Here’s your plan for trading one of our Buzzin’ Dozen — SolarWinds (SWI) (August 07, 2012)
SWI
I’m Dan Fitzpatrick at StockMarketMentor.com on Tuesday August 7th. I want to do a quick check of Solarwinds ( $SWI SolarWinds Inc. ). Now to members, as you know this is one of our Buzzin’ Dozen, that’s twelve stocks that I chose that are pretty high growth, they’ve got established growth rates that are definitely strong and consistent and the P/E ratios are pretty reasonable; in other words you got growth at a reasonable price, Garp, the world according to Garp, and then also you’ve got a PEG Ratio, very attractive PEG Ratio, years where the growth is much stronger or higher than the P/E or the multiple. So this was one of those stocks and what I had mentioned was this was a stock that was not conforming to the 50 day moving average where typically you know you see so many up trending stocks hit the 50 and bounce off, hit the 50 and bounce off, same thing here. Well this actually wasn’t doing that, instead it was falling below the 50 and so my suggestion was look at this stock down here, look at where it’s trading, here’s where it was on the ninth when we first came out with this, right here. Why? Because the stock was doing what it was doing before. Now, where’s the stock now? From the ninth it’s up almost 40 percent, nice trade, awesome trade, Dan you’re the greatest; no, not so much, though my two dogs think I am, they think I hung moon, but that’s because I feed them; no, the nice thing about this stock, it was so easy to buy because it printed a really, what now seems obvious but at the time was not really so much, an obvious low that you could use to define your risk, you could set a really tight stop on this so that the only way you’re going to get stopped out is because the stock is falling to a newer low, in other words you thought this was a bottom it turns out it wasn’t. Bam! You’re out. That turned out not to be the case and the stock did what we wanted it to do, what we were hoping that it did, but we didn’t know that, at least I didn’t know that for sure, you don’t know which trade is going to turn out to be really, really good and which trade is going to wind up being a stinker until after it unfolds; if you did then you just wouldn’t take the bad trades and you’d double down on the good trades. We didn’t know that this one would be this great but we kind of had a feeling just because of the pattern, I mean if you’re going to look at the pattern of support you’ve got to look at the pattern of resistance which leads us to present day. Isn’t this right up at the top of resistance? It’s right there. At the same time these Bollinger Bands, the lower band is hooking up. According to John Bollinger in his book, I think he wrote this in his book, he might have been just talking to me about it, I worked with John for a very short period of time several years ago, probably about 10 years ago, on something other than just strictly trading, but anyway he had mentioned that when the lower band hooks like this a lot of times it kind of forecasts a decline in quote, “Upside volatility,” it reflects let’s just say bans that are going to wind up getting a little bit closer together, stock’s gone too far etcetera, etcetera. So do you sell Solarwinds ( $SWI SolarWinds Inc. ) now? No, but at least you protect your profits with a trailing stop; maybe you want to set the stop down there, that seems a little bit wide for me because if the stocks going to pull all the way back down to here I don’t just then want to be selling the stock; so instead I would wind up having to stop on part of my position at around $54.50 or something like that; that way I’m only giving up two points of decline. If this little teeny tiny pattern continues I shouldn’t get stopped out, if it doesn’t continue, and in fact the stock moves lower, in fact we’ll look at the low here as $54.30, if it eclipses yesterday’s intraday low of $54.30 then that would be different; so I’d want to keep my stop actually like at $54.25, that’s $2.50, it’s about a little less than five percent and that’s an okay risk for me. Anyway, I hope that helps. Members, get to the Strategy Session I’ve got a lot to say about stops and how to use them as well as what’s really going on with this market, so knowledge is truth knowledge is power, so let’s get powerful; I’ll see you there. Free Chart