, prophet to be able to tell whether the stock, once publicly traded, would trend higher or lower or just stay around the IPO price.  Or, you had to have so much in cash resources that you could control the price in any way you wanted.

That’s not anything that anybody who believes in the principals of technical analysis would participate in.  It’s not even interesting or exciting to watch simply because we know that within a couple of months the price will be substantially different as market momentum begins to overwhelm the underwriters and the large institutions that they enlisted through “friends and family” discounts to help them distribute the inventory of stock to the unsuspecting public.

“But where do you think the price will be by the end of the year?” I was asked.  My answer, the one I keyed into the notes app on my iPad was that “FB will have hit 15-18 sometime by the end of the year”.  Since I have no basis for that sort of prediction, I can’t short the stock or buy put options on it; I’d rather go to Las Vegas to the Blackjack table because the odds there are more readily available.  What say you though.  What do you think FB’s low will be for 2012?

April 23rd, 2012

The Lower Boundary is Becoming Clearer

Less than two weeks ago I wrote ““Identifying the Boundaries of Stock Chart Congestion Areas” in which I talked about three potential bottom boundaries of the congestion area that was developing and might eventually turn into a recognizable chart pattern.  With time, the emerging chart pattern is becoming clearer and, I must add, a bit more worrisome.

 

The discussion of “boundaries” is actually at the core difference between fundamental and technical analysis.  In fundamental analysis, analysts look at the slowing Chinese manufacturing index, Spanish debt refunding, elections in France and the upcoming U.S. elections, this quarter’s corporate earnings reports and the guidance for the year, upcoming Fed meetings, jobs reports, etc., etc.  Those analysts would then attempt to distill and prioritize the voluminous and disparate data facts into a consistent picture.  Finally, they will translate that picture into not what it means today, where it all might be headed in the future and what the impact might be on the stock market and individual stocks.

Needless to say, there are about as many divergent opinions about each of these data points as there are analysts willing to speak about them.  Some of those opinions are meaningful and reliable while most are guess that are about as useful as yours or mine.

Technical analysts, on the other hand, focus more on the actual decisions continuously being made by millions of investors, whether rightly or wrongly, rather than the reasons for their having made them.  They look at the continually changing balance (or imbalance) between supply (sellers) and demand (buyers) as reflected in transaction prices and volumes.  The primary focus begins with whether that balance is shifting on a continuous basis in one direction or another because when that imbalance starts it tends to be self-perpetuating, reinforcing and continues for some time (i.e., momentum).

The market, after having risen nearly 30% since October, is currently almost perfectly balanced between buyers’ demand and sellers’ supply.  Based on investors’ various interpretations of those fundamental facts, nearly an equal number see the facts portending a bearish future as those who see the facts leaning in a more bullish direction.  In other words, about as many see the market glass as half-full as see it half-empty.

Our search for boundaries is an attempt to learn when that equilibrium balance starts tilting in one direction or another.  Sometimes the balance continues for a few weeks and sometimes it takes months.  In the last post, I inserted three possible bottom boundaries.  As a result of today’s severe open, one of those supporting trendlines was penetrated; if there isn’t a quick strong bounce before the close and into tomorrow, then more downside can be expected.  If the demand is insufficient to absorb the supply of those investors who see a pessimistic outlook then the market will break below both of the remaining support levels and will continue lower until a new equilibrium balance forms at lower levels.

April 12th, 2012

Identifying the Boundaries of Stock Chart Congestion Areas

I was traveling this week so, fortunately, I wasn’t able to react to the ups and downs of the market this week.  If I had, I would have been closing some really good positions on Monday and Tuesday and then kicking myself as I scrambled to put them back on Wednesday and Thursday.  The lesson to be learned that was reinforced yet again is to turn off the CNBC, tune out the noise of all those explanations (read “rationalizations”) for why the market had done what it had done and to focus intently on the longer term for true trend reversals.

For the past several weeks I’ve been writing to members in my Weekly Recap Report that

“This narrowing, trading range can’t continue indefinitely and, I believe, will in all probability be resolved with the market falling below the bottom trendline as contrasted with a highly unlikely blow-out cross above the upper boundary.  I’m guessing the cross (the “collision”) will take place as the market approaches the horizontal resistance trendline extrapolated to occur sometime towards the end of April.  Coincidentally, that also coincides with everyone launching into their seasonal ‘Sell in May and go away’ discussions.  Taking that course of action would have been the right move to take in 2010 and 2011 and could again be true this year.”

