We took a trip to Stop City last week as the market continued to come under pressure with exits in $ATHN +20.1%, $TOL -6.3%, $GOOG +11.2%, $LVS +7.6%, $SIAL -3.6%, $MCK +47.5%, and $GNTX -2.7%. All reasonable gains and small losses. As I said in a quick pep-talk here, when the exit signals come you should resist the urge to think what could have been, and instead feel a sense of triumph when you look back at the scoreboard. How we act at these stages of our process is crucial in determining the final outcome. Keep the losers small, run the winners until they’re invalidated, and don’t deny yourself the opportunity of fresh entries. Keep on keeping on.
In addition to the various exit signals we also took two new positions this week, in $IBM and $AA. The sell-off in traditional high-growth names has been notable, with many momentum names suffering significant declines culminating in IBD moving into ‘market in correction’ mode late this week. In contrast, we’ve been rewarded for concentrating not in high-growth momentum names per se, but rather wherever momentum appears, whether it’s in utilities or old-economy industrials and cyclicals. We weren’t able to re-enter many of the high-fliers we had played before like $NFLX, $PCLN, $TSLA, $QIHU etc on their last run higher because the risk/reward was less than optimal. As a result our number of IBD names has dwindled to just 3 this weekend ($ACT, $UA, $PKG which as if to underline the point are our three oldest positions by far) but our portfolio remains at around 20 names as strength in other areas of the market continues to provide us with new opportunities.
Here’s the summary of positions as at Friday’s close taken from our performance tab:-
SUMMARY AS OF 3/28/14
OPEN POSITIONS:- Total 20: 14 winners, 6 losers. Average win +21.5%, average loss -1.4%.
CLOSED POSITIONS:- Total 114: 57 winners, 57 losers. Average win +17.7%, average loss -7.1%.
ALL POSITIONS SINCE INCEPTION (1/27/13):-
Total 134: 71 winners, 63 losers (53% win). The average win is +18.5%, the average loss -6.6%.
As always we’ll look at our losers first, then the winners. Here are our 6 losers:-
Long $TYC 2/18 -0.8%
$TYC moved back into losing territory for us this week with a marginal 2-day break of its 50-day MA. It’s also sitting just above the breakout level that triggered our entry, and a return below $41.38 will take us out for a small loss.
Long $EBAY 2/25 -1.9%
Long $MOS 3/6 -1.9%
Long $CMS 3/17 -0.1%
Only a marginal loss here, but otherwise everything remains intact with utilities continuing to perform well overall. It will be interesting to see if that continues should the market regain its footing as the strength in these areas certainly appears to be more than just a safe haven play. New highs could see the stop move up to $27.74.
Long $IBM 3/26 -2.3%
Long $AA 3/28 -1.6%
Here are the 14 winners:-
Long $PKG 3/25 +68.2% (incl 6/11 div $0.40, 9/10 div $0.40, 12/18 div $0.40, 3/12 div $0.40)
This $PKG position is now a year old, and this current period of weakness from the highs is the roughest it’s faced so we could be nearing the end here. We’ve seen brushes with the 50-day before, in fact it’s breached it marginally on several occasions without taking out a previous level, and so far this looks similar to those. Currently it’s just above our trailing stop which sits at the breakout level and just below an ATR trail. A clean break of both of those will indicate it’s finally time to say goodbye.
Long $ACT 7/5 +62.7%
This is a good example of how I will sometimes use a confluence of factors to determine a trailing stop. As I’ve mentioned previously, I find initial stops relatively easy to place, they should by definition be placed where you are wrong but there is also a measure of risk/reward within that. For trailing stops it’s much harder to determine where you are ‘wrong’ as after a significant gain even with a reasonable decline it could still be argued compared to your entry it is still in an uptrend. It’s at this stage of the position’s life that the risk/reward element has to carry greater weight, and using a combination of factors can help determine an appropriate exit. Actavis has been a very successful trade, but already more than 10% from its highs it’s clear the uptrend is in danger. It’s already made a lower high and lower low and by that alone could have signaled an exit by some standards but that may be a little too intolerant for what has been such a strong trend. Instead I am using the previous low closing price from the last gap higher which coincides with the 50-day MA, and a generous 6x ATR. All are in very close proximity, and a clean break of all three would be strong evidence for me it’s time to step aside.
Long $UA 7/5 +89.0%
Long $BKW 11/1 +24.2% (incl 11/6 div $0.07, 2/24 $0.07)
Similar to the example with $ACT discussed above, $BKW has a confluence of levels just below here, and a convincing close below $25.32 would be enough to trigger an exit.
Long $AAP 12/4 +17.5% (incl 12/18 div $0.06, 3/19 div $0.06)
Long $PGTI 1/6 +9.7%
Another candidate for inclusion in the “Why I use closing stops” book chapter, just how pissed off would you be right now if you had been stopped on the intraday break of $10.69 on Monday only to see it finish the week at $12.08? It seems the volatility is here to stay with $PGTI, but this latest move has at least allowed us to tweak that stop a little higher to Monday’s close of $10.85.
Long $NVR 1/30 +2.7%
Long $VMC 1/30 +6.1% (incl 2/20 div $0.05)
Long $MSFT 2/3 +7.6% (incl 2/17 div $0.28)
$MSFT had kicked us out cheaply over the new year but thankfully gave us another opportunity to enter which so far has paid off. The appointment of a new CEO is well and truly behind us and the long-anticipated announcement of Microsoft Office for iPad appeared to keep the stock on the right track this week. Our stop is still a very comfortable distance away down at $35.82, but all being well in the next week we should be able to move that to the 3/14 close of $37.70 just below the 50-day MA.
Long $BRCM 2/10 +2.6% (incl 2/11 div $0.12)
Long $RAD 2/14 +7.5%
Long $TASR 2/19 +1.1%
Despite being embroiled in the recent momentum malaise, $TASR finished higher this week thanks to a healthy pop on Tuesday that saw it reclaim territory above its MA’s. Our stop has moved up to $17.09 which would keep any loss at a reasonable level and require another break of its 50-day, an ascending trendline, and price support.
Long $SRE 3/17 +0.4% (incl 3/25 div $0.66)
Long $WEC 3/17 +1.2%