What I Suggest On Any New Longs
Well,
the market keeps going up. The major indices are all hitting
new highs. Things look good. The long side has been far more profitable than
the shorts. Caution is still warranted, though. The market appears overdue for
a pullback. The VIX closed at its lowest level in a year and a half. I would
consider taking quick partial profits on any new longs. We should get a pullback
soon, and when it occurs, it will be important to see if it is orderly and on
low volume, or whether it occurs violently on high volume. Always watch leading
stocks for clues. If the pullback appears orderly, then more aggressive buying
may be warranted.
Sometimes when a stock approaches
it’s pivot point, but already appears to be extended on an intraday chart
it can cause traders anxiety about whether they should buy it. Many times traders
have trouble pulling the trigger in such cases. If you’re among this group,
you can consider using intraday patterns to gain a lower-risk entry even after
the breakout.
Let’s look at some
charts of Accredited Home Lenders
(
LEND |
Quote |
Chart |
News |
PowerRating) to illustrate this.
As you can see from the
daily chart below, LEND had formed a cup and handle on the daily charts as of
Friday. The high of the handle was $22.70.
The breakout from the handle came on Friday. The 5-minute chart below shows
the action on that day. You’ll notice that prior to the breakout the stock
already had a sharp run-up. If you hesitated pulling the trigger on the initial
move through the pivot, you had at least two more opportunities.
A purchase of a breakout
of either of the subsequent consolidations would have been a valid trigger to
go long. (Short-term traders would have placed their stop beneath the low of
the 5-minute consolidations.) The fact that LEND hardly pulled back at all during
the day further exhibited the strength of the breakout.
If you fail to pull the
trigger the first time an opportunity presents itself, keep an eye on the stock.
Further opportunities frequently arise, and many times you may find a lower
risk entry.
Happy Columbus Day,
Rob Hanna
robhanna@rcn.com
P.S. Pedro Martinez is the
biggest jerk in baseball. Go Yankees!