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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
Backstory
Now that the trade is over, I can tell you about it.
Georgia Gulf (GGC) is a company that I traded many times over the years, but forgot about it until discovering it at point
A on the accompanying chart. I first marveled at the large drop in the stock (it was at 20 in August 2007) and my next thought was, "You’ve got to be kidding!"
I knew the company was worth more than $3.12
a share (the low at A). I started to do my research but the next day, the stock took off and closed 25% higher, so I lost interest. I won’t chase a stock upward.
Anyway, I dug
into the fundamentals and found that the company has a book value of about $11 a share so if it went bankrupt, there might be a few pennies left for guys like me. I considered it a steal because
I think it could trade at $20 in 2 to 3 years. So, I watched the stock move up and then drop back down. I didn’t pay too much attention to it but wish I had. Another low surfaced but
I didn’t see it (point B).
Entry
On January 28, the stock closed above a down-sloping trendline so I bought a 1/4 position in the stock the next day, receiving a fill at $5.80, shown as point D. The stock had, by this time,
made an Adam & Adam double bottom (points A and B), confirmed when price closed above C. I was hesitant to buy the stock because there seemed to be overhead resistance at 6 (several candles stop at or near
that value) and I thought the stock would tumble. It didn’t, so I pounced.
I sold the stock at point E, 7.67, for a 3 day gain of 32%. Why did I sell? The market was up strongly today, 207 points on the Dow, and I feel that tomorrow it will retrace some of
those gains. More importantly, I know that the company has an earnings announcement coming out soon (February 15), and I didn’t want to give back my profits if it comes in worse
than expected.
Aftermath
The day after I sold, price moved to a new high but closed at the same price as on the day I sold.
Days later, as the chart shows, price continued moving lower, so selling was the right
choice. Price bottomed at B before recovering.
In the figure, the bought and sold arrows do not point to the prices at which the transactions occurred, rather to the days when they occurred.
In the 2008 bear market that followed, the stock continued lower, eventually trading below $1 before a reverse 1 for 25 stock split in July 2009.
-- Thomas Bulkowski
Copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved. Jimmy Hoffa Virus: Your programs can never be found again.
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