A reader writes:
“Hey Phil, I have read your Rule #1 and have been looking at the previous history of the tools for several companies just to understand what you have taught us, and I just don't understand the enter and exit strategy so I went back to one of your post on WFMI about exiting on 10/24/2006, your explanation makes sense, the problem that I am having is that I don't see a proper entry place in order for you to be in a position to exit on 10/24/2006, the only entry I see before that is 9/11/2006 with an exit of 9/29, and after this exit, I don't see an entrance that would have put you in position to exit on 10/24/2006 this is of course when you were using the 10 day moving average so that;s what I used when I looked at the chart. I am really trying to understand your thought process on the entrances and exits. Any help will be much appreciated. Thank you” -- raowens
Here’s a chart of WFM at that time. You can see the three greens in September, 3 reds out early Oct and then the three greens he didn’t see just a few days later.
When your stock price is running up the top of the Moving Average like an escalator be looking for confirmation for a buy. You will likely find it quickly. In this case, if the MACD is being a tad understated you can still see it went positive - above 0. That's a green. If it were green all alone, its not a go to buy this. But its there with a blasting MA and a very clear Stochastic signaling ‘GET IN’. That was the entry point.
By the way, this was a key trade. In at $58, it makes a nice return and has a clear signal out at just under $62. The signals to get out light up right before WFM gapped down to $45. I was listening to the CEO say that future growth was going to slow from about 20% to single digits. It was definitely time to leave because that change in growth changed the future cash flows so significantly that the company was instantly worth about $38 but selling for $64. When that happens we be gone . Just jump on the bus, gus, no need to be coy.
After the stocked gapped down, I remember my brother, Steve, calling me in a bit of a panic asking, “Bro, are we still in Whole Foods?” I got to make him very happy when I told him we’d been out for ‘days’. Well, 2 days is ‘days’ isn’t it? Close only counts in grenades and horseshoes.
This was the beginning of the end of the beginning of Whole Foods. They'd been straight up for years and suddenly it was all straight down. Their stock dropped to about $8 and then it was time to buy. The only problem was that there were so many other investments in March 09 that were even better. I missed the latest run up from $8 to $50, sadly, but I suspect Mr. Market is preparing a meltdown sometime in the next few years that will rival 2007-2009. Let's be ready to protect ourselves and make money.
An advanced technical trading course might be just the thing for you if these subtleties are escaping you.
Now go play.
