Vital Signs
Fewer setups are presenting now. Let’s
keep our eyes peeled. Our list of base builders doesn’t have to expand every
session, but over time, we need to see more high relative strength stocks set up
behind the first wave of breakouts.
The financials are acting well. Home
builder and mortgage company Ryland
(
RYL |
Quote |
Chart |
News |
PowerRating) is 12 weeks into a
cup-with-handle base. Given the sharp move up the right side of the cup, I’d
prefer to see the stock put in more time, lengthening its handle on declining
volume. But sometimes these highfliers don’t stop for long before breaking out.
Lightly traded FirstFed Financial
(
FED |
Quote |
Chart |
News |
PowerRating)
is basing.
Vital Signs
(
VITL |
Quote |
Chart |
News |
PowerRating), which went on
our base-building radar on April 25 and broke out the next session, moved ahead.
One money management rule for pyramid builders: Don’t add to a position until it
has advanced far enough so that if you are stopped out of your second position,
you still have a gain in your original position. This is what Mark Boucher calls
“creeping commitment.”
Lehman Brothers
(
LEH |
Quote |
Chart |
News |
PowerRating) broke out of
a cup-with-handle on average volume. Not the best-looking base and not much of a
prior price uptrend. But it’s good to see buyers coming into the big financials.
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.