Please can you help me regarding your BWA stock analysis? You had a stop set at 55.25, and the stock went through this intraday on the 29th July. You appear not to have exited the position at this time, as the position is still current in your 30th newsletter. Can you explain why you ignored the stop? (July 31, 2002)

  One thing to remember about stop points is that by nature they are somewhat arbitrary. Not in the sense that we put them right above resistance or right below support levels; those levels are fairly clearly defined as a moving average or prior price high or low. What is arbitrary is how a stock moves around them. What we mean is that a stock can trade above a resistance point or below a support point intraday and even on the close and still not make the break. Recall how Tuesday night we stated that the S&P 500, though it had cleared the 18 day MVA, was still not free of it. If the move through a resistance level is not decisive, it may take another day or two to see if it is going to hold the break or if the stock is going to be pushed back. Many times it pays in the market not to get too impatient on an intial move. Many times a stock will hit a buy point but not have the right volume or dances around the resistance, not making a solid break. If the market is somewhat equicoval we will often pass on the play and give it time to see if it will make the move the next session or a couple of sessions later. Let the play come to you so to speak; make it prove to you it is worthy of your hard earned money.

As for BWA, it was going to close over the stop point, but volume was still below average on the session. We had watched the action and the stock was rallying with the market but was closing near the stop; it had not broke free of it when it was heading the close and volume was less. The move in the market was huge. It would most likely test the move to a certain extent. As it turned out it sold back on stronger volume Tuesday and again Wednesday as it mirrors the market action. It may be ready to move up again along with the market. This time if it moves on rising volume it will have made a higher low, and that would be a signal to exit the play.

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