Sunday, December 25, 2011

Stock of the Week: December 25th

Ok - before I get onto this week's stock, I want to address my success last week.

Let's consider all of the details. First, I had $500 to start with, less $10 for the purchase commission - so I ultimately had $490 to spend on a stock. DVAX was originally quoted at $3.07 last Sunday, but since it opened at $3.00 on Monday, my trade executed lower, and I actually got in at that lower price. So my total account looked like this:

$477 stock value (159 shares at $3ea.)
$13 cash
Total Portfolio Value of $490 (original $500 less $10 commission)

On Monday, the stock closed up at $3.02, but then on Tuesday it went up to a total share price of $3.23. Multiplied by 159 shares = $36.57 total profit! Wednesday, when the market opened, my order to sell was executed but this time at $3.37. Nice! That's a $58.83 profit!

Since I'm working with such small numbers, I sold on Wednesday because I really don't have the luxury of waiting another day to really follow the trailing stop strategy found here. Not only that, but I've told myself that I want to make a 5% monthly return on my trades. With these profits, I've already hit that mark and with only one trade. Let's see how that works out.

If I had a total portfolio value of $490 and take my $58.83 profit, my portfolio value just increased to a total of $548.83. Now, since I'm selling I will have to pay another commission fee of $10. This drops my total value to $538.83 - I've made $38.83 in two days. That's a 7.766% return. Since I've already surpassed my mark, I could sit back and not invest for the rest of the month. I want to remove emotions from the trade and since I have a goal in mind, I figure its easier to take my profits and live to trade another day - but I also want to continue increasing my revenue.

This week, I'll bank the $38.83, and only trade on the original $500. Less the $10 commission, I have $490 to spend on this week's stock seen below. Same rules as last week. If my portfolio drops by $15, I sell and get out of there to minimize my losses. Worse case scenario, I lose a total of $35 and I still have a portfolio value of $503.83.

So this week I'll be looking at Charming Shoppes, Inc.

I'm not actually going to buy into this stock yet. It doesn't have the right feel. I'm hoping that it will turn around in about two or three days. Notice the engulfing pattern of the last two days. Thursday closed down really low but then there's a nice hammer candlestick on Friday. This looks to be an indicator that the stock will drop a little further. Not only that but the volume of movement looks like it's kind of stagnant. And if we consider the Williams %R indicator, it's still overbought.

Finally, if we consider the two different wave systems, we notice first in the Elliott Wave system that we are most likely heading into wave 4. October 10th marked the beginning of wave 1, and November 25th the end of wave 2.  We should now be at the peak or end of wave 3 and heading into a corrective wave 4.

This seems to jive with Craig's 4 wave swing system. The stock trades sideways in November making up wave 1, then we see a breakaway at the beginning of December into the 2nd wave. We should now be at wave 3 heading into wave 4.

If the cards fall right, we'll swoop down through Craig's wave 4 and then back up into an Elliott Wave 5 - hopefully by the end of this week. We want to watch for the candlesticks to drop into the TAZ, as Craig calls it, Williams %R to drop to a -80 and hopefully also see a spike in volume with a doji or thin range hammer candlestick pattern.

One final reminder about my conservative approach - I've already met my 5% mark this month so if I don't trade any more stocks this month I'm ok with it. Even Craig says on his website that staying in cash IS a trading strategy. So if CHRS doesn't turn out the way I expected.... meh.

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