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, July 11, 2005

Buy High and Sell Higher

...Hansen Natural Corp. (HANS) has gained a total of 37% for MSW community members since debuting on the weekly screens May 7, 2005 at $66.56. The closing price on Friday, July 8, 2005 was $90.97, only $10 away from the triple digit threshold. The stock had already run up over 1100% ($5 per share in August 2003) at the time I decided to start coverage. Several community members sent me e-mails asking why I would only start to profile a stock after a huge 11-fold run. My answer was simple: The stock is in a strong long term up-trend and the direction of the stock doesn’t show signs of changing at this time. The point and figure charts continue to provide me with ample opportunities to initiate a new position or add shares to an established position.

Taking a quote from William O’Neil, I also believe in the “buy high and sell higher” philosophy. HANS serves as the perfect example of this theory. Most of the stocks covered on this website are at or approaching new 52-week highs. Every MSW all-star stock listed in the left hand column of our site has been or was trading at new 52-week highs as they made gains of 100% to 300% in less than one year.

HANS has been featured in 9 weekly screens and highlighted in almost two dozen daily screens since its debut in early May. I continue to say that stocks that make multiple weekly screens tend to be the strongest performers among their peers, regardless of their current price level.

Many novice investors have a difficult time buying stocks that have already advanced a couple hundred percent or are making brand new 52-week highs. They fear that the stock will start to fall and lose money when they enter. Other inexperienced investors try to short stocks such as HANS because they feel that the stock is too high or extended. They start shorting the stock with no other reason than the current price level. This may be one of the biggest mistakes an investor can make as the stock must give you other reasons to become a short candidate; such as decreasing earnings, a new downtrend on the charts, breaking major moving averages or all of the above. Jesse Livermore once said: “stocks that appear high to one investor; may be low to another.” Hansen demonstrates this trait more than any stock of recent memory. An emotional battle must be fought for any level investor when they purchase a stock that is already up over 1000% in one or two years. Basic logic would say to sell the stock short because it must come down. The market isn’t logical or efficient and that is why we follow strict rules and study chart analysis, also known as technical analysis when making market decisions.

Using the 50 day moving average as support, we can establish new positions in HANS as it pulls back to the line and holds tight as it continues to rise. We will not raise a red flag until the stock starts to act out of character. A quick glance at the fundamentals and a long term weekly chart will show us that the stock has acted according to character for over two years. HANS also entered the $60-$100 fast track theory that I have been speaking about in great detail on the daily and weekly screens. We all see that HANS crossed $60 in early April and then again in May and has quickly moved to over $90 per share in two to three months with a 40% gain. As I finish editing this article, the stock is currently trading at $92 on July 11, 2005. I am not ready to sell and will not consider selling until I am given a reason by either the stock itself or poor general market conditions that affects my stock.


When speaking about buying stocks at high prices and then selling them higher, I can offer you a few reasons why this is very sound advice. Stocks at new 52-week highs don’t have any overhead resistance or weak holders that are looking to bail on their position, forcing the stock to slide. The stock can continue to take off and give its investors the best return possible with only minor healthy corrections. A minor healthy correction should always come on below average volume. Stocks at new 52-week highs also have the strongest relative strength ratings, compared to the remaining market, making it attractive to institutional investors that haven’t jumped on board.

If you haven’t noticed by following my latest final weekly screens, stocks that make new highs, continue to make new highs. Since solidifying our weekly screens to the top 30 stocks in the market with the best probability of moving higher, we have witnessed a handful of these candidates with double digit gains in only 6 weeks. Never discount a stock because it seems too high or because you can’t purchase 1000 shares. Investors should only be concerned with the final percentage gain on each position rather than the high price of the stock, the small number of shares you can purchase due to the high price or the recent positive action (doubling the past few months).

Newton’s law of motion states: "An object at rest tends to stay at rest and an object in motion tends to stay in motion with the same speed and in the same direction unless acted upon by an unbalanced force." Objects keep on doing what they are doing and stocks follow this same logic. So please, don’t sell a stock short because your own logic tells you that it is too high, because you may come to find out later that several institutional investors thought it was still too low.

Piranha

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