Click chart to enlargeVECO & AIXG fell today, supposedly on "news" that Applied Materials and Samsung are going to enter the MOCVD market. We frankly don't care what the "news" is, or what it means to the company. All that matters to us is the chart and the earnings. The chart has been showing increasing signs of waning strength versus the other LED issues. We traded in almost 2/3rds of our VECO holdings for shares of CREE and RBCN yesterday based on this relative strength issue. We did not have advanced knowledge of today's impending "news". Approx 12% of our portfolio is still invested in VECO. So where do we go from here?
First we look at the chart. The chart is at a very critical point, resting on a fairly long term trend channel. This trend channel was reiterated by its moving average until its recent rally took it well above its normal trading range. So we don't have a moving average to rely on, but we do still have the channel. Either VECO will rally strongly from here, solidifying the support its channel has created, or it will break down hard. One of these outcomes could happen as early as tomorrow, or it may happen after the stock trades around this support area for some time.
Either way, our discipline is certain... we let go of stocks that break down hard and close at their lows (intraday spikes don't count, especially if brought on by a spike in the broader market). Regardless of what they do after decisively breaking down, we sell and never look back. We try to always look to the future rather than dwell on the past. Right now, until/unless they follow suit, CREE and RBCN look very strong relative to the market, and we will continue to buy them on dips instead of buying back into VECO.
The psychological aspect of this is as follows... stay focused on the goal. The goal is not to have made a good trade on an LED stock, namely VECO. The goal is to double the money you've invested in the LED sector during the craze before it's over... then find the next craze and do it again. Finding the stock that will make that happen is never easy. Nor is the discipline required to trade in a way that will make that goal a reality. Keeping your capital invested in the highest relative strength stocks in a strong sector is a sure way to beat the market. But you have to be flexible, and remain focused on what your bottom line will be in December, not what it will be next week.
We will continue to closely watch CREE and RBCN for signs of high relative strength, or waning strength, whatever the case may be. As for now, neither stock is disappointing on that level. Although both are off their highs, they are both higher than they were on April 1st, which cannot be said about VECO, MRVL, AIXG, or the indexes.
5 comments:
Thanks Snot. Hard to find good advice like this these days. Stock boards are normally filled with shattered hopes and dreams, which can easily make one lose sight of reality.
I have a chart with 3 CREE scenarios. What I am looking for is a scenario #2. If we get scenario #1 or #3 I will short at the tip of the black arrow. If it looks like scenario #2 is going to unfold, I will add leverage in anticipation of the break. Look for an explosive breakout if that exact pattern materializes. It needs a minimum of 5 days to form this pattern, and it has a maximum of what looks like 10 (trading) days. Note there are many bearish scenarios as well but I am not focusing on them.
I'm sure CREE will do D) none of the above.
So far so good. CREE is currently trading right where the first leg up for scenario #2 (B) should begin. All we need is for CREE to close in this vicinity ($65).
Icon, I can't read/see your chart. Would you provide the link again? I'm interested in whether or not you gave 3 possibilities: up, down, and sideways. If so, I am going to go out on a limb and say that you will be right on one of them. :)
Post a Comment