Amgen

Model Book Stock 1990-92

Michael Nestler

mnestler@gmail.com

This Presentation Is:

• For Educational Purposes Only
• Not Recommending Any Stocks or Securities To Buy Or Sell
• All Investing Has Substantial Risk Of Big Losses
• CAN SLIM® Is The Registered Trademark Of Investors Business Daily (IBD ®)

Why Model Book Stocks?

• History repeats itself
• Studying the behavior of the greatest winning stocks in history
• Need to know how to handle them
• Step through them day-by-day, week-by-week
• Gain confidence in our rules
• Learn how and why we need to be disciplined
• Gain confidence in ourselves
• Apply precedents to new stocks in the future
• Simulation work is important, do your own

Amgen in 1990

• Biotech company, very hot group
• Most were not profitable
• AMGen IPO in 1983, not very profitable for years
• Based in Thousand Oaks, CA
• Team led by Fu-Kuen Lin is tasked with finding �and cloning the a single gene with 1.5 million
• Gene to control red blood cell production
• Success after two years

​

Amgen in 1990

• Researcher Larry Souza and his team are able to clone �granulocyte colony-stimulating factor
• Developed Epogen, a drug to stimulate red blood cell growth
• For patients with chronic kidney disease and �cancer chemotherapy
• Filed for approval in 1988 with the FDA
• Gordon Binder CEO in Oct 1988
• Approved in June 1989
• Later Neupogen for white blood cells

​

1) 60% prior uptrend in 13 weeks - very strong

and important

2) Steep angle of ascent on the RS line - another sign of strength

3) Up 22% in 3 weeks after the breakout, triggering the 8WHR

4) Volume surge during the uptrend signifies institutional buying

1

2

3

4

Simulation

• We haven't done anything yet
• Observing only
• Seeing many signs of strength
• No base yet, cannot buy it
• Need to wait and watch
• Let's look at the general market

Nasdaq Composite Oct 12, 1989

Strong Bull Market +69% in two years

Black Friday - junk bond market collapse after failed leveraged buyout of United Airlines triggered stock market correction

-8%

Nasdaq Composite in early 1990

Strong Bull Market +69% in two years

3 Waves Down

-8%

-11%

-16%

Friday the 13th mini crash

Market Feb 2, 1990

• 3-Day Rally
• Next day could be the FTD confirming a new uptrend
• Need to have quality watch list
• Ready to buy even before the FTD
• Let's look at where Amgen is now

Amgen Fundamentals

• Stock has formed some kind of base and might be buyable
• What are the fundamentals?
• Q2/89 EPS increase of 250%
• Q3/89 EPS increase of 1000%
• Q4/89 EPS increase of 4400%
• Quarterly sales growth +8, +55, +98, +218%
• 1990 EPS estimated to increase from -0.49 to 1.20
• 1991 EPS estimate +46%
• EPS Rating 94

Amgen Fundamentals

• Stock has formed some kind of base and might be buyable
• What are the fundamentals?
• Q2/89 EPS increase of 250%
• Q3/89 EPS increase of 1000%
• Q4/89 EPS increase of 4400%
• Quarterly sales growth +8, +55, +98, +218%
• 1990 EPS estimated to increase from -0.49 to 1.20
• 1991 EPS estimate +46%
• EPS Rating 94

WOW!

Amgen Fundamentals

• Group RS 86
• 5 other stocks in the group with RS 93+
• 14.2 million float, 17.1 million total
• $50 price
• 356,000 shares ADV
• $18M/day liquidity
• 2.5% demand/supply
• Up/Down Volume Ratio 1.5
• Funds own 11%
• 19% debt/equity
• OTC stock

Fundamentals + Technicals

• Fundamentals are as good as they get
• Red hot growth, new drug is a blockbuster
• CAN SLIM requires strong fundamentals and technicals
• Won't go onto my watchlist unless it is setting up in a valid base
• Is the stock near a buy point?

