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Tutorial Date:
Sunday, Jan 28, 2007 - Final Edition!!!
Valid until Market Close: Friday,
Feb 2, 2007
Tutorial Step #2 - Lesson Plan:
Philosophy:
It is just as important to know when to
divest of a position as it is to know when to start it. We always have a
specific exit strategy for every currently held position in our portfolio.
Objective:
Reduce the risk of divesting of individual stocks too early or too late.
 Key Indicators:
Safety-net
Exit Points (also known as Stops, or more specifically, Sell-Stops and
Cover-Stops), and;
Stock Configurations (like Market
Configurations - comprised of Moving Averages, but calculated off the weekly
Closing Price history of each individual stock).
Editorial Notes: As you read through
this Step, it will
help you to know:
"This Past Friday" means Friday,
Jan 26, 2007
"Friday Before Last" means Friday, Jan 19, 2007
Process:
a)
Update stock data histories:
We maintain a historic data file on about 200 NYSE and NASDAQ stocks (we fondly refer to
this file as our "Universe" of desirable stocks).
The Universe also includes all stocks which are currently held in our
Portfolio. We update the Universe data history each week for each stock by
recording the Closing Price of each stock as of market close each Friday.
b) Identify and act upon any Sell-Stop or Cover-Stop violations:
For each stock currently held in our Portfolio (i.e., Current Holdings), we
compare This Past Friday’s Closing Price of the stock against that stock’s
Sell-Stop or Cover-Stop.
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Looking for Sell-Stop violations in the Long Positions of our Portfolio: When the weekly Closing Price of a stock
falls below the stock’s designated Sell-Stop level, we refer to it as a
Sell-Stop violation. The first time and second time this occurs, we Sell half of
our existing position in the stock. On the third such occurrence, we Sell
our entire remaining position in the stock. |
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Looking for Cover-Stop violations in the
Short Positions of our Portfolio: When the weekly Closing Price of a stock
rises above the stock’s designated Cover-Stop level, we refer to it as a
Cover-Stop violation. The first time and second time this occurs, we Cover half
of our existing position in the stock. On the third such occurrence, we
Cover our entire remaining position in the stock. |
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c) Calculate the Moving Averages:
For each Stock in our Universe, we calculate the Moving Averages as of This
Past Friday:
A 5 week, 15 week, and 40 week Moving Average.
d) Assemble the Stock Configurations:
For each stock in our Universe, we compare the stock’s Moving Averages as
of This Past Friday with those of the Friday Before Last to determine the
direction of each of the Moving Averages. We
also determine the rank order of the Closing Price of the stock, the 5 week, 15
week, and 40 week Moving Averages for This Past Friday. The result is what we
call "This Week’s Stock Configuration" for each stock.
e) Identify and act upon any Sell or Cover Configurations:
For each stock in our Portfolio, we compare This Week’s Stock
Configuration against the Sell Configuration and Cover Configuration Tables for
the appropriate Market Stage (Reminder: Market Stage was determined for the NYSE and
the NASDAQ Markets in Tutorial Step
#1).
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Looking for Sell Configurations for the
Long Positions of our Portfolio: When a Long Position's Stock Configuration
matches what is shown in the Sell Configuration Tables, we Sell
our entire existing position in the stock.
|
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| Looking for Cover Configurations for the
Short Positions of our Portfolio: When a Short Position's Stock
Configuration matches what is shown in the Cover Configuration Tables, we
Cover our entire existing position in the stock. |
This Week's Determinations:
Sell-Stop & Cover-Stop
Violations:
For the week ended This Past
Friday:
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Sell-Stop violations observed in our Portfolio:
|
|
| none |
| Cover-Stop violations
observed in our Portfolio: |
| none
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Commentary:
Sell-Stops serve as safety-nets for Long
Positions. The fact that we have no Sell-Stop violations to report in
our
Portfolio this week means that the Closing Prices of the Long stocks in our
Portfolio are within our range of expectation and we should continue to
hold them (this however needs to be viewed in conjunction with an eye out
for Sell Configuration signals, as
discussed below).
Likewise, Cover-Stops serve as safety-nets for Short
Positions. Since the Closing Price of our Short Position is below its
Cover-Stop, it means the Short stock in our
Portfolio is within our range of expectation and we should continue to
hold it (this however needs to be viewed in conjunction with an eye out
for Cover Configuration signals, as
discussed below).
Sell & Cover Configurations:
For the week ended This Past
Friday:
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Sell Configurations
observed in our Portfolio: none
|
|
| Sell Configurations
observed in our Universe: 14* |
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Cover Configurations
observed in our Portfolio: none
|
| Cover Configurations
observed in our Universe: 60* |
* Could
any of these belong to you? See Tools.
Commentary:
Sell Configurations serve as signals that stocks
have become too risky to hold as Long Positions. The fact we experienced
no Sell Configuration signals in our portfolio this week is an indication that
the closing
prices and configurations of the Long positions in our portfolio are within our range  of expectation and we should continue to hold
them (also see Sell-Stop Violations, above).
Likewise, Cover Configurations serve as signals that stocks
have become too risky to hold as Short Positions. The fact we experienced
no Cover Configuration signals in our portfolio this week is an indication that
the closing
prices and configurations of the Short positions in our portfolio are within our range
of expectation and we should continue to hold
them (also see Cover-Stop Violations, above).
Applicability:
This is the only step in the entire process where we divest of individual stocks.
Additional Help with this Step:
FAQs About Step #2
Books
about Step #2
Tools
to assist with Step #2
UniverseManager
provides an automated environment for your own Universe of desirable stocks
including calculation and alerts for Exit signals
Next Step of the Tutorial:
Step #3 - Establish New Positions
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