Therefore I recommended “going 50% long at $178.72 and 50% long at $176.20 with a stop at $164.32 (risk of approx. 7.4%).“ The 38.2% Fibonacci support of the rally from the August low to the October high was at $177.79 with the 50% support at $173.86. The mid-October low was $176.25, therefore I felt then that a good area of support was between $175-$178.
On November 25, IBM dropped to a low $177.06 (point 2) hitting the first buy level but not the second. Though the rally in December exceeded October highs the bullish monthly analysis suggested keeping the stop wide (line 3) at $164.32. In early January 2012, IBM dropped as low as $178.38, which was a surprise. After bouncing back to the December highs in early February, point 4, the stop was raised to $178.80, which was just above breakeven point.
By March 1, the uptrend had clearly resumed and the stop was raised further to $186.92 (point 5) as IBM was close to the $200 level. This stop was below the early February low and still quite wide since only a 50% position had been established. On March 16, IBM had a high of $207.53 and four days later the stop was raised further to $193.64 (point 6).
On April 3, IBM spiked to a high of $210.69 but gapped lower the next day, which was a troubling sign. The correction found initial support in the $202 area and with the positive close on April 12 (point 7), the stop was tightened a bit further to $196.46, which was just under the early March lows.
In hindsight, at least part of the position should have been closed out on the rally into early May when IBM had a high of $208.92. The five days of tight ranges were a clear sign that the rally had lost upside momentum. The stop at $196.46 was hit on May 18 (point 8).
The monthly starc band scan of oversold Dow stocks at the end of November had the Coca-Cola Co. (KO) at the top of the list. KO had traded in a tight monthly range for four months and was retesting the ten-year breakout level from 2011. Therefore I recommended (line 1) to buy at $66.24 or better with a stop at $62.76 (risk of approx. 5.3%).
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