Aggressive Stock-Picking, Week 2: How to Trade 52-Week Highs
08/17/07 - 06:37 PM EDT
Stockpickr Staff
Editor's note: The Aggressive Stock-Picking Training Program is a series of six weekly assignments. Each assignment is based on one of James Altucher's strategies in his book, Trade Like a Hedge Fund. To get a copy of the book, click here.
This assignment was written by Stockpickr member Ira Krakow. The first week's assignment involved picking stocks that are hitting their 52-week lows. This week's assignment will look at the opposite side of the "buy low, sell high" equation: How to trade stocks hitting their 52-week highs. And the decision may not always be to sell. Let's call this strategy "trade high." But you can't just randomly pick any stock on the 52-week high list. Seasoned, professional traders do the research to determine whether a stock is a buy, sell or a hold. When it comes to trading 52-week highs, both fear and greed operate simultaneously. If a stock is at a 52-week high, maybe it's too expensive and you should sell out of fear that the price will fall. On the other hand, maybe the stock is just starting to get legs (see momentum investing
) and you should buy it or hold it (if you already own it), expecting more 52-week highs.
Even with all the recent turmoil in the market, plenty of stocks are making 52-week highs -- some spectacularly so. Many times the reason is breaking or impending news. One example, from the August 14 Stockpickr Select 52-Week High List, is EMC (EMC Quote - Cramer on EMC - Stock Picks), which kept making highs not seen since 2001 all through August, because of its impending spinoff of 10% of VMWare (VMW Quote - Cramer on VMW - Stock Picks). In spite of its almost daily new highs, Jim Cramer strongly suggested buying EMC, and in fact did so for Action Alerts PLUS, his charitable trust. Cramer also recommends buying VMW, even after its 75% one-day run-up on its IPO on August 14.
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