Member question on CMED

Today is a question that I received during the day Last Wednesday (one week ago today – 11/23/05).

E-mail Question:

Dear Chris,
Yesterday was a mixed feeling day for me in the market. I tell you the story as I needed someone to cry on!!!

I took a position after a month break as I was moving apartments. I bought shares in CMED an IPO that looked good and was on a strong upward trend. I bought at $37.40 on Monday and it closed slightly off that at day end. Tuesday it starts a big rise and hit $42.6 at which stage I was up 14%!!! In Gib we are 6 hours in front of you so when I checked my position at 7pm here 1pm there I was doing well, I think the price was at $40 approx and the up trend continuing. So I went home with a high - I have not got a computer at home yet. Come into the office this morning open my screen and check the position and it has slumped to $34.18!!! and with a further slump after hour close to $33.43!!!! I am now in a 10% loss position.

What could have happened? Was the news that a new Chinese IPO had postponed its entry as reported on Reuters that negative?

Well I am licking my wounds now and quite depressed, back to the drawing board I suppose. Greed again got the better of me and I should have closed my position before going home.

Take care and talk to you soon.

Regards,
(Actual name will be anonymous to protect the privacy of our members)


My Answer:
Dear Anonymous,

On Monday night, I gave this analysis for CMED:

“11/21/05:

Medical:
CMED – 36.92, three consecutive days of big gains with two gap-ups (possibly a climax run) that may result in a harsh, quick correction.”

Well, that quick harsh correction came at the end of the day yesterday.

You should never try and chase an extended stock. I will still place a stock on my daily screens if it is hitting new highs but I never put CMED on the weekly screens because it was too extended for a buy (in my opinion). The gap-ups and quick gains resembled a climax run which usually results in a harsh correction, similar to what we are now seeing.

At this time when I am not sure what is going on and the position is moving against me, I sell and sell it all immediately! After I sell, I sit back and take another look without any emotion involved and reassess the situation. It is ok, just sell for a small loss and move on.

Good Luck,
Chris