One thing I try and do here at SelfInvestors is preach risk control and capital preservation during unusual volatility or down markets like we’ve seen recently. The reason for this is because 3 out of 4 stocks will move with the market, so a fully invested strategy in high growth stocks like the ones that I focus on can lead to disaster if you’re not careful. How to protect yourself? The easy answer is to move significantly to cash as I’ve been recommending now for a couple months. However, if you are playing breakout stocks I highly recommend scaling into positions. That is initiating a purchase with a much smaller amount and only adding more to it if market conditions improve and the breakout continues to look bullish. Combine that with a mantra of KEEPING LOSSES SMALL and you should weather the storm just fine.
With that said I’d like to take a look at the top breakouts tracked by SelfInvestors.com over the past two weeks with a rating of 50/60 or better. What you’ll find is a much much lower success rate than what you’d find in a strong or even flat market. I know, no surprise there but it’s a good reminder how even the very best companies can falter in a down market. I had a member the other day email me upset their stock took a bit of a beating. The stock was TSL, one of the highest rated stocks. They couldn’t understand how a stock that was supposed to be so highly rated could sell off so hard. Well, most stocks fall in a down market with the smaller, high growth stocks often getting hit the hardest. There are tremendous premiums built into these stocks and their runs can be further fueled by momentum players, so once things begin to unravel it’s important to protect yourself and avoid too much risk as they are much more vulnerable to large losses.
As always, please click on the image below for an enhanced "eyeball ready" version of the breakouts list. If you’re at all curious about how the Breakout Tracker was put together and what all that data means here’s a good resource: A detailed look at all the Breakout Tracker data.
Taking a look at the data of the past two weeks, there were 20 breakouts tracked by SelfInvestors.com with only 5 finishing the two week period with a gain and 15 finishing with a loss. On the bright side, only one stock, Trina Solar (TSL) would have stopped you out with a loss and was the biggest loser with a 19% loss. Expeditors International (EXPD) would have too, but it didn’t confirm a breakout due to a lack of volume on the breakout move, so it should not have been purchased. The biggest winner award belongs to eHealth (EHTH) which has vaulted 18% since breaking out and actually broke from another bullish formation (triangle pattern) today for further gains. This is a stock I was focusing on in the live chat room today and picked up some nice profits in an otherwise dismal day.
The stock broke out of a long, deep base above 29.50 on Nov 2nd and has not looked back. This is the first base breakout of the stock since going public late last year. Today, the stock surged again out of a bullish triangle formation and is up about 20% from the original breakout point. I personally put on a swing trade in EHTH today and am looking for a bit more profit tomorrow. I don’t recommend getting in on it up at these levels, it’s much too extended now.
Full Disclosure/Disclaimer: The stock of the day is by no means a buy recommendation. Please do your own research and make a personal decision based on your own tolerance for risk. I currently do own a position in eHealth (EHTH)