Curve Balls
From the vantage point of the I-T
trader, the market Thursday turned in a rotational performance,
with many of the gainers coming from low relative strength stocks in low bases,
and other beaten down shares.
This kind of action can temporarily
take the wind out of the sails of the high relative strength breakout stocks. As
I’ve said in earlier commentaries, the key is not to overreact to this kind of
volatility. If your stop is hit, sell. Otherwise, short of danger signs in the
stock’s technical or fundamental performance, give your trades the time and room
they need to prove out.
Inevitably, some of your trades will
fail, causing you to take prompt action to cut your losses short. But let the
market pick your winners and losers. Don’t force a stock prematurely into the
debit column.
SunGard Data Systems (SDS)
is an example of the kind of action that should put you on guard. The stock
pulled back on heavy volume Thursday and closed near the low of the day’s range,
but did not undercut the high of its prior handle (see Point
a in the following chart).
Corinthian Colleges (CO)
put in a similar performance. The stock pulled back on significant volume and
closed near the day’s low but held above the high of its handle (Point
a).
International Game Technology (IGT)
is an example of a breakout stock that went through its own post-breakout
pullback and now is trying to resume its advance.
All stocks, of course, are risky. On
any new trade, be sure to limit your position size and set a protective price
stop where you will sell your buy or cover your short to protect yourself
against severe losses. For an introduction to combining price stops with
position sizing, see my lesson, Risky
Business.