(originally posted on Kudrna's Stock Market Blog)
Here is a textbook example of a bullish chart, a bullish trend, and a near perfect implementation of my Portfolio Management System/Strategy. The great news is I think this trend will continue so you have a chance to make some money and learn a very valuable lesson. Read below.
Take a look at the chart for Impac Mortgage (IMPM) below. Click to enlarge the chart. IMPM is a stock I'm very bullish on in the near future. I've read that earnings should be coming out on March 19th but I have yet to see the company officially announce it. I do expect earnings to be released near that date though.
IMPM has a very bullish setup. Take a look at July 2009 in the chart below where this setup started. You will notice volume shot up around 175k and the price moved from $.50 to $1.35. Very nice move and if you were apart of it, you were very happy with your gains.
Afterward, the excitement was over and profit takers came in. Volume came down, the PPS moved towards the 200-day moving average but always stayed above the $.50 initial move which is critical. IMPM touched a low of $.90 and never saw it again. After a breather, IMPM proceeded to jump to $2.96 around August, more than doubling the jump from $1.35 and having a 492% jump if you were in at $.50 (I was averaged in even lower so imagine my excitement). IMPM very quickly moved back to $2 and settled there for a while as the 50-day moving average caught up to it. A key to this trend is it always stayed above the $.50 and $1.35 levels for all 3 months.
Then in the middle of October, we saw the bullish trend continue as IMPM jumped to $4.99 and took a slow breather back to the levels around $2.75 to $3.50 before settling around $3. Again, always staying above its previous support levels and near the 50-day moving average. Volume jumped towards 600k this time around. If you sold any at $4.99 with a cost average of $.50, you would have had an 898% increase! Was IMPM done?
No, after another breather towards the 50-day moving average, December/January saw the trend continue even further with volume surpassing 600k this time. IMPM moved up to a high of $6.18, an increase from the initial move of 1,136%! Is it over?
Well that time is now so we will find out shortly, won't we? We are currently at the 50-day moving average and still above support levels at $3.
What was my strategy? I believed in the stock at $.50 and bought up a solid position (don't we all wish we had a larger position after it moves up!?!). When it jumped to $1.35...I prudently took some off the table to lock in gains just in case the stock saw its high. It started to fluctuate around $.90 and I wasn't sold on an upward trend yet so I kept my finger on the trigger just in case it started to fall. To my pleasant surprise, IMPM jumped to new highs. This time I took some more off the table but when it took a breather towards the 50-day moving average, I started to buy back some shares.
My portfolio management system is to responsibility sell some shares on these jumps and anticipate the breather to take place, it usually does. My outlook on IMPM was still intact and I now had history (chart trend) telling me we could move higher from here. So I took some off the table in the upper $2's and bought some back around $2 even.
Next we moved up another leg to $5 where I prudently took some more shares off the table to lock in gains. Sure enough, we dipped towards the 50-day moving average once again to where I started to buy back some more shares. I loaded up some shares around $3 and sold some on the way up to $6 during the next leg up. Continually locking in gains, keeping a solid position, and than adding to it once again when it dipped.
Now we are in the present day. So what am I doing now? Well, I'm loading up around $4 and even down towards $3.75. We are at the 50-day moving average now and with positive earnings around the corner, I think we will see levels above $7 (I feel that is very conservative) in March.
I have stop losses in place so if we break below mid $3, I will sell some of my shares to keep my position more modest in case this trend is finally over. Yes, I may miss some more upside gains but I'm also being responsible and protecting my capital to the downside. Who says I can't buy back the stock if I'm wrong and it starts to increase? A stock almost never prices in good news all in one day unless the news really wasn't that good to begin with. Just cause a stock is moving up doesn't mean I can't buy it anymore. Quite the contrary, the upward momentum is something I want to get in for the easy gains...which I will sell when I see the downward momentum kick in for another nice gain. This continues to allow me to lock in gains and buy back lower so I can achieve even greater gains in the long run. It is all part of my portfolio management system that I hope you now understand better. I have ZERO emotional attachment to any stock and I will dump it without hesitation if I feel the momentum changes strongly to the downside. When I discuss my strategy/system in later articles, you should hopefully understand what that is now.
So what is my outlook on earnings? I don't expect earnings to disappoint in March. I want to be in IMPM when they are announced. When we jump, I will sell into the strength and if I'm still a believer after the news, I will buy some shares back when the PPS takes a breather again.
What will you do? Do you agree with my strategy? Disagree? Feel free to discuss it here, over emails or the live chat with the link at the top and side of my website. You ready to make some money? I always am. Hope this article was helpful in your learning process. Good luck out there.
Disclosure: Long IMPM but positions can change at any time.