Page 760 - How to Make Money in Stocks Trilogy

Breaking Boards: Successful Trades and Lessons Learned 55

because as IBD research has shown, most stocks follow the direction of the
general market and, as a result, investing in an uptrending market is the safest,
easiest way to make money.
“Looking at a Nasdaq chart,” he continues, “if you compare the price
movements in early December 2011 with the previous few months, one
could very easily see that things were getting quieter and less volatile. This
told me that we were getting closer to a new uptrend and that the last quar-
ter decline was nearing its end. On December 20, the market produced a
follow-through day, and this indicated it was time to put our money to work.”
Randall says, “Whole Foods Market moved strongly in step with the mar-
ket. This stock had been a strong mover over the past year, but I felt it was
ready to move again after a short consolidation. Whole Foods sells organic
and natural foods to an educated consumer and has the “N” in CAN SLIM:
the organic movement is something I believe to still be somewhat new to
the mainstream consumer world. I had been watching it since September,
when it made a new price high while the market was still near the bottom of
its correction. And as I’ve learned from reading How to Make Money in
Stocks, when a stock is making higher highs counter to the general market,
it shows strength and could very well be a leader in the next market uptrend.
“Although it was too early to enter Whole Foods on December 20, since
the stock was still completing its base pattern, I noticed that the price-
volume relationship was starting to become much more tight and controlled
compared to the previous few months. Volume was starting to dry up on the
down days and subtly increasing on the up days. This is the type of action I
like to see before a stock breaks out.
“On January 9, Whole Foods was within 1% of its high on the left side of
the cup. Then the stock declined in low volume down to the 10-day moving
average, which showed that institutional investors were holding onto their
positions and not selling as the stock pulled back gently in price. Then, on
January 17, Whole Foods broke out of its cup-with-handle base on volume
that was 149% above average, and I bought the stock.
“The next week, the stock moved higher for a few days but then pulled
back to the breakout price, which is common; 40% of stocks will pull back to
the pivot. I wasn’t worried since I saw that the pullback was orderly and on
low volume (buy point). The stock gained 30% over the next 5 months and
largely ignored the correction that the general market experienced in April,
May, and June 2012.