New Buy:(FUQI)

Early this week I took a long look at (FUQI). I reflected on some of the lessons I've learned over the past two years: I tend to overtrade, I often look for the next big winner when I already have a proven winner right in front of me, I lack patience, I lack discipline.



With this in mind I decided to chart my watchlist of leading stocks in a comparison mode (my dailygraphsonline.com subscription has this feature), using a couple of different date ranges. First I compared the stocks (I have about eight on my watchlist) from the start of this rally in early March. I found that (FUQI) and (STEC) had outperformed the rest of the stocks by a significant margin. Then I ran the comparison from a starting date of August 21st, which is the first time IBD changed the outlook to 'Uptrend Resumes' after the rally had hit a rough patch.

The picture is slightly cloudier there - (ARST) has been the top performer since that time, mostly because of a nice breakout last week. (ARST) has had a habit of failed breakouts, but so far this one has held it's gains. After that (FUQI) and (STEC) were close second and third, and then came the rest of the pack.

The reason I ran both date ranges is that I wanted to see which stocks have been the best of the entire rally, and which are showing recent strength. The answer is that (FUQI) and (STEC) fall into both categories, so this is clearly where I should focus my attention. The stocks that have led will most likely (but not always) continue to lead absent some material change.

I already own (EJ) and it's acting well, but I had enough capital for a second stock so instead of watching (HMIN) - which I do think will do well - I decided to put that money to work in (FUQI) if it broke to a new high. It's rebounding from a trip to the 50 dma so this is a valid purchase, though I now try to buy rebounds close to the moving average, not at a new high. In a stock that has done as well as (FUQI), I'm willing to risk buying after it's already made some progress.

The breakout on Wednesday was actually a failure. The stock reversed and closed lower on above average volume. I had a number of thoughts about what to do during the day on Wednesday as the stock price dropped lower and lower. I thought about putting my stop loss below some key levels and cutting losses short. Then I recalled that all the meddling I've done with my stop losses this year has cost me a fair some of money. I followed my rules, left the stop loss order at 8% and just let it go.

Thursday (FUQI) close up a percent, and Friday up 4% after being up as much as 8% intraday. It's certainly not acting great, but I'm green on the position and that beats being red. This stock has outperformed every other stock I've seen in this rally, and I'm simply betting that it will continue to do so, and that if I'm patient with it I'll profit.

(EJ) has woken up a bit, and early morning Friday my position was up 10% so I've moved my stop loss to break-even according to my rules. That leaves only the 8% on (FUQI) currently at risk.

The market itself continues to act very strangely. It was up on good volume this week, but I didn't see leading stocks acting the same way as the indexes - the leaders tended to trade on average to below average volume. This is certainly something to watch, but the system should take care of me and get me out if the market begins to falter.