Let’s talk about that Pete. You don’t consider a tight a proper buy point? It was in a stage 2 uptrend. I bought 2.5 percent from the pivot point, below the high.
Andy
Arindam, Could you show me one on NVDA?
Andy
The NVDA Conundrum.
Has NVDA run to far? Is it too extended? Is it showing climax run characteristics? Is this another one-day correction? Should I lock in some gains with an “offensive sell”. Let’s discuss.
Yesterday, it was 36.6% above its 50dsma. I think I heard this was highest above 50dma for a long time. Today, we started up but then had a downside reversal, a sign of weakness. But only 3% lower than yesterday’s close. Also, it activated the “8-week-hold” rule (more on that below). The last base was only a Stage-2.
Here’s the chart…
• IBD has two main rules for selling a stock: Take your profits at 20% to 25% and cut your losses at 7% to 8%.
• But there is also a third option, one that can take your 25% profit and turn it into much more. It’s called the eight-week hold rule.
• If your stock produces a gain of 20% or more within three weeks of breaking out of a proper base, you may have a true winner on your hands.
• IBD research shows that in many cases, stocks that make this quick and powerful move are capable of doubling or tripling in price. Unless your stock shows a clear sell signal, you should sit on your hands for the first eight weeks of such a move.
• Unless you are in danger of a complete round trip of gains, hold your stock for those eight weeks. It may appear to wane as it pulls back to or just below the 10-week moving average, but this action is normal.
• After the eight weeks lapse, it is time to reassess the stock. It’s likely your stock has returned to or surpassed the area of initial strength, and you can then decide when to sell and take profits.
• From his book: (Which is a little different the notes above)
○ Major advances require time to complete. Don’t take profits in the first 8 weeks of a more unless a stock gets in serious trouble or is having a 2 or 3 week climax run up on a stock split in a late-stage base.
○ Stocks that show 20% profit in less than 8 weeks should be held through the entire 8 weeks unless they are of poor quality without institutional sponsorship or strong group action.
○ In many cases, stocks that move dramatically by 20% or more in 1-4 weeks are the most powerful stocks of all - capable of doubling or tripling. Try to hold it through the first couple of times it pulls back in price or slightly below the 10-week moving average price line. Once you have a decent profit, you could also try and hold the stock through its first short-term correction of 10%-20%.
NVDA qualifies for the hold rule. It is only 1 down day. We are due for a correction. It is still above 21dma and 50dma. All the above advice says I should still hold this. So for today, I will.
Thoughts?
Fair enough. On the weekly it did have a 3-weeks-tight pattern. IBD says this is an add-on point and when the team chats about add-on points they say keep it small, like 10% of your basis. So, if you don’t own any to add-on to, then I don’t know the rule, but I would guess you should not but on more than 10% of your typical position size. If there were a 3-weeks-tight on the right side of a base, I would likely take a small “early buy” in anticipation of a future breakout.
So, was this a mistake to be learned from? If you bought a 50%-100% position size, then I will say that was a mistake and should not happen again. If you bought 10-20% size, then sure, try it again. 21-49% probably a “suboptimal” risk and should not be attempted again.
Just what I would want to think for myself.
Pete
Thanks Pete that was well thought out. Here is what I put as my post analysis on the chart.
"Bought ASPN at $30.93 on 6/12/24. Company on a tear. Stop at $28.45. Buy point was at $31.74 coming off a 3 week Tightening pattern.
6/20/24 Sold at $27.99 down 9.5 %. I think I need to set my stops tighter. Also it is still in the tight area and never broke above the buy point. So it is still consolidating. I should have waited for expanding volume and bought above the buy point."
I am still learning and making mistakes but each one I learn a little more. Thanks for your input.
Andy
From Wall Street Zen:
NVDA ($135.58) is overvalued by 139.92% relative to our estimate of its Fair Value price of $56.51 based on Discounted Cash Flow (DCF) modelling
Wow Arindam thank you.
Andy
The only thing that will make me sell NVDA is if it drops below the 50SMA. I have had the stock for awhile and so have a nice cushion on it. I think the growth in NVDA has further to go and TSM is building more foundries to support them.
Andy
Andy,
Calculating ‘fair value’ or ‘intrinsic value’ is a tedioius, thankless exercise that depends on making lots of assumptions and lots of projections. The hope is that the future will vindicate a stock’s current "overvalution’. It might, or it might not. Hence, the accusation that most "investing’ really is just ‘gambling’. But valuation calculations can offer warnings and after-the-fact explanations.
NDVA is on a rip and has been so since early Jan '24. But ASPN is another matter. It began its move up last Nov, and it just completed its third wave up. Hence, that trade was already long in the tooth.
Worse, your entry on June 12 had zero technical justification. But getting in May 20 would have been justified.
I have noticed Charlie that Simon Sez and IBD rarely agree and the main reason I think is that Simon is based on value investing and IBD is based on momentum investing. So it is completely logical what you are saying. But the main lesson I have learned, is always go in with a risk management plan thought out. That is why I have been keeping track of all my trades along with stop losses in my notebook.
