I'm Dan Fitzpatrick at StockMarketMentor.com on Tuesday August 7th.
I want to do a quick check of Solarwinds ( $SWI SolarWinds Inc. ). Now to members,
as you know this is one of our Buzzin' Dozen, that's twelve stocks that I
chose
that are pretty high growth, they've got established growth rates that are
definitely strong and consistent and the P/E ratios are pretty reasonable; in
other words
you got growth at a reasonable price, Garp, the world according to Garp,
and then also you've got a PEG Ratio, very attractive
PEG Ratio, years where the growth is much stronger or higher than the P/E or the
multiple.
So this was one of those stocks
and what I had mentioned was this was a stock that was not conforming to the
50 day moving average where typically
you know you see so many up trending stocks hit the 50 and bounce off,
hit the 50 and bounce off, same thing here.
Well this actually
wasn't doing that,
instead it was falling below
the 50
and so my suggestion was
look at this
stock down here, look at where it's trading,
here's where it was on the ninth when we first came out with this, right here.
Why? Because the stock was doing what it was doing before.
Now, where's the stock now?
From the ninth
it's up almost 40 percent,
nice trade, awesome trade, Dan you're the greatest; no,
not so much,
though my two dogs think I am, they think I hung moon, but that's
because I feed them;
no, the nice thing about this stock, it was so easy
to buy
because it printed a really, what
now seems obvious but at the time
was not really so much,
an obvious low
that you could use to define your risk, you could set a really tight stop on
this so that the only way you're going to get stopped out
is because
the stock is falling to a newer low, in other words you thought this was a
bottom it turns out it wasn't. Bam!
You're out.
That turned out not to be the case
and the stock did
what we wanted it to do, what we were hoping that it did,
but we didn't know that, at least I didn't know that for sure, you don't know
which trade is going to turn out to be really, really
good and which trade is going to wind up being a stinker
until after it unfolds; if you did then you just wouldn't take the bad trades
and you'd double down on the good trades.
We didn't know
that this one would be this great
but we kind of had a feeling
just because of the pattern, I mean if you're going to look at the pattern
of support
you've got to look at the pattern of resistance
which leads us to present day.
Isn't this right up at the top of resistance? It's right there. At the
same time these Bollinger Bands, the lower band is hooking up.
According to John Bollinger in his book, I think he wrote this in his book,
he might have been
just talking to me about it, I worked with John for a very short period of
time several years ago,
probably about 10 years ago,
on something other than just strictly trading, but anyway
he had mentioned that when the lower band hooks like this
a lot of times it kind of forecasts 0:03:47.149,0:03:50. a decline in quote, "Upside volatility,"
it reflects
let's just say bans that are going to wind up getting a little bit
closer together, stock's gone too far etcetera, etcetera. So do you sell
Solarwinds ( $SWI SolarWinds Inc. ) now?
No, but at least you protect your profits with a trailing stop; maybe you want to
set the stop down there, that seems a little bit
wide for me
because if the stocks going to pull all the way back down to here
I don't just then want to be selling the stock; so instead
I would wind up having to stop on part of my position at around
$54.50 or something like that; that way I'm only
giving up two points
of decline.
If this little teeny tiny pattern continues
I shouldn't get stopped out,
if it doesn't continue, and in fact the stock moves
lower,
in fact we'll look at the low here as $54.30,
if it eclipses yesterday's intraday low of $54.30 then that would be
different;
so I'd want to keep my stop actually like at $54.25,
that's $2.50, it's about a little less than five
percent and that's an okay risk for me.
Anyway, I hope
that helps. Members, get to the Strategy Session I've got
a lot to say about stops and how to use them
as well as what's really going on
with this market, so knowledge is truth knowledge is power,
so let's get powerful; I'll see you there.