Monday, December 17, 2007

A Risky Endeavour?

Well it is the morning of Day 2. My second post, and so soon. I guess I'm just excited about today. Last night after I finished posting I still couldn't find it in myself to sleep, so I decided to do a little more poking around for stocks.

I am taking up a few positions on the short-term, meaning typically around a week to one month. I basically do these to catch one or two trend swings then cash out my profits. When I trade short-term trends I set very tight stops on my trades using a volume-related price target. (i.e. I won't sell my position if there is an odd print in trading that is $.75 out of the money from an ECN. I set a minimum requirement of transactions and avg volume per transaction that triggers my stop-loss sell or buy point)

The first position I am taking is in Select Comfort, which just lost about 40% of its share value, declining from about $10.50/share all of the way down to $6.21/share on yesterday's close. The reason: SCSS posted a management update about slowing profit levels in a time when they thought they would be experiencing moderate sales growth. The result, by looking at the MASSIVE volume of the last few days, is that a good chunk of the shareholders are dumping off their shares because of a 2.00 gap down and a subsequent 1.00 + decline over the following day.

What I like about this is that the company is still in the black, and they have always had excellent cash-flow. The second is that as of November 27 they have a 30% short ratio. After this huge decline a large majority of the short position holders will be eager to cash in their profits.

I will demonstrate on the following chart why I want to buy into this stock now and where I am putting in my stop-loss points.

Now you can see on the chart that my hopes are obviously that this gap will close in sometime in the near future. I am anticipating a gap-fill for this morning (.12) and I am going to take up a position around 6.25/share for 500 shares. My stop-loss point will be a solid break through of yesterday's support and a loss of $.50/share, so I am setting my stop-loss point at $5.60 /share on appropriate volume and transactions.

My first sell point is at $7.00. I will sell 200 shares of my 500.00 share position, and reset my stop-loss points accordingly when it reaches that point. My full sell point is a retraction to the point where the gap initial starting trading, around $8.00

So I am basically risking a maximum $.70/share loss for a potential gain of $.80 on 200 shares and $1.80 on 300 shares. As always with investing there is risk. The most important thing about risk is your ability to control it, and to dictate how much of it you are willing to put up with.

I have taken up a 300 share position of UltraShort Oil and Gas Proshares as I said I was going to do last night, and I have made short gains of almost $2.00/barrel of oil. Of course this is just the first day and I am talking about several months of investing, but it always feels good to pick a good entry point. - you can view the chart on Crude Oil prices HERE.

If any of my readers have stock picks of their own they would like me to check out please feel free to post here or email me at any time. Otherwise I will be back with more portfolio positions.

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