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Intel - Reaching Extension for Profit Taking
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BSD
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Rust
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| The current price from the 50 day MA is |
> 30%
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> 50%
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| The current price from the 200 day MA is |
> 70%
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> 100%
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| The current price from the Base Low is..... |
> 150%
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> 200%
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When an HGS Stock rises to these numbers, it will invariably correct. These numbers are quick rules of thumb, and will vary from stock to stock, but are sufficient to raise the warning flag that itis getting overvalued. That does not mean that the stock will be trashed, but it will be sufficiently extended that profit taking is inevitable. The extent of the correction will depend on how far it has moved up without major interruption or re-basing to move sideways, before it goes up again to the next plateau. It will correct even further if the Industry Group it is in is being rotated out of and, worse yet, a lot more when the overall Market Indexes are themselves extended and are in the process of correcting. Those of you who held Small Cap Stocks through the Bear Market of August to mid October, 1998, will understand the feeling.
Let´s use an example to illustrate the point. Assume that the 50 day MA of a stock is currently at $40 and the 200 Day MA is at $30 and the Base Low (the lowest price of the stock while in a long base before it breaks out - usually measured within the last six months to a year) is at $18. Then the following table shows the prices at which the stock is extended using the table shown above as the guidelines for arriving at the numbers:
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Rust
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| The current price from the 50 day MA is | $52 | $60 | |
| The current price from the 200 day MA is | $51 | $60 | |
| The current price from the Base Low is..... | $45 | $54 |
Looking at these numbers, suggests that such a stock will have a correction when it reaches the $55 mark. You may decide to ride through the correction which will invariably be about 15% to 20% from its high for a Leading Stock, or about $8 to $12, before it might proceed up further. When the Market and the Group are both being trashed, even the best of stocks will correct 30% and many as much as 40% or even more. This will ruin your profits fast!
Taking this concept to the next level, we come naturally to the Ian High Jump Indicator. Rather than looking at a snapshot at a time, the concept is to look at a panoramic picture of how the stock has behaved over time relative to the extension from the 17 Day MA, the 50 Day MA and the 200 Day MA - the very yardsticks we use to decide when to buy and sell stocks using moving average crossovers. The IRL program provided by Industry Monitors incorporates this feature in its Chart Watch Module, so it plots it for you. They also provide the individual extensions and the High Jump numbers in the Fundamental Ranking Module, so that these are all done automatically for you. Likewise, if you have a program like Metastock you can insert this into their Indicator Builder and see the plot for each of the components and the sum of them all which is the High Jump. Here is the formula for Metastock:
((H-Mov(C,200,S))/Mov(C,200,S))*100+
((H-Mov(C,50,S))/Mov(C,50,S))*100+
((H-Mov(C,17,S))/Mov(C,17,S))*100
You might wonder why I call it the Ian High Jump Indicator. If you look at a panoramic picture of the above formula on any stock, or for that matter, any Market Index, it is a peculiar and interesting fact that at certain times in a stock´s drive up from its base low, the stock will invariably come to rest at the same peaks and valleys. These peaks are rarely beaten and more importantly, are at around the same level though they may be reached three or four years apart. We all know that the world record for the High Jump is 8 ft. & 1/2 in. and the chances of that being exceeded are small, except when the Olympics or World Track and Field meets occur. In other words, they are difficult benchmarks to exceed.
It seems the same occurs with stocks when it comes to the degree of extension over the years. They usually peter out at around the same levels; usually one can see three, which I call Normal, High and Highest. The same can be said on the low side. I´m sure you have all tried at some time to crawl under the "limbo" bar; well, just look at the chart below and you decide for yourself if the highs and the lows are or are not usually around the same level. In other words one can use these levels as early warning signs both on the high and the low side. Understand that these highs do NOT mean that the stock is about to "die"; but it does mean that the stock is about to correct. In other words, these peaks do not necessarily mean that the stock should be automatically "sold" or "bought" when the peaks or valleys are reached. Rather it does say that the odds of a good sell or a good buy are in your favor. We must then determine how the market itself and the Industry group are also doing to decide whether it is prudent to enter or vacate a stock - as we always do.
Having given you all that pre-amble, let´s use a concrete example that may be of value to many of us who hold Intel as a Core Holding in a Mattress Stuffer Portfolio. Those who bought Intel at $1.75 ten years ago need not be much concerned, but if you recently bought into the stock, then you might want to sit up and take notice. Let me spare you all the calculations and just show you the results. Those of you who follow my techniques, know well by now that I always use three levels, be it the red, yellow and green, the High, Middle and Load Road Scenarios for the Market and the Normal, High and Highest (severest) estimates for the High Jump. The chart below shows the summation formula above for the 17, 50 and 200 day MA from the price of the stock for Intel Corp. (INTC) over the span of eight years.
Please note that the green line is the price of Intel´s stock over the past eight years, and the blue chart shows the summation of the extension of the stock from its 17, 50 and 200 Day MA. Notice how INTC hit "100" on the blue horizontal line four times in 1996 before finally correcting severely, with each previous occasion correcting only slightly. Don´t you feel it is ironic that the stock should finish at the same 100% up line two years later as it did in January of 1999, before it sold off?
Wouldn´t it also seem reasonable to you that having broken out recently after the correction, and its summation being at the "Normal" level, we should see a pull back soon, before it goes on to a higher high? At any rate, we would for sure be highly cautious if it reaches 100% as the stock will be truly extended at that stage. Judgments can´t be made in a vacuum. Obviously we are all currently aware of the Market´s uneasiness right now. If the CPI numbers are good we will have an opportunity for the stock to go higher. Furthermore, until we see what the FED does in a couple of weeks, we are not likely to see INTC skyrocket to the highest reading levels. Likewise, think back to 1995, when INTC had that fabulous run to mid August and then swooned. That sustained run took INTC to one of two "highest jumps" in the past decade. Also note how it corrected at least 40% in price soon thereafter, and came down to a low reading of -35 or so. Isn´t it strange that it reached that same bottom level just recently during the Bear Market of 1998, when again it reached under the "Limbo Bar" and hit -35 again two and a half years later? I say that the Ian High Jump Indicator is a measure of fear and greed and that it is uncanny how often "History does repeat itself" when it comes to measuring these footprints in the sand!
The next item is to see how all this can be used to identify the expected price levels which can be reached for various degrees of extension. I show two snapshots below, one for the % extension and the other for the dollar values reached.
