Bulkowski's Michaels Stores Trading Quiz

It's not too late to buy the inverted and ascending scallop in March 2003, but I didn't buy the stock because of it. What other method did I use to signal a buy?

Here's a hint: think trend change.

I used the 1-2-3 trend change approach.

Here's my notebook entry for the trade. I adjusted the numbers for a 2:1 stock split. Note: This stock no longer trades.

"4/11/03. I bought at market around 1 pm. I got tired of waiting and each time I waited, the price climbed. This is near the yearly low, so the risk is reduced. They have raised earnings estimates recently, so that's good but retail sales from major retailers (for example, WalMart) were soft in March. MMU [measured move up] target is 16, Symmetrical triangle SAR [support and resistance] is at the apex at 17.50. Downside is old low at 10, far from the 14.23 purchase price. You might think of this as a 1-2-3 trend change trade, suggesting an upward price trend now. With the war with Iraq winding down, the economy might rebound. There are many bottoms at 14.50, so that might be a repel point too. If it drops, I plan to buy more because I think it's still a good stock with upside potential and the nearby store seems to have the parking lot full."

Price has climbed to a high of 25.31 from the 14.23 buy price. That's a rise of 78%. Price is trending lower. Another sell signal has appeared.

Question: What is the sell signal?

Answer, from my notebook: "1/10/04. I intend to sell half my holdings at the Monday opening (it's Saturday). Three falling peaks [that's the chart pattern sell signal. See the above chart 1, 2, 3. Price has closed below the low at point 4, confirming the pattern and issuing the sell signal] suggests further downward spin. It busted below support/resistance congestion in December 2003 (a small diamond bottom). November head-and-shoulders top is sending prices lower. This should find support at 18.50 - 20 from the horizontal consolidation region in June-July 2003. Since price has closed at the daily low, that suggests a lower low Monday but perhaps, a higher close. It could continue spinning down. It's broken below trendline support, the line starting in May 2003 and connecting August and Dec lows. head-and-shoulders measure rule says a decline to 19.66 from the 22.50 neckline breakout."

The sale filled at 20.78.

Question: Does the chart show another sell signal or will it continue to rise just as it did from the last sale? I must admit that my timing on MIK has been lousy, but that didn't prevent me from making big bucks in it...just not as big as I could have.

Answer, from my notebook: "5/17/04. I sold at market. This is going to "measured move down" to 21, maybe more, so it's time to sell especially with weak same store sales and insider selling.

Date: 5/17/2004. Filled at: 22.78. Mood (sell too soon?): Good. Was time to sell the latest holdings and am confident I saved a few $. I expect this to continue down.

Sell reason: measured move down to 21 or lower. Weak same store sales with insider selling.

The measured move down is a stair step chart pattern. See my website or my books for more information.

As you can see, the measured move down didn't occur and price went on to make a new high at 43.61. On the trade, I made 60%, including dividends.