Thanks,
Andy
“Simon is based on value investing and IBD is based on momentum”.
Bingo,
Quill wants to buy low and sell high. Bill wants to buy high and sell higher.
Attend any of IBD’s seminars. The presenters are scornful of value investing and advocate buying stocks that can go higher by already proving they have gone higher.
Makes zero sense to me. But to each, his own.
It is always an interesting debate and you probably can’t make 16,000% on a value stock, but Warren Buffet has proven you can buy great companies with great management at a good price (not usually a value-stock price), and make lots of money. Bill O’Neil and other traders have shown you can do the same buy finding stocks growing fast, with good fundamentals and buying them with time-proven bases that improve your odds. Not sure if that is momentum trading. I remember back in the year 2000 era, a guy I worked with was relatively new to the market, but he “needed to raise money for his kids college funds” so he was buying stocks that split or were about to split. This worked really great for him until it did not and he lost a ton. That was what I call momentum trading.
I could say that Simon Sez is indeed momentum trading. The price labels tell you when the momentum in one direction is over and is about to start in the other direction. There is no value consideration in that. You could choose to only trade in stocks you think are a value or think are safe, or not.
The debate will never end.
Pete,
You could say it, but I doubt you could make a case anyone would take seriously. What’s the time-worn mantra either side of the debate – breakouts vs continuation plays-- always chants? “The trend is your friend, until it bends, at the end.”
Breakout traders --mean-reversion traders-- want to catch the train just as it’s leaving the station. Momentum players will wait to see that the train has departed, has gained speed, and seems likely to keep going for a while, if not forever.
The diff between the two is probably hard-wired and genetic. Some people hate to be late for any event and always give themselves plenty of time to get there. Others, like my sister, are never on time for anything. (She was late for her wedding (both times), and I’m sure she’ll be late for her funeral.)
Serious money can be made using either approach or dozens more. So there’s no “right vs wrong” about any of this, only what an individual investor/trader finds that seems to work for him or her. But I, for one, would never, ever try to teach momntum investing to a beginner, because that’s not how they shop at the grocery store for their bell peppers and broccoli. When supply is plentiful prices are low. When supply is tight, prices are high. Same-same with stocks. Are they being accumulated or being distributed? That’s just basic Livermore/Wykoff strategy.
Charlie
Sarepta broke out today.
Andy
Edit: Pete what is your thoughts on how and when to buy a break out like that? After it ran right past the buy point.
Here is a video on Breakouts.
Finding Breakouts and Avoiding Fakeouts - Video - IBD (investors.com)
Andy
IBD says that if you can get a gap up breakout within 5% of the low (maybe Opening-low specifically), the that is ok. After that, they talk about waiting for a flag/consolidation. In general, IBD dogma says the little guy can get a full position faster than the big institutions. For example, SRPT just got good news from the FDA for institution are jumping in as demonstrated with the volume. But we know it is impossible for all of them to get all they want. So in theory, we little guys get it now and watch the big boys support the price for weeks or months while they accumulate. The odd of SRPT giving all this back seem very slim. The FDA would really have to say “oops, takebacks”. So we can rationalize taking a position on that theory as well.
RE: NVDA, yes, I missed that other outside day on 5/30. The Naz was just a gap down on that day, not an outside day.
RE: AVAV has round-tripped its double-digit gains, the rules say I must sell. The theory (or my theory) is that this action represents a severe lack of support and the expectations are it gets worse. It did stop at the 50dma, and if it showed a strong reversal I would hold.
I had to do same for ERJ. In that case, I had some longer term gains left from any earlier breakout, so I only sold my recent breakout position at a little profit (including some early buy lots).
I may take some profits just to lower my exposure and have some cash. Would rather miss a bounce than lose too much. Then my ideal scenario is that I get new basing opportunites and handles on good stock I can buy at next breakout. Like I said, market had a few coughs, but it does not have COVID yet. Just putting on a mask in case.
I sold ONON, AVAV and NXT, locked in some gains and some losses. Then I came across an article in IBD that says this FYI…
PDD Holdings (PDD) climbed as much as 15.7% from a 142.32 handle buy point, but the stock is now below that entry.
This is a pretty clear-cut case of a sell signal, namely a round-trip of gains from the breakout. The stock is testing the 10-week moving average. If it can bounce off the line, a new buy opportunity could emerge.
AeroVironment (AVAV) had an awful sell-off Thursday and Friday, losing more than 14% in that two-day rout. Shares have almost wiped out a 21% gain from the 184.61 buy point, and investors who bought at that entry should sell before all gains are gone.
On Holding (ONON) gapped down in heavy volume Friday. The stock is holding above its 50-day line. Yet, this was the largest drop since the breakout, in one of the highest-volume days. That’s a sign to take at least some profits.
Oscar Health (OSCR) fell below the 50-day moving average the past week, in what can be deemed a sell signal. The provider of health insurance had already given up a 26% gain from a breakout at 18.55. This made for a round-trip sell signal, which appeared about two weeks ago