Why I’m Taking Profits Earlier Than Usual
The
major averages had trouble following through on Monday’s rally.
This doesn’t come as too much of a surprise since the volume was so
light on the rally. Tuesday’s
trading could be interpreted as slightly positive since the pullback came on
lighter volume than Monday.
Regardless of how
the overall market is acting, the growth sector has not lured us in a whole
lot. Garmin
Ltd
(
GRMN |
Quote |
Chart |
News |
PowerRating) broke through its pivot of 25.90 yesterday and has
held above it so far.
But for every
chart that shows success; there is at least another one showing a stock
falling apart. In the example of Hotels.com
(
ROOM |
Quote |
Chart |
News |
PowerRating) below, there was ample warning because the stock broke through its
pivot of 64.47 on light volume and pushed higher on light volume.
Biosite
(
BSTE |
Quote |
Chart |
News |
PowerRating) is another 52-week high breakout that had a nice follow through
today.
The only problem
is that to stick with these for any length of time, one must be willing to
trade back below their purchase price. Sandisk
(
SNDK |
Quote |
Chart |
News |
PowerRating) is an example. The
stock broke out on 11/18, through its pivot of 21.90.
It went on to peak with a 33% gain before bouncing off its 50-day
moving average almost 5% below the purchase price.
True winners should not be giving back gains this quickly.
Right now, it is
time to be very picky in buy candidates and use very solid money management.
I have found myself taking profits on part of my position earlier than
normal because nothing has gone on to large gains.
Ebay
(
EBAY |
Quote |
Chart |
News |
PowerRating) is setting up to break out to a 52-week high.
By piercing 70.95, it will then face the true test.
Admittedly, many of the market’s recent winners have all come from
the 52-week high category. The
only problem with this group is that they carry the additional aspect of risk
that overhead supply provides.
There’s very
little doubt in my mind that success in the growth sector will boil down to
the overall market’s health. So
far, the NYSE has had no problem posting distribution days, but they have all
come on lighter volume, similar to mid-October.
The Nasdaq is still the leading index and price and volume have
performed very well. More
conservative investors may consider sitting on the sidelines right now.
Aggressive traders may utilize good money management and discipline to
enter positions and “test the waters.”
Until Thursday,