Since KO subsequently split 2-1 on July 10, the prices and stops have been adjusted to buying at $33.12 with a stop at $31.38. The buy level was at the flat 20-day EMA and the stop was under both the August and early October lows (red line) at $31.38.
KO rallied sharply into the end of the year closing just above $35. The following correction lasted until February 15 (point 3) when it looked as though the correction was over. The stop was therefore moved to $33.19, which was below the year’s lows at $33.28.
The volume surged in March as the OBV broke through major resistance (line a) and on March 22 (point 4) the stop was raised further to $33.88. The rally picked up steam by the end of the month as it hit a high of $37.19. In December I commented that there was resistance going back to 1998 at $75.44 or on an adjusted basis at $37.72.
The correction held the 20-day EMA as the low was $35.92 so on April 18, I raised the stop to $35.61 as it appeared that KO was ready again to move higher. On May 1, (point 6), which turned out to be the high in the Dow, I recommended selling 1/3 at $38.60, keeping the stop at $35.61. This was under the mid-April lows.
The bounce at the end of May made me nervous as on June 1, just three days before the market formed a short-term bottom I raised the stop to $36.33 (point ), which was just hit on the correction low of $36.28. There was a good opportunity to get back in at the end of June, point 9, but I did not spot it. KO eventually peaked on July 31 at $40.66.
Another stock from the December scan was AT&T (T), which had recently corrected and had support from the prior four months at $27.29. The recommendation (line 1) was to buy at $28.54 or better with a stop at $26.90 (risk of approx. 5.7%). The very attractive yield of 6.8% was also a plus.
The strong action just before the end of the month suggested the rally could go further and I was looking for a subsequent pullback to buy. The stop was below $27.47, which was the lowest low going back to August. It was also below $27, and whenever it is possible, I prefer to place a stop underneath a number like $27 as opposed to just above it.
The low on December 17 (point 2) was $28.51 and by early January the stock traded as high as $30.46. The correction into the end of January held the 50% Fibonacci retracement support of the rally from the November lows to the January highs. The reversal from the lows was positive and on February 1 the stop was moved to $28.88, which was just below the prior swing low.
NEXT PAGE: Initial Stop and Entry Level