How To Invest - How To Buy Stocks - Big Wave Trading » PBW

SHOO 8-7-07 to 1-14-08

Josh Hayes — Sun, 30 Nov 2008 22:56:15 +0000

SHOO was an excellent setup and a near perfect short. After an initial breakdown on low volume, SHOO tried to find some support on 8/6/07. However, the very next day on extremely strong volume with BOP going red again, the stock went higher intraday only to reverse hard and close in the lower portion of its intraday trading range. This created a very nice short setup and since I felt a top nearing, in my gut, I knew this one would probably do very well. I was not disappointed as SHOO dropped 44% in five months and one week. The stock soon found support after that crack and on 4/21 I was completely out and on 5/30 it was back above the 200 DMA officially killing the short trade. So at least I didn’t mess up and miss a 95-99% gain on this one.

the short:

the low of the move:

LVS 11-12-07 to 4-21-08

Josh Hayes — Sun, 30 Nov 2008 22:28:09 +0000

First off I want everyone to learn something from this trade. When you have big gains in short positions, never cover ALL of your short until it closes above the 50 day moving average on HUGE volume or closes above the 200 day moving average. To have a big gain and cover your full short because you are afraid to lose some of your gains is silly when using this methodology. However, since I thought this bear would be short (INITIALLY) I covered at the first sign of a close above the 50 day moving average. That has cost me a 97% return in a little over a year. So now is it not only a HUGE gain on the short side but it is a long-term cap gains. So my full cover back in mid-May seems stupid now. Still from the short signal in my “high-priced stocks breaking down” scan to the low in April, LVS gained 42% in a little over five months. It wasn’t a great short for me but still produced very large gains. Too bad I didn’t follow my own rules. However, as you will see when I close out my current shorts, I have learned from my early mistakes this year.

the short:

the low of the move:

GOOG 1-4-08 to 3-10-08

Josh Hayes — Sun, 30 Nov 2008 01:37:37 +0000

GOOG was a nice short but due to the low volume I was unable to “load up” and really make the short worth my while. However, the price rollover and breakdown, with the bear market starting, was a near-perfect short setup price wise. The stock subsequently fell 37% from my short to the ultimate low of the downtrend and even if you held until the gap higher on strong volume over the 50 DMA, you still walked away with a 17% gain. Even though it would have been impossible to hold, for me, the stock is now down 60% from my short to the low in November. This short was taken during a time that everyone was saying to go long RIMM, AAPL, GOOG, GRMN, and BIDU. I said that the tech “horseman” were all shorts and even published a column about their topping patterns on Realmoney.com. When the bear is done with AAPL and RIMM, we will go over those shorts. GRMN has already been posted and my BIDU short was botched completely.

the short:

the low of the move:

CBEY 1-7-08 to 3-10-08

Josh Hayes — Sat, 29 Nov 2008 22:44:41 +0000

CBEY was a great short but the huge gain in a short time was not expected. What is worse is that, once again, I mismanaged this one and instead of waiting for a HUGE volume surge over the 50 DMA and/or a move above the 200 DMA, I did cover with a move over the 50 DMA. This was a mistake but still despite this mistake CBEY produced a wonderful 61% gain from breakdown to the low of the move. However, had I waited for a move over the 200 DMA, I would still be short and would have had a 76% gain by 10/27. No matter what it was still a nice 61% move in three months.

the breakdown:

the low of the move:

SIGM 2-19-08 to 4-15-08

Josh Hayes — Sat, 29 Nov 2008 07:16:36 +0000

SIGM was a fabulous short that was mismanaged by myself in this bear market. I should still be short and would have a 80%+ return at the lows in November from the time I first went short. However, I had to admit it was still very nice to be short a stock that managed to fall 61% in just a little under two months. A lot of profit was taken in there and shortly thereafter I was covering all my short with a close over the 50 day moving average. Since I thought the market might be ready to start another uptrend I thought this was a smart move. However, this has taught me to never fully cover a short with over a 50% profit until it closes above the 200 day moving average. Then and only then should I full cover. The other exception is a HUGE volume surge above the 50 day moving average. That did not happen on this stock thus instead of a 61% gain I should still be short and have a nice 80% gain. Still it was a great short.

the short:

the low of the move:

GRMN 1-8-08 to 4-30-08

Josh Hayes — Sat, 29 Nov 2008 04:05:35 +0000

I decided to start this series off with a recent winner from the start of our current downtrend. Why I want to start with this is to teach you how to not mismanage a short. This short in a short three months and two weeks returned a very impressive 49%. This was a nice return for a short. However, this stock was handled poorly. I covered my final shares on 5/16 when the stock closed above the 50 day moving average. I should not have done this and with a near 50%+ gain should have used a close above the 50 DMA on HUGE volume or a close above the 200 DMA. If I would have handled that correctly from the time I went short to 11-20-08 the stock has fallen 81% which would make it my top current short holding at the time of this publication.

