To The Moon

Stock Market Paradox.

I came across this post that I feel its timely to share, given that the US market has started going “crazy” post US presidential election on Wed, 06 Nov 2024.

Repost to share so that more will come to know...

One of the stock market's paradoxes is - what seems too high goes higher and what seems too low goes lower. 

However, there is a limit.

Nothing goes up forever, not even the best growth stocks.

Every experienced stock investor knows that at some point, what seems too high in price is in fact too high.

How does one objectively measure how high is too high ?

The 200-day Method.

One way is to calculate the distance from the 200-day moving average (ma) to the stock's current price on a daily chart.

If the price is more than 70% to 100% above that level, maybe it's time to think about selling.

The 200-day ma tracks a stock's average closing price over the most recent 200 days of trading.

After a stock’s Wall Street session ends, a new average price over the latest 200 days gets calculated. That's why the average is a ‘moving’ average.

When To Sell - Example.

Take the example of former stock Emulex during the spectacular bull market that began in August 1982.

The computing networking company was a screaming winner after breaking out of a base in late August that year. Refer to (1).

After a short week of flat activity, the stock went up for 9 straight weeks. This is a good sign and should have made investors want to keep holding the stock. Refer to (2)

The stock continued to rise, without falling below its 10-week average. It needed a little support around the middle of its upward run.

Emulex had a great week ending 25 Mar 1983. Its stock price jumped up by +33%. Refer to (3) The stock was +149% above its 200-day average (refer to above) and +140% from 40-week line on a weekly chart, refusing to lose ground for 11 straight days.

The extended run can be defined as a climax top that is, after a long advance, a stock runs up seven of eight days or eight of 10 days. When that happens, it is time to sell. 

If an investor was lucky enough to sell right at the top, he could have locked in a 323% profit in seven months.

The Peak

Even then, Emulex (now part of $Broadcom(AVGO)$ ) was one of those rare screamers among top growth stocks that wasn't quite done.

After a 2-week rest, it rose again, closing out the final week of its run on, the week ended 10 Jun 1983, with a +111% leap above its 40-week line while running up for 10 straight days. Refer to (4).

Emulex demonstrates the importance of proper selling using a daily chart.

Emulex would not see that high again until 1995, more than 12 years after its June 1983 peak.

Having that said, looking at Broadcom’s performance between 2011 to 2024, do you see a similar pattern as the history of a top growth stock continues under a new management team from February 2015 onwards? (see above)

My viewpoints: (mine only)

I like this concise post, sharing the principal of when to sell a top growth stock.

Be as it may, the example quoted was a dated US stock that no longer exists.

I half suspect, there will never be another fine example as such, given the volatility nature of the US market nowadays.

Despite all the theories out there, such as the above, I believe when it is time to sell, the human emotions get entangled in the process especially for retail investors.

I supposed the “fear” of missing out on an even higher price always present itself as an inertia to sell during a boom market.

If we could learn to (a) detach a bit of the emotions, (b) use logic and technical analysis, to guide us, (c) sell in parcels vs lump sum and (d) most importantly, do not berate ourselves should the stock price zooms higher post sale, perhaps the art of selling during a boom time may not be so difficult after all?

I hope to put it into practice sometime this week, come rally or correction. Have to get the devil out of the system, right!

With a ‘soften’ US market (quite a bit) for the week ending Fri, 15 Nov 2024 - it is timely now more than ever, to seriously consider, effectively take profit while still ahead ?

Case in point :

• $NVIDIA Corp(NVDA)$. AI chip leader lost -4.45% to close the week at $141.98, off its peak of $148.88 attained on 07 Nov 2024.

• $Amazon.com(AMZN)$. eCommerce & leading Cloud provider lost -2.78% to close Friday at $202.61, off its peak of $214.10 attained on 13 Nov 2024.

• $Tesla Motors(TSLA)$. The EV maker lost -7.39%, ending Friday at $320.72; off its $350 peak, attained on 11 Nov 2024.

• $Axon Enterprise, Inc.(AXON)$. The Aerospace & Defense company lost -1.75% to round up Friday at $599.35 per share, off its peak of $616.14, reached on 11 Nov 2024.

• Palantir (PLTR)$. This AI solution provider is the only ‘miracle’ for the week, gaining +9.43% to end Friday at $65.77, its newly attained all-time-high.

Using simple arithmetic, if an investor has 100 shares and successfully sold them at the peak and then buy them all back last Friday, he would have made a profit on 4 of 5 stocks above, with the exception of PLTR.

Hope I managed to put across the principal of the ‘need to sell top growth stocks’ across succinctly.

Must Read: Click on below titles to access. Repost to share, Like as encouragement ok. Thanks.

• NVDA : Driving SMCI and US Market Rally ?

• Will PLTR & META Tie-Up Sparks Rally ?

• SMCI Rose +31% but Still In Danger !

• Do you think the 2 theories mentioned above makes sense ?

• Do you think this is a good week to take stock of one’s portfolio and decide if any profit taking to be had ?

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