The Wrap 2/8/12



So what do yo do when a stock gaps through your stop? This is what happened to ACHN as a result of the Bank of America downgrade yesterday. The stock opened below our stop at the open and never recovered to the stop price.

Basically in a situation like this you have three options: buy more, sell, or wait for a possible bounce to a better level for exit. It’s a difficult decision because the steep drop that occurred could be the beginning a bigger slide or it could just be a one or two day affair before the dip buyers come back in. In the case of ACHN, I made the decision to hold on to it. At one point yesterday it rallied to 10.40 after tagging the low price of 9.50. Today it traded as high as the 10.60 level, but it couldn’t hold the gains.

At this point the stock is on its uptrend line on the daily chart. The new adjusted stop is at $9.30, but just so you know, the better support is 8.94 which is the 50 day moving average. I used 9.30 as the new stop because it is slightly below the day low that was put in yesterday. The 9.60-9.70 level will be key to watch tomorrow.

I kept HGSI on the list even though it went through the stop by a small margin. Today’s selling volume was half of what it was yesterday which is a good sign and the overall pattern is still in tact. I was in meeting early yesterday and I know that many of you on the chat room sold yesterday’s strong open for close to a 9% profit. I am still long. Good for you guys if you took some off. Always use strong opens to lighten up, that’s the only time I use the first hour as a rule, and that is to take advantage of strength.

ACOR had a nasty decline in the first couple of hours, but it recovered nicely and almost managed a close in the green. I stopped half of my position at our level because the sell off at first glance pretty dramatic.

Long story short, small biotechs can be big risk and big reward. The group has had a nice run and they needed to take a break, so hopefully they can resume the uptrend shortly.

As you know my stops are “levels”. I will usually, (not always), give a stop a little wiggle room, depending on many things, sometimes its volume, sector strength or weakness or other technical factors. In the case of ACHN it was more than wiggle room as we couldn’t control the BAC downgrade. As a result of today’s action in the bio stocks I have adjusted stops so please check the P&L .

The market in general still looks strong and I can’t tell you how many stocks I am looking at that simply looked poised for breakouts to higher levels. Keep your eyes on DE, it’s on our list and may be ready to move.

I hope this helped with some clarification. Have a great night and as always, I will see you on the chat room in the morning.


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