Click chart to enlargeAbove we've posted a chart of RBCN now that its channel is becoming more clearly defined. We're using a 55 day moving average, because it best fits the chart. The fact that the average parallels the computer-generated linear regression line (shown in yellow) confirms the angle of the chart's ascent. It is at this point in a company's growth cycle (4 to 5 months in) where we start scaling into and out of our position based on the stock's position in its channel. With the stock at its neutral centerline, there is no reason to buy nor sell. If the stock drops to the green line, we add. If it rallies to the red line, we take some profits. In theory, when the stock is at the green line, you should have 100% of your intended position. This does not mean you should have no available cash. When the stock is at the yellow line, you should have half of your position. When it is at the red line, you should have no position. There are lines at the 25% and 75% marks as well, which we have not drawn. By scaling into and out of the position within the channel, one can increase profits and limit risk. We do not follow these rules verbatim. We like to maintain a 20% to 25% position in a strong stock even when it reaches the red line. Conversely, we only hold a 75% to 80% position when it corrects to the green line, allowing for intraday spikes below the line caused by the action of the broader market. However you choose to trade a stock, you should know that in most cases, it serves a trader well to coordinate their exposure with the stock's relative position in its channel, at least to some extent. We've many times sold entire positions in stocks blowing through the top of their channel, figuring we'll always be able to buy it back cheaper at some point in the near future. In over 90% of cases, this holds true. The top of RBCN's channel is at approx $37 right now. If it surged to $38 or $39 in the next few sessions, we would sell. Our money could be put to better use elsewhere while waiting for RBCN to come back to the yellow line, which it most likely soon would.
14 comments:
What if it regresses from the yellow line to the green line before you can take some profits. Do you hold or do you still take some off the table?
No difference than before... we're just holding. Now that the market is correcting again, we're going to look to buy all of the stocks making new highs lately, if we can get them at the bottoms of their respective channels... APKT, PANL, PPO, TIBX, VMW, etc.
We're not looking to buy more RBCN, even though we like the stock. A third of a portfolio in one stock is enough.
RBCN has become the weekest of the three stocks in the short term time frame. With upcoming earnings, does this usually mean insiders have bad information regarding earnings?
How short a time frame? A 5-minute chart? I dont see RBCN being weakest on any time frame. VECO looks to be held up only by its 200dma. That effect wont last long. VECO and CREE have both formed multimonth downward channels that mimic the broader market. I dont mean to sound bullish on RBCN, as I currently am not bullish on anything. But if I had to pick the one I believed would lose the least amount of money, it would still be RBCN. I would be bullish on RBCN if it can manage to break through the upper red line on this weekly chart. Such a break would target $45 if not more. I expect it will be 3-6 months before that signal is generated. A 38-50% retrace and a test of the 120-180 dma would seem appropriate here.
Icon I'd like to see your chart, my browser does not allow me to clicking on your link. Do you agree with Snot and his trend lines? Do you think RBCN will stay in the channel, or visit the 120 MA first before breaking out
I prefer to use this channel on the weekly chart. It tracks better with the 20 and 50 week moving averages, and appears to have more data points supporting it. I dont know why you cant see my charts, I tried it on different computers, and different browsers. It should work. Anyway, I see the strongest point of support at 27, but that is on the weekly chart. I cant see a good support when I look at the daily chart, but I would not be surprised if it hit 24 intra-week. That is the bottom of the channel I have drawn. Note that the bottom of the channel is rising steeply, at about 30 cents a week. I would be a willing buyer at 25, and would even allow as much as 10% loss on the position before bailing. The trouble is market sentiment is bound to be pretty bad if this thing does get down to 25. But then again, that's where it was the last time I was bullish!
Thanks for your input Icon, you reminded me to look at more than one time frame when looking at charts. I noticed you used a log chart for the weekly. Is that normal to use?
Is HAO forming an uptrending channel, Snot? If it is, since it is an ETF, then it should contain some best-of-breed components, right? But it is China, so you aren't interested, I guess. Remember LDK external accounting days? Take a look at the ONP scandal.
Anon, Icon is right, you'd have to be looking at a 5 minute chart to see any weakness in RBCN. You should take a step back and only look at a daily chart, or even better, a weekly one. William O'Neill recommends only using weekly charts because they filter out the noise and keep you focused on the big picture. There's a lot of truth in that.
Joe, HAO may be forming an uptrending channel, but we usually only look at stocks at or near 52 week highs when talking about channels and such. Hao is still down considerably from where it was just 3 months ago.
Just a hunch, but we feel that the recent market correction may have ended. It's too early to tell, but we may be making an upside move thru the 200dma's on the indexes soon. Corrections end only after running for a few months. We're at a point now where the market has been weak for almost 3 months (since the end of April). Every 3 to 4 months, people get bored of monotony, and need change. Small corrections like the one we just had usually reverse course after 3 to 4 months. If our hunch is right, stocks like RBCN, APKT, PPO, & PANL could be on their way to making new 52 week highs shortly (within 4 weeks, but possibly much sooner).
So tired of same names in general in market. student body left student body right.. all go up or all go down flip a coin in this market.... wish a fresh new theme emerges soon .. LED still seems like a go to theme but man eventually analysts going to figure out these tool sales by aixg veco goin to top out soon.
SNOT any suggestions on any new themes or stocks that look good?
Snot mentioned many stocks in this exact thread. Not all LED companies
Anon, we're always looking for the next big thing. That's one reason for this blog, so we can all pool our resources and find it sooner.
Sometimes, the next strong sector is something short-lived and very unexpected, as it was with fertilizer. Other times, you just know something huge is happening that will lead to a multi-year bull market, like the internet. Until we start seeing the next hot sector emerging, we have to stick to what is popular at the moment. LED still has some room to run, although granted it will hit its peak in the stock market in under a year's time.
Post a Comment