When To Sell Stocks: Is This The Best Rule? – Investor's Business Daily

BREAKING: Market Shaking Off Supply Chain Worries

Knowing when to sell stocks for gains is critical to practitioners of IBD’s CAN SLIM principles. Certainly, uncertainty about how much in gains a stock holder might leave on the table makes this aspect of the game more difficult than initially thought.
IBD has sell rules that meet the “offense” and “defense” sides of the game. On the offense side? Have the courage to sell into extraordinary strength emanating from a climax run. Show you have ice water in your veins by calmly locking in profits when your great stock violates an upper channel.
On the defense side? When your stock punctures the 10-week moving average in enormous volume, the weekly chart is essentially screaming, “This stock is changing in character!” A big reversal of gains after breaking out of a late-stage base and falling 8% below the latest buy point? This action also triggers defensive selling.
The chief rule covered in this story is all about trying to gain some consistency in your winning plays. Take gains when your stock rises 20% to 25% from a proper buy point. If the stock is making outstanding gains, you can get a bit greedier and hold for a larger profit.
Just remember, however, IBD devised this sell rule with two things in mind. One, most winners cool off and start correcting after they’ve climbed 20%-25% from a breakout. Two, you need winners to offset the losing plays to grow the portfolio. Only a few exceptional stocks within your stable of winners deserve to get held for the long haul.
Allegro MicroSystems (ALGM) sculpted a decent cup with handle. Its pattern showed flaws. One, the depth of the cup, a 36% decline from high to low, slightly exceeded the typical range of up to 33%.
The smaller the drop, the less a stock needs to rally to get back near its highs. The cup portion also revealed some wide-and-loose action. On the plus side, the handle looked sound as a fine shakeout of uncommitted holders. A 9.2% correction within the handle was normal.
Volume came in strong as Allegro jumped past a 30.16 buy point — 10 cents above the handle’s intraday high of 30.06 — on Aug. 27.
A few weeks earlier, the firm racked an amazing 157% increase in earnings to 18 cents a share as revenues spiked 64% to $188.1 million.
This vast improvement in quarterly results helped push the stock to a gain of almost 21% by Sept. 15 (1).
It was the perfect time to sell. Sure, we have the benefit of hindsight. But the sharp drops of 2%, 3.3% and 3.4% on Sept. 16, 17 and 20 seemed unusual. On Sept. 29, shares undercut the 21-day exponential moving average in heavy volume, a troubling sign. As the stock market hit correction mode, the stock round-tripped all its gains by Oct. 4.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
YOU MIGHT ALSO LIKE:
Watch IBD Live! Trade In Real Time With CAN SLIM Experts
How To Use Trend Lines To Find Early Buy Points
Finding Early Entries: Are You Employing Weekly Charts Too?
10/28/2021 Chipmaker Allegro MicroSystems on Thursday beat Wall Street’s targets for its fiscal second quarter. ALGM stock rose on the news.
10/28/2021 Chipmaker Allegro MicroSystems on Thursday beat Wall Street’s targets for…
Despite corporate positioning and breathless media coverage, the real metaverse is a long way from happening, analysts say. (© Gary Neill)
Get instant access to exclusive stock lists, expert market analysis and powerful tools with 2 months of IBD Digital for only $20!
Get market updates, educational videos, webinars, and stock analysis.
Learn how you can make more money with IBD’s investing tools, top-performing stock lists, and educational content.
Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the stocks they discuss. The information and content are subject to change without notice.
*Real-time prices by Nasdaq Last Sale. Realtime quote and/or trade prices are not sourced from all markets.
Ownership data provided by Refinitiv and Estimates data provided by FactSet.
© 2000-2021 Investor’s Business Daily, LLC. All rights reserved

source

Leave a Comment

Your email address will not be published. Required fields are marked *