Monday, May 08, 2006

Watch list for week of 5-8-06

Here are the interesting bases flagged by my market homework software for the upcoming week:

Dave Johnson asked in the comments last week how I use these weekly lists to trade. There are some good examples of how I look to trade these emerging bases in my blog archive from July 2005. The answer is that I use this list to make discretionary trades in a specific fashion. I've been buying longs exclusively since October of 2005 (no short positions since then) due to the slight up-trend on the nasdaq that began at that time.

I pyramid into each position a little differently than is convention. I start by trying to buy as closely to support in the base as I can. Sometimes this takes a few tries to get the best price. For example, I bought PTMK on Friday when an intraday surge of volume came into it making me think it was going to have a very short-term breakout. However, it did not follow through, so I may sell the shares I purchased at $10.58 and put a limit order to re-buy them around $9.85. The price may follow through on Monday though, so I may be good to sit and do nothing. The 50 week SMA line is $10.36, the 10 day SMA is $10.42, the 50 day SMA is $10.46, and the low on Friday is $10.30. If all of that support is broken, then I will stand aside while the shares get cheaper, and as long as they stay above the recent low near $9.60 I'll try to get long. I'll add more to my position if the stock breaks out past $11.50 on volume. This means I've already got a profit when activity comes into the stock. I like to play from a position of strength and this is the best way I've found to do it.

I buy in such a way that I don't need stops. There are three reasons for this. When I make my first purchase, I buy in such a way that a close below a clear support line is my que to abandon my campaign for that stock. This recently happened to me in NDAQ, which I sat in for 4 months before realizing the loss and abandoning my long NDAQ campaign. The second reason I don't use stops is that I've only got a fraction of my position on while I'm waiting for the stock to decide whether to break up or down. An upward breakout out of a base I've bought is my signal to add to that profitable position. The third reason I don't use stops is that I have the discipline to pull the trigger to unload each and every time my campaign doesn't work out as I expect and while my losses are small and managable.


At 9:35 AM, Anonymous Jeff said...

Interesting Jon, thanks for the description of your entries. Sounds like your timeframe might be a bit longer than some of us, but your pyramid entry method is good food for thought!

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