Rightfully yours

The stock market can be a tricky place.  Recession compressed the market to the lowest point since March 1997.  Recovery is now in session.  Charles Dow said the market was a predictor of the economy.  Let’s see if he was right.

I will be picking stocks set, in my opinion, for improvement in the near future.  Readers are welcome to read along and see how I do.

I set a price in the morning to buy or sell a stock.  There will be some buys and some misses.  I do not set the quantity, but will report percentage increase or decrease.  The round-trip commission is generally $20.

The Buy price is “at most” and the Sell price is “at least.”  Advantages are if a stock opens lower than my Buy price, I get the stock at the lower price, and if the stock opens higher than my Sell price, I get the higher price (overshoot).  If the daily range is higher than my “buy” price, I reconsider.

There are times when my price misses the stock, setting Buy price too low, or Sell price too high.  There are also times when the stock will suddenly drop, which is why I almost always have a following ‘Stop’ price in the range of 3% which sells the dropping stock immediately. 

Sometimes the market will take a step back on its journey forward.  Everything needs a rest as long as the direction is forward.  If I feel the market is consolidating, all stocks are down, and my stocks are still good investments, I increase the following Stop price to 5-7%.  I am looking to ride the consolidation while being protected from a company disaster.  I also try to keep my “missed buy” stocks out there with adjusted prices, in case they drop. 

Make no mistake.  The market is still jittery.  Huge down days are still possible.  Under conditions like this, I tend to be very conservative, taking a 1% profit or break-even if I feel the stock picture has changed and will not rise in the near future.  I only have to clear the $20 round-trip commission. 

If a stock has a down day, even on the day I bought it, I put in a Sell a little above or at the close price.  It is easier to recover a $0.20 loss than a $2.00 loss.   The $20 round-trip commission is small, compared to our stock investment.

Some of my gains are tiny.  The easy thought is to hold out for more.  Remember, we cannot tell the market what to do; we observe and pull the trigger when we see opportunity.

It pays to look at the stock futures (foreign market results) around 9am and adjust the sell prices before market opening.

Trading note:  When the market seems to be moving against us, we can look to options for a community prediction how the stock will move.  And we can use options to recover our capital.

Example:  In early June 2009, HRB was a Buy at $15.69, but dropped to $15.00 (June 23).  Call options expiring July 17 showed a lot of interest from $15.00 to $20.00 meaning buyers of these options were optimistic it would rise into that range.  Selling a Call at $15.00 would net me $72 per hundred shares and I would be covering my loss.  If it rose, my stock could be called away and I would be about even.  If it dropped I would lose anything less than $15.69 – $0.72 per share. 

Put options expiring July 17 show the most interest at $20.00 meaning buyers of these options were protected up to $20.00 less the Put cost ($3.90), putting the protection at $16.10 per share.

The option market traders are a lot smarter than me, so I went with them and kept the stock.  The outcome was that HRB soared to a High of $17.44 on excellent earnings June 30, when I sold HRB at a great profit.   

Be patient.  You are the hunter.