Quote Originally Posted by MTman View Post
Mike,
TSLA is a good example of O'Neil's rule that if you get shaken out of a stock that shows resilience after the shakeout then you must buy back. I was shaken out of this stock on the big drop day but unfortunately never bought back. Using this recent example, at what point do you think the proper buy back price should have been the day after the shake out? What signs would you be looking for in price and volume intraday? If you would have waitied until the end of the day in order to know how it was going to close it seemed to extended to have a safe re-entry.

Thanks,
Mark
Mark,

The first step towards not getting shaken out of TSLA on July 16 was possibly to note that you probably had 20% gains in TSLA in less than 3 weeks triggering a 8-week hold period. Stocks that move this quickly often have shakeouts and the 8-week hold rule is there for this purpose: to get you to the other side. Big leading stocks often have shakeouts and average 17% drops on the way up. TSLA drop was a bit more at 21.6% but still within the normal bounds.

In practice I sold my shares of TSLA on 7/16 just above the 10-day moving average at 123.27. The prior day reversal in high volume followed by a gap down and very heavy volume told me that a shakeout was very likely and I decided to stand aside and watch instead of go for the ride. So I watched it cut the 10-day and then the 21-day and also touch the 10-week moving average. I then developed a plan to buy it back if it looked like it would recover in substantial volume. I bought it back the next day at 117.17 after it demonstrated a recovery above the 21-day with substantial buying volume. I did not wait until end of day. I watched volume in the morning and it was heavy and when it recovered the 21-day that was enough. It would have been just as easy to buy it back the next two days also. I like buying close to a cardinal moving average as this gives me a bailout place incase the buyback fails. So if TSLA after regaining the 21-day then proceeded to fail it again I would have bailed.

Whether to sit or take action depends on your style. If you have trouble buying back shakeouts it may be better to sit through them. A friend of mine and a very experienced CANSLIMer did just that. I don't have any issue with buying stocks back and I often find that I can improve my average cost by buying on a lower moving average bounce such as I did here. My friend is comfortable with sitting.