Cutting corners to get ahead is a temptation that many
investors have difficulty rejecting.
Suppose a stock forms a cup-with-handle pattern. Why wait for
the breakout? Can't an investor get in cheaper by buying before
the stock breaks out?
Income investors are particularly vulnerable to this
temptation because they get a better yield via a lower price.
), though, illustrates the downside of cutting corners. On Aug.
5, IBD noted that the stock shaped a cup-with-handle base. The
potential entry was 288.92.
The situation seemed to have everything going for it. The
pattern was in an early stage. The market was in a confirmed
uptrend. The handle formed in quiet volume. The stock had
institutional support. Quarterly earnings reported in July had
jumped 34%, the best gain in almost three years. The annualized
dividend yield was 2.4%.
BlackRock lacked only one thing -- a breakout. But that was
coming, right? So why wait?
Actually, what was coming was a weakening stock market. After
the Aug. 6 session, IBD's market outlook downshifted to uptrend
under pressure. BlackRock declined for weeks, eventually losing
its 50-day moving average.
Anyone who bought on Aug. 5 is still under the break-even
point. If the same investors also ignored the 8% sell rule, their
hope now is to make it back to break-even.
Do you notice the irony? Those who refused to wait for a
breakout are now forced to wait for a chance to break even.
Sometimes the best trade is the trade you don't make, and rules
can help on that score.
BlackRock has work to do if it is to form a new pattern. The
RS Rating is only 74, which partly accounts for its 80 Composite