A stock or currency that is at its own yearly high must be judged for the possibility of going higher./lower. It could be risky to buy unless the upward momentum is there, and the indications that it will likely keep going up are clear.
The width of the range also has a bearing. A stock near the high of a 10-point spread between the high and the low is likely to be less volatile than one near the high of a 50 or 60-point range.
The implication is that if a stock can cruise upward through a range of 50 points, it can with equal ease slide that far downward. Obviously, stocks do not operate forever within predictable ranges. But an issue that has caught investors’ eyes, and has started to run ahead of itself, its group, and the market can be considered to have a future. Its high-low levels of the past can be viewed as less significant, and the investor’s effort can be bent toward determining how far the run will go.
A stock at mid-range presumably has a demonstrated potential for achieving a higher level, but the course of its action should be plotted to see whether it is at mid-range through a series of small ups and downs, or whether mid-range is simply the current point of a downward slide, or, for that matter, the current point of a gradual climb.
A stock or currency at its low should also be examined for hints as to the reasons for this state of affairs. It might best be shunned, but not too quickly.
For if it seems inherently sound, although low in relation to its group or the market as a whole, it may be a sleeper, the kind of depressed, overlooked, out-of-favor stock that offers a fine opportunity for the investor who is not afraid to run against the tide.
Theoretically, at least, this is the kind of bargain that diligent investors are supposed to dig up for themselves. Be clearheaded; most depressed stocks are hovering at low levels for a reason. But the market is capricious enough to low rate many issues for reasons having nothing to do with fundamental values.
The depressed issue usually offers a better possibility for improvement than the generally depressed group. If oils or chemicals or rails are unfashionable as a whole, there is, in most cases, a large reason for it. Customers are over inventoried, sales are down, a competing industry has cut into a market something has occurred which requires a fundamental correction before the industry will again seem attractive.
The depressed market, like the depressed stock, often offers great possibilities, if the investor can satisfy himself/herself that he/she is getting in at a good price point. The low of 1953 was a great buying opportunity. DuPont was under $100, General Dynamics was in the 30’s, Union Carbide in the 60’s, Central & Southwest was at $19 everything that is solid, glamorous, and soaring today was at bargain basement prices.
The alternatives are many. The combination of factors that bear on any one issue at any one time is almost incalculable.
Selling is not necessarily the opposite of buying. While there are the usual factors about the stock, the industry, and the market to weigh, one crucial fact is known: the price you paid. The amount of profit or loss, therefore, is always settled for the investor approaching a decision to sell. If the profit is satisfactory, or the loss insupportable, sell.
There may be additional profits to be made, or the loser may turn around and cut the loss a few points. If you believe you have made ample return on your investment and are ready to take profits, sell. If you are convinced that there isn’t an advantage waiting for the under-performer to perform, sell. You can take the loss, write it off as a tax deduction, and use the funds that you salvaged to get into something else/take advantage of a different opportunity.
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Risk disclosure: *All investments involve risk. Before making any financial or investment decisions, we highly advise that you seek the advice of a properly licensed and trained investment professional.