Since the Fed rate cut in early September, there have been clearly visible opportunities to buy and sell by examining moving averages on a chart.
• On Sept. 7, RIMM dips below its 10-day simple and exponential moving averages for the first time in nearly two weeks and closes at 80.48. The stock reverses the next day on lower volume (not a good tell), but continues to climb up through its moving averages to a new high of 93.24 (intra-day) on Sept. 19. The stock drops a bit the next day on lower volume (again, not convincing) and a sell could have been in order. A hold, however, would leave you in RIMM as the ride resumed the next session all the way to another new high of 100.98 (intra-day) on Sept. 27. The next day, however, brought a decline on larger volume; finally, a clearly bearish indicator and a definite opportunity to sell. • Four sessions later, on Oct. 3, RIMM slipped back down and met its 10-day moving averages for the first time in three weeks. At a close of 96.28, a debatable buy, but one worth considering since the stock finished up by a fraction and Q3 earnings were just 24 hours away. The next day, after the close, RIMM anounces blowout earnings and raises guidance. The stock gaps up to a new high at the open (107.66) and continues to push upward on its heaviest volume since Sept. 29, 2006. On Oct. 5, the stock hits a new high of 114.76 intra-day, but pulls back. A 2% stop loss gets the astute trader out before the stock pulls back and fills the gap over the next seven sessions.
• On Oct. 16, a wobbly RIMM opens at 107.23 and sells off a bit more to 106.64, its lowest price since the big gap up on Oct. 3. Here, the stock dips well below its 10-day averages, signaling a buy, and finishes the day at 110.09. RIMM continues upward for two more sessions to 117.92 (intra-day), but on Oct. 19, sells off on heavier volume to a close of 114.97. A stop-loss set 2% below 114.97 gets the astute trader out again.
• On Oct. 20, RIMM dips below its 10-day SMA intra-day, a low of 113.71, indicating another buy signal. The swings are clearly becoming tighter. What once took days to peak and dip now takes just one or two sessions.
Nonetheless, by the next session (Oct. 23), RIMM peaks at 128.36 intra-day and closes at 124.53. The pop is driven by RIMM's announcement that the BlackBerry is being distributed in China. Again, a 2% stop loss from the high triggers a sell. A quick, but highly profitable trade.
There are, of course, flaws with this approach. RIMM could trade down 2% at any time during the course of a day, triggering a stop-loss sell perhaps a half-dozen times in one session. It would be much more prudent to use a mental stop-loss instead of a pre-set one, at least for traders who have the time to watch the ticker/Level II/etc. and are willing to gauge the ebb and flow of the day to tweak a sell point below or above 2%.
This method is something I theorize about, and is therefore worthless until put into action. If and when it actually works — and I don't think it will ever be perfect, of course — I'll document the results. I would not consider trying this for any other stock, except perhaps AAPL and GOOG. Maybe CROX, maybe BIDU. But the chart for RIMM shows so much consistency, it's utterly remarkable.
The market won't be like this forever. The fishing is really good for the traders who have a winning system and a willingness to cast a line. It's something worth paper trading, at least. Doing the math with conservative buy and sell points, the gain would have been 51% on these examples I listed. Sure looks good on paper.
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