Sacked!
I could have also entitled this
column, “See, Believe, React – Act II.”
The best one, though, came via e-mail
early Wednesday evening from one of my limited partners who religiously reads my
column: “Coach (referring to my recent analogy of former professional
football coach Tom Landry), call a time out! I think the other team is playing
with 15 guys.”
It sure felt like it Tuesday and
Wednesday.
But there I was, as mechanically as
possible — recalling how Coach Landry looked straight ahead, expressionless,
after his star QB just got sacked pushing his Cowboys back into another
third-and-ten situation — unloading another round of stock. Hey, this is
progress. To go back and forth, get chopped up here and there, make no money in
the process — for weeks, close up shop at the bell, and chalk it up as another
day at the office. Five years ago I would’ve been throwing chart books across
the room. If someone opened the door and walked in my office as one these
missiles was in flight…oh, well. The person should have known — don’t walk
into my office while I’m losing money!
All emotions aside, things are
obviously still a bit tacky in the market.
Although the Nasdaq Composite sucked
back down once again Wednesday, volume paled in comparison to last week’s
breakout volume. In fact, volume declined successively over the past two trading
sessions. This action is healthy during a base-building process. As long as
volume contracts on down days and expands on up days, the situation is viewed as
healthy.
Nonetheless, cheaters — those buying
stocks before they breakout — are getting cheated, especially right in front of
an earnings report. Take one look at what happened to Veritas Software
(
VRTS |
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PowerRating)
Wednesday. It never broke above its pivot-point and got slammed. Stocks that
even blasted out of basing patterns on huge volume got whacked on
better-than-expected earnings. Take one look at Copper Mountain Networks
(
CMTN |
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PowerRating).
Now there’s a beauty.
Then again, for every one of those,
there’s an Applied Micro Circuits
(
AMCC |
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News |
PowerRating).
As I pointed out in my last column,
the stock burst higher from the depths of its basing pattern late late week on
another huge quarterly earnings report — not to mention the fifth consecutive
quarter of accelerating, year-over-year quarterly earnings growth. What’s it
doing? Hanging in there. Take a look. If the market can hold and recover from
here, it appears to be forming a nice pivot. Bear in mind — as always — a basing
pattern isn’t complete until the stock can break out from it.
And you need that volume increase too
for a valid breakout.
Case in point, Siebel Systems
(
SEBL |
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PowerRating)
broke out from its basing pattern last week on only a slight increase above
average daily volume. The company came through with its earnings report but
dropped back to its breakout point on the heaviest volume in eight weeks. The
opposite of what you want to see in price-and-volume action.
Among some other recent breakout
attempts, Checkpoint Software
(
CHKP |
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News |
PowerRating) succumbed just ahead of its earnings
report Wednesday, crashing back below its recent breakout spot on one of the
heaviest volume days in the stock’s trading history. Not a good
situation. PMC Sierra
(
PMCS |
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News |
PowerRating), which cleared some shelf space on heavy
volume last week, closed just below the lip of last week’s pivot point, but
Network Appliance
(
NTAP |
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News |
PowerRating) hung in well Wednesday, likely on the strength of
fellow memory-device company EMC Corp
(
EMC |
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PowerRating).
Varian
(
VARI |
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News |
PowerRating) was certainly one
bright spot Wednesday. Following its heavy-volume breakout move a week ago, it
rallied strongly into the close on heavy volume. Just what you want to see from
a stock that tested its breakout point early in the session. The pivot-point two
weeks ago was 50 3/8. The intraday low Wednesday was 50 1/8. I’d say the line
in the sand has been drawn on this one. A successful stock — one with the
potential for substantial gain — should now hold this critical level.
Picking your buy spots carefully is
ever more important in this environment. How I long for those days when the
market easily hid my mistakes.
Some names are working, other aren’t,
while others are still setting up. Stay on top of your stops. Adjust the rules
I’ve laid at your own peril. Remember, your job as an intermediate-term trader
isn’t to make money on every trade. It’s to position yourself for the big
advances. Don’t confuse what’s going on right now with the future. As I wrote
last week, if you’re just beginning with this methodology, it’s been baptism by
fire. I’m here to tell you it’s really, really difficult right now. Don’t let it get
you down. I’ve been through it before. That’s why I can walk away from my office
on days like Wednesday without letting it get me down. As tough as it may be on
the nerves to feel good one day, only to back-pedal the next, it’s all part of
the process in the discipline.
If you want to play in the tall weeds
with the big dogs, you have to protect your capital.