Getting Out In Time

In Friday's Seasonal Forecaster newsletter (4/4/2014), I pointed out one of our best stocks of the past several months had changed in character. Covance (CVD) had twice tried to break to new highs, and both times it immediately broke down on high volume. Compared to the past year where most above-average volume days were on up-close days, CVD's volume had dropped off on this most recent run to new highs and then it produced two quick reversals on high volume.

I stated “CVD actually has a slightly negative seasonal pattern over the next few weeks. It may be typical for institutions to take profits on this health stock this time of year. Let's not stick around to find out. I suggest closing any open positions in CVD this morning.”

CVD opened Friday morning at 104.84 and went straight down, logging another high volume day. The three SFN trades, closed at the open, produced gains of 19.4%, 20.3%, and 7.0%.

We were protecting the profits with trailing stops, but when a high-flyer like CVD is quickly turned back and produces a ‘tall red bar' (very high volume on a sharply down day), chances are more selling will come into the stock.

It's a hard decision to make. Financial advisors state that traders and investors often get out of winning positions too soon. But you have to get a feel for the warning signs. You usually get just one or two warning signs before a good stock tanks. The ‘tall red bar' setup doesn't always lead to a selloff. Many times a good stock will rebound after one or two quick days of selling. But as long as you aren't paying high commissions, you can always get back into a quality stock if it quickly rebounds. You will find it much harder to get out of a quickly falling stock.

Marketwatch.com currently has a bold headline stating “That screeching sound is market losing momentum” (I am writing this about 6 hours before today's open). Two other headlines are “European stocks are dropping sharply” and “S&P 500 to plunge 30%?” Take a good look at all of your open positions today and see if warning signs are showing up. You may not want to stick around in your positions to see how things turn out.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2014 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

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