But even that wasn’t sufficient to call this week’s action as a reversal.  There are millions of investors around the world making a huge number of trading decisions every day.  It takes more than a few hours, days and even weeks of trading to have this ship, the market, list to the other side as the majority of them run from one side (the bull side) to the other (the bear side).

One of the most difficult challenges in charting is distilling from the daily action the true boundaries of emerging chart pattern that are emerging from the congestion of what will, with the clarity of perfect hindsight will be either an obvious reversal or consolidation pattern.  Boundaries require pivot points, the short-term reversals made be either the market or individual stocks.  I’ve inserted three possible bottom boundaries based on the market’s recent behavior:

The important take-aways from this exercise are:

  1. Don’t get wedded to one point of view or another too early as to the market’s future course (and that’s what we’re most interested in since it determines 50% of each stock’s performance).  Congestions, those times when sellers and buyers, bulls and bears, supply and demand are fairly much in balance struggling to take control of the future trend.
  2. Regardless of how astute or knowledgeable you may think you are, it’s nearly impossible to predict the outcome and nothing you do can change what the ultimate outcome will be.  The best course is to wait for the trend.
  3. Don’t get wedded to what you think will be the pattern likely to emerge.  Supply and demand is dynamic and constantly in flux.  It’s difficult making money during these congestion periods but profits are relatively easy to come by when either a bullish or bearish trend emerges.

It’s only after several pivot points are made over an extended period of time (weeks or months) that solidify the trendlines will you be able to determine whether the congestion will in all likelihood be a consolidation, a top reversal or a bottom reversal ….. and then the market will confound you further by either doing the opposite or continuing adding further clarity to the congestion area.

March 19th, 2012

Would I buy the stock today if I didn’t own it?

I can’t believe it’s been two weeks since my last post.  Please accept my apologies.  I’ve been doing exactly what I said I would do in that March 2nd post, I’ve been “shooting fish in a barrel”.  And for the time being, I believe my fishing respite is coming to a close.

The market crossed above April’s high and is slowly climbing to what might be the next resistance at approximately 1435-1440, or a mere 2.5% above Friday’s close.  Last week, the market ended 2.43% higher for the week so the next resistance may be reached by the end of this coming week.

Why could 1435-1440 be the next resistance area?  Not because so many others are talking about it (and they may because they look at the same charts) but because that’s approximately the level of the higher of two alternative necklines of the 2007-2008 reversal top of the 2007-2009 Financial Crisis Crash.  The lower is where last year’s correction began and the extension of the upper neckline is where the market is heading next.

It would be nice to think that once the market recovers a trend will continue unabated for an extended time.  Unfortunately and disappointingly, that’s not the way market’s work.  The market has risen 16.49% since December 16 and needs to digest this extended move.

I’m guessing that the market was recovering from the 2007-2009 Financial Crisis Crash until the European Debt crisis and the Congressional Federal budget stalemate last year stopped it in its tracks.  Even though we will soon enter a consolidation there should be plenty of further room on the upside before a major correction along the lines of last year’s.  Too many stocks haven’t yet fully participated in the unbelievably beautiful, stealth bull market that’s occurred since the beginning of the year.  For example, even though many of the banks and other financial stocks have led the market higher so far this year, most are still just now crossing the necklines in their chart patterns indicating that there should be another an equal amount of appreciate left in their move.

The challenge up to now has been to put money back to work without severely increasing risk.  The next several weeks will present a different sort of challenge: determining which stocks you own are 1) consolidating previous gains, 2) late bloomers and will begin their move after the market correction or 3) will be forever doomed and should be sold.  Here are examples of some that I’m evaluating:

  • BR: I recently added this stock on the expectation that a strong market will help it cross above its long-term resistance into all-time new high territory.  Was I premature by not waiting for that cross?  I didn’t follow a discipline of buying only after a breakout and now wonder whether I will soon pay the price of that violation.
  • EMN: Purchased the stock in the hope that the “buyers’ remorse” correction had ended and it was able to realize the potential of its ability to cross into all-time new high territory.  Should I patiently wait for that realization or should the stock be abandoned while I can exit with a small profit.
  • EXPE: Another stock I purchased on the expectation that a strong market will help it cross above a long-term resistance level.  But now a market consolidates will probably hinder the stock’s ability to cross above the upper boundary of the ascending channel and the long-term resistance level.  Wait it out or sell?  That is the question.

I’ve always found that the simplest way of deciding whether to hold on to a stock is thinking the mirror image of the question: “Would I buy the stock today if I didn’t own it?