Feb 2, 1990

Pattern?

29% deep double bottom, 10 weeks

Nasdaq down 16%

2/2/1990

std buy pt

Shakeout + 3

47.25 (first shakeout low) plus 5 to 10%

Buy window

49.61 to 51.98

S+3

1st low

+5%

+10%

std buy pt

2nd low

Action Plan

B1: buy 50% @S+5%

B2: buy 30% @B1+2%

B3: buy 20% @B1+4%

(%age in dollars)

S+3

Simulation Rules

• Start with $20,000 in a margin account (2:1 leverage max)
• Will use cash only to buy the core position
• Margin for add-ons on success
• Don't miss add-on opportunities in strong stocks
• Sell only if a sell rule is triggered
• Using Petaluma Sell Rules (many thanks, Lee Tanner!)
• See details in accounting spreadsheet

Next day

B1!

Next day

B1!

B2!

3 days later

B3!

Have full position. Planning to add 20% at standard pivot. 55.60 buy point.

Market?

6th day FTD

Could have also waited for the FTD and still bought a full position within the S+3 window

2/7/1990

-16%

Back to the stock...

4 days later

Changing buy point for add-on based on sloping trend line

Next day

strong volume

A1!

strong RS line

Breaks through the sloping trend line. Can add only 15% as the stock is up only 4.5% from the last buy (4.5/6 = 15).

Add-On Buy Points

• Add 20% by default, more or less depending on level of conviction
• Should be up 6% since last buy
• Scale size of add-on down if up less than 6%, e.g. 10% if only up 3%
• Add at:
• 10 WMA / 50 DMA bounce, 1st and 2nd after full base breakout
• New base, standard pivot or early buy points
• 3-Week Tight
• Retake of the 50 DMA after a shakeout below it
• Up 11 out of 13 days or 12 out of 15 days

End of Breakout Week

RS line looks good

Volume does not confirm the breakout

4 Weeks Later

Finally! Volume Confirmation

Action Plan

Add 20% on break to new highs after a gentle pullback. Can buy a little early.

Next day

A2!

A3 Add 20%

Moving higher after a mild pullback

4 days later

Does not look good, but never hits -7% sell point for A2 add-on, got close

End of Week

1^st bounce off the 10 WMA

Could add now if we did not already add here earlier.

A3!

A3 Add 15%

Moving higher after a mild pullback

Week 14 of Breakout

Reaches 25% profit target from the double bottom pivot. Strong weekly close and RS line.

Week 14 of Breakout

Reaches 25% profit target from the double bottom pivot. Strong weekly close and RS line.

Take Profits or Hold For Longer?

Sell Rule #22

Select one in five to one in three stocks �to hold for long-term gains.�

Take Profits or Hold For Longer?

• Market should be generally bullish and within 18 months of a 10% or greater correction on the Nasdaq or S&P 500 Index, intra-day. The market condition is a key factor in the decision to hold stocks longer than the standard profit goal.
• Stock should have many characteristics of a “Big Stock” or “Model Stock.” (See Sell Rule #8, Certain-teed Exception.)
• Until the stock is up 50% (Big Cushion trigger), it can be managed using normal sell rules, but widen decline from the peak to 16% or more.
• Depending on the 10-week moving average it may be transitioned to the “Big Cushion” sell rules sooner than waiting for it to be up 50%.�

Take Profits or Hold For Longer?

• Market should be generally bullish and within 18 months of a 10% or greater correction on the Nasdaq or S&P 500 Index, intra-day. The market condition is a key factor in the decision to hold stocks longer than the standard profit goal.
• Stock should have many characteristics of a “Big Stock” or “Model Stock.” (See Sell Rule #8, Certain-teed Exception.)
• Until the stock is up 50% (Big Cushion trigger), it can be managed using normal sell rules, but widen decline from the peak to 16% or more.
• Depending on the 10-week moving average it may be transitioned to the “Big Cushion” sell rules sooner than waiting for it to be up 50%.�

YES

Take Profits or Hold For Longer?

