Saturday, July 26, 2008

Some Chart Continuing Ed.

I received an email asking why I would wish to buy what is rising and making new highs and sell what is falling making new lows. In response I offer the following 4 case studies in an attempt to continue to educate ourselves in the field of speculation.

The tape on Crocs (chart above) would permit someone to write a lengthy PhD paper. Yes very easy to say in hindsight. The chart above contains my last comments made Dec 17,07 in a post Gold and Crocs, before I moved on to greener pastures. Do you think I would have had the brains to take my own advice and short it thru $39. Was a move to 10 and below not attractive enough a scenario? The signals not only to get short and STAY short were aplenty. The gap down in early Nov, the break of the bear flag in late Dec, and the continually forging of lower highs and lower lows. I know, you are thinking how could you expect me to short a stock with a product everyone (strangely) loves after it had already dropped from 75 to 39. Didn't I miss the move? I should think this chart, consider it exhibit 1 quashes that argument. Remind me to get my head examined immediately.

The tape on Blue Nile (chart above) shows where I outlined a textbook head and shoulders topping pattern. Readers know I went short NILE as the neckline was violated to the downside only to be shaken loose and stopped out. At the time a reader had emailed asking why I would consider shorting a stock that had already dropped from $105 to $72. In hindsight I should have persevered and been right back on this trade. Consider this chart exhibit 2 in defense of selling what is falling and making new lows.

The tape on Garmin (chart above) shows my last comments at the time on the stock. Originally I believed the action of Oct-Nov to be a continuation rectangle on Garmin. The stock broke and rallied back into the rectangle, failing to recover more than half the distance, a clear sign the bears were in charge. Needless to say, once that last rally fizzled and those "in the know" unloaded their stock on the knaves out there who still believe a bargain is measured by how many points off the top the stock has sold off, the stock commenced its free fall. But don't fret Garmin is a wonderful company with a fantastic product. Consider this chart exhibit 3 in the defence of selling short low and covering back even lower.

Just so you don't think I am a perma bear, I have included the tape of James River Coal (chart above). In my last post on JRCC, even then I counselled myself and others to be patient. Now, if only I knew what the darn word means! The stock bottomed and turned offering a patient and disciplined speculator plenty of higher highs and higher lows with which to guide his/her actions. $16, $20, $24, $26.75 all speak loudly to this speculator. Now, how on earth could a trader buy a stock at $26.75 after it had run from $4? Consider this exhibit 4 in the case of buying high and selling higher.

These 4 charts should be a distinct reminder that your speculative endeavours can run much farther to the upside than you can possibly imagine when you start and that the converse is true, that shares, of even the most venerable of names can fall farther than you can imagine, ruining your monetary capital, your mental trading capital, along with turning you into a plain ol' miserable person.
Ask yourself how comforting it is to own General Electric, Proctor and Gamble, or Merck when they have declined significantly, and are still dropping. You can stop listening to the drivel Vince Farrell spouts about dividends, cushioning the blow. How many years of dividends have been vaporized by GE's decline from $50 since 2000.
I am taking a break on Monday and Tuesday of this week. I will be monitoring the markets as I always do but I will not be posting. Of course if something really crazy catches my eye, like say Sheila Blair of the FDIC along with the Chris Cox of the SEC claiming that bloggers and shorts are responsible, not only bank runs and the demise of financial shares, but also West Nile virus, the bird flu and the common cold, then of course I will post on it !
Good speculating to you all, have a great weekend and please, please never, ever forget that "an investor is a speculator who made a mistake and will not admit it".

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