An essential skill to successful investing is knowing when and how to add to a winner.  The ideal time to purchase a stock is when it breaks out through its pivot point from a first stage base.  Ideally, the stock spends the next few weeks rising then begins building a base-on-base pattern.  A smart time to add to the position would often be when the stock breaks out of another new base.  When adding to a winner, buy a smaller amount of shares at the higher levels so as to not raise your average cost too much.  For example, if you initially bought 2,000 shares on the first breakout, you might buy only 1,000 shares on the add-on purchase. This pattern can be repeated after multiple breakouts, however at later stages stocks become more failure prone.   When the stock tops out and sell signals start to mount, ultimately one must be ready to sell their entire position when critical support is violated. 

II-VI Inc (IIVI -$1.47 or -3.59% to $42.43) pulled back today toward its 50-day moving average (DMA) line after last week's gains helped it rally above its short-term average.  During its recent consolidation it briefly violated its 50 DMA and prior chart highs in the $41 area, yet it found prompt support and has formed a base-on-base type pattern.  The Featured Stock Update section on Thursday, August 14, 2008 described the stock's "Healthy Post-Breakout Action" not long after IIVI was featured in yellow on Tuesday, August 05, 2008 in the CANSLIM.net Mid Day Breakouts Report (read here).  Despite the ugly market environment (the M criteria), investors with great resolve may have avoided being shaken out of this high-ranked leader if they made earlier purchases near is prior pivot point.  The market still needs a follow-through day of gains, then upon a breakout above the new pivot point, additional shares might be accumulated by discipined investors.

View all notes | Alert me of new notes | CANSLIM.net Company Profile

A classic example of the success enjoyed by many CANSLIM.net readers usually starts when an investor reads a CANSLIM.net report and buys a featured stock before it has risen above the pivot point by greater than 5%.  After a stock breaks out above its pivot point, there is only a +5% window that investors have to purchase the stock under the proper guidelines. Once a stock rises above the "maximum buy price" the risk of a shake out balloons, meaning that even a normal retracement in the stock might force you to employ the 7-8% loss cutting rule.  Much can be told by the stock's daily action in the weeks and months that follow a breakout. Typically, a light volume and orderly pullback suggests that the bulls remain in control.  However, high volume pullbacks that violate support paint a totally different picture.

II-VI Inc.(IIVI -$0.31 or -0.67% to $46.73) pulled back today on light volume. This high-ranked leader in the Electronics - Component/Connector group has risen more than +5% above its pivot point, leaving it too extended from a proper buy point now.  It was featured in yellow at $41.80 on Tuesday, August 05, 2008 in the CANSLIM.net Mid Day Breakouts Report (read here). The number of top-rated funds owning an interest in its shares rose from 77 in Sep '07 to 85 in Jun '08, which is reassuring news concernign the I criteria. Disciplined investors may watch for light volume pullbacks under its max buy level or other secondary buy points if the stock continues to post health post-breakout action.  Meanwhile, any damaging losses pressuring it under its old chart highs would raise concerns and trigger technical sell signals.

View all notes | Alert me of new notes | CANSLIM.net Company Profile