The key to going short this stock was that it was a former “high-flyer” from 2003 with a gain over 600% from the proper breakout to the top in October, the stock rolled over with heavy distribution, it broke down below the 50 DMA, and then broke down below the 200 DMA on strong volume. On the day of the breakdown the stock closed near the low of the day and BOP went red making it a very strong candidate. It worked out but it should still be a short as of November 2008.

the short signal:

the profit taking low:

MA 8-2-06 to 5-29-08

Josh Hayes — Sat, 23 Aug 2008 21:18:14 +0000

This was one of my longest big winners on the basis of a long-term hold. This stock rode the 50 DMA and 200 DMA like a champ. It has only recently closed below the 200 DMA after almost two years of a strong rally. This was an easy stock to hold as it gave very few scary moments and gave few “you must take profits on this move now” before finally ending its run. This was not a huge holding but it was an important holding as it was a great stock during a market that was on its last legs. late 2006 to now in 2008 has been a very tough time to find max green beauty stocks that work. Not only that Featured stocks are not working either. So the fact that this stock did so well for so long was very good for investors who know how to hold stocks for the big gains. If you held this stock from the breakout to the top, you were able to take away a 520% gain in one year and ten months.

the buy:

the first big sell:

the top:

DRYS 8-22-07 to 10-29-07

Josh Hayes — Mon, 18 Aug 2008 04:56:49 +0000

DRYS was a straight Featured play, bounce and breakout off the 50 DMA. For those of you that think BOP wasn’t that nice when it broke out, you are right. But remember I use Featured and a form of momentum trading the HOT HOT HOT beautiful max green BOP filled charts. Sometimes you get both or sometimes you get a little of both. But this time is was straight Featured on a stock with an EPS I believe was 99 and a RS rating I believe was 99. If they were not 99, they were 98′s. The bottom line is I can not ever pass on a breakout in a Featured stock that is breaking out and bouncing off the 50 DMA. If you look at the trend of the market you can see the downtrend ended in August. We soon had a VERY WEAK Follow-Through Day (which hinted that the rally was close to dead) BUT there were a few Featured stocks breaking out and a beauty setting up for what was our last perfect PAST BIG WINNER (APPY). That is why it was good to go long that FTD; because there were stocks still breaking out and setting up in sound patterns. Now after that November to January selloff and wild and chopping churning since January, there are barely any charts that look right with heavy accumulation and little to none distribution. This market is much uglier than what it was before the top. DRYS in two months and one week produced a strong 102% return in a very low VIX environment in a market that was on its last legs. Quite impressive.

the buy:

the top:

VDSI 1-4-07 to 10-15-07

Josh Hayes — Mon, 18 Aug 2008 04:22:00 +0000

VDSI was a pretty clear cut Featured long as it bounced right off the 50 DMA, broke out of a beautiful long term base and a short-term ascending base making it an easy choice to get long. Right after going long, the stock immediately shot up 20% which gave it a requirement that any stock up 20% in one week after your buy needs to be held at least 5-8 weeks. This only goes for Featured stocks, not lower quality stocks. This stock was clearly a near-perfect Featured long and I am disappointed I did not buy more but I was still in with a decent size position so I don’t have too much to complain about. As you can tell the stairstep the whole way up rode the 50 DMA like a champ. Ther were only a few times it tried to go below the 50 DMA and as you can see it showed bullish action both times it flirted with it. From the buy to the top, the stock gained 231% in nine months and two weeks. How could you tell it was topping? A weekly arithmetic chart clearly showed it going into a climax run and September and October started to see heavy distribution followed by lower volume rallies. These two tells after a 200% run are always going to be warning signs that a stock is close to a top.

the big buy:

the top:

MTL 9-27-07 to 12-26-07

Josh Hayes — Mon, 18 Aug 2008 00:00:19 +0000

MTL is a lesson learned on selling too early soon after you see the stock top out (which I thought was the ultimate top) it broke hard below the 50 DMA. Since we were in a bear market I did not wait to see what might happen if the selling picked up so I sold my final shares. But teaching the importance of holding a leading Featured stock till it breaches the 200 DMA (if it does not give climax run signals like this one did not) you should always hold some for more gains. Had I done that instead of taking 100% from buy to top (three months), I could have made 232% in eight months, in the middle of a topping market. As you can see not too much longer MTL did in fact close below the 200 DMA. If you would have sold there you could have taken your final sell with a 128% gain a little under ten months, in the middle of a choppy go nowhere market. But if you were a “hopeful” fool and decided that you would see how it would act around the 200 DMA, you would have woken up to a RUDE AWAKENING on 8/15/08 as the stock CRASHED 37%. This is why you take profits on the way up and the reason I always use the 200 DMA as my final line in the sand. I never hold ANY stock below the 200 DMA–that means NEVER! I made a small mistake with this one and it cost me double the run it fully made. Lesson learned!

the buy:

the top:

the missed REAL TOP: