Another lesson...

It seems I'm not going too many days without learning a new lesson in this game. I don't know if that's good or bad. I'm making money but without some of the mistakes I would have made a lot more. Well this past week was no small exception. End of last week I decided that Sandisk (SNDK) had been beaten down long enough and that it was attractive enough for a purchase. I bought some and placed a tight 5% stop loss on it. My rationale for the purchase was simple the company is a quality company with several quality products that seemed under priced. The technical indicator had shown signs of turning around: the RSI was in the low 20's and turned upwards at the same time the MACD looked like it was heading for a crossover. Well that was the signal to buy and I did. The rationale for the stop was that I normally go with a 7.5% stop loss but the market had been showing a lot of overall weakness. So I decided 5% kept me a little safer if the stock decided to continue to freefall down to $30 or whatever. Well the very next trading day the stock dropped like a rock 6.4% triggering the stop. Trade closed. Well I never wanted to time the bottom quite that accurately. I like to be in after the trend has shown indication of reversal. I played the trade right. The stop is what killed me. You see Tuesday SNDK killed their earnings estimates. The stock went up 12.8%. Only I had been stopped out just two days earlier. If I had played my normal stop loss it wouldn't have triggered, and I would have made a lot of money. Lesson learned. If you have rules, stick to them...don't make exceptions. The rules were made to protect you. Not just from downside risk, but also from yourself. Not wanting to miss a good thing I bought some SNDK after the earnings because I believe that the trend is now broken and that the stock will be back on its way to where it once was. The pounding it had taken was overdone, both in time and severity and the way up will likely be slower but well worth it. I bought at 45.94 and I expect the stock to trade into the $50 range this coming week and on its way to the $60's in the next several months. For research reports on SNDK check out http://www.billcara.com/archives/2006/07/more_differing.html#more.

I also decided to open a position on GG towards the end of the week, I bought it at $28.68. The stock had bounced off its 200-day moving average and had risen from an RSI of 40 or so. All indications from the Fed point to one last rate cut before a pause or drop. That will send gold through the roof. So both the technical indicators and the fundamentals indicate that the long term trend for gold is alive and well and this position (a hiccup away from the 200 day MA) is a small price to pay for the major move coming the next month or so. I'm thinking gold may go up exponentially like it did from late March until early May.

Anyways, here's some great articles I read during the past week...

http://bigpicture.typepad.com/comments/2006/07/strong_opinions.html#comments

http://bigpicture.typepad.com/comments/2006/07/new_more_string.html#comments

http://finance.yahoo.com/columnist/article/richricher/7810