Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Monday, October 25, 2004

Travelzoo Inc. – TZOO

What is going on with Travelzoo?
Up and then down, this way and that way.

TZOO ($65.14) was up 13.5% today on 1.6 million shares, well below the 50-day average (which stands at 2.2 million). In early September, TZOO was climbing the charts on volume as high as 8 millions shares per day. Late in September, TZOO started to flash minor red flags as the stock tried to continue making new highs on above average volume.

On 9/28, TZOO dropped 20% on above average volume (4.88 million to be exact). TZOO was well extended at the time of this correction, it wasn’t close to the 50-day average and didn’t have any solid long term support lines to cushion the fall. TZOO did not fall all the way to the 50-day line but put a hurt on many investors that did not see the red flags.

Since late September, TZOO has been in a $15 range with volume lower than average for the most part. Two weeks ago, TZOO reported earnings and started to move higher on volume slightly larger than average. Things looked healthy but TZOO never established a new 52-week high. This may have caused slight concern, especially since the general market averages were struggling. TZOO went on to peak at 67.49 intraday and formed a new top lower than September – a bearish signal.

More recently, last week to be exact, TZOO tried to make new highs again but on volume lower than average – more red flags. We have had a handful of distribution days since that 20% drop on 9/28/04.

The difference between now and September is the presence of the 50-day moving average that is providing support. What is an investor to do?

My advice to shareholders is to place sell stops approximately 3% below the 50-day average. Most stocks use the 50-day as support but market movers know that they can sell out weak holders by bringing the stock down slightly below the 50-day number. A small 3% cushion should be enough although this stock is very volatile.

I posted TZOO back in June as a buy at $23.06 (a gain of 180% + ). Investors still holding a position in TZOO from the early days of summer should sell a portion of those shares while watching the remainder very closely.

If TZOO breaks the 50-day moving average on above average volume I would head for the doors as fast as possible and lock in all gains immediately! The general markets are weak and you don’t want to mess with the ‘M’ in CANSLIM.

I will follow this blog post with a case study to outline my thoughts in graphical form. In the meantime, study similar chart patterns of past winners so you are ready to react when something familiar occurs. Selling is the hardest part of investing, so use this stock as a great example to learn in real time.

Piranha

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