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Wednesday, January 18, 2006
Market Recap
Last night after the bell both INTC and YHOO released their earnings reports and both missed the analyst expectations. As a result, both were hammered down 12% today, weighing heavily on the indices sending the Dow down by 41 points, the Nasdaq down 23 points, and the S&P down 5 points. INTC is in the Dow and both are in the Nasdaq 100, and both of these heavy weights took their toll on the indices. More big cap bellwethers released their numbers after the bell today as well, including AAPL and EBAY.
Why Do We Sell?
We have received some emails and questions on why we are selling stocks with great charts. That is a great question, and we will attempt to explain why we sell stocks even when we say the chart still looks great technically.
The reason we sell is simple - stocks do not go straight up. We like to believe that if our T/A is correct, then we will be selling at exactly the right time, just before the stock pulls back for a correction. When it does pullback, we will try and enter at a lower price and ride it up again for another gain (providing our lower entry is also correct). We could just hold these strong stocks, but there is no point of holding a stock when we know they are extended and pullback is coming.
We may not always be correct and we may sell early as in the case today with INSM. We sold it for a 10% gain this morning when it looked extended in a market that was selling off. We were wrong. The stock went on to gain 25% from our buy point - an extra 15% profit left on the table.
However, this does not happen often. More often than not, when we sell a stock, it tends to fall back and end up closing the day lower than where we sold it, setting up a possible re-entry within the next couple of days. Also, by locking in profits, the portfolio value grows. When this value grows, it means that the next position we take will be slightly bigger in dollar size. The 10% position size is now slightly bigger because 10% of the new portfolio value is bigger than it was before. Buy selling stocks and closing trades, we can compound our gains (roll our gains into the next position). Also, by selling over extended stocks when the overall market is also over extended and due for a rest, we do not get stuck holding stocks during a big sell off like today and yesterday.
Our Portfolio
So far in our trading this year, we have had 15 winners and 8 losers with an average gain of 9.15% and average loss of only 1.8%. This is a 65% success rate with an average gain 5 times the average loss. These numbers are incredible and we would be hard pressed to find anyone in the universe with numbers like this considering the pullback in the market over the last few days that has given back a considerable amount of the gains made in the first two weeks of the year. 26 closed trades in 11 trading days is a lot of trades but this quick hit and run type trading is what we do well. It is working and has allowed us to grow our portfolio balance by 12.5% in the first couple of weeks of the year. It has also us positioned with plenty of cash to take advantage of this market weakness.
Today's Bonus Chart: ENER
Click the following link to view today's bonus chart in the Public Chart lists:
http://stockcharts.com/def/servlet/Favorites.CServ... (first chart) |
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