Wednesday, January 18, 2006

REDF: watch list item gone sour



REDF was featured on my watch list for this week so I thought I'd use it as an example of something I would not buy after seeing what it did on Tuesday and Wednesday. If I did own it and hadn't sold yet, I would get out ASAP.

The problem with REDF right now is that, from a trader's perspective, it will be getting cheaper before it gets more expensive, meaning that shares sold now can probably be bought back for less in the near future. Aggressive traders don't bat an eye about taking trades like that. I should point out that REDF is already past the optimal sell point, which was on the first day that the price closed below the lower-channel line (drawn in purple) on large volume. This happened the day before today. Late in the day, if you're looking at intra-day charts, it becomes pretty obvious that a close above the line isn't going to happen and the stock should be sold.

So what do I look for from here? I will watch for the stock to carve an upper-channel line that slopes downward across price peaks. When I see an impending close above that line, then my outlook will become: the stock will get more expensive before it gets cheaper. That is a trader's buy signal.

I probably won't trade this stock because there are too many other interesting fish in the sea, but it makes a nice example.

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