• Market should be generally bullish and within 18 months of a 10% or greater correction on the Nasdaq or S&P 500 Index, intra-day. The market condition is a key factor in the decision to hold stocks longer than the standard profit goal.
• Stock should have many characteristics of a “Big Stock” or “Model Stock.” (See Sell Rule #8, Certain-teed Exception.)
• Until the stock is up 50% (Big Cushion trigger), it can be managed using normal sell rules, but widen decline from the peak to 16% or more.
• Depending on the 10-week moving average it may be transitioned to the “Big Cushion” sell rules sooner than waiting for it to be up 50%.�

YES

?

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

OK

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

OK

OK

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

OK

OK

OK

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

OK

OK

OK

YES

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

OK

OK

OK

YES

OK

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

OK

OK

OK

YES

OK

YES

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

OK

OK

OK

YES

OK

YES

YES

Characteristics of a Big Stock

• Massive volume in prior uptrend.
• Up 5 or more weeks in a row, often times 7 or 9 or more.
• Five or more weeks up in a row recently.
• Weekly closes in the upper half, or upper quartile.
• Liquid, trades $50M to more than $1 Billion per day.
• Strong earnings, EPS growth greater than 50%, especially >100%.
• Strong sales growth and a compelling something new.
• Usually higher ROE and PTM, with PTM improving.

OK

OK

OK

YES

OK

YES

YES

?

Characteristics of a Big Stock

• Accelerating earnings growth at some point in recent past.
• Strong demand/supply: Average volume (much) greater than 1% of float and an IBD Supply/Demand rating of 85 or more.
• Very strong RS line in the 12 o’clock to 2 o’clock range.
• Generally trending above the 20-day line. The chart looks strong.
• Stocks out of IPO bases, or 1st stage after IPOs.
• Trades tightly after big run up.
• Tight daily and weekly ranges and closes, the opposite of wide & loose.

Characteristics of a Big Stock

• Accelerating earnings growth at some point in recent past.
• Strong demand/supply: Average volume (much) greater than 1% of float and an IBD Supply/Demand rating of 85 or more.
• Very strong RS line in the 12 o’clock to 2 o’clock range.
• Generally trending above the 20-day line. The chart looks strong.
• Stocks out of IPO bases, or 1st stage after IPOs.
• Trades tightly after big run up.
• Tight daily and weekly ranges and closes, the opposite of wide & loose.

YES

Characteristics of a Big Stock

• Accelerating earnings growth at some point in recent past.
• Strong demand/supply: Average volume (much) greater than 1% of float and an IBD Supply/Demand rating of 85 or more.
• Very strong RS line in the 12 o’clock to 2 o’clock range.
• Generally trending above the 20-day line. The chart looks strong.
• Stocks out of IPO bases, or 1st stage after IPOs.
• Trades tightly after big run up.
• Tight daily and weekly ranges and closes, the opposite of wide & loose.

YES

YES

Characteristics of a Big Stock

• Accelerating earnings growth at some point in recent past.
• Strong demand/supply: Average volume (much) greater than 1% of float and an IBD Supply/Demand rating of 85 or more.
• Very strong RS line in the 12 o’clock to 2 o’clock range.
• Generally trending above the 20-day line. The chart looks strong.
• Stocks out of IPO bases, or 1st stage after IPOs.
• Trades tightly after big run up.
• Tight daily and weekly ranges and closes, the opposite of wide & loose.

YES

YES

YES

Characteristics of a Big Stock

• Accelerating earnings growth at some point in recent past.
• Strong demand/supply: Average volume (much) greater than 1% of float and an IBD Supply/Demand rating of 85 or more.
• Very strong RS line in the 12 o’clock to 2 o’clock range.
• Generally trending above the 20-day line. The chart looks strong.
• Stocks out of IPO bases, or 1st stage after IPOs.
• Trades tightly after big run up.
• Tight daily and weekly ranges and closes, the opposite of wide & loose.

