Patience Could Pay Off for Arrow Bears

Trading requires a mix of patience and aggression.

There are times when you've got to be aggressive if you want to make any money, and there are other times when you've got to be patient and do nothing. The toughest task can often be to tell the difference between the two.

In my regular RealMoney column, which will be published later this morning, I mention the unfortunate fact that most people do the exact wrong thing at exactly the wrong time. They sell when they should be buying, and they buy when they should be selling.

That's the nature of trading, in which it pays to stay in phase with the trend but to do the opposite of what the crowd is doing. We buy uptrending stocks on the dips that occur as a result of other traders selling the stock. We sell downtrending stocks that advance in reaction to an oversold condition.

That leads us to Arrow Electronics (ARW Quote) -- a stock that appears to be transitioning from a series of higher highs and higher lows to a series of lower highs and lows. But when we see the pattern, we need to be patient for the best entry.

Let's take a look at the chart.

Notice how Arrow shares had been bouncing along the 50-day moving average within a healthy uptrend. But on Wednesday, the stock broke below the 50-day moving average, and also fell below the prior low on heavy volume, closing at $39.78.

But this lower low does not mark the time to short; rather, it marks the point at which we can expect the stock to rebound in an oversold bounce. I'd suggest waiting for the stock to snap back to test $41 before shorting.

Arrow Electronics (ARW) -- Daily