Monday, May 7, 2012

INVN: To catch a falling knife.

The market has been choppy lately and I thought I would take a mean reversion (a/k/a capitulation) trade with INVN after it fell 25% after revising guidance lower on earnings.   I took the position at $12.68  with a stop at 12.   On friday,  there was a blow out bottom down to $12.15 and then a quick rally up to $12.92.    On monday the world markets were significantly lower on Euro news and I became a nervous nellie and sold my stock off for  a small profit.  

TRIAGE: Had I stuck to the plan with my original stop I would have had a very nice profit.  However, there were a few things in my mind which prevented me from doing that.  First, I'd prefer to trend trades and this type of trade is dangerous in any market but even more so in this type of market where there is no continuation on any moves.  Second, I got burn the last time I tried this type of move in this stock where I could have sold for small profit and took a loss when I didn't.  Third, I feared that the world macro events would spur a global sell off. 

 Although the sellers appear to be out for the time being this chart is showing a head and shoulders and a short position can be attempted if it trades into the gap.    I have played this stock solely on the long side to date.

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