YES

YES

YES

YES

Characteristics of a Big Stock

• Accelerating earnings growth at some point in recent past.
• Strong demand/supply: Average volume (much) greater than 1% of float and an IBD Supply/Demand rating of 85 or more.
• Very strong RS line in the 12 o’clock to 2 o’clock range.
• Generally trending above the 20-day line. The chart looks strong.
• Stocks out of IPO bases, or 1st stage after IPOs.
• Trades tightly after big run up.
• Tight daily and weekly ranges and closes, the opposite of wide & loose.

YES

YES

YES

YES

NO

Characteristics of a Big Stock

• Accelerating earnings growth at some point in recent past.
• Strong demand/supply: Average volume (much) greater than 1% of float and an IBD Supply/Demand rating of 85 or more.
• Very strong RS line in the 12 o’clock to 2 o’clock range.
• Generally trending above the 20-day line. The chart looks strong.
• Stocks out of IPO bases, or 1st stage after IPOs.
• Trades tightly after big run up.
• Tight daily and weekly ranges and closes, the opposite of wide & loose.

YES

YES

YES

YES

NO

YES

Characteristics of a Big Stock

• Accelerating earnings growth at some point in recent past.
• Strong demand/supply: Average volume (much) greater than 1% of float and an IBD Supply/Demand rating of 85 or more.
• Very strong RS line in the 12 o’clock to 2 o’clock range.
• Generally trending above the 20-day line. The chart looks strong.
• Stocks out of IPO bases, or 1st stage after IPOs.
• Trades tightly after big run up.
• Tight daily and weekly ranges and closes, the opposite of wide & loose.

YES

YES

YES

YES

NO

YES

YES

Characteristics of a Big Stock

• Gap-ups in the pattern.
• Extreme volume dry ups along lows of base and handle.
• Owned by good mutual funds.
• Higher management ownership.

Characteristics of a Big Stock

• Gap-ups in the pattern.
• Extreme volume dry ups along lows of base and handle.
• Owned by good mutual funds.
• Higher management ownership.

YES

Characteristics of a Big Stock

• Gap-ups in the pattern.
• Extreme volume dry ups along lows of base and handle.
• Owned by good mutual funds.
• Higher management ownership.

YES

NO

Characteristics of a Big Stock

• Gap-ups in the pattern.
• Extreme volume dry ups along lows of base and handle.
• Owned by good mutual funds.
• Higher management ownership.

YES

NO

?

OK

Hold for longer?

• Stock has many characteristics of a "Big Stock"
• Might still have room to run
• Decide to hold for longer
• Will widen the Decline From The Peak to 16% end of day, 18% intraday
• Until we are up 50% (weekly close)
• Then apply Big Cushion rules
• Or sell if a normal sell rule is triggered before we are up 50%
• 50% from first buy: 74.42

Closes week up 50.4% from B1 buy point.

Core position now on Big Cushion Rule.

Big Cushion Rule

1. Key objective to hold and sell into a climax top. This can deliver huge gains in the final few weeks of holding a big winner.
2. Otherwise sell if there is a significant change in character from strong to weak. It is better to sell too soon, into strength that too late after weakness has set in.
1. Sell when the stock closes the first week below the 10- week line on volume ≥ 30% to 40% above the weekly average. An exception can be made is it closes just a percent or two below, and/or if the week is a support week. Simmonds Precision Example IBD 11/28/2012.
2. Multiple, persistent signs of weakness.
3. Sudden, dramatic change in character, a very damaging news item (NUC Jan 2014), or very negative event or a plunge > 15% below the 10-week.

A4!

2^nd bounce off the 10 WMA Add 20% to position on signs of support at the average. Closes as strong support day.

-14.8%

2:1 stock split

A5!

Add 20% on a retake of the 50 DMA

A6!

