Fit Financials
It’s always good to see
financials behave well when you’re long in a supposed bull market. Bank holding
company Charter One
Financial
(
CF |
Quote |
Chart |
News |
PowerRating)
Tuesday
jumped into new high ground from a cup-with-handle on hefty volume.
LaBranche (LAB),
one of the largest specialist firms on the New York Stock Exchange, has cleared
its mid level. One of my guidelines is not to buy stocks until they have
retraced at least half of the loss of their corrections. Buy earlier, and you
run the risk of seeing your stock’s share price fall as overhead supply comes to
market. Overhead supply represents stock
in the hands of shareholders who bought at higher prices. These shareholders —
so-called "weak holders,"
or "weak hands"
— tend to sell into rallies to end their unhappy experience in the stock. For
that reason, I generally insist that my watch list stocks are trading above
their mid levels before looking for entries. To find a stock’s mid level, sum
the pre-correction high and the post-correction low, then divide the result by two.
What’s
needed now is for the stock to digest its recent gains and consolidate below a
pivot point or, as Jesse Livermore called it,
a pivotal point.
Charlotte Russe
Holdings (CHIC)
lost 14.8% on an analyst’s downgrade, closing bearishly near the bottom of an
expanded range on heavy volume,
but holding above its prior base.
All stocks 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.