Distribution Potholes

  • May 24, 2001
  • Loren Fleckenstein

Some of the high relative strength
leaders are acting tired as the market wrings its hands on valuation grounds.
Hot Topic and Charlotte Russe are two examples.

Hot Topic (HOTT)
gapped down hard on a Robertson Stephens downgrade, managed to trim its losses
as institutions moved in
to
snap up low-priced shares,
but still closed off 5.2%. Charlotte Russe (CHIC)
ran into head winds earlier this week,
also
on a Robertson Stephens downgrade.

Arch Coal (ACI)
is looking a little long in the tooth after a fine run. I’d keep an eye on its
relative strength line to see whether it undercuts the April 30 low.

 

All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson, Risky
Business.