Former Long Position - ETH
Step numbers referenced below are referring to
Tutorial Steps.
If you need help with terminology refer back to that Step of the Tutorial or the
FAQs associated with that Step.
We received our first BUY signal on ETH during our Step #3 review work on
11/14/04. However, the closing price of ETH on 11/12 was $42.73 producing a Risk
Corridor of 29.5% and causing us to pass it by. We chose ETH for the portfolio
on 11/21 because we still liked the looks of both
the Configuration and Action History charts AND with the pullback in the stock's
closing price to $40.23, the Risk Corridor had become much more moderate. We
liked the fact that the Valley-bottoms upon which the initial Sell-stop was established appeared
solidly confirmed having served as a floor on multiple occasions. While the upside to the historic high
($46+ in March, 2004) was not lofty, the trend of the zig-zag of this stock
looked
to us like we should achieve new highs in 2005. In addition, we fully expected people to buy new furniture as the U.S. economy
marched forward.
Ultimately, this episode with ETH serves as a perfect example of how
Sell-stops assist in limiting losses.
Action 1) - 11/21/04:
Step #1 - NYSE registers a Stage 3 - Bull Market.
 Step #3 -
ETH flashes a Buy Configuration Signal
(click on Configuration
Chart, to the right). We execute the Buy. Initial Sell-Stop is established off the
valley-bottom resistance points which are below the 30wk moving average. Risk
Corridor is a moderate 21.9% (see Action History Chart, below).
Action 2) - 1/2/05:
Step #4 - A valley-bottom at 12/10/04 is confirmed as
the third subsequent increase in price which occurs as of market close on
12/31/04. Since the 12/10 valley-bottom is above the 30wk moving average, we
adjust the Sell-Stop to the 30wk level at $37. From this point forward,
Sell-Stops are adjusted upward in $1 increments in tandem with the 30wk (see
Action History Chart, below).
Action 3) - 1/23/05:
Step #2 - ETH closed at $35.81 on Friday, January 21. Since this is
below our Sell-stop level of $37 this represents a Sell-stop violation. As
this is our first Sell-stop violation with ETH (i.e., Strike One), we
Sell half of our position. This transaction results in a Loss of 11.0% on the closed portion
of the position. Half of our original position is still alive (see Action
History Chart, below).
Action 4) - 1/30/05:
Step #2 - ETH closed at $34.88 on Friday, January 28. Since this is
below our Sell-stop level of $37 this represents a Sell-stop violation. As
this is our second Sell-stop violation with ETH (i.e., Strike Two), we
Sell half of our remaining position. This transaction results in a Loss of 13.3%
bringing our cumulative loss on the closed portion
of the ETH position to 11.8%. One-quarter of our original position remains alive (see Action
History Chart, below).
Action 5) - 2/6/05:
Step #2 - ETH closed at $36.30 on Friday, February 4. Since this is
below our Sell-stop level of $37 this represents a Sell-stop violation. As
this is our third Sell-stop violation with ETH (i.e., Strike Three), we
Sell the entire balance of our remaining position. This transaction results in a Loss of
9.8%
bringing our cumulative loss on the closed portion
of the ETH position to 11.3% (see Action
History Chart, below).
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