MLR - MLNX discussion
When the general markets are pulling back, and news headlines are shouting how bad things are in Europe, that the UK and much of Europe is in recession, the US economy is not showing signs of life, and Bernanke refuses to unleash QE3 (quantitative easing), it can be psychologically tough to hold a position. MLNX is one recent and highly educational example. MLNX recently pulled back to its 50-day moving average on higher than average volume. Some of our members held through and are enjoying today's big price gap to the upside of almost 40% (as of the time of this writing).
We have reported on MLNX as being actionable on the long side a number of times as it had a number of pocket pivots (see report archives here http://www.virtueofselfishinvesting.com/reports). For those who used our 7-week rule (see FAQs for further information), they are still sitting in the position since MLNX violated its 10-day moving average on June 22, 2012, thus one would use a violation of the 50-day moving average as their sell stop. A violation occurs when the stock closes below the low of its moving average then moves below the low of that close. Thus, price/volume action using the 7-week rule, once again, has kept one in position.
Most investors use the 7-8% stop loss rule as it tends to fit their risk tolerance levels, an important aspect to investing we have discussed in detail in reports and in the FAQs (http://www.virtueofselfishinvesting.com/faqs). This rule applies only to where the stock was bought. As a winning stock climbs, it will most certainly have corrections beyond 7-8%. This is okay as long as its price/volume action continues to act constructively. This would mean employing selling strategies such as the 7-week rule to keep one in a winning stock for potentially weeks to months, capturing the 'fat' part of the price increase in the stock.
That said, being able to remain in a position even when it has a higher than average volume pullback, such as MLNX recently did down to its 50-day moving average, can be tough. What is helpful is knowing that had you bought at most of our suggested entry points, the pullback in MLNX to its 50-day moving average would still be at or above your buy point. MLNX then achieved support at its 50-day by bouncing off it yesterday on substantial volume.
In terms of whether to buy MLNX at today's opening price, it is a gap up indeed, but is an extended gap up, so it would be best to wait to see if it trades constructively over the ensuing days, enables one to buy a position that is not extended from the low of its gap up. We use an undercutting of the low of the stock's gap up as our typical sell stop, though we sometimes give the stock 2-3% room below the low of the gap up day, as it is contextual. As you can see after the April 19 gap up, the stock traded constructively sideways for a number of weeks, then gave a pocket pivot entry point on June 6, and then a number of other pocket pivot entry points, all of which we reported on in real-time to members.
Note, all stocks under consideration must display leading fundamental and technical characteristics before we will consider them actionable.
This information is provided by Virtue of Selfish Investing, LLC (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2016 Virtue of Selfish Investing, LLC. All rights reserved.