Good morning WEagle,
You've been doing clx studies long enough now to get a feel in forward looking market performance, based on 30 day and 10 offsets.
When the market climate changed from red to green, Both 10 and 30 day offsets were favorable. Under the scripted viewpoints that IA would power the future earnings, the market advanced. When everyone including the company webcasts talk about and include one scripted theme, it is a great bull or bear indicator. It is Wall Street leading you in the wrong direction!
Now that offsets are no longer supportive in tandem we get a 5th wave (of 3) truncation. and a corrective wave 4 with fib retracement levels.
My recollection of past 4th waves (late 1997 to 1998) was they were very volatile and fast moving. So too was the recovery. What is scary in 5th waves is they can be short and truncate or they can be long and extend.
If an extension does develop, selling early is more critical. The retracement of an extended 5th wave is faster, deeper and longer in time to show any upward recovery (years of sideways and new lows).
Ted's discussed major tops and he expected 6 years to recover as a minimum.
Once your favorite stock reaches a three bagger, selling 30 % gets you your seed money back. From there, a 5 % (of your original max position) sell every 5 points, will get you on a huge gain and probably have some stock still in your account. Being left with some stock is not ever bad, especially since it is on the market's money. I find myself getting anxious to cash out completely and end up leaving some money on the table - that's just me.
I've never regretted leaving money on the table.
What I ask myself during the scale out process is : Have I done well for my family by selling these big winners. If I look in the mirror and feel good about the gains made after selling, I'm OK and wanting to sell some more sooner.
After a big advance in Cohu during the 1999 obvious blow off top (especially in the semi's) , I sold off three different trades of 10,000 share blocks ,all within a two week period. My broker got a nasty phone call about not sending the order to the block trade desk ( they wanted to scalp the advance and make more than the commission (which was 25 cents a share at a minimum)! Those three (10,00) share trades happened in three single trades. The market devoured them. That's when you know it is a bull market and the market maker quickly scoops them up, as he knows he's running low in inventory and can easily advance them in price. When you find it is hard to make two 1000 share sells in ten minutes, that's when the market maker is trying to sell out in inventory as he sees a decline coming. I almost always sell in 500 share blocks on my smaller stocks.
It's hard to chase the greed bubbling in one's blood with a fast high flying major distribution top! Once one's stock gets to a three bagger, scaling out 30% recovers one's seed money. Money that can be used to buy a much bigger position in your favorite stocks during the next bull market.
After those big gains, you are a bit hog tied, because the trade is not finished until you've pulled out cash to pay your taxes . Another reason why the recovery takes so long, not just for re-accumulation, but to get the taxes behind you.
The next phase is a long wait of adding to your positions on new dip lows, and then holding with confidence.
It is not time to despair, it is time to utilize your cash, in different ways.
Those long and flat periods of time, during which accumulation takes place, is time for selling puts on your next accumulation of shares. Let time decay go to work for you. in addition to the dividend distributions.
I found buying dividend paying stocks via put assignment often results in below marker transaction pricing. Coupling the dividend with the put premium can add up to 10% per year plus.
You are buying shares at very low and safe valuations. Compounding your money for 7 years is a double AND your dividend revenue stream increases your annual income. It's a fun time period of wealth building that is boring and very safe easy money. The opposite of the adrenalin bursts found in 4 and 5 waves.
Watch for a corrective wave that has a 3-3-5 or 5-3-5 wave structure.
Don't get pulled in by the middle B wave that can approach recent highs, wait for the final C wave and what appears to be a drying up of selling. The final 5 wave will be fast and exciting and draw almost every investor into the quick money phase. When done properly, folks make huge money, start day trading and get levered into large margined positions.
As Don Henley sang in Smugglers Blues: "The lure of EASY MONEY has a very strong appeal."
When you feel that, or start counting the profits made in the day multiple times, you'll know you are there.
That's time to start scaling out.
Best of trades to all here!
Bob |
