Quite a Week

Normally I have a fairly clear idea what I want to say, or I just take a break and don't add anything here. This week is a bit different. It was a tremendous week, and I want to write about it, but I'm having a little trouble composing my thoughts. I have a feeling what you end up reading will be several revisions from the original.

In my short investing career, which will be one year next week, this was by far my best week. (SOL) advanced 33% this week to a total gain of 70% from my buy point. That is double my prior best return on a stock - though I must add that until I sell, there is no gain at all.

I've had to accept that I may mishandle this winner, simply because I lack experience. My first year has taught me, without any question, that I don't know squat. In trading stocks, more than any other endeavor I've... well... endeavored, experience is key - and that only comes with time. I don't learn what to do with a big winner until I've held a big winner.

If we were in a bull market, I'd probably just leave this stock on auto-pilot and expect it to triple in the next couple of years. But there's plenty of reasons to think that we are in a bear market rally rather than a bull market. So what to do then? Assuming we have another leg down in the bear market, do I risk holding this stock through a correction? I think this stock has all the markings of the past winners that went on huge runs over several years - but the market doesn't care what I think.

Last fall at one point I went all in to the market - 100% cash and margin. In just a few weeks, with moderate (about 10%) returns, I wiped out an 18% deficit from my account. I remember clearly it was a Friday afternoon, my parents were in town, and I came home to triumphantly announce to my Dad that I had 'gone green' - swung my return from negative to positive. By the end of the following week, I had given it all back, plus a little.

I know how fleeting gains can be. I've felt the karmic kick to the groin when I started thinking too much of myself. Pride goeth before the fall; in the stock market this is the one guarantee.

Now that I've once again come so close to erasing my early losses, the temptation is to bank my gains. Part of me wants to cash in, take a deep breath, and relax. I would have the satisfaction of bagging a big winner - a 70% gain in four weeks - and my portfolio would look a lot better no matter what the market does. However, the challenge here is to take the proper action, not the easy one.

The CAN SLIM approach for a stock that advances 20% in two or three weeks is to 'try to hold it for eight weeks.' This amendment to the normal rule - selling once you have a 20 to 25% gain - kept me from getting shaken out when this stock came back within a dime of my buy point after having been up 20%. That's why O'Neil made this special caveat to the normal sell rule, because he himself sold too soon a stock that went on to huge gains.

This rule kept me in (SOL) then, and I see no reason to diverge from it now. Any thoughts or fears I have about market direction or what might happen are just emotion and conjecture - I won't make trading decisions based on these. A wise man once told me, if you're not sure what to do - don't do anything. Jesse Livermore said 'It's not the thinking that makes me money, it's the sitting.' I think both apply here. Unless and until something changes materially, I will try to hold (SOL) for eight weeks.

Though my gains in (SOHU) in far smaller than (SOL) at 22%, it also advanced more than 20% in two weeks, and I will also try to hold it for the eight week duration. My concern is that after the early strength in this group - some twelve stocks were really firing off - no other stock from the group has emerged as the kind of leader (SOHU) has been. (SINA) and (JRJC) both had strong moves last week - the former on earnings and the latter on raised revenue guidance - and I'm hoping one or both will continue to show some strength as (SOHU) really needs a group mate to move with it. (BIDU) also has the look that it could break to new highs at any time.

(GU) ended the week well, though not with the kind of powerful move I was looking for. Maybe my expectations are getting too high after (SOL) and (SOHU). It is up 5% from my original purchase, and seemed to find support around the 16.25 to 16.30 area Thursday and Friday. This is above the 16.16 buy point, which is positive. With the soaring price of diesel in China, it's membership in the number one industry group, accelerating sales and earnings growth, and it's recent IPO status (GU) should be positioned to make a nice move. There is no fund ownership listed in my daily graphs online chart at this time - same as (SOL) when I bought it.

I will keep (GU) on a fairly short leash though. I have not missed the fact that neither (SOL) nor (SOHU) have returned to their buy point once passing it, and they've been the best stocks I've owned. I'm considering having my stops just under the buy point in the future, to quickly dump any stock that doesn't move up authoritatively. For now I'll leave a little wiggle room until I have some more experience. Since I have a couple of winners though, I'll try to make sure that (GU) doesn't eat into my gains.

-Geoff