20% deep cup base, 8 weeks long

RS line at new high and weekly volume pickup confirm the breakout.

A7!

20% add-on after a mild pullback.

A8!

Add remaining buying power after the 1^st bounce off the 10 WMA.

Climax Top?

What is a Climax Top?

• Fundamentally strong stock advances for months or years
• Forms many bases on the way up
• Suddenly starts to accelerate
• Change of character
• Should be clearly noticeable
• Hockey Stick

Ambarella (AMBA), 2015

Hockey Stick

Climax Top Signals

From Petaluma Sell Rules (Thanks, Lee!)

• Generally don’t look for climax tops until 18 weeks from a 1st or 2nd stage base, and 9 weeks from a later stage. YES
• Huge sudden advance that looks parabolic on the daily chart, AFTER A LONG ADVANCE, and rises 25% to 50% in one or two weeks. YES, up 33% in 1 week
• Very fast advance for 1, 2 or 3 weeks similar to above with 7 of 8 days up, or 8 of 10 days up. YES, 8 out of 10 days up, 2-week fast advance
• Largest daily price advance in points in a stock that is extended after an advance of many months. YES

Climax Top Signals (More)

• Heaviest daily volume since the advance began. YES, 2/6 5.9M shares
• Exhaustion gap after a long advance from the base, as the stock surges up.�YES, 2/22 gap-up after largest daily advance in points, clearly exhaustion
• Rail Road Tracks where a stock retraces the prior week’s large price spread then closes up a little with huge volume. NO, not exactly
• Late Stage Base Failure, often the base will be defective. NO
• Sharp pull-back and fast recovery to new highs, sometimes called two weeks down and one week up to new high or some combination of one or two weeks down and one or two weeks up to new high. YES
• Largest weekly price spread in points of the entire advance. YES, 2/22 and 3/8

Climax Top Signals (Even More)

• Closes excessively above the 50-day or 200-day line. 50% above the 50-day or 100% above the 200-day are noteworthy for sure. YES, 67 and 141% 3/7

Clearly looks like a Climax Top. We should scale out.

Where and how might we do that?

Exhaustion

Gaps

Largest Daily Price Gain

Largest Weekly Price Gain

46/101

%Above 50/200 DMA

49/113

67/141

Exhaustion

Gaps

Largest Daily Price Gain

Largest Weekly Price Gain

46/101

%Above 50/200 DMA

49/113

67/141

Sell first half

Exhaustion

Gaps

Largest Daily Price Gain

Largest Weekly Price Gain

46/101

%Above 50/200 DMA

49/113

67/141

Sell second half

Sell first half

First half sold March 6 at the close at 113.00.

Second half sold March 7 at the close at 129.13.

Summary

• Bought full position with cash in February 1990
• Bought 8 add-ons with margin and buying power generated by advance
• Force-feeding the winners
• Decided to hold onto the stock for bigger gains
• Had clear potential to become a "Big Stock" or "Model Stock"
• Could have been a bad decision, but we had good reasons to hold on
• Scaled out during obvious climax top in March 1991
• Initial investment of $20,000 turned into $215,000 (+976%)
• Took 13 months

Summary

• Bought full position with cash in February 1990
• Bought 8 add-ons with margin and buying power generated by advance
• Force-feeding the winners
• Decided to hold onto the stock for bigger gains
• Had clear potential to become a "Big Stock" or "Model Stock"
• Could have been a bad decision, but we had good reasons to hold on
• Scaled out during obvious climax top in March 1991
• Initial investment of $20,000 turned into $215,000
• Took 13 months

Let's see what happened to the stock. What are expectations?

9 weeks later:

Stock doesn't meet expectations, avoiding a collapse and actually makes new highs (positive)

5/9/1991

Exited here

4 days later:

Breaks through 50 DMA on high volume, but...

