Question:

I have a question for you.  I know this isn’t an investment style that you
will support.  However, I am desperate here to make my money back quickly so
that I have a cushion for investing again.  I wanted to research the success
of the strategy of buying New America stocks the day or eve of their debut
and selling after a small run-up.  I’ll only invest in the ones that seems
good and have a great write up.  I’ll buy 1000 shares and just let it go a
little and sell.  I am going to look at the New America Archives and see
what the activity for the day is and what kind of success rate I would have.
What do you think.  I hope you don’t think it is ridiculous.  It’s just when
I get the CANSLIM breakout reports I am always nervous that they have run up
too much and that I am late getting in.

My Response:

I wouldn’t recommend buying stocks just because they appear in New America,
although some research to see how that strategy would have done would be
interesting.  Buying at the right time is critical.  You need to be careful
about trying to make a ton of money right away.. it leads to mistakes.
Being patient and waiting for the best companies to flash a buy signal is
always the best policy.  When I make a trade that doesn’t work out, it
almost always because I didn’t stick to my buy rules. If you have a margin
account, that provides you considerable leverage in a bull market … it can
really hurt you buying on margin when the market is rough, but if you use it
sparingly and only at times when the market is beginning a new run up it can
be very powerful.

Question:

What does "fill the gap" mean?  Does it mean it has no support there?

My Response:

It’s a good question.  Filling a gap  occurs as the gap fails to ignite further excitement to push the stock even further.  Traders
see the lack of conviction in the gap and take profits and/or sell short.  Another important thing to consider is that specialists on the NYSE  and MM’s on the the Nasdaq are trying to make money too.  They see a surge in overnight buy orders (leading
to the gap up) and try to pump the stock up further by buying shares themselves.  Some investors see the gap up with a surge in volume and jump in due to greed.  But the specialists know better and begin dumping their shares for a nice profit.   It’s fairly common to see a stock fade a bit after a gap up and find support at the price where the gap started (this is filling the gap). Stocks that continue higher throughout the day and into the next couple days are showing tremendous strength.  Two things to note on AUO in this situation.  Notice that on the day the stock gapped up, that volume was below average.
That was a clue that the rally probably wasn’t sustainable.  The volume in the morning was nearly double the average (by checking the hourly volume)… but it clearly fades  into the close (even though the price surged).  The next day it fills the
gap and finds support at the price where the gap started on lower volume, which was a good sign.  However, it didn’t hold support there after filling the gap and tanked today on very large volume.   The action in AUO in the last few days has definitely been the result of the election.. it was widely believed that the opposing candidate was going to win the election, which
many thought would be best for the Taiwan market.  This resulted in the gap up.  This didn’t happen and the stock as well as the Tawain market took a hit.  The bounce off of the 35DMA was encouraging, but it’s best to wait for the dust to settle.  Sorry for the long rambling explanation.. short on time.  Let me know if i’ve completely confused you!  i’m good at doing that.

Question: 

Hi Tate,
How are you doing investing?  I feel like I have lost my confidence and am having a hard time getting back into it.  We are primarily in cash right now.  I actually picked up AUO again on Friday.  After I saw it starting to climb and seeing the IBD article.  I originally had 1500 shares previously and now I only have 500.  I am on a fence about it. Why so much selling?  On one hand I feel that it has a lot of potential but on the other I also am scared by the selling pressure. It seems so hard to find a leader these days.  I sometimes think that my investing days might be over. It can drive you crazy.  I just think if I could make one good gain.  I will have my confidence back.  The market seems so unsteady right now though. It’s frustrating though.  I have a friend that every stock he picks turns to gold.  He tells me about them but they seem lackluster and then they are stars so soon.  He bought SAFM and I think it is up like 17 pts. in a month.  When he told me I thought (Mad cow scare is over and it might be too high because of the scare, well I was wrong.) He bought CTSH and made 8K.  It wears on you.  Hearing the good news and looking at your portfolio and being in the red.  I just always wish it could be me.  Do you have any advice?  I’d appreciate any that you could give me.  I could start small and learn as I go.

My Response:

I certainly understand where you’re coming from… I have been in your shoes
at one time or another.  Yes, the market can drive you crazy!  Don’t get
discouraged! If I go through a period of unsuccessful trades, I’ll take a
step back and look at the trades I made.  I’ll look at the chart and ask
myself why I made the trade.. usually if it’s a bad trade is because I
thought I was "missing" out if I didn’t get in right now even though the
chart didn’t look great or it was a bit extended.  Be patient and always
wait for your price, because it will alway come.  Also, be careful about
trying to make all your money back in one trade.  After experiencing a big
loss, it’s natural to want to try and find the "big winner" that will make
it all back.  Don’t get caught in this trap.. continue to invest in the best
companies with great looking charts.  But more importantly only stay
invested when the market is strong and try to stay invested in industries
that are leading the market.  Currently, its finance, medical and oil.

You’re right that the market is unsteady.. after signaling a breakout on
Wednesday it turned tail and reversed sharply.  You don’t see that too
often.  It’s good you’re primarily in cash right now.. you’ll be ready when
this market makes another good run.