Wednesday, July 20, 2005

Using this rally to trim down

One of my mentors Piranha has posted a timely analysis of one of the latest stocks in play, XWG. You can find his post here.

This morning I trimmed my position in XWG from 2 lots down to 1 because the volume is not big enough to make me think it can have a sustainable breakout. When I see XWG sitting dead in the water, up 5 to 7% at the open on 9,000 shares traded, I know the train's not leaving the station yet. I've mentioned somewhere in the comments on this blog that my best guess at what XWG will do is consolidate under the old 52 week high for a week or two before breaking out above it. I'm guessing it'll see a 10 to 20% decline from today's close at $8.94 before it sees a new 52 week high. Fortunately, this would be the best case scenario because it should be able to run up quite a ways from a good handle. A breakout now is probably immature, more risky to sit through, and won't carry as far.

By taking some profits now I've positioned myself to be a buyer near the low of the handle and again at the breakout rather than getting stopped out where I should have been buying because I'm carrying a loss. And if I'm wrong and it does breakout here, I can always buy more at the right time. Jarod and I go back and forth on the phone all the time about whether blind trend-following or tape-reading is better. I'm more in the blind trend-following camp, but its tough to argue with Jarod when he says great things like, "if you know its going to get cheaper, then why not just sell?" And he's right. There are times when it is pretty clear things are going to get cheaper even when trend-following doesn't say sell yet.

I also trimmed down positions in SPIR and CTTY this morning for two reasons. These stocks were getting overheated, meaning I think without a doubt they will see cheaper prices than where I sold this morning at some point in the near future. And I also think the whole market is likely to pull back after testing highs that go back for years. These past couple weeks have been such a gift to me, I don't want to squander away my gains. Even people need to consolidate and digest gains every now and then. Especially "average up" people.


At 9:24 PM, Blogger jwu said...

nice comments/insight on XWG. i've been watching this stock but i havent got the guts to play it. good luck

At 12:06 AM, Blogger jontait said...

Its funny you mention that jwu. You know, the only reason I go for the jugular on these ridiculously wild stocks? Its because I know when to get out when I'm wrong, and I know when to get out when I'm right. With these volatile sorts of plays, the exit plan is _key_. I've posted my exit plan for my large DSTI position on the blog tonite, I hope it helps.

I'm no expert, but I'd be happy to discuss exit strategies further in email, so drop me a line if you're interested.

At 12:44 PM, Blogger sung said...

Hey jontait,
I like XWG and I still hold it. I posted a chart of XWG on my site why I think it should go higher. All based on technical.



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