You’ve Got A Huge Profit! Now What?
Riding A Winner
On 03/31/05 (a), First Marblehead
(
FMD |
Quote |
Chart |
News |
PowerRating) was
mentioned as a possible pullback (see archives). On the following day, the stock
gaped higher(b) but quickly reversed. On the same day, I did an audio/visual
(email me if you would like a copy) on how to play opening gaps. Then, on
04/04/05 we get an “official” entry based on those rules outlined in
my swing trading primer (as usual, email me if you need a copy). Now, let’s
follow up on what has happened since then. Assuming a 2.5 point
stop/initial profit target (as suggested in my primer), after some initial
“heat”, the profit target is hit. At this juncture partial profits
could (and should) have been taken and the protective stop was then moved to
breakeven and subsequently trailed lower. Fast forwarding to today (Friday
4/29/05), the stock gaps sharply lower and continues to drop throughout the day,
losing over 12 points total–nearly 25% of its value. When blessed with such a
windfall, make sure you scale out of additional shares. This reduces exposure
and gives you the luxury of using a more liberal stop on your remaining
shares to (hopefully) continue to participate in a longer-term move. I’ll “walk
through” this example day-by-day in Wednesday’s weekly audio/visual
interactive presentation. Â
On Friday, the Nasdaq opened higher but immediately began to
sell off. However, after probing new lows for the year, it reversed and then
generally worked its way higher throughout the rest of the day.Â
The S&P put in a somewhat similar performance.Â
So what do we do? For those of you keeping
score at home, Friday goes to the bulls. The fact that the market probed new
lows but reversed to close well and higher is a positive. However, this in and
of itself isn’t reason enough to call a bottom. The Big Blue Arrow still points
down. Further, the market remains below a significant amount of overhead
resistance (illustrated above in the charts). So, should we still be
shorting? Well, I’m concerned about the recent sideways trading
action—the nemesis of a momentum trader. Therefore, instead of initiating
new positions, honor your stops on existing shorts and take partial profits as
offered.
No setups tonight. Once we break out of this range (either
way) we should start seeing setups again.
 OtherÂ
Recently, I mentioned that the recording for the 4/20/05
weekly audio/video did not work. The programmers (thanks Conrad!) were able to
salvage this file. Email me if you would like a link to this presentation and to
the the archives of presentations for the last 9 months (covering topics such as
scanning,
sector analysis, entries, money and position management, potential
opportunities, market timing etc….). Â Â
Best of luck with your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. Learn my newest and most advanced version of my Bow
Ties Strategy. Click
here for details.