A question on stops and profits vs. losses: How do you deal with a stock that breaks out, then comes back to retest? My example is CBR. I bought it on the breakout (as per the Daily) at 9.20 on the breakout and it moved up to 10.95 three days later. The Daily target price was 11. Next day it dropped to about 10.25 with a low of about 10 and has been moving down to test the breakout point (today's range was 8.81 to 9.49, with a close on the high...looking like the test has been successful). [Editor: it since moved back up to 10.88 and closed today at 10.61] My question is, how did you play this stock? Did you buy at 9.20? Did you sell some or all at 10.5-10.75? Did you hold on and let it come back and test? Did you/will you add to your positions here at 9.5? Do you move your stops up as the stock moves up? (January 7, 2002)

  How I deal with tests usually depends upon the market. If it is choppy as it was before 9-11 and immediately thereafter, I am quick to take a 20% (or very close thereto if the stock appears to be topping) on any stock move. Now that breakouts are holding up better and are giving successful tests I will often let the stock test the move and then add positions when it does test and then start back up on what appears to be good volume. With CBR it was bought when it spiked up on good volume but could not hold to the close. It then shot up right to the target three sessions later on massive volume. It closed at the high so there was no reason to think it would reverse. Well, it gapped down the next session and fell, but volume was light. Looked as if it was going to test the move, but I decided to hang on. It rode all the way down to the buy point, bounced, and then tested lower intraday below the buy point and blasted up last week.

I could have sold that first big rally and thought about it as the stock ran 19% from the entry point. I did not, however, and when it started back on lower volume, I let it go for the test because I liked the big volume move. I quite often, however, will sell half my position on a 20% move such as that. I am not adverse to taking a 20% gain in a hurry on a stock position. I also could have raised my stop loss point to maintain some gain but chose not to. We are going to address that in another subscriber question this week: the pitfalls of stop losses.

When I decided to ride out the test, the important thing was to be patient: if the price/volume action was good, I would let it test the pivot. That means it will sometimes trade intraday below my buy point; as long as it closed above that level, however, I will let it work for me. That is exactly what CBR did. I did not but should have bought more positions the next session when it started higher on a small gain on very high volume: a successful test. It then blasted up Friday but could not take out the prior high at 10.88. Today it closed lower but in the top half of the range on lower volume. It looks good, but I may sell half my position if it tests 10.88 again and does not break through.

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