[COGIF & MRCY] If you picked these up, congrats....but it isn't over 'til you sell. COGIF especially, this is not a buy and hold!!!! It's a hot potato and you don't want to hold it too long. The nature of this pattern is a short-term hold, and the expectations of the pattern must continue to be met in order to continue holding it. A good simple rule is to set a new sell stop each day at the midpoint of the prior day's range. If it goes below this, the likelihood of the continuation is in question. I use a more complicated set of rules based on intraday direction out of the first hours trading and the prior day's action in hopes of squeezing a little more out of it, but using yesterday's midpoint is a very reliable fallback approach, and is also much simpler to execute. The price/volume behavior as it begins to reach exhaustion is critical to deciding whether it is going to give back a big chunk or just go sideways for a while. It's more likely that it will give back about half of whatever it gains in this leg. Also, never assume that just because it is playing out the flag in an almost textbook sense, that it can't just fall apart tomorrow. Failed flags are rare once they have confirmed (this one has), but it can happen. Protective stops are a must. It's considered a failure if the second leg doesn't at least match the first leg. I use open of breakout day to high of pivot day to measure expected distance of 2nd leg. A conservative place to take profits is when the 2nd leg goes 80% of this distance.
For MRCY, it's moved 50% in 2 days, but volume was huge again today. I'm using the reversal of the last 2 closes as a sign of weakness for setting my stop. If it moves up nicely again tomorrow, up goes the stop to just below today's close, etc. This is a little different situation than the flag with COGIF, so once you've locked in a profit, you may want to give it some room and hold it since it's shown an ability to make a decisive move. When/if it shows an ability to make a decisive negative move, that's when you bail and stay away. Decisive negative moves = "the plague." Once you see it, avoid 'em.
dh |