5/15/1991

4 weeks later:

Undercuts first low

Undercut

Double Bottom base pattern:

18% deep, 7 weeks long

171% prior uptrend

This is a very shallow base, given the super-strong uptrend.

​

Shakeout + 3

113.50 + 5%

=> 119.18 (B1)

S+3

Action Plan

B1: buy 50% @S+5%

B2: buy 30% @B1+2%

B3: buy 20% @B1+4%

(%age in dollars)

B1!

Sell B1

5 days later:

Sell B1 as the breakout never happened. No need to wait. Will buy back if the buy point is hit again.

Action Plan

B1: buy 50% @S+5%

B2: buy 30% @B1+2%

B3: buy 20% @B1+4%

(%age in dollars)

B2!

B1!

9 days later:

Buy B1 back +10% more shares as the buy point is retaken after a shakeout. Buy B2 as well.

Shakeout

22% deep double bottom, 10 weeks long, very nice

B3!

A1!

B3 Up 4% From S+3

A1 Add 6% At STL

Up only a small amount from the B3

A2!

A2 Add 13%

Anticipating breakout from double bottom. Likely to hit standard buy point very soon.

Breakout!

A3!

A3 Add 20%

Moving higher after a gentle pullback

Sell A3

Sell Rule 1

Sell any buy if down 7% from the purchase price. Applies only to A3 shares.

A4!

A4 Buyback

Buying back 10% more shares after shakeout, $10 higher

Could take 25% profit after 9 weeks, but decide to hold for longer (Sell Rule 22)

Very strong price advance, confirmed by a strong RS line

Price is up 32% from DB pivot. Drops to 18% over next 2 weeks. How do we feel about our decision to hold the stock for longer now?

Add 20% after 1st bounce off the 10 WMA.

A5!

3:1 Stock Split

A6!

A6 Add 20%

Moving higher after a mild pullback

High: 63.50

Our first buy: 39.73

Gain: 60%

Big Cushion Rules

Sell

A6

Sell

A5

End of the Week

Big Cushion Rules

First week closing below the 10 WMA. Should we sell?

No, volume is only 21%. Has to be at least 30 or 40%. Hold!

This is difficult emotionally.

Retakes 50 DMA after a Shakeout: Buy back sold shares +10%

A7!

RS line is well into new high ground before price. Very close to new highs. Add more on a breakout.

A8!

Sell

A8

Breakout never happened. Sell A8.

(Sell Rule 18)

A9!

Cup base turned into a cup with (high) handle, anticipating breakout here.

Breakout!

RS line is OK,

but lagging a bit

Climax Top?

7 out of 8 days up.

Exhaustion Gaps.

Largest daily and weekly ranges. But just out of a base and not extended above 50 and 200 DMAs.

​

Sell 25%

Sell All

Sell Rule 23 + 24

Plunges 4 to 5% on huge volume (+100%).

Closes down 6% on +163% volume. A noticeable change in character, following climactic action two weeks ago. Sell All.

Forms late-stage flawed bases that fail. Has another run a few years later.

Summary

• Bought full position with cash in February 1990
• Bought numerous add-ons with margin and generated buying power
• Sold stock into climax top
• Set up another valid base
• Bought it back and added to it again
• Sold into another climax top in December 1991
• Held for a total of 22 months, 5-month break
• Initial investment of $20,000 turned into $417,000 (+1985%)
• See details in accounting spreadsheet

Crucial Decision Points

• Holding onto the stock for bigger gains
• Buying back all shares plus some more if shaken out
• Selling into a clear climax top
• Being ready to buy back even after a climax top
• Recognizing the second less clear climax top

What did we learn from this exercise?

• Applying the right rules to a big winning stock
• Life-changing results
• Discipline and patience can pay off big
• Petaluma Sell Rules work on big winners
• Adding to winning positions will boost the gain significantly
• Not many stocks you will ever buy will be big winners
• But we need to be ready for the next big winner to come along
• We need to know how to handle these stocks

The End