I am going to do something I rarely do. I am going to show you guys a trade I just made. I don’t do this very often because I don’t want you to do what I do, I want you to do what I say (to put an old adage on its head). I want you to learn to trust yourself. The Wolf never let me get away with copying him, never told me what he was up to… just gave me the knowledge and tools to go make my own bed and lie in it.
Frankly, it's tougher than copying someone, but you learn to stand on your own two feet, and that is a valuable thing as an investor. If you are a sheep, eventually you get eaten by the wolves. So I’m teaching you all to be wolves, to stand on your own and make your own decisions. But I’m going to show you one of my decisions simply because it cost me a lot of money today and I want you to avoid this error.
Look at this chart that I created today off of MSN Money.
If you’ve used MSN Money, you know I took two screen shots and combined them to get the Stochastics on the same page as the MACD. Other than that and the Red Triangles that I added, this is the picture of Taser (TASR) after today’s trading.
Looking at this, can you tell me when anyone who has read my book would have gotten out of Taser? (I put red arrows there just in case you didn’t know the answer.) Looks like right about May 2nd or 3rd, right?
The stock price
on May 1st is at $10.40 and
breaking down through the Ten Day MA. That’s
a sell signal.
Same day, the MACD goes to the Zero line and the lines cross. That’s a sell signal.
And then two days later the Stochastic goes red when the lines cross. That’s sell signal #3.
No ambiguity at all, is there? What do you do? You dump it.
And what did I do? Uhhhhh, I sort of just thought to myself this little thought put in there by Satan or someone who works for him at his bank:
“I like Taser at $10. It’s in my Risky Biz portfolio for sure because it’s got sucky numbers, but I think they are going to recover big time, and every cop I know wants one. The guys would rather tase a guy than shoot him, so it's going to go huge as soon as they get their lawsuits settled. (Ready for the punch line?) So why sell? It ain’t going down.”
And on that bit of brilliance, I violated my own understanding of the way this world works, which is this:
The Big Guys know more than I do -- and when they sell off quietly, it sometimes signals that they heard a nasty rumor and are sneaking out before that rumor becomes public.
And for that reason, when they sell enough to create negative signals in all three tools, I sell, too. Usually they are just taking profits, but man, when they know something I don’t and it's bad, I will save myself a lot of emotional pain by being out of there BEFORE the big gap-down created by the Big Guys unloading into the bad news.
I KNOW this. I TEACH this. I can’t believe I DID this!
By the way, do you know what the "terrible" news on Taser was? They announced they are restating some numbers due to a mistake in GAAP accounting. They said the restatement won’t change revenue, but it will change some expenses and profit figures. But since they were hardly profitable at all and the change is just related to how they are handling depreciation or something, there is no real change in the company’s financials at all. They are just being required to take it out of one pocket and put it into another.
In other words, this is no big deal in the long run.
But the fund managers don’t look at the world "in the long run". They look at it quarter by quarter. And so they punish any stock that is not up to this quarter’s expectations -- and if you revise your numbers, you better do it upwards and not downwards, or look out below -- regardless of the real impact of the change. That’s just the way the world works.
Is this going to change the long term outlook for TASR? No. But for the short run TASR has lost the confidence of the big guys that it was just starting to rebuild. So I’m figuring the short run is going to be sideways at best.
So YES, I do screw up and do what many of you are going to do sometime in the future, in spite of this little warning. I held on despite the signals turning red and woke up this morning to a nice big Gap Down.
If you look carefully you’ll see where I got in: Around $10.50 a few days earlier. So instead of getting out with a nice Rule #1 breakeven trade by getting out when the Big Guys first smelled trouble, I got pounded for a 10% loss.
But hey, I take a deep breath, go outside and notice that the sky is blue, the air has a hint of snow on it from the north sides of the mountain, and life is good. Lesson learned. Again.